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Operator: Please standby. Your meeting is about to begin. Hello, and welcome, everyone, joining today's Clean Energy Fuels Corp. First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Note this call is being recorded. We are standing by should you need any assistance. It is now my pleasure to turn the meeting over to Tom Driscoll, Vice President, Strategic Development and Sustainability. Please go ahead. Tom Driscoll: Thank you, Dana. Earlier this afternoon, Clean Energy Fuels Corp. released financial results for the first quarter ending 03/31/2026. If you did not receive the release, it is available on the Investor Relations section of the company's website, where the call is also being webcast. There will be a replay available on the website for 30 days. Before we begin, we would like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements are not a guarantee of performance and the company's actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of Clean Energy Fuels Corp.'s Form 10-Q filed today. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company's non-GAAP EPS and Adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company's management does not believe are indicative of the company's core business operating results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for or superior to GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and Adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the company's press release, which has been furnished to the SEC on Form 8-K today. With that, I will turn the call over to our President and Chief Executive Officer, Clay Corbus. Clay Corbus: Alright. Thank you, Tom. I want to start by saying that I am honored to be named CEO of Clean Energy Fuels Corp. I have been part of this company for 19 years and have been involved in every major chapter of our evolution, from our days building out the fueling network to our initial investments in RNG in 2008, to the integrated platform we operate today. I have a huge amount of confidence in our team and the foundation we have built, and I am very excited about the opportunity ahead of us. Now as CEO, I plan to focus on growth, strengthen execution and operating discipline, and fully leverage the assets, infrastructure, and people we have in place. We have a strong balance sheet, recurring cash flow, and a very capable team. I also see opportunity to be more technology-forward, using data and software to improve efficiency across operations, corporate functions, RNG, and how we identify new customers and serve existing customers. All of this supports the same objective: deliver value for our customers and stakeholders. At its core, I believe deeply in this business and our product. RNG is domestically produced, lowers fuel costs, reduces greenhouse gas emissions, and uses existing infrastructure. Those fundamentals have always mattered, but they are especially relevant today. Beginning in early March, the conflict with Iran caused a sharp rise in crude oil prices, which quickly flowed through to diesel across the U.S. Diesel prices increased by roughly $1.50 to $2 per gallon or more, a 50% increase almost overnight. Fuel is a meaningful component of cost per mile, and this level of volatility strains fleets, carriers, and shippers, and ultimately leads to higher costs for consumers. This environment reinforces why Clean Energy Fuels Corp. exists. Compared to diesel, natural gas is cheaper, cleaner, domestic, and less exposed to geopolitical events abroad. As you have heard many times before, nearly 100% of the fuel delivered to our stations today is renewable natural gas, which captures all the benefits I just mentioned and helps our customers advance their sustainability goals. Now turning to the quarter, we delivered 67 million gallons of RNG, we generated $16.6 million of Adjusted EBITDA, and we ended the quarter with $126 million of cash on the balance sheet. In our downstream business, performance across core markets remained steady. Our transit and refuse sectors continue to be consistent contributors, supported by long-standing customer relationships and the reliability of RNG. We also see underappreciated growth potential in these segments. Over the past five years, battery-electric and hydrogen solutions have proven costly and challenging to deploy in many locations. As those realities become clearer for transit and refuse fleets, RNG offers a practical, cleaner, and lower-cost alternative to diesel, and many of these fleets already have firsthand experience with RNG. In trucking, the recent diesel price hikes and volatility have brought total cost of ownership back into focus. Heavy-duty trucking remains our largest growth opportunity. Class 8 trucks with the Cummins X15N engine allow fleets to capture RNG's economic and environmental benefits without sacrificing range or performance. The technology works, the infrastructure is in place, the fuel is available today, and it is cheap and less volatile. Quite simply, the case for switching from diesel to RNG has never been stronger. At the same time, adoption of the X15N has been slower than we originally expected. Diesel is the incumbent fuel for the vast majority of fleets. In the last two years, the sector has faced challenging freight fundamentals, federal and state regulatory uncertainty, particularly in California, and frankly, ESG whiplash as companies balance long-term sustainability goals with fluid policies and near-term stakeholder expectations. Even though RNG delivers a lower total cost of ownership, natural gas tractors still carry a higher upfront cost than diesel. In that environment, many fleets have chosen to delay change and stick with the status quo. Our strategy is to be targeted, focusing on applications and fleets where RNG delivers the clearest economic and low-carbon advantages. In our upstream RNG production business, we now have eight projects operating and three under construction. The first quarter reflected continued ramp-up at our South Fork project in Texas and our East Valley project in Ohio. The first quarter also had extreme winter weather, which impacted production, particularly in the Upper Midwest. We were able to get our projects back on track and anticipate production and financial results to improve as the year progresses. I would also like to highlight a positive regulatory milestone. In March, CARB approved the pathway for our Del Rio Dairy project in Texas with a carbon intensity of approximately negative 300. We also continue to await an upgraded GREET model from the Department of Energy for determining 45Z credit values, which is expected to better reflect the negative carbon intensity of dairy RNG. As we scale our RNG production business, projects have taken longer to develop and ramp up than initially expected, and some have faced operational challenges. We have responded by taking a more hands-on approach to operations, strengthening internal oversight, and replacing vendors where performance fell short. These improvements and transitions take time, but we are making progress. We remain focused on improving performance at our operating sites and executing projects under construction. It remains true that Clean Energy Fuels Corp. is an advantaged owner of dairy RNG production. Customer demand for low-CI RNG remains strong, particularly in California, where we have the largest RNG station network. Now, in concluding, I want to take a moment to recognize Andrew J. Littlefair. Andrew J. Littlefair founded this company, led it for three decades, and built Clean Energy Fuels Corp. into the platform that it is today. I have had the privilege of working alongside Andrew J. Littlefair and learning from him. We are fortunate that he remains actively involved by continuing his work on policy matters in Washington and serving on our board. On behalf of the entire company, I want to thank him for his contributions and continued commitment to Clean Energy Fuels Corp. With that, I will hand the call to our CFO, Robert Vreeland, to walk through the financials. Robert Vreeland: Thank you, Clay, and good afternoon to everyone. Overall, our financial performance was in line with our expectations with normal variations within our integrated businesses. For example, while extreme cold weather impacted upstream RNG production, we were able to monetize a larger-than-expected amount of RIN and LCFS credits from our East Valley dairy in Idaho, which was placed into service in March. Increased RNG volumes delivered by our fuel distribution business drove higher RIN revenues, and we were able to optimize our gas costs in this volatile commodities market. To a lesser degree in the quarter, but still ongoing today, we enjoy the dynamics of higher retail fuel prices while our natural gas commodity costs did not increase proportionally at the same level as oil and diesel prices. In fact, despite increases in our natural gas costs and retail prices, we maintained a large discount on our fuel price compared to diesel. Consequently, one of the effects we see of elevated commodity and retail prices is higher revenue. Coupled with higher fuel volumes, which drive both base fuel sales revenue as well as RIN and LCFS revenues, we reported $117.6 million in revenue for 2026 compared to $103.8 million last year. RNG volumes delivered in 2026 were strong. In addition to our normal recurring volumes, we saw higher demand from customers outside our network of stations needing RNG for transportation. We have seen this before, and it is nice to have the supply to accommodate those deliveries. We believe we will come off the first-quarter RNG volumes by a few million gallons or so as we look forward, but remain confident in achieving our annual guidance of delivering 250 million gallons or more given the first quarter of RNG for the year. GAAP net loss was $12 million for 2026. Certainly, there was a return in 2026 to more normal operations versus a year ago in the first quarter, where we reported a GAAP net loss of $135 million, which included a couple of large non-cash charges totaling $115 million. Adjusted EBITDA of $16.6 million in 2026 compares to $17.1 million of Adjusted EBITDA a year ago. In addition to the normal variations I mentioned for 2026, we also saw lower, albeit still very adequate, base fuel margins, which we anticipated in our outlook for 2026. And, as well and also anticipated in our 2026 outlook, we lowered SG&A expenses in 2026. One reporting comment I will make is a change in where the non-cash Amazon warrant charge is recorded in our financial statements. You will notice in 2026, a portion of the warrant charge is included as a charge against our O&M service revenue, whereas previously, 100% of the charge was in our products revenue. There is more detail on the Amazon warrant charge—it is just a different place in the income statement that you are seeing it this year. There is more disclosed in our 10-Q. In addition to the $126 million in cash and investments on our balance sheet, there is another $46 million in cash off balance sheet at our dairy RNG joint ventures. And during the first quarter, we contributed $12 million to our MAS Energy Works JV, with another $12 million that was contributed in April. MAS Energy Works continues to make good progress toward completing the three dairy projects under construction. And with that, operator, please open the call to questions. Operator: Thank you. To leave the queue at any time, press 2. Once again, that is 1 to ask a question, and we will pause for just one moment to allow everyone a chance to join the queue. Our first question comes from Eric Stine with Craig Hallum. Please go ahead. Your line is now open. Eric Stine: Hi, Clay. Hi, Bob. Clay, you touched on it a little bit, just with the X15N. I mean, I know that now there are two OEMs in the market and prior to Freightliner's entry, pricing was an issue, so incremental cost has come down some. And obviously we have all read the glowing feedback of fleets that have been testing this. But the market conditions, as you said, you have a more difficult environment, but obviously it highlights the price benefit. Do you view this as just going to make it more likely that it is going to be the large fleets rather than the small one-off adoption stories? Or how do you view that? I mean, is this the kind of thing that, if it persists, could be what actually jumpstarts this market? Because as you have said, although Cummins' view of it has not changed in terms of the overall opportunity, it is well behind schedule. Clay Corbus: Yeah. Well, Eric, it is what we spend a lot of time thinking about and focused on. I do not think anybody really thinks that diesel is going to stay at these prices forever. But I do think that this run-up in diesel has really heightened the awareness of the volatility. You know, we were at the ACT conference the last few days, and what a lot of people are talking about is, if you just take the last five years and do a regression analysis on what the price of diesel has been, and then you compare that to the price of natural gas, it is just higher overall. And when fleets are trying to plan going forward what their fuel costs are going to be and their total cost of ownership, they are factoring that into those decisions. So it certainly helps us because it helps us with the total cost of ownership and the payback period for that incremental cost. I would also say that I do not know that it changes the types of fleets we are looking at, whether they are large fleets or small fleets. Because even with the large fleets, they are not going to change 2,000 trucks overnight. I think what we are seeing is that—as we heard from some of the fleets—they are going to start out with five trucks, start out with 10 trucks, dip their toe in the water, get their mechanics used to it, get their drivers used to it, get their routes used to it, and then from there, expand it into larger numbers within the fleet. I think that, combined with the advantages that we are seeing now in the total cost of ownership, will result in incremental adoption as we go forward. But it is a long sales cycle. It takes a long time to get trucks ordered, and it takes a long time to get them on the road. So it is not something where people can see high diesel prices and say they are going to order a truck tomorrow. It is a longer decision process than that. But certainly, the fundamentals behind it are reopening a lot of discussions that we are excited to take part in. Eric Stine: Got it. That is very helpful. And then maybe just my second one for Bob. So you mentioned lower base fuel margins and something that was kind of the expectation. Was that commentary for Q1 or early in the year? Because if I think about, especially in trucking, when you have got high diesel prices, you can still offer a pretty healthy discount, and it is a pretty good margin environment for you. So just maybe clarify that statement and how you are thinking about that for the remainder of the year? Robert Vreeland: Yeah, Eric, that comment is looking at the full year. When we gave our guidance back in February, we talked about some of the dynamics that could impact our guidance for 2026, and the possibility of lower margins from a variety of reasons was in the mix, and it is really throughout the year. But I will say, to the point you are making, we have numerous levers. So while the margin gets impacted from one area, the fact that we are enjoying higher prices with our costs remaining pretty stable helps offset some of that. But it is a go-forward look and certainly in our plan. Eric Stine: Okay. Thanks a lot. Clay Corbus: Great. Thanks, Eric. Operator: Thank you. We will now go to Rob Brown with Lake Street Capital Markets. Please go ahead. Your line is open. Rob Brown: Hi, Clay and Bob. Thanks for taking my call. On the RNG volume you talked about in the quarter from kind of third parties, could you just clarify how that works and maybe sort of visibility on that? Clay Corbus: Yeah. You know, it was a strong growth quarter, particularly when you compare it against last year. But I think we want to be careful on that because part of that growth was that the first quarter of last year, we did see our volumes trend down. If you remember, we had the biogas reform that pushed a lot of our volume into 2024, so 2025 was lower. And then, of course, we always have bad weather in the first quarter, but last year it was really spread throughout the country, and so we had less RNG from our third parties, in addition to our own production that was down. So while we are very pleased with the first quarter, a lot of it really was that we were comparing against a very easy comp in 2025. Rob Brown: Okay. Thank you. And just to clarify, given the CARB pathway certification right now, it sounds like that is great. How does that flow through into the ability to get credits? Clay Corbus: Well, it basically almost doubles the number of LCFS credits we can generate. When you are at a negative 150 versus negative 300, you are able to generate more credits off the same fuel that is coming through. Rob Brown: Okay. Thank you. I will turn it over. Clay Corbus: Yeah. Thanks, Rob. Operator: Thank you. We will now go to Matthew Blair with TPH. Please go ahead. Your line is open. Matthew Blair: Thanks, and good afternoon, Clay and Bob. Could you talk a little bit more about the comment where you mentioned higher demand from customers outside of your network? Could you unpack that a little bit? Do you think you were taking share from some of your competitors? Or was it just a situation that these customers were utilizing their existing CNG trucks a little bit more and just needed more fuel given rising diesel prices? And could you also talk about what end markets you saw increased demand from? And then on the fuel distribution guide for 2026—it looks like you did not change it, still 67 to approximately 70 million despite the good result in the first quarter of 19 million. I think you mentioned that you would expect things to roll off a little bit in Q2. Are you already seeing softer conditions so far in the second quarter, or is that just your general expectation? Clay Corbus: Yeah. So, Matthew, there are other folks out there with CNG fueling stations, and there are instances where, based on supply availability and that sort of thing, we will flow our RNG into those stations. It is really a supply-demand dynamic, and I could not necessarily tell you what is going on with their demand, but I know that they need the supply, and we are able to move it. We have done it before. It is not necessarily routine, but that is what that looks like because we have the RNG and we can flow it to other places. It is the beauty of the distribution model. As for the fuel distribution guide, I will not comment on what I am seeing intra-quarter. Second quarter is not really softer or consistent; it is more a comment relative to the volatility and the strength that we saw in the first quarter, and knowing that we may not see that level of strength as we go forward. We had some unique opportunities to sell some RNG to some of our customers that are probably not going to be repeated. So while it was a good result, it was an easy comp against last year, and you should not just multiply it by four for the full year because there were some unique opportunities in Q1 that we took advantage of. Matthew Blair: Sounds good. Thanks for your comments. Clay Corbus: Yeah. Thank you, Matthew. Operator: We will go next to Betty Zhang with Scotiabank. Please go ahead. Betty Zhang: Thank you for taking my questions. I wanted to ask about Amazon and that relationship. Earlier, Amazon announced its logistics services. Do you think there would be an opportunity to leverage that existing relationship and maybe increase some RNG volumes to them? And then for my follow-up, also related to Amazon, on those warrant charges, you mentioned it is now shared between the fuel and services. Is this a change in the contract with Amazon, or how would you describe that change? Thank you. Clay Corbus: Betty, I will take the first comment. We do not comment specifically on Amazon. We want to be very careful—that is not something we can, or will, do. Across our customers, though, every single customer with existing trucks—whether they are 12-liter, 9-liter, wherever they are—we work with all of our customers to try to increase the penetration into their fleet with the X15N. So I am not going to speak specific to Amazon, but it is just good business sense to work with customers that you already have and see if you can continue your growth with them. As far as the Amazon warrant charge, I will let Bob take that one. Robert Vreeland: Yeah. And Betty, I really cannot say that much, but it was not an arbitrary change. Any change like that is typically going to be driven contractually. We are just doing the appropriate accounting based on the contract that we have. Betty Zhang: Thank you. Operator: At this time, there are no further questions in the queue. I will now turn the meeting back over to Clay Corbus. Clay Corbus: Alright, Dana. Thanks very much. And thank everybody else for joining us. We look forward to speaking with you next quarter. Unknown Speaker: Thank you. Operator: This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Julia Vater Fernandez: Hello, everyone, and welcome to the Vtex Earnings Conference Call for the quarter ended 03/31/2026. I am Julia Vater Fernandez, VP of Investor Relations for Vtex. Our senior executives presenting today are Geraldo Thomaz Jr., Founder and Co-CEO, and Ricardo Camatta Sodre, Chief Financial Officer. Additionally, Mariano Gomide, Founder and Co-CEO, and Andre Colliolo, Chief Strategy Officer, will be available during today’s Q&A session. I would like to remind you that management may make forward-looking statements related to such matters as continued prospects for the company, industry trends, and product and technology initiatives. These statements are based on currently available information and our current assumptions, expectations, and projections about future events. While we believe that our assumptions, expectations, and projections are reasonable in view of the currently available information, you are cautioned not to place undue reliance on these forward-looking statements. Certain risks and uncertainties are described in the Risk Factors and Forward-Looking Statements sections of Vtex’s Form 20-F and other Vtex filings with the U.S. Securities and Exchange Commission, which are available on our Investor Relations website. Finally, I would like to remind you that during the course of this conference call, we might discuss some non-GAAP measures. A reconciliation of those measures to the nearest comparable GAAP measures can be found in our first quarter 2026 earnings press release available on our Investor Relations website. With that, Geraldo, the floor is all yours. Thank you. Geraldo Thomaz Jr.: Good afternoon, everyone. Thank you for joining us. Last quarter, we outlined a clear strategic framework centered on four key growth factors: global expansion, B2B, retail media, and AI. In the first quarter, we continued to execute against this strategy. Today, we will update you on several recent product launches that directly reinforce our positioning across these opportunities. From a financial perspective, our top-line results were in line with our guidance, while our profitability and cash generation both doubled year over year and exceeded our guidance. This reinforces the resilience of our model and our disciplined execution in a dynamic macro environment. While we acknowledge that recent growth has been below our long-term ambitions, we remain committed to executing with discipline and driving long-term value creation. Starting with our vision and product launches, we see our industry entering a new phase where artificial intelligence transitions from a conceptual layer into a structural driver of growth, efficiency, and competitive advantage. We see this as an attractive opportunity for Vtex. In the last technological revolution—the cloud—we architected our platform to fully embrace it from inception with a multitenant approach, avoiding the technical debt that constrains many legacy systems. Now a highly scalable foundation positions us to capitalize on the AI technological shift, enabling us to rapidly deploy innovation and operate at scale as we navigate this new era. At the heart of this transformation is our reinvented Vtex Commerce Platform. We are moving beyond the traditional software-as-a-service model to deliver what we believe is the first AI-native commerce suite—one that delivers simplicity, ease of use, and, most importantly, tangible and measurable business outcomes for our customers. This is AI with real impact. The command center for this new paradigm is the Vtex AI Workspace. This is where our agents for catalog, promotions, and search collaborate. They are engineered to do more than just flag problems: they autonomously diagnose root causes, architect strategic action plans, and execute them with minimal human oversight. For example, our catalog agent does not just manage data—it hunts for revenue opportunities. It systematically analyzes an entire product assortment by leveraging real-time shopper navigation data to understand precisely where and how the catalog should change to increase conversion. It sees where customers drop off, what search terms lead to dead ends, and how they interact with product attributes. Armed with these insights, the agent autonomously optimizes the catalog. It goes beyond simple data entry, performing tailored content improvements across millions of SKUs by enriching descriptions, standardizing attributes, and ensuring every item aligns with our brands’ merchandise guidelines. This allows our customers to maintain a high-quality, high-converting catalog at a scale and speed previously unimaginable, turning a traditionally labor-intensive process into a strategic advantage. This is just one of many intelligent experiences that are now possible. By laying this groundwork, we are paving the way not only to expand our own suite of agents, but to eventually enable a marketplace where customers and partners can deploy third-party agents, creating a truly open and extensible conversational ecosystem. And this intelligence extends far beyond the back office; it transforms the entire customer journey. For shoppers, our new storefront with an AI personal shopper combines conversational interactions, semantic search, and hyper-personalization to guide discovery and dramatically increase conversion rates. For our B2B customers, we are streamlining complex sales cycles with B2B commerce and AI order quotes, enabling sales teams to generate complete, accurate quotes instantly from a simple file upload or even a voice command. More broadly, our B2B and global expansion strategy are being significantly enhanced as the inherent complexity of managing multi-country, multi-currency operations is precisely the challenge our AI works is designed to address at scale. To capture demand wherever it emerges, our integrations with Google Universal Commerce protocol enable shoppers to discover products and check out directly within Gemini and Google web AI modes, with a native cart synced back to our platform. And to empower our entire ecosystem, we introduced the Vtex AI Developer Kit, embedding AI assistance directly into developer workflows across tools like Cursor, Copilot, and others, while connecting them to Vtex’s knowledge base to accelerate development and drive innovation. We are delivering a platform where AI enhances operators, drives conversion for shoppers, accelerates sales for B2B teams, and empowers developers to build faster. This is a complete end-to-end vision for AI-native commerce. But today, Vtex is much more than its commerce platform. We have evolved into a multiproduct company. Beyond our core commerce platform, we now offer two additional strategic solutions—our CX platform and our Ads platform—both enhanced with AI, where we have also introduced significant recent advancements. In our CX platform, we go beyond the traditional storefront to capture demand wherever it originates. The Vtex CX platform redefines customer experience through coordinated AI agents that operate seamlessly across the entire journey, making commerce more fluid and conversational. This includes a truly multichannel approach where AI guides discovery and transactions across web, WhatsApp, and other messaging interfaces. We have introduced a fully integrated WhatsApp store, enabling consumers to complete their entire purchase journey without leaving the conversation, as well as voice commerce for real-time interactions. Importantly, this capability extends into the post-purchase phase, where autonomous post-sales agents manage order status, exchanges, and returns with over 91% automation, allowing human teams to focus on more complex, high-value engagements. In our Ads platform, we are significantly enhancing the power of our platform by embedding AI across orchestration and campaign execution. This enables our customers to transform their digital environments into high-margin media assets and unlock new revenue streams. With our AI campaign management capabilities, retailers and their brand partners can move beyond manual workflows—simply defining an objective such as improving return on ad spend—while AI agents autonomously build and optimize multichannel campaigns to deliver results. This is further strengthened by AI-driven insights offering real-time visibility into performance attribution and market share, all within a privacy-first framework supported by a secure data clean room. Ultimately, we are helping customers convert their traffic into a scalable and strategic growth lever. While we have just launched these updates, we are already seeing some early but encouraging results. For instance, Whirlpool has leveraged our AI capabilities to identify underperforming products, diagnose content gaps, and automatically generate optimized assets, compressing what was two days of manual work into minutes while improving conversion. At TheCapsule, our promotions agent enables real-time competitive responses through automated campaign recommendations. Across these use cases, the pattern is clear: AI is poised to redefine how customers drive sales, accelerate execution, and capture new levels of operational efficiency. These outcomes are particularly relevant in the context of enterprise commerce, where operations are complex, mission-critical, and increasingly global. Customers are not simply selecting a software vendor; they are selecting a strategic backbone that can scale, adapt, and evolve with the next generation of commerce. With knowledge that it is early days and our excitement around this innovation is not yet reflected in our current growth rates, to be fully transparent, we are still evaluating the long-term transformational impact of these waves at scale. However, our commitment is to remain data-driven and grounded in reality, and we look forward to updating you on broader adoption in the coming quarters. We have embedded AI at the core of Vtex, transforming the company into what we believe is the first AI-native commerce suite. We believe Vtex is uniquely positioned to serve this role. Our multitenant software-as-a-service architecture, outcome-aligned business model, and deep transactional data foundation allow us to deploy innovation at scale and align directly with our customers’ success. With that, let me welcome some new customers who went live in 2026, including Central Gana in Argentina; Amadin Paraíba and L’unelli in Brazil; VPCL in Canada; HomeSentry in Colombia; and Omicás in Portugal. We also expanded our relationship with existing customers such as Whirlpool, which launched its Compre Geraeta Parceiros in Brazil, its official B2B channel for distributors, resellers, and authorized service centers; and Electrolux, which launched a B2B channel in Chile; Grupo Itchasac, which launched EBC Atacado de Beleza in Brazil, its official B2B channel for beauty professionals and resellers; Much Leiser, which launched the official OPPO store in Brazil, expanding the smartphone brand’s presence in the country; and Dafiti expanded to Chile, adding to its operation in Brazil. Now, before I hand the call over to Ricardo, I would like to express my sincere gratitude to our 1,147 Vtex employees, our customers, partners, and investors for their continued trust and support. Together, we are building the future of commerce. Ricardo, over to you. Ricardo Camatta Sodre: Thank you, Geraldo. Hi, everyone. I am pleased to share with you Vtex’s financial results. In Q1 2026, GMV reached $5.1 billion, up 17% in U.S. dollars and 7% FX-neutral. Subscription revenue was $60 million versus $52.6 million in Q1 2025, an increase of 14% in U.S. dollars and 4% FX-neutral. The moderation in GMV growth relative to last quarter was primarily driven by Brazil, where the high interest rate environment and persistent promotional marketplace behavior continue to pressure consumer demand in proprietary channels. In Q1, our non-GAAP subscription gross margin reached 81.5%, representing an expansion of 240 basis points year over year. This improvement is mainly driven by structural gains in AI-powered automation in customer support and, to a smaller extent, a positive FX tailwind. Our total gross margin, including services, reached 80%, an expansion of 400 basis points year over year. This continued improvement reflects not only steady gains in subscription gross margin, but also our deliberate de-emphasis of services, as our global partner ecosystem increasingly leads complex implementations with reduced reliance on Vtex-led services. Our expense management continues to reflect our alignment with long-term growth priorities. Total non-GAAP operating expenses in the first quarter were $38 million, up 6% year over year. While Sales & Marketing and G&A remained relatively stable, we deliberately increased investment in R&D, focusing on innovation, product development, and AI capabilities that reinforce our competitive positioning. In other words, even as we extend margins, we are simultaneously strengthening the foundation for sustainable, profitable growth. As a result, our non-GAAP income from operations reached $10.6 million, doubling from $5.3 million in Q1 2025. This also represented a non-GAAP operating margin of 17.4%, up 770 basis points year over year. In short, our operational discipline continues to translate into stronger margins and a more profitable growth trajectory while we focus on revenue reacceleration. Non-GAAP net income was $8.1 million in Q1 2026, up 51% year over year. This earnings step-up reflects strong underlying operational performance, driven by operating leverage and efficiency gains, reinforcing the sustainability of our model. This was partially offset by unrealized mark-to-market losses on our U.S. dollar-denominated investment-grade cash position held in Cayman, following a significant repricing of the yield curve toward the end of the quarter, which has already recovered in April. These continued profitability gains are showing up in our cash generation, which remained strong once again this quarter. Free cash flow for the quarter was $13.3 million, doubling year over year and reaching a free cash flow margin of 21.9%. We also maintained a disciplined approach to share repurchases. During the first quarter, under the $50 million 12-month share repurchase program for Class A shares approved in February 2026, we repurchased 2.5 million Class A common shares at an average price of $3.86 per share, for a total cost of $9.7 million. As we look ahead, our focus remains on disciplined execution as we work toward growth reacceleration, focused on our four growth levers: global expansion, B2B, ads, and AI. While macro headwinds persist—particularly in Brazil, where high interest rates and promotional marketplace behavior continue to weigh on GMV growth—we remain encouraged by the quality of new customer additions, our competitive positioning among global enterprise customers, and the compelling market opportunity across our four key long-term growth initiatives. Importantly, while this affects our near-term growth outlook, it does not change our conviction in the structural opportunity across our four growth levers, nor our ability to continue improving profitability. With that, for Q2 2026, we expect subscription revenue to grow at a low- to mid-single-digit percentage rate on an FX-neutral year-over-year basis; gross profit to grow at a mid-single-digit percentage rate on an FX-neutral year-over-year basis; non-GAAP income from operations to be in the high-teens to low-20s percentage margin; and free cash flow to be in the high-teens to low-20s percentage margin. For the full year 2026, we now expect subscription revenue to grow at a mid-single-digit percentage rate on an FX-neutral year-over-year basis and gross profit to grow at a high-single-digit FX-neutral rate, while maintaining our outlook for non-GAAP income from operations in the low-20s percentage margin and free cash flow also in the low-20s percentage margin. Assuming FX rates remain broadly consistent with April’s average rates, the FX-neutral growth guidance outlined above would translate into higher reported U.S. dollar subscription revenue growth, adding approximately 10.3 percentage points in the second quarter and 8.6 percentage points to the full year 2026. We continue executing with discipline, investing behind our four growth levers to drive durable growth and shareholder value, while improving profitability and maintaining a strong balance sheet. We will now open the call for questions. Thank you. Operator: We will now begin the question and answer session. To ask a question, simply press star followed by the number 1 on your telephone keypad. Please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question comes from the line of Lucca Brendim with Bank of America. Please go ahead. Lucca Brendim: Hi, good afternoon. Thank you for taking my question. I have two from my side. First, could you comment on the main drivers for the reduction in the guidance for top-line growth and gross profit growth for the year—was it mainly driven by macro and competition, or was there something else? Also, does this guidance incorporate anything from the new AI products you have been rolling out, or are those still not incorporated into the guidance? Second, could you give us an update on how you are seeing expansion in the United States and Europe, and the clients that were still in the process to go live—if everything is proceeding according to expectations or if there were any changes? Thank you. Ricardo Camatta Sodre: Hi, Lucca. Good afternoon. Let me start with the guidance. For Q2 and for the full year, we are aligning our short-term outlook with what we are seeing in the business today, while remaining confident in the long-term opportunity. For Q2, we are guiding subscription revenue growth in the low- to mid-single-digit range on an FX-neutral basis, essentially reflecting a continuation of recent trends, particularly in Brazil, where macro conditions remain challenging and continued marketplace promotional intensity is temporarily pressuring proprietary channels. For full-year 2026, we now expect mid-single-digit subscription revenue growth on an FX-neutral basis. The vast majority of this guidance adjustment reflects a lower growth outlook for Brazil GMV, as FX-neutral GMV growth in Brazil decelerated from mid-teens in Q4 to the mid-single-digit range in Q1, driven by a meaningful moderation in same-store sales. Looking beyond Q2, growth is expected to come primarily from the ramp-up of customers we signed in 2025, combined with continued execution across our four strategic growth levers—global expansion, B2B, ads, and AI. On the profitability side, we remain confident. We are targeting non-GAAP operating margin and free cash flow margin in the low-20s for the full year, supported by structural efficiency gains across the organization. While current market conditions affect our near-term growth outlook, they do not change our conviction in the structural opportunity across our four growth levers, nor our ability to continue improving profitability. The message here is realism in the near term combined with continued discipline and conviction in the long term. Geraldo Thomaz Jr.: On the AI contribution to revenue, our AI strategy is about transforming how we serve customers and deliver value through the product. The Vtex AI Workspace is the first product we are offering within this strategy. The idea is to rebuild Vtex from the ground up, informed by the AI revolution. We are seeing interest from a small group of early adopters, such as Whirlpool, Mobly, and Casa do Vidro, who are actively using the product. Our focus is deliberate: prove value creation and satisfaction for a small number of early adopters, then expand. There may be opportunities to monetize these products in different ways over time, but our expectation is that the biggest value after this AI-driven transformation will be acceleration of the sales pipeline as customers see a new way of operating commerce with Vtex. Mariano Gomide: Regarding the United States and Europe, we are seeing good momentum. We continue to close relevant enterprise brands, and we are building a strong and healthy pipeline in both regions. The demand environment from a strategic standpoint remains encouraging, although sales cycles are longer than in the past. Demand is solid for an AI-native commerce suite that delivers efficiency. Global markets—which for us are basically the U.S. and Europe—grew in the 20 handle in Q1. Although they represent a smaller portion of our revenue base, our global markets expansion is contributing disproportionately to our overall growth, and we expect that contribution to increase over time as it scales. As always, we will share more details and customer names as they go live. Overall, we are encouraged by what we are seeing. Operator: Our next question comes from the line of Analyst with J.P. Morgan. Please go ahead. Analyst: Hi. I would like to make two questions. Thank you for the opportunity. First, I would like to explore the B2B segment. Could you share more details about how your B2B strategy is advancing? We heard strong feedback from industry players regarding this market during your Vtex Day in Brazil, so it would be interesting to hear how your commercial pipeline is evolving, when we should see traction in revenues coming from this segment, and if the new logos of Whirlpool in Brazil in B2B and Electrolux in Chile should help unlock value in this segment. Thank you. Mariano Gomide: On B2B, we continue to see solid traction, particularly in the U.S. and Europe, where roughly half of our pipeline is already coming from B2B solution opportunities. In Brazil and broader LatAm, as expected, adoption has been slower. A big part of our effort there has been educating the market on the value of digitalizing B2B channels and replacing very old legacy interfaces for B2B. Encouragingly, we are now starting to see increased demand in Brazil and growing interest across the LatAm region. On the product side, we are focused on strengthening our B2B solutions, making them more robust, and supporting multiple B2B sales channels—self-service portals, call centers, sales teams, and automation, among others. Our goal is to be the transactional backbone for our customers across all B2B and B2C channels. As a data point, B2B grew roughly in the 20 handle in Q1. Although it represents a smaller portion of our revenue base, our B2B solution is contributing disproportionately to our overall growth, and we expect that contribution to increase over time as it scales. It is still early, but we are seeing the right signals in terms of both pipeline and market awareness, and we remain very focused and encouraged by the trajectory so far. Analyst: May I make just one follow-up? Another feedback we heard from the industry is that the B2B sales cycle should take longer than B2C. Can you share more details on this front—the differences between the sales cycle and the closing process—and your outlook for when this should appear more prominently in your revenue growth? Mariano Gomide: Overall, the sales cycle has been getting longer in recent years for both enterprise B2B and B2C customers, largely driven by macro conditions and what we describe as an “AI wait-and-see.” When companies make long-term infrastructure decisions, they want clarity on how AI will reshape their stack, so naturally decision-making is taking longer. On the other hand, AI is affecting implementations in a positive way—shortening the process of implementing the software. So while the sales cycle is getting longer—and we do not expect that to change soon while AI remains a major consideration—the implementation dimension is generating good signals for us. Importantly, we are not seeing deterioration in our win rates or churn; those fundamentals remain intact. Operator: Our next question will come from the line of Maria Clara Infantozzi with Itaú. Please go ahead. Maria Clara Infantozzi: Hi, everyone. Thanks for the opportunity. First, could you please explain how you intend to monetize your new AI launches going forward? Does it make sense to think about increasing take rates with AI products gaining penetration? Second, can you please give us an update on how you feel about the competitive environment both in Brazil and in Argentina? Thank you. Geraldo Thomaz Jr.: On AI monetization, it is too early to give very detailed information because there is still a lot of discovery happening in the market. Many say the path is to charge by outcomes, and that aligns with how AI creates value. In our case, we have charged by outcomes since 2012, and our Vtex CX platform also charges per outcome—particularly for services that do not require a human in the loop. We believe that as AI increases the output and results of our software, we will be able to charge more accordingly. Also, as we transform the product into an AI-informed, AI-based software suite, we expect customers to move beyond the wait-and-see and resume modernizing their commerce infrastructure—and we will be there to serve them, with sales normalizing over time. Operator: This is the operator. I apologize, but there will be a slight delay in our call. Please hold, and we will resume momentarily. You may resume the meeting. Ricardo Camatta Sodre: Continuing on the competitive environment, we have not seen a meaningful change in competitive intensity among direct commerce technology providers. We have taken a different approach to AI—rebuilding the platform to be AI-native rather than layering incremental features on top of legacy systems as we see some players doing. That allows us to deliver better usability and, more importantly, real outcomes to our customers. We feel our strategic positioning has strengthened with this approach. We are a geographically agnostic, comprehensive commerce suite with efficiency benefits driven by our engineering scale and a founder-led culture, which together give us the reputation to lead in AI commerce. Mariano Gomide: To complement, we look at competition across two dimensions. First, consumer behavior: traffic is fragmenting beyond traditional channels like Google, Instagram, and marketplaces. Messaging platforms like WhatsApp, LLMs, and emerging AI interfaces are playing a more relevant role. This shift may be slow and then sudden, and those new channels could take a significant portion of traffic. In a tough macro, high-interest-rate environment, brands and retailers are being challenged to find efficiency and be more conservative in growth, not financing consumers as before. Second, on technology providers, as Ricardo said, we do not see a significant change in competitive intensity. Our AI-native approach is the core of our differentiation. Operator: Our next question comes from the line of Analyst with UBS. Please go ahead. Analyst: Hi, everyone. Thanks for taking the question. It is about the roadmap of your AI investments. We have seen some margin expansion and an increase in R&D as a percentage of revenues. R&D is an ongoing investment, but should we expect this increase to be transitory or to persist in the interim? Any detail would be helpful. Thank you. Geraldo Thomaz Jr.: Thank you for the question. We recently introduced our Vtex Vision in 2026, laying out how we are approaching AI and turning it into real, measurable impact. At the core is a unified suite of AI-powered platforms orchestrating key commerce workflows across Commerce, Customer Experience, and Ads. This AI-native commerce suite is now available for selected customers. First, the Vtex Commerce Platform is powered by the AI Workspace—the new back-office front end that is evolving into an AI-native operating system. It allows customers to move from manually executing tasks to orchestrating outcomes with AI agents handling workflows like search optimization, catalog management, pricing, and data insights. Second, the Vtex CX platform extends into the customer journey with agents that drive discovery and improve conversion through conversational commerce while automating post-sales. In some cases, we are already seeing 90–91% automation levels in customer interactions, which translate directly into higher efficiency and better conversion. Third, the Vtex Ads platform brings AI into retail media, enabling retailers to monetize their traffic and giving brands more effective, data-driven campaign execution. From a roadmap perspective, we are expanding this ecosystem with new agents and capabilities across all three platforms—from search and content optimization to B2B assisted sales and advanced campaign management in ads. The key focus right now is twofold: keep innovating at high speed and drive adoption of what we have already launched so it translates into tangible results for customers. Regarding R&D investment levels, despite the significant product transformation underway, you are not seeing a meaningful increase in our R&D expenditures. This is also related to AI adoption by our teams. We are transforming internally to leverage AI to be much more efficient—improving throughput in product development, customer support, and sales. You are already seeing this in how we support our customers. The internal manifestation of this revolution is higher throughput, better bundling of products that deliver higher-level jobs, and converting what was previously a service into software-driven outcomes—for example, retail media campaign creation handled autonomously. There is a lot of work ahead—it is still early days for AI—but we are encouraged by the trajectory. Operator: This concludes our question and answer session. I will now turn the call back over to Geraldo for any closing comments. Geraldo Thomaz Jr.: As we step back, what we are building at Vtex is increasingly clear. We are redefining how commerce operates. The convergence of our cloud-native foundations with AI is enabling us to move from systems that support decisions to systems that execute them. We are still in the early stages of this transformation, but the direction is clear. AI is already delivering measurable impact across our customers—driving higher conversion, faster execution, and greater efficiency—and as adoption expands, we believe this can become a fundamental driver of long-term value creation for both our customers and our shareholders. At the same time, our evolution into a multiproduct platform—Commerce, CX, and Ads—positions us to capture a broader share of the commerce value chain while reinforcing our role as a strategic partner to global enterprise customers. Looking ahead, our priorities remain consistent: disciplined execution, continued innovation, and scaling these capabilities across our base. We are confident in our ability to translate this strategy into sustainable growth, margin expansion, and durable competitive advantage. Thank you all for your time and continued support. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. Team will be happy to help you. Welcome to Forward Air Corporation's first quarter 2026 earnings conference call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. Lastly, if you should require operator assistance, please press 0. I would now like to turn the call over to Tony Carreño, Senior Vice President of Treasury and Investor Relations. Thank you, operator. Tony Carreño: Good afternoon, everyone. Welcome to Forward Air Corporation's first quarter earnings conference call. With us this afternoon are Shawn Stewart, President and Chief Executive Officer, and Jamie G. Pierson, Chief Financial Officer. By now, you should have received the press release announcing Forward Air Corporation's first quarter 2026 results, which was also furnished to the SEC on Form 8-K. We have also furnished a slide presentation outlining first quarter 2026 earnings highlights and a business update. The press release and slide presentation for this call are accessible on the Investor Relations section of Forward Air Corporation's website at forwardair.com. Please be aware that certain statements in the company's earnings release announcement and on this conference call may be considered forward-looking statements. This includes statements which are based on expectations, intentions, and projections regarding the company's future performance, anticipated events or trends, and other matters that are not historical facts, including statements regarding our fiscal year 2026. These statements are not a guarantee of future performance and are subject to known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information concerning these risks and factors, please refer to our filings with the SEC and the press release and slide presentation relating to this earnings call. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this call. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law. During the call, there may also be discussion of metrics that do not conform to U.S. Generally Accepted Accounting Principles, or GAAP. Management uses non-GAAP measures internally to understand, manage, and evaluate our business and make operating decisions. Definitions and reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in today's press release and slide presentation. I will now turn the call over to Shawn. Shawn Stewart: Good afternoon, everyone, and thank you for joining us. I appreciate your interest in Forward Air Corporation. There are three main topics that I would like to cover on today's call. First, I will provide an update on the customer transition and our strategic alternatives review that we announced in our press release. Second, I will share some thoughts on our first quarter results and the logistics market in general. Third, I will comment on recent awards earned by our team before turning the call over to Jamie. Let me start with the customer transition. While no formal notices have been delivered, we are in discussions with one of our largest customers to transition a significant portion of their business to other providers. How much of the business will be transitioned and the timing thereof are still being discussed, but we are currently anticipating that the majority of what will ultimately transition will start in early 2027 and take place throughout the balance of the year. It is important to note that we believe this has little, if anything, to do with the impeccable level of service that we provide them and more about their own internal diversification strategy. We are still in active discussions to retain as much of the business as possible, and we are doing everything we can to minimize the impact to our company. I want to reiterate that we believe the customer's decision is entirely related to their own operation and supplier diversification initiatives and has nothing to do with the exceptional service we have provided them during our long-term partnership. This leads me to an update on our strategic review and the new actions we are now pursuing to enhance value and help offset this potential impact. As you know, in January 2025, the Board initiated a comprehensive review of strategic alternatives to maximize shareholder value. We have had extensive negotiations and discussions with multiple parties. However, due to a variety of factors, including the developments that I just mentioned, no actionable proposals for sale of the company were received. We continue to consider all opportunities to enhance shareholder value, and we are now pivoting our focus to pursue a sale of non-core assets, including our intermodal segment and two of our smaller legacy Omni businesses, which in aggregate represent approximately $394 million of our 2025 revenue. These targeted sales are intended to advance our efforts to delever the balance sheet and further focus our services around the core of what we do every single day, which is providing service-sensitive logistics to our customers around the world in air, ocean, ground, and contract logistics markets. With that, let us turn to the second topic, our quarterly results. In the midst of an incredibly complex integration, a fairly weak industry backdrop, changing tariff regulations, and the disruption in the Middle East, our team continues to make progress executing our transformation plan, overhauling operations, and improving the quality of our earnings results, which is reflected in our results. For the first quarter, we reported operating income of $20 million compared to $5 million last year, and consolidated EBITDA, which is calculated pursuant to our credit agreement, was $70 million compared to $73 million a year ago. Regarding the overall logistics market, domestic transportation supply has continued to tighten, driven in large part by increased regulatory and enforcement actions over the past year. These dynamics have accelerated carrier exits, particularly among smaller operators, while limiting capacity additions. A tightening supply environment is a component in rebalancing the freight market and supporting a return to more favorable market dynamics after years of prolonged freight recession. However, supply is only one side of the equation. Improvement in demand will ultimately determine the pace and sustainability of a recovery. Encouragingly, early indicators suggest that the industrial economy, which has weighed on freight demand, may be approaching an inflection point. Manufacturing PMIs have now remained in expansion territory for four consecutive months. Readings above 50 have historically served as a leading indicator for increased freight volumes, as rising manufacturing activity typically drives higher shipment of raw materials and finished goods. Additionally, the ratio of inventory to sales continues to decline. Outside of the post-COVID destocking, the current levels are at or slightly below the 10-year average, with shippers operating with conservative inventory levels amid ongoing tariff uncertainty and evolving trade policy. Depressed freight demand in the most recent past also creates the potential for a restocking cycle, which could serve as a meaningful tailwind for freight volumes when demand improves. Also, do not lose sight of the recent increase in truckload spot rates and corresponding spike in tender rejection rates. That said, while the VIX may have settled, macroeconomic risks remain. Ongoing geopolitical tensions in the Middle East and the associated rise in fuel prices introduce a key source of uncertainty. Sustained increases in energy costs could pressure manufacturers and consumers, raising input costs, compressing margins, and ultimately dampening demand. Outside of this week's announcement and subsequent sell-off in oil, if elevated fuel prices persist, they could lead to tempered demand, offsetting some of the positive momentum emerging in the industrial economy and delaying a recovery in the freight markets. While we are optimistic about the improving freight dynamics, we remain focused on prioritizing customer service and thoughtful cost management. We have been operating as one company for over two years now, and I am proud of what our team has accomplished and even more excited about our future. Finally, it gives me a great deal of pride for our team of dedicated logistics professionals to be recognized for their hard work, diligence, and commitment to our customers. Forward Air Corporation was recently named the 2026 Surface Carrier of the Year by the Air Forwarders Association, whose members are freight forwarders that rely on our expedited ground network to maintain the integrity of their airfreight schedules. This recognition reflects the strength of our network, our team's performance, and our commitment to delivering exceptional service on a consistent basis. Forward Air Corporation was also recently named to Newsweek's list of the Most Trustworthy Companies in America 2026. The annual ranking recognizes companies across industries that have earned strong trust among customers, employees, and investors. This award follows the company's selection to Newsweek's list of Most Responsible Companies in 2025. This recognition underscores the significant transformation our team has achieved over the past two years in optimizing operations, improving performance, and enhancing customer relationships. Both of these honors are a reminder of the high service standards that we are known for. They reflect the dedication of our people whose efforts continue to drive our reputation for excellence. With that, I will now turn the call over to Jamie to go through the detailed results of the first quarter. Jamie G. Pierson: Thanks, Shawn, and good afternoon, everyone. As you heard from Shawn, we reported consolidated EBITDA of $70 million in the first quarter compared to $73 million in 2025. As a reminder, the comparable results a year ago were favorably impacted by $4 million of annualized cost reduction initiatives that were actioned in 2025. The credit agreement allows for the inclusion of the unrealized and pro forma savings from these actions to be included in our historical consolidated EBITDA and requires that they be spread back in time to the period in which the expense would have occurred. On an LTM basis, consolidated EBITDA was $3[inaudible] million. Like we normally do, we have detailed the information used to reconcile the adjusted and consolidated EBITDA results on Slide 30 of the presentation. On an adjusted EBITDA basis, we reported $70 million in the first quarter compared to $69 million in the first quarter of last year. Turning to the segments. Expedited Freight reported EBITDA improved to $28 million compared to $26 million a year ago, with the exact same margin of 10.4%. The Expedited Freight segment's first quarter results also improved sequentially compared to the $25 million of reported EBITDA and a margin of 10.1% in 2025. At the OmniLogistics segment, reported EBITDA of $25 million in the first quarter of this year was in line with the $26 million we reported a year ago. The margin improved from 7.9% to 8.3% year-over-year, driven by an increase in contract logistics volume with a higher margin compared to a decrease in air and ocean volumes that have lower margin. At the Intermodal segment, we continue to see a challenging market, especially from reduced port activity. International trade-related softness among several core customers contributed to declines in shipments and revenue per shipment compared to a year ago. In the first quarter, the Intermodal segment reported EBITDA and margin were $5 million and 10.1%, respectively, compared to $10 million and 16.4% a year ago. Externally, and going back into the back half of the year, we expect to see capacity tighten as JIT supply chains for our BCO customer base loosen as tariffs stabilize, and as additional capacity exits the market due to financial difficulties and bankruptcies of smaller drayage carriers. Internally, we have a strong pipeline and have recently enacted strategic rate increases to several key accounts. Turning to cash flow and liquidity. Net cash provided by operating activities in the first quarter was $46 million, an improvement of $18 million, or more than 60%, compared to $28 million in the first quarter of last year. As for liquidity, we ended the first quarter with $402 million, which is an increase of $35 million compared to the end of 2025 and about a $10 million increase from last year's comparable $393 million. The $402 million is comprised of $141 million in cash and $261 million in availability under the revolver. And as usual, I would like to leave you with a couple of additional thoughts. The first of which is liquidity and how we manage the business, especially in uncertain times. As you heard earlier, our ending liquidity included $141 million in cash, which is the highest ending cash balance in the past eight quarters. When compared to our publicly traded peers, we are at the upper end of the spectrum when calculating liquidity as a percent of both total assets and LTM revenue. And on Slide 22 of the earnings presentation, you will also see, on a non-GAAP basis, we generated $58 million in operating cash flow in the first quarter, which is approximately $12 million better than last year's comparable result. Secondarily, as you heard from Shawn, we are cautiously optimistic about improvements in freight demand, especially in the most recent past. However, there are numerous crosscurrents, including potential continued improvement in the freight demand counterbalanced by ongoing headwinds from inflation, subject to consumer confidence, and macroeconomic risks. We will need these to play out to see if the improvement in demand is sustainable. Regardless of when we see the market fully turn in a positive direction, we plan to continue focusing on the customer, increasing sales, and tightly managing expenses. I will now turn the call over to the operator to take questions. Operator? Operator: We will now open the call for questions. The floor is now open for questions. To provide optimal sound quality. Thank you. Our first question is coming from J. Bruce Chan with Stifel. Your line is now open. Andrew Cox: Hey, good afternoon, team. This is Andrew Cox on for Bruce. I just wanted to touch on the customer loss or customer transition here. We understand that nothing is set in stone, but we are talking about 10% of total revenue. Would just like to get some more details on what segment it is in and what the margin profile is, and how much fixed or structural costs are associated with this customer, and how fast you expect to be able to flex down either the cost or backfill the revenues? Thank you. Shawn Stewart: Hey, Andrew, thank you for the question. Yes, it is quite diverse and dynamic in terms of the service offerings we provide them. It is mainly in contract logistics and some transportation. So margins are different depending on what segment of that business it sits in. We are still in conversations, so it is very fluid. Obviously, we do not want to be overly transparent today. But we are still in heavy conversations, and it is a very good relationship. So it is not a situation of anything other than what we understand and believe to be diversifying their overall supply chain portfolio between providers. Jamie G. Pierson: Yes, if I can add on there, Andrew. We are positioning ourselves to hold on to as much of this business as possible. Shawn said it perfectly, which is our belief that this is about their growth and their concentration with us. It is a simple diversification play. It is important to note that we do not see any meaningful impacts to the current year, and as you noted, it is ongoing. To date, the conversations have been positive. Stephanie Moore: Hi, good afternoon. I guess maybe going back to the situation with the customer, maybe I will ask this a little more directly than the prior question. I am trying to understand how much leeway or time you saw this coming. Has this been a conversation that has been going on for some time? It is hard to believe for a customer of this size to make these changes quickly. If you could give a little bit of color on what services this customer provides or end market, just to get some color there, maybe a little history on other customer losses. If it is not due to service and it is just diversification, that is obviously having a really large impact this year. If you could touch a little bit more about when this started happening, and then at the same time, what can be done on your end to hopefully try to retain this as much as possible? Jamie G. Pierson: Hey, Stephanie, Jamie here. In terms of the timing, it is still happening. The dialogue to date is active and constructive. We are putting ourselves in the best possible spot to hold on to as much of the business as we can. If it were a service-related issue, I might feel differently, but if we look at our service KPIs with this customer, they are incredible, in my opinion. These are my words, Stephanie, not anybody else’s. We are incredible. So it is more about their concentration with us. They have grown with us. They have been a long-term partner with us. I think it is more about a risk management perspective on their behalf than anything else. In terms of how quickly, it is May. It is going to take some time. The best that we can tell is there is not going to be any impact to 2026. It will not be until early 2027 that we see anything meaningful and material, if at all. We are not throwing in the towel, but we felt that it was the right thing to do to let you know that we are in these discussions as quickly as we possibly could. Stephanie Moore: I worded it today, and then in the release, that part of the strategic alternative review process was impacted by this development with this customer. As we think about this, how much does this weigh on the strategic process? And then once there is some definitive decision—whether it is bad or if this customer does decide to walk away—what does that mean in terms of ongoing strategic processes once this is cleared up? Jamie G. Pierson: I cannot answer that second question about what will happen after it is cleared up. In terms of the impact, anytime you have a large customer concentration like this, it is going to weigh either positively or negatively. In terms of its impact on the strategic alternatives process, the fact that you look at a customer that is approximately $250 million, plus or minus, in revenue is going to have an impact. Stephanie Moore: Absolutely. I guess one last one for me—just on the core business itself, we wanted to get a sense of the ongoing pricing environment. There are certainly some green shoots and some positives in the freight environment. If you could talk a little bit about pricing across your business and your level of comfort given we are seeing what appears to be a bit of an uptick in the underlying freight market? Shawn Stewart: Hi, Stephanie, it is Shawn. We feel really strong about pricing. We had the hiccups in a prior period, and I feel strongly that we are extremely solid in all of our revenue streams, whether it be in the global freight forwarding market, the ground LTL business, or in truckload. I am extremely confident in what we are doing both on a cost management basis and on a revenue generation basis. And as you can see, the consistency in our margins and profitability is proof that we learned a lot and have continued to enhance our sales from there going forward. Jamie G. Pierson: If I can jump in. If you look at the spot rate over the last six months, it is up about 40% since late last year. Tender rejections are up almost 2x, so up 100%. Inventory-to-sales ratios continue to lean out. PMIs have been positive for four months in a row. I think the macro indicators are pointing in our direction. My experience in this space is it generally takes three to six months for it to really take effect, and we are coming into that third to sixth month now. We are not pricing for yield, and we are not pricing for volume. We are pricing for profitability. Scott Group: Hey, thanks. Good afternoon, guys. Just to follow up on the business trends. Tonnage was down about 2% and yields ex-fuel down about 1%. What are you seeing as the quarter progresses so far in Q2? Are things accelerating? I know you said you feel good about price, but yield ex-fuel down a little bit—just a little more color would be great. Thank you. And then, Jamie, I want to clarify that you said the business that you are selling is $390 million of revenue. That is intermodal plus the two smaller Omni businesses, right? What are the two smaller Omni businesses? Any sense of profitability there? And then your intermodal business—are there containers here, or is it all asset-light? What exactly is your intermodal business? I do not think it is like a J.B. Hunt intermodal business, but maybe I am wrong. And do you own trucks, or do you have owner-operators? Lastly, with this customer loss, I know the leverage thresholds as the year plays out start to get a little bit harder. Maybe this customer is more 2027, but any conversations with the lending group at all? How should we be thinking about this? Shawn Stewart: Hey, Scott. I am going to let Jamie go because I know he wants to say he is not going to give you guidance, but great question. Let us see if he is nicer today. Jamie G. Pierson: At the risk of not giving guidance, I would say over the last two weeks of the quarter and going into April, we have seen a fairly strong volume environment from our perspective. I do not want to preordain that the recovery is here. I stick by what I said about the spot, the tender, the inventory-to-sales ratio, and the PMI—there is a lag. But I would say the last couple of weeks of the quarter and going into April, we have seen a fairly strong volume environment. On the asset sales, that is exactly right—about $390 million of revenue across intermodal plus the two smaller legacy Omni businesses. I am not going to disclose which those two are; there is confidentiality with buyers. You can see the $390 million, with roughly $230 million intermodal, so you are talking about approximately $160 million that is remaining for the two Omni businesses; it is not that much. On intermodal, it is mainly port and railhead drayage with what we call C/Y or container yard management—storage of containers on chassis—and mainly port and railhead drayage to final customers. We utilize owner-operators and we have owned and leased chassis. On leverage and the lending group, it is the right question. We ended the quarter with $40 million in cushion. This is a small step down from where we ended the year, but we ended the quarter with the highest cash balance we have had in two years and over $400 million in liquidity. If you look at liquidity as a percent of total assets or liquidity as a percent of LTM total revenue, we are at the upper echelon of that spectrum of our publicly traded peers. So $40 million in cushion is a position I can live in, and $400 million-plus in liquidity is a very good place to be. Harrison Bauer: Hey, thanks for taking my question. One quick follow-up on the Omni businesses that you are selling—about $160 million. Is there any crossover of the potential lost business of the $250 million? And then taking a step back—general competitive dynamics. With the announcement of Amazon Supply Chain Services this week, is there any relation to that and the loss of this business at all? Are there other areas of your business that are potentially exposed to what Amazon is trying to lay out and some aggressive pricing actions they may take? Lastly, in the remaining Omni business and in Expedited LTL, now that you have a handful of capacity that you may need to backfill, how are you thinking about pricing for that going forward—the trade-off of volume and price? Jamie G. Pierson: Not that I can think of, Harrison. If there is any crossover, it is certainly not material. Shawn Stewart: I will take the Amazon question. There is no correlation between Amazon and our customer. The news of Amazon is fairly new, but we know them extremely well over the years. We are not surprised by their announcement, but we also need to let things evolve a bit and see where it goes. Ultimately, we are not particularly susceptible to this announcement by our volumes, etc. We respect what they are doing and respect Amazon a lot. We will keep an eye on it and not be naive, but we are not overly concerned today as we sit here about the impact to us from this announcement. On pricing and backfilling, we are not going to get into any kind of desperate situation. We have a great organization, great solutions, and a fantastic product, and we will continue to price aggressively but with profitability in mind. We will get strategic where it makes sense in a given customer or a given origin-destination pair, but not at the detriment of the company and our overall margin. You have seen us pick up new logos and new business, and we will continue with that mantra. We are not going to overreact—we will stick to what we do well and move forward with replacing any potential loss in different areas as we see fit. Christopher Glen Kuhn: Hey, guys. Good afternoon. Thanks for the question. I just wanted to clarify. So that customer loss is $250 million—that is the total amount of the customer's business with you, and you may or may not lose all of it. You are in negotiations for that right now. Is that the case? And if you do lose some of this, would that change the margin profile—within the Omni business—or is it relatively similar to where your EBITDA margins are? And is the negotiation on price? Because the service seems pretty solid there. What would be the issue aside from just diversification? Lastly, if you lost any of it, is there a way to backfill it with another customer? Is there a plan for that? Shawn Stewart: It is a total 2025 revenue of $250 million. We are giving you a holistic view of what the revenue is. That does not, by any means, state that we are losing $250 million. That was the total spend in 2025. Jamie G. Pierson: It will be less than that. Shawn Stewart: On the nature of the discussion, it is diversification. You have to think about what we do for some of our customers—we handle an incredible amount of their supply chain. It is wise from a risk management perspective for them not to put too much of a percentage in any one particular supplier’s hands. Throughout the years, we have grown with them and provided that level of service. In our opinion, it is simply a diversification play, and that is understandable. Jamie G. Pierson: We do not talk about margins on any one particular customer. We will see how this shakes out here in the near future. The takeaway is threefold. One, the conversations have been both active and constructive. Two, we see no impact occurring in 2026 given the complexity of what we do for our customers. And three, the discussions have been fairly positive to date, and we will continue them. Shawn Stewart: On backfilling, that is the plan every day, whether we are losing customers or seeing down-trading customers. Growth is the number one strategy of our combined organization. It has been a tough market, but at the same time, you have seen us be very sustainable over the last two years. We need this market to turn, but we are not changing anything because of this announcement. We may just run a little faster, with an already sprinting organization. Jamie G. Pierson: The only thing I would add, Chris, is that, as best as I can tell going back and looking at history, we are a fairly high-beta performer. We do better in times of volatility and especially when capacity gets tight. We all do well when capacity gets tight; we seem to do better than our peers when that occurs. That is certainly part of the plan. Christopher Glen Kuhn: You have talked about this in the past, but have you seen any truckload-to-LTL conversions in your business? Shawn Stewart: We have heard “yes” because of rising truckload rates, and I do not want to get too far ahead of ourselves—back to Scott’s question, we are seeing volumes—so it could be, but we do not have enough information to say that definitively. As you have probably been watching in the true domestic intermodal market, you are seeing a lot of diversions from over-the-road onto the domestic intermodal. You are also seeing, slowly, an influx of the ocean containers coming back in. There is going to be a point of inflection where a lot of things are going to shift as the demand comes through. It could be the early stages, but do not quote me on that; we are watching it. We have heard from certain customers that the transition is starting because of the overall price of truckload. Operator: At this time, there are no further questions in queue. Let me turn it over to Mr. Stewart for any final remarks. Shawn Stewart: Thank you so much for your time, attention, and interest in our organization. In closing, in recent quarters, we have navigated a challenging environment with discipline and focus while taking actions to strengthen our company and our overall business. We are extremely confident in the foundation we are building and the steps we are taking to improve our performance. We really appreciate your time today. As usual, if you have any follow-up questions, please reach out to Tony directly. Thank you. Operator: This concludes Forward Air Corporation's first quarter 2026 earnings conference call. Please disconnect your line at this time and have a wonderful evening.
James Hart: Good day, everyone, and welcome to the Progyny, Inc. earnings conference call. At this time, all participants are placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to hand the floor over to your host, James Hart. Thank you, and good afternoon, everyone. Welcome to our quarterly conference call. With me today are Peter Anevski, CEO of Progyny, Inc., and Mark Livingston, CFO. We will begin with some prepared remarks before we open the call for your questions. Before we begin, I would like to remind you that our comments and responses to your questions today reflect management's views as of today only and will include statements related to our financial outlook for both the second quarter and full year 2026, any assumptions and drivers underlying such guidance, the demand for our solutions, our expectations for our selling season for 2027 launches, anticipated employment levels of our clients in the industries that we serve, the timing of client decisions, our expected utilization rates and mix, the potential benefits of our solution, our ability to acquire new clients and retain and upsell existing clients, our market opportunity, and our business strategy, plans, goals, and expectations concerning our market position, future operations, and other financial and operating information, which are forward-looking statements under the federal securities law. Actual results may differ materially from those contained in or implied by these forward-looking statements due to risks and uncertainties associated with our business as well as other important factors. For a discussion of the material risks, uncertainties, assumptions, and other important factors that could impact our actual results, please refer to our SEC filings and today's press release, both of which can be found on our Investor Relations website. Any forward-looking statements that we make on this call are based on assumptions as of today and we undertake no obligation to update these statements as a result of new information or future events. During the call, we will also refer to non-GAAP financial measures, such as adjusted EBITDA. More information about these non-GAAP financial measures, including reconciliations with the most comparable GAAP measures, is available in the press release which is available at investors.progyny.com. I will now turn the call over to Peter. Peter Anevski: Thanks, James. Thank you, everyone, for joining us today. We are pleased to report that we have had a good start to the year, with record first-quarter revenue coming in at the higher end of our expectations, and net income, earnings per share, and adjusted EBITDA all above our guidance ranges. These results reflect that we continued to see healthy member engagement during the quarter, with utilization trending to the high end of our historical range, and our continued discipline in managing the business, which yielded strong margins overall as well as healthy cash. In addition, we also made meaningful progress during the quarter in laying the foundation for future growth through our planned investments to expand the capabilities of the platform, enhance our already industry-leading member experience, and extend our position as a solution of choice in women's health and family building. As the second quarter begins, engagement is pacing consistent with the typical seasonal patterns following the start of the year. Mark will take you through the details shortly, but we are pleased to issue ranges for Q2 that reflect sequential increases from Q1 across all the key results. We are also raising our full-year expectations for adjusted EBITDA, net income, and EPS as well. In short, we have begun 2026 on a strong positive note and are excited for the rest of the year ahead. Contributing to our excitement is the level of activity and energy we are seeing in the market. One example is at the recent Business Group on Health Conference, which is one of the most impactful events for the benefits industry. We had the honor of sharing the stage with one of our largest clients. During this joint session, our client discussed the results of a study they commissioned using a third party to analyze their claims data warehouse, which included all claims, not just family building, from Progyny, measuring the impact of our program over an eight-year period versus what they experienced prior to Progyny. The findings reaffirm what we have been reporting to this client regarding outcomes and value that we have been delivering since program inception. They showed that we increased the number of fertility-related pregnancies per year, doubled the pregnancy effectiveness of each treatment, decreased the multiples rate, lowered the miscarriage rate, and more than halved the preterm delivery rate. These results, in turn, lowered the average cost across fertility and related pregnancies, cost per baby, and their NICU costs. The client put it best when they said this is the kind of story they feel needs to be told, as it achieves the trifecta of member experience, improved health outcomes, and cost avoidance, all of which delivers hard ROI. As an aside, this type of analysis has also been performed by a handful of our other jumbo clients, independently analyzing their respective claims data warehouses, and they have all come to similar conclusions. Thought-leadership events like this, where HR leaders and decision-makers come together to share their experiences and help determine their priorities for the year ahead, are just one aspect of our selling season. This activity, amongst others, has the 2026 selling and renewal season off to a good start, with the level of activity and overall engagement we are seeing affirming how family building and women's health solutions remain a priority for every type of employer. Our overall pipeline and the early build of new pipeline are substantially favorable versus a year ago, and early commitments are pacing ahead of this time last year. Additionally, on the renewal side, we have meaningfully de-risked the season by securing early favorable notifications from some of our largest clients whose agreements were up for review this year. Consequently, the remaining renewal exposure, measured in dollars on the book of business yet to be secured, is at its lowest level at this point relative to prior years. Separately, regarding pipeline, we are encouraged by the activity with aggregators and other distribution partners for our Progyny Select offer. While the timing for its incremental contribution to pipeline will be later in the year due to normal buying patterns for these groups, we are pleased with the progress so far relative to our first-year expectations around Select. Taking all of our pipeline activity together, we believe this once again demonstrates not only how important family building and women's health are to employers, but also highlights the market's recognition that our evidence-based solutions drive measurable value to employers through proven cost containment. Let me spend a few minutes walking you through the drivers to pipeline and overall activity. First, we are seeing good traction across our health plan partners overall, and with Cigna in particular. You will recall this is our first full season with Cigna as a partner, and as expected, we are seeing a good inflow of opportunities from that channel. Second, we are seeing a good contribution from our traditional demand generation activities, where our opportunities remain distributed across greenfields and brownfields—companies looking to add the benefit for the first time or considering a switch from their existing provider. Lastly, we are seeing significantly stronger activity from RFPs on business that is currently with stand-alone competitors. In fact, the activity there has thus far already outpaced what we saw across all of last year. Conversely, we are seeing fewer RFPs than we normally expect from our existing client base, and as previously mentioned, two of our largest clients who were up for review this year have already indicated their intention to continue with us. In short, we believe we are well positioned for the season ahead, we are excited about the activity we are seeing, and we look forward to reporting our progress in the coming quarters. We believe one of the reasons for this positive market activity is that employers are increasingly looking for cost-effective solutions that can address the large and growing portion of their workforce being impacted by infertility and who are in need of coverage and support in order to realize their family building and overall health and well-being goals. The CDC recently reported that the number of births in the U.S. and the overall fertility rate have continued to decline, reaching record lows and extending the trends that began nearly two decades ago. Fortunately, if we peel back the layers of this data, we see something more insightful and certainly highly actionable. While the overall birth rate is declining, it is being driven entirely by women aged 29 and younger. On the other hand, birth rates amongst women aged 30 and over have continued to increase, such that women 30 and over now comprise nearly 53% of all births. This is the highest proportion ever for that age group. I will remind you that the population we serve in our family building solution is generally 30 to 42 years old, with the average age of a woman going through IVF at 36. What all this data tells us is that society has increasingly chosen to defer family building to later in life, and while that may be the preferred path to parenthood for the clear majority of people today, there is a biological reality in that conception without the use of assisted reproductive technologies often becomes more difficult as we age, and for many, unaffordable. We believe this is a macro trend that employers simply cannot afford to ignore. This is no less true even given the heightened focus on the state of the labor market, particularly as it relates to the potential for disruption from AI. As just one data point on that topic, the Wall Street Journal recently reported on a survey of 750 CFOs who concluded that the impact of AI is only expected to reduce their companies' headcount by just 0.4% as compared to what it otherwise would have been for 2026, and that impact is largely expected at entry-level roles or clerical and administrative functions where the tasks are more easily automated. This is all the more reason why having family building benefits in a company's overall benefit offering is critical. We recognize that investors are pricing into our valuation the potential for a negative impact on member engagement or on employer demand for our services. To be clear, we are not seeing any signs of either. As we see it, these concerns are more rooted in what we have called headline risk as opposed to accurately reflecting a shift in market dynamics, which we do not believe will adversely impact our business. Before I turn things over to Mark, let me conclude by saying that we believe our results and outlook reflect that we are as well positioned as we have ever been for this opportunity. This is highlighted by five key areas: early sales commitments; our overall pipeline; the progress we are making with our channel partners; our de-risking of the renewal season and the favorable notifications we have already received; and the traction we are seeing with Progyny Select. We view all of this as evidence of the continuing macro tailwinds, and we believe we are in the best position ever to take advantage of those. Although some headwinds always exist, the outsized emphasis of what is seemingly anticipated in our current valuation runs contrary to what we see. We have seen this play out before throughout our history, when in past years there were concerns at varying times regarding high inflation, tariffs, a potential recession, general macro uncertainty, and the loss of our largest client two years ago. Yet we continued to grow through all of the above, and we expect to continue to do so in the future. We recently completed our $200 million share repurchase program, and Mark will take you through those details shortly. Our board is currently evaluating potential options for a new share repurchase program. We anticipate a decision around May, and we expect to make an announcement at that time. Let me now turn the call over to Mark to walk you through the quarter. Mark Livingston: Thank you, Peter, and good afternoon, everyone. Before I begin, I will note that the 8-K we filed a short while ago includes our usual slide presentation, which summarizes both the results in the quarter and highlights some of the longer-term trends that we believe are important in understanding the health and direction of the business. We have also posted that on our website. Rather than repeating what is covered by that material, I will focus on the key themes that impacted both the quarter and how we think about the rest of 2026 and beyond. The first theme is that this quarter's results reflect once again that member engagement has remained healthy and at levels that were consistent with what we were seeing when we issued the guidance in February. The consistency we are seeing in overall engagement continues to demonstrate that members are pursuing the care and services they need in order to achieve their family building and overall well-being goals. As a result, first-quarter revenue came in closer to the high end of our guidance range, reflecting an increase of 1.4% on a reported basis and more than 12% when excluding the contribution from a large former client who was under a transition-of-care agreement in 2025. As a reminder, the transition agreement pertaining to this client ended as of June 30, 2025. Accordingly, the second quarter that is now underway will be the last quarterly period you have to take that into account when looking at our comparative results. The second theme is that we continue to maintain healthy margin performance even as we continue to invest to expand our product platform, enhance features for our members, and lay the foundation for future growth. Gross margin expanded as we continue to realize efficiencies in care management and service delivery, as well as the anticipated reduction in stock compensation expense. And while adjusted EBITDA reflects investments for our longer term, our adjusted EBITDA margin remains healthy even at a higher level of investment. Our first-quarter CapEx was $6.3 million, reflecting a $3.5 million increase over the prior-year period. I will remind you that we were still ramping this investment program over the early part of 2025. Our third theme is the flexibility to both invest in the business while also returning value to our shareholders. We generated approximately $446 million in operating cash flow, yielding over $200 million on a trailing twelve-month basis, a level we have maintained for five consecutive quarters now. Through our ongoing focus on process improvement and revenue-to-cash management, we also continue to drive further improvements in DSO, which was 11 lower than the first quarter a year ago. This improvement occurred even with the customary build in DSO on a sequential basis from Q4 as we work to establish the payment flows with our newest clients who launched on January 1. As of March 31, we had total working capital of $266 million, which includes $225 million in cash, cash equivalents, and marketable securities. There are no borrowings against our $200 million revolving credit facility and no debt of any kind, and we have no planned use for the facility at this time. The fourth and final theme is that during the quarter we repurchased more than 5.5 million shares for approximately $116 million under our most recent share repurchase program, which began in November and provided us with up to $200 million overall. We have now completed that program through the repurchase of approximately 8.8 million shares in aggregate. Turning now to our expectations for the second quarter and the remainder of 2026, as the second quarter begins, member engagement is pacing consistently with the typical seasonal patterns following the start of the year. Although the unexpected variability in engagement that we previously experienced has not recurred since 2024, the assumptions we are making today, particularly at the low end of the ranges, reflect the potential that further variability in activity and treatments could occur. To be clear, this is the same approach we have been following for more than a year when setting our guidance range. The table at the back of today's press release also outlines our assumptions at both ends of the ranges. In terms of utilization, we are maintaining our full-year assumption of 1.04% to 1.05%, which is consistent with our long-term historical ranges. We are also maintaining our assumption for ART cycle consumption per female unique at 0.93 at the low end of the range and 0.95 at the high end. For the second quarter, we are assuming the customary sequential increase reflecting the ramping of member journeys. On the basis of these assumptions, we are projecting revenue between $1.365 billion to $1.405 billion, reflecting growth of between 5.9% to 9%. If we exclude the $48.5 million in revenue from the client who was under a transition-of-care agreement over 2025, our full-year revenue growth is projected to be between 10.1% to 13.3%. At these levels, we expect 2026 to be our eighth straight year of double-digit top-line growth since we became a public company. With respect to profitability, we are increasing our full-year adjusted EBITDA, net income, and EPS expectations. For adjusted EBITDA, we expect a range of $232 million to $244 million, with net income of $103.7 million to $112.3 million. This equates to $1.23 to $1.34 in earnings per diluted share and $1.98 to $2.09 of adjusted EPS on the basis of approximately 84 million fully diluted shares. As it relates to the second quarter, we expect between $342 million to $355 million in revenue, reflecting growth of 2.7% to 6.6%. Again, if we exclude the $17.2 million in revenue from the client under the transition agreement in the year-ago quarter, our second-quarter guidance reflects growth of 8.3% to 12.4%. On profitability, we expect between $58 million to $62 million in adjusted EBITDA in the quarter, along with net income of between $25.8 million to $28.7 million. This equates to $0.31 to $0.35 of earnings per diluted share or $0.50 to $0.53 of adjusted EPS, on the basis of approximately 83 million fully diluted shares. At the midpoints of the ranges for both the quarter and the year, you can see that we are expecting a consistent adjusted EBITDA margin throughout the year, at a level that is also consistent with our full-year result from 2025, even with the investments we are making to grow the business. We will now open the call for questions. Operator, can you please provide the instructions? Operator: Certainly. Everyone at this time will be conducting a question-and-answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you are listening on speakerphone to provide optimum sound quality. And once again, if you have any questions or comments, please press star 1 on your phone. Your first question is coming from Jailendra Singh from Truist Securities. Your line is live. Jailendra Singh: Thank you. Thanks for taking my questions, and congrats on a strong quarter. My first question is on the early sales activity commentary—very encouraging comments there. A few follow-ups. First, how are these early commitments split between not-nows from last year who might have delayed versus employers looking at this benefit for the first time? And then you also called out, Peter, that you are seeing more RFPs from employers who are currently with your competitors. Are there one or two consistent themes that you are hearing from these employers that are driving more pickup in this RFP activity from competitor clients? Peter Anevski: Regarding your first question, as always, early commitments—a higher proportion of them do come from not-nows. But either way, it is positive overall activity and commitments to date versus last year, as we mentioned. As it relates to your second question, nothing really constructive that I could share relative to what we are hearing. Normal general reviews and general comments, but none that are constructive to share here. The bigger, more important data point is the level of activity that we are seeing versus last year and really any other year relative to potential opportunities around solutions that are with current competitors. Jailendra Singh: Okay. And then my quick follow-up. Last quarter, you called out membership changes because of administrative changes. I know the number of eligible lives is a less important metric for you guys to focus on, but given your experience last quarter, have you made any changes in the process over the last two to three months to make sure you get more regular updates from your clients and we do not get any more surprises like what we saw last quarter? Peter Anevski: We are getting regular updates, but what we are also doing is we are in the process of getting full eligibility files as opposed to just updates relative to numeric headcounts from our clients. We have already increased the level of eligibility files that we are getting from our clients since year-end and expect to continue to do so throughout the year, and by year-end, expect to have eligibility files from the significant majority of our clients. Throughout the year, a combination of the periodic updates and having full eligibility files will help mitigate and identify that again. Jailendra Singh: Great. Thanks a lot. Peter Anevski: Thank you. Operator: Your next question is coming from Brian Tanquilut from Jefferies. Your line is live. Analyst: Hi. Congrats on the quarter. This is Cameron on for Brian. I am just wondering if you could give me some more color on the increase you saw in revenue per ART cycle. Can you walk us through the moving pieces of this? Was this ancillary uptake rate? And do you expect this to persist throughout the year? Thank you. Mark Livingston: Sure. In the beginning of the year, you will see a slightly higher rate of overall revenue per ART cycle because you have a higher proportion of clients—particularly for the new ones—that are starting their journey, so they are in the initial consultation phase. There is revenue associated, but not ART cycles. That was a little less evident last year because the revenue that was contributed from the large client that was under the transition-of-care program was more skewed towards ART cycle activity by the definition of how that transition-of-care program worked. What I would say is more instructive is looking back a couple or few years to see how that progresses through the year. Analyst: Thank you. Operator: Thank you. Your next question is coming from Michael Cherny from Leerink. Your line is live. Analyst: Hi. Good evening. This is [inaudible] on for Michael Cherny. Congrats on the great results. As we think about the investments that you are making in future growth, can you give us an update on the pipeline in terms of new products and maybe some timing on that as well? And could you also give some color on what you are seeing and expecting in terms of upsells of new products both this quarter and this year? Thank you very much. Peter Anevski: Regarding your second question, it is a little early to comment on upsells, but simply to say that upsell activity is also positive. Other than that, it is early relative to any more color than that. As it relates to expectations around new products, the investments and capabilities are not necessarily new products, but additional capabilities for the existing products and/or expanded products that address the same areas for our global population. Analyst: Great. And just as a follow-up, what is embedded in the guide in terms of expectations for upselling of new products for the rest of the year? Peter Anevski: The guidance—everything in guidance—is what is already committed. We do not generally put in expectations of any material kind relative to upselling or new activity. The upsell activity impacts materially the following year. Analyst: Got it. Thank you very much. Operator: Thank you. Your next question is coming from Scott Schoenhaus from KeyBanc. Your line is live. Scott Schoenhaus: Congrats on the quarter and the guidance. It seems like you are managing as best as you can the renewal process and seeing a great start to the selling season, so congrats on all. My question is on utilization, and your previous comments when you said this last selling season this year produced higher-utilizing clients. I guess you are still seeing that, but what drove that utilization towards the higher end? Was it this new cohort? How are they progressing? And so far in April and May, your comments were in line with seasonal activity. Is the new cohort seeing elevated utilization through the first month and a half of the quarter? And then I have a follow-up for Mark. Peter Anevski: Thanks for the comment. If you recall, when we talked about it, it is not that the new cohort is having higher-than-normal utilization as a cohort, but it is because the sales in the cohort this year were weighted more towards a higher contribution of certain industries. Overall, it is generally performing as expected. I would not say it is higher or better or anything else like that, but as expected, as we have talked about. Scott Schoenhaus: Okay. Great. And my follow-up for Mark is clearly you beat on the bottom line here despite the investments. Maybe you can walk us through what further investments are needed throughout the rest of the year and where you could potentially see upside to the margin guidance throughout the rest of the year because you did such a solid job in the first quarter? Mark Livingston: I would say that even since February, we have contemplated the investments and phased them throughout the year, so I think they are already well factored in. We had a good quarter, and we have had some puts and takes—nothing that I would call out specifically—but the things that we felt were recurring, we have already now baked into the full-year guide. We brought up the low end of the range a little bit. We kept the high end of the range the same on the top line, but we have increased the adjusted EBITDA, and that is really just reflective of some of the efficiencies that we were able to gain in Q1 that we see recurring through the rest of the year. Scott Schoenhaus: Thanks, guys. Operator: Thank you. Your next question is coming from Sarah James from Cantor Fitzgerald. Your line is live. Sarah James: Thank you. I am wondering if a larger portion of this year's early pipeline sales are coming from clients that were not-nows in past years—so people that you have been talking to for a while—and, if so, why the uptick this year in the decision process to start benefits? Peter Anevski: In general, early commitments—a higher proportion of them—come from not-nows. This is no different. If you recall, some of the things we talked about last year were that the pipeline build was later than normal, and as a result, that could be part of the contribution to early commitments. Either way, the early commitments are just one indication of the selling season. The overall positive activity and all the things I already mentioned that are driving it are, I think, how I look at the overall activity for the selling season, including the early commitments. Sarah James: Got it. And one more just on the general market. How do you see the mix of client demand between case rate versus back-end savings? Is the market trending in one direction, and would you ever consider a product model that has back-end savings? Peter Anevski: You are talking about some sort of value-based care model and risk? We have not needed to do that to win business, and the back-end savings are part of what drives our success in client retention. The current model has served us well, and we are not getting real pushback on it in terms of the current model versus a back-end savings model with risk and upside, etc. So I do not have any plans to modify. Mark Livingston: I would just point out that in Peter's prepared comments, he highlighted the third-party study that was done by one of our largest longstanding clients, and I think the major takeaway is that the savings are demonstrated by our current model. Sarah James: Great. Thank you. Operator: Thank you. Your next question is coming from David Larsen from BTIG. Your line is live. David Larsen: Hi. Congratulations on a good quarter. Can you just remind me what the revenue growth would have been in 1Q, excluding that one major client from the year-ago period, please? Mark Livingston: A bit more than 12%. David Larsen: Okay. And then with regards to growth in your existing clients, it is my sense that the cost of oil affects everything. The stock market broadly speaking had pulled back significantly a couple of months ago, at the end of last year and first quarter. It has now rallied back up. Are you seeing positive signs from your existing client base in terms of adding employees, which would potentially add to your life count in maybe '26 or into '27? Basically, did this Iran war cause the 400,000 lower count at the start of the year? And could it come back up now that things seem to be getting resolved? Mark Livingston: The Iran war, I do not believe, had anything to do with the true-ups we reported before. In general, we are seeing our existing client base, from a lives perspective, stay relatively flat. The good news is, as it relates to everything costing more, as you said, we are not seeing any impact, including what we are seeing so far in Q2. And as we all know, the war has been going on now for a couple months, give or take. We are not seeing any impact on engagement or anything else like that as well. David Larsen: Okay. And then just any comments on Select? What is the market reception to Select? Thanks. Peter Anevski: The market reception is positive. We are signing up aggregators and distributors. Reaction is positive, and we do not expect to see pull-through on that until really the end of the year when small employers normally make their buying decisions and then renewal period is. Nonetheless, so far we are pleased with the activity and the reception. David Larsen: Thanks. Congrats on a good quarter. Peter Anevski: Thank you. Operator: Thank you. Your next question is coming from Alan Lutz from Bank of America. Your line is live. This is Dev on for Alan. Analyst: Pete, I just wanted to touch on the market growth for ART cycles. I think the latest data CDC put out—it was about a 10% CAGR for ART cycles. Progyny, Inc. is now moving closer to that range, but obviously still appears to be taking share. I would love to get your view on what you think the ART cycle growth is for the market and how we should think about that over the medium term? And I have one follow-up. Thanks. Peter Anevski: There is no data I have gotten that suggests the growth rate has changed relative to what we saw over the last ten years based on the most recent data that is available. That is really all I can share. Relative to growth, some of the pharma manufacturers are reporting growth—they are not giving me exact percentages—but they are reporting growth. It continues to grow, but I cannot comment by how much. Analyst: Okay. Great. No problem. And then, sorry to hop on this—true-ups on the administrative side—but just curious what that came in like this quarter. From what I understand, it is a quarterly process. Was that a positive this quarter? Just commentary from what you are hearing from your employer clients around the health of the employees and retention there. Thank you. Mark Livingston: We are basically at the same level as we have seen in most typical quarters. There are some that are up a little, there are some that are down a little—they have largely offset. As Peter highlighted on an earlier question, we are doing a lot of work to gain actual eligibility files on a recurring basis from these clients, which should help us refine and avoid adjustments like that in the future. We already have some coming in, and we expect to have a majority of our clients providing eligibility files on a regular basis by the end of this year. All of that should help. The last thing I would point out is the revenue growth is exactly what we expected. As we tried to highlight on our last call and since, it is really not a driver per se of activity, but an indicator around it, and those adjustments have not seemed to have any effect on our expectations around revenue. Analyst: Great. Thank you. Operator: And our final question comes from Richard Close from Canaccord Genuity. Your line is live. Analyst: Hi. John Penny on for Richard Close. Thanks for the questions, and congrats on the quarter. First, good to hear on the Business Group on Health study. I know it is early in the selling season, but just qualitatively, is there anything about the value proposition of your services that is resonating more this selling season or anything different than past selling seasons that you would comment on? Peter Anevski: I would say no. I spoke more to the demand, even though the pacing of commitments is ahead also. It is more about demand in the pipeline. We are now in the normal process of articulating our capabilities, differentiating ourselves, and articulating the value that we deliver. Nothing substantially different, but just emphasizing, as we always do, that we manage for each individual member on a sponsor's behalf that goes through the program—good outcomes and favorable outcomes—but we also manage overall program cost containment, which is really important for sponsors as they review their alternatives. Analyst: Alright. Just as one follow-up, non-GAAP gross profit or gross profit margin was very strong in the quarter. Anything in particular that is driving that? And is this level sustainable, or is there going to be some coming back here the rest of the year? Mark Livingston: A couple of key things. We have been highlighting that stock compensation expense will be coming down as some of the recognition period for older grants begins to expire. It really started last year in the middle of the fourth quarter, so that is a significant piece of that savings. There is also recurring, regular efficiency that we have been able to gain, which will recur. Both are recurring throughout the balance of the year. It is part of what is contributing to the improvement in adjusted EBITDA that we have now included in the guidance versus what we did a couple months ago. Analyst: Alright. Thanks. Operator: Thank you. That concludes our Q&A session. I will now hand the conference back to James Hart for closing remarks. Please go ahead. James Hart: Thank you, and thank you, everyone, for joining us this afternoon. We know it is a busy day. For those we will not see next week at the conference, please feel free to reach out to me at any time for any follow-ups. Thank you again. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Hello, everyone. Thank you for joining us, and welcome to Blend Labs, Inc.'s first quarter 2026 earnings call. After today's prepared remarks, we will hold a question and answer session. To withdraw your question, press 1 again. I would now like to hand the conference over to management for prepared remarks. Please go ahead. Meg Nunnally: Good afternoon, and welcome to Blend Labs, Inc.'s financial results conference call for 2026 Q1. I am Meg Nunnally, Blend Labs, Inc.'s head of investor relations. Joining me today is Nima Ghamsari, our cofounder and head of Blend Labs, Inc., and Jason Ream, our head of finance and administration. Before we start today's call, I would like to note that we refer to certain non-GAAP measures which are reconciled to GAAP measures in today's earnings release and in the appendix of our supplemental slides. Non-GAAP measures are not intended to be a substitute for GAAP results. Unless otherwise stated, all financial measures we will discuss today, including our profitability, refer to non-GAAP. Also, certain statements made during today's conference call regarding Blend Labs, Inc. and its operations, in particular, our guidance for 2026, other commentary regarding 2026, and our expectations about markets, our strategic investments, product development plans, and operational targets may be considered forward-looking statements under federal securities laws. We caution you that forward-looking statements involve substantial risks and uncertainties, and a number of factors, many of which are beyond the company's control, could cause actual results, events, or circumstances to differ materially from those described in these statements. Please see the risk factors we have identified in our most recent 10-K for fiscal year 2025 and our other SEC filings. We are not undertaking any commitment to update these statements if conditions change except as required by law. The financial information presented on this call is based on continuing operations, and prior periods have been recast to operations that are now discontinued. Lastly, we will be providing a copy of our prepared remarks on our website by the conclusion of today's call, and an audio replay will also be available soon after the call. I will now turn the call over to Nima. Nima Ghamsari: Thanks, Meg, and welcome, everyone. It has been a whirlwind two months since our last call. We reported our Q1 numbers today, which Jason will spend time on, but they came in higher on revenue and non-GAAP operating income than expected. We also signed 15 new deals and expansions in the quarter, including an eClose deal with a top 20 bank along with a new mortgage deal with another top 100 bank. Our pipeline as of March 31, 2026 is up more than 40% year over year, and that does not include Autopilot pipeline, which I will cover in a minute. But the world has shifted underneath us in those two months. Increased global conflict, inflation, and rising mortgage rates, and that leads me to be a little conservative in the short-term numbers. But I am incredibly optimistic about the future. My optimism comes from two things, and they are both tied to artificial intelligence. The first is Autopilot, which is our AI agent and orchestration layer that we put right alongside our customers' work as they work with consumers. The second is the agents we are building inside Blend Labs, Inc., which are starting to do our own work. Together, I believe these two pillars give us a path to see 10% to 15% incremental growth already for us in 2027, on the top line, and more efficiency and speed as a company internally. Let us start with Autopilot. For those new to the story, Autopilot is our flagship AI agent. We unveiled it and rolled it out in beta almost exactly two months ago, telling our customers they could use it for free and try it out for all of Q2 to see it in action and help their business. As of Monday, May 4, 2026, 65 lenders have activated Autopilot, 22 are running it live in production, and over 7 thousand applications have already been touched by Autopilot since we moved it to live production. And we are seeing that early results are improving, both in cycle time and in conversion rate. Two of our largest lenders are actively implementing Autopilot right now with go-lives planned for Q2, and we have three more top 20 logos in our net new pipeline that we expect Autopilot to be a meaningful catalyst for closing. In total, Autopilot is already sitting on $10 million in pipeline because it solves a real problem for our customers and the consumers they serve. But the more important story for me and for our company, for our customers and our shareholders, is how quickly that product is evolving. We have been publishing details on our blog every week, and there are two that I want to call out. The first is Autopilot Chat that was rolled out about a month ago, a conversational interface where the borrower can ask Autopilot questions about their loan in plain language as they are going through the process. What documents are still needed? Why did you ask me for this specific thing? Why does it matter to my situation? What happens next? Instead of a static task list or making a phone call, the borrower can have a real contextual understanding of what is going on to help them through the process. This is the kind of interaction that consumers are starting to expect, and we are right on top of it. The second is something I am even more excited about, which is Autopilot MCP. That opens up the Blend Labs, Inc. platform so that our customers can build their own agents on top of Blend Labs, Inc. or use Blend Labs, Inc. in a headless way in their existing workflows and still get the benefit of all the compliance, all the data model, the workflows, all the native integrations we built, and the intelligence layer of Autopilot. One of our large mortgage company customers has already built a voice agent using it, and I am seeing this as really important and really promising for our customers who want to own more and more things they can do but move really fast. And that pattern, customers innovating with us and around us rather than instead of us, is exactly what we want and exactly what we expect to see more of going forward. What this all adds up to is something I think is really powerful. Our customers can now see a path from initial borrower touch all the way to clear to close without a team member ever having to touch a file. Now they still can work on the file, but they will not have to. That is fundamentally different value than we could ever offer before or the industry could ever offer, and something that I dreamed of being able to offer when I started the company in 2012, and now agentic AI has made that dream possible. And on top of that, eight weeks in, we are shipping at a cadence that Blend Labs, Inc. of years ago and most enterprise software companies would measure in quarters. And every one of those updates is grounded on what our customers need, what they are telling us they want, and how we can help impact and improve their business. With adoption well underway, let me give you an update on how we are going to monetize this. Autopilot has been in preview to date, and our priority has been getting real customers live and proving the value. Starting in June, we are going to move to paid tiers. Now just like any modern software company, there is going to be some base capabilities built into our workflow that are going to provide intelligence, like, did you upload the right document? And that is useful. That is going to lower some friction for consumers to get started and understand AI. But the paid tiers are where the full product lives, what we call underwriting intelligence, where Autopilot is reading the documents, taking real actions on the loan file, running calculations, reconciling against guidelines, and driving the work forward. Over time, our intent is to move the paid tiers of Autopilot to a per funded loan model, just like the rest of our mortgage suite. It is the right long-term structure, and our customers like that because it allows them to see and track the value on a per-loan basis, and we get paid when they make a successful loan. That is a great product for us, it is great alignment with our customers, and it incentivizes us to make sure this is providing real loan-level funded value improvements. When Autopilot helps a lender fund more loans with the same number of people, our revenue scales with their success, not with their headcount. And that is how we have always built Blend Labs, Inc., and that is even more important today in an agent-first world. We are going to continue to provide updates on Autopilot as more customers sign on, but I want investors to understand this is not a small incremental line item for us. Autopilot is a whole new leg of growth for the company on top of the great mortgage and consumer banking suites that are already growing, and we plan to keep growing it. Before we move off Autopilot, I want to spend a minute on something that I think is really important and I keep getting asked about from investors. The billion-dollar question is, where does the durable value in enterprise AI actually accrue? This is an ongoing debate, and it is important to understand where Blend Labs, Inc. fits and how I see this. For the last couple of years, the focus of the industry and the world broadly has been on the foundation models: which model is the fastest, the smartest, the best in benchmarks, the cheapest, and that focus is understandable. But as models converge in capability and keep innovating, the durable value is shifting up the stack to the orchestration layer between the model and the workflow, to the area that people call the harness, and the thing that is driving actual end-business outcomes. The harness, to put it clearly, is a system that channels the engine and all the tools around it into a reliable, controlled outcome, which is so important for an industry like ours, like financial services. And the data and the documents and the specific context of any moment is the fuel that makes any of that work actually useful. And Autopilot is exactly that. It is not a model. In Autopilot, we use the best available models underneath; instead, it is the orchestration layer that decides what to do given that exact moment in a loan. It retrieves the specific guidelines, gets the full context of the loan, runs the right calculations, validates the outputs against investor and regulatory requirements, updates the loan file, and triggers the native Blend Labs, Inc. workflows that move the file forward. That logic is specific to that exact loan, the exact consumer in front of it, and it is the kind of work that generic AI is not built to do. It needs a system around it. And that is where Autopilot fits in. And Autopilot MCP just takes that to the next level. It allows the Blend Labs, Inc. platform users to build their own agents or even work with Blend Labs, Inc. in a completely headless way, which means the harness becomes a platform for them to move really fast because they get all the regulation, the compliance, the integrations, and the Autopilot intelligence out of the box, and they can build their own experiences and their own agents around that. That is a meaningfully different level of importance because now you become more of the engine, the “powered by,” instead of the interface. And that is where agents can be really powerful. And that compounds more as we open up more capabilities for our customers to build faster and on top of us. And that is why I get more confident every quarter about where Blend Labs, Inc. sits in the AI landscape. We are the vertical industry harness for origination. We have the proprietary data to make that harness work. We have the business model already to help capture the benefit of automation and still give most of the benefit to the customer and, hopefully, the consumer. That is the durable place to be. That is why I am excited; that is where Autopilot is. We are bullish on our first pillar, which is agents for our customers. But I am even more bullish on how we are using agents internally. Over the last few months, we have been building something we are boringly calling Blend Labs, Inc. background agents. It is not a new idea, but it is a simple idea. Anytime we get an input from the outside world — it could be a ticket, a customer issue, a feature request — before that reaches a team member, we want an agent to take the first pass of that work and take action on it, and then the team member reviews and approves it. In practice, that could be something like: a ticket comes in outlining a bug in our system. An agent immediately picks it up from our support queue, looks at it, identifies the bug, writes the code to fix the bug, tests the code to make sure the bug is now fixed, and then sends it to a human and says, “I have to change these 10 lines or 50 lines of code. Can you approve this?” That moves our team from manually driving the car and making the turns and figuring out how to get from A to B to playing air traffic control with, hopefully, dozens of cars. To support that, we have given our agents access to our internal tools, our entire code base, the ability to stand up environments, and they will now take a first pass before our engineers or our support team ever see that issue. When I look at the numbers, the new process of how we are adopting AI at Blend Labs, Inc. has already resulted in more than 1.5x productivity in 2026 versus 2025, based on the number of pull requests our engineering team is doing, and we are just getting started. Prospects and customers are already taking notice of how fast we are moving. I get notes from customers all the time. I have been on-site with our biggest customers in the last month, and I can tell you that momentum is palpable. Our customers have noticed a change in our quality and speed. I want to be clear. This is not a one-team experiment. This exact same pattern of agents doing the first pass of work should apply to every role in every company, and specifically in Blend Labs, Inc., it will apply to roles here. That could be something like onboarding a new customer, preparing a cut for a customer business review when we are going on-site with them, or even something as esoteric as getting a manual Excel worksheet that outlines what loans have been funded and doing that work before our accounting team even has to pick it up. I said on the last call that we aim to be in the top 1% of all companies in terms of agentic AI adoption, and I really meant it. We are going to do it. It is something I am very passionate about, and we are going to keep driving for that. When done, I believe this effort, combined with Autopilot, has created the path to 10% to 15% more top-line growth and a lot more efficiency and speed for us. And that speed is probably the most important thing for any business, and especially for a company like Blend Labs, Inc. It means more customer issues fixed, more great features developed, more things like we have done with Autopilot, continuing to grow Autopilot, faster time closing a quarter, better preparedness for customer business reviews; these will be the new Blend Labs, Inc. To wrap up, transforming a company of our size into an agent-first company is definitely more work and more complicated than the world understands. But it is worth it. We have a really important mission. Our customers serve millions of consumers across the country every single year, so this change cannot come fast enough. We are taking it as fast as we can, and we feel like, to be quite candid from my perspective, we are the best-positioned company in the space. It is something that I spend a lot of my time on, and the team is even more passionate about. So, while the war and tariffs and oil and all those things might create some conservatism around short-term mortgage market numbers, because the macro and the rollout time for what we are building also take some time, I have never been more energized about the medium term and, hopefully, even the long term for our customers, our team, and our investors. And with that, I will turn it over to Jason to walk through the financials. Jason Ream: Thanks, Nima, and thank you to everyone else joining us on the call. We delivered a strong start to 2026, with both revenue and non-GAAP operating income above the high end of our guidance ranges. Revenue grew 15% year over year, and our non-GAAP operating margin expanded to 13%, reflecting growth across the business and reflecting the operating leverage we have continued to build into the model. Total revenue in 2026 Q1 was $30.8 million, above the high end of our guidance range, driven by growth in mortgage and consumer banking alike. Mortgage Suite revenue was $17.2 million, up 18% year over year. Funded loans on our platform were approximately 187 thousand in Q1, up 29% year over year and slightly better than we had assumed coming into the quarter. That strong volume growth was partially offset by a lower year-over-year economic value per funded loan, which came in at $84 in Q1, within the $84 to $85 range we discussed on our last call. We were at the lower end of our range primarily because of higher mortgage volumes, which lowers the per-loan economics calculation given some of the fixed-fee arrangements that we have within our customer base. Consumer Banking Suite revenue for the first quarter was $10.8 million, up 12% year over year and consistent with the color we shared on our last call. Professional services revenue for the first quarter was $2.9 million, up sequentially from $2.1 million in Q4. Of the $2.9 million in professional services revenue, approximately $600 thousand related to work completed in prior periods that was recognized this quarter under our revenue recognition policies. We would not expect a similar catch-up amount in future quarters. Turning to profitability. Non-GAAP gross profit was $24.8 million, and our non-GAAP gross margin was 80.3%, up from 72.9% in 2025. I would note that gross profit in the quarter benefited from the PS catch-up that I just mentioned, as well as some one-time cost of revenue benefit that together brought gross margin for the quarter up by about two to three points. Please keep that in mind as you think about modeling gross margin going forward. Non-GAAP operating expenses were $20.7 million in Q1, up 10% year over year. As a reminder, the year-over-year comparison reflects the change in our internally developed software capitalization methodology that we discussed last quarter, where we are capitalizing less of our R&D personnel cost than we did in 2025. This is an accounting treatment change rather than a change in the nature of our R&D investment. As a result, reported R&D looks elevated on a year-over-year basis, an effect that will persist to some extent in 2026 until we lap prior-year periods. Non-GAAP operating income was $4.1 million, above the high end of our $2 million to $3 million guidance range, and representing a non-GAAP operating margin of nearly 13%, an improvement of approximately 10 points compared with 2025. Free cash flow for the quarter was $7 million compared to $15.5 million in the prior year. We are pleased with the strong cash flow generation and want to remind you of our seasonal patterns, where Q1 is typically a strong collections quarter in our business. And our balance sheet remains strong. We ended the quarter with $59 million in cash, cash equivalents, and marketable securities and zero debt. Putting our cash to work, we repurchased 11.2 million shares during the quarter at an average price of $1.66 per share under our share repurchase program, deploying $18.6 million of the $50 million authorization we announced on our last call. As we said last quarter, this program reflects our conviction in the long-term value of the business and our commitment to disciplined capital allocation. With zero debt and a solid liquidity position, we have the balance sheet to invest in both the business and in our shareholders simultaneously. Before I turn to outlook, I want to spend a moment on market share and on the macro environment. On market share, the initial release of 2025 HMDA data in early April showed approximately 4.4 million originations for the year, which puts our 2025 mortgage market share at approximately 17%, squarely in the middle of the 16% to 18% range we guided to back in November. The HMDA data will continue to settle as late filings come in, but we do not expect that figure to move meaningfully. As we look into 2026, we expect a market share headwind of 100 basis points, primarily reflecting the volume roll-off of one large customer that we have discussed previously. At this time, we do not see any other significant headwinds to our market share. On the macro side, the spring housing market started on stronger footing than many had expected, supported by improving affordability and slowly rebuilding inventory. That said, the recent rise in mortgage interest rates adds uncertainty to the outlook. Fannie Mae's most recent forecast calls for total mortgage market growth of approximately 19% year over year in 2026. But Fannie reduced both its second quarter and full-year 2026 outlooks earlier this month as rates have moved higher. Our own 2026 view is anchored to that updated Fannie outlook. We will remain cautious in our outlook until rates come down meaningfully and refi activity picks up. We have the platform and the customer base in place to capture the upside when conditions improve. Now let us turn to guidance. For 2026 Q2, we expect total revenue to be between $32 million and $34 million, representing approximately 1% to 7% year-over-year growth. Underneath those headline numbers, we expect Mortgage Suite revenue to grow 4% to 10% year over year, driven by mortgage market volume growth and partially offset by a year-over-year decline in value per funded loan, which we expect to be in the $79 to $80 range in Q2. The decline in EVPFL from Q1 to Q2 is primarily driven by increased volume, which, as I mentioned earlier, mechanically lowers EVPFL. We expect year-over-year Consumer Banking Suite revenue growth to be between negative 2% to positive 4% in Q2. We expect Q2 non-GAAP operating income to be between $5 million and $6.5 million, implying a non-GAAP operating margin at the midpoint of approximately 18%. A few additional notes on what is embedded in our expectations. Our Mortgage Suite business continues to be subject to macro volume fluctuations, and depending on the trajectory of mortgage rates and the broader housing market from here, Mortgage Suite revenue could moderate or even flatten out in 2026, particularly if refi activity remains soft. On per-loan economics, Q1 is typically the high-water mark due to seasonality, which is why we are guiding to a Q1 to Q2 step down from $84 in Q1 to $79 to $80 in Q2. In the absence of an uplift from Autopilot, which is too early to quantify and is not baked into any of our expectations, we would expect EVPFL in the second half of 2026 to fluctuate with seasonality but still stay below Q1 levels. On consumer banking, growth is moderating based on the headwinds we discussed on our last earnings call. In addition, we have also seen softer macro-driven volumes on home equity as rates have moved higher. Combining these two factors, we expect single-digit year-over-year growth in consumer banking in the back half of 2026, with Q3 growth likely lower than Q4 given the year-over-year compares. And there is macro sensitivity in the home equity portion of our consumer banking business. If rates rise from here, our expectation would be to see additional pressure on those growth rates. Finally, I would like to touch specifically on Autopilot. While we are incredibly excited about the potential for Autopilot to generate revenue upside, we would encourage investors to be cautious about incorporating this into models at this juncture. We hope and plan to provide additional information on potential impact to the outlook as we get past the free trial period and have a little bit more time under our belt. In summary, we feel very good about the shape of the business heading into the rest of 2026. Q1 marked our second consecutive quarter of year-over-year growth in mortgage. With churn now stabilized and the partnership model transition behind us, we expect most of the variability in mortgage revenue from here to be macro driven. Cost discipline remains intact. We expect to continue to drive additional productivity and efficiency over the year as AI-enabled workflows compound across our internal processes, an effort that, as Nima discussed, is now well underway across the company. This is indeed an exciting time for Blend Labs, Inc. We hope that you are excited to be part of it too. And with that, let us open up the call to your questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Ryan Tomasello with KBW. Your line is open. Please go ahead. Ryan Tomasello: Thanks, everyone. Nima, in your prepared remarks, you mentioned that Autopilot and your AI initiatives present a path, I think, to what you said was 10% to 15% more top-line growth. Can you just put a finer point on what you mean by that, and what underpins your confidence in quantifying the benefits at this stage? And then maybe just turning to consumer banking: given the noise in that segment from the large customer churn, can you help us understand where the underlying revenue growth is running in that business for Q1? And then at a higher level, based on the data points you have given previously about, I think, a $2.5 million impact from that large client in consumer banking, it just seems like the growth profile there is coming in a bit weaker than what was initially hoped for. So, Nima, your broader commentary around how you feel about the strength of that business going forward. Thanks. Nima Ghamsari: Yeah, great to hear from you, Ryan. I would start with our current pipeline. Our current Autopilot pipeline is about $10 million. We have only been in the market for just over a month now with pricing, and we have a lot of customers who have turned it on with really positive feedback. I mentioned two very large go-lives with customers. If we can keep up that momentum, think of it as 10% to 15% incremental on top of whatever other growth you may be forecasting, coming from Autopilot, which is what we see a path to right now. We obviously have to keep executing and have a lot of work in front of us, but the product is awesome and our customers love it. On consumer banking, the biggest headwind is from that large customer you called out, and they had a pretty big consumer banking line item. On the positive side, we have some good-sized financial institutions going live with our wall-to-wall suite this year. Those rollouts are in progress, and we are excited about that. Once that hits, I think that will be a positive benefit. We also have great customers rolling out our Rapid home equity product as we speak, which will be another positive catalyst. The home equity market has macro factors as well, but there are enough new things happening on the consumer banking side broadly that make me feel really good about the consumer banking business. Operator: Your next question comes from the line of Dylan Becker with William Blair. Your line is open. Please go ahead. Dylan Becker: Hey, appreciate it. Nima, I appreciate all the color on Autopilot and Autopilot MCP. It sounds like a lot of customers are interested in piloting. I think you called out some of the early proof points around improved cycle times and conversion rates. Could you provide a little bit more color on what that looks like relative to a non-automated process to try to tangibly put some value on what customers are seeing and learning? And then how you are thinking about the deployment or utilization of the first-party agents versus some of the MCP-enabled agents, and maybe the economic variability between those? And then, as a follow-up for Jason, you called out the per-funded-loan dynamics and market share dynamics. It sounds like you are increasing market share with the customers that are coming online or being onboarded, but that is kind of working inversely upfront against per-funded-loan economics. Can you remind us of the mechanics there, as well as when we would expect that to flip so those tailwinds work in tandem — market share growth inflecting alongside per-funded-loan expansion over time? Nima Ghamsari: Yeah. On the impact, there are two anecdotes I will share for two of the customers who have been some of the biggest users. We help them track the cycle time and the conversion. The conversion drivers are less obvious, so I actually talked to one of our customers about this; I will get to that in a second. On cycle time, for one customer, for example, from application complete in Blend Labs, Inc. to closing disclosures being sent to the customer, it went from 29 to 21 days. That is a pretty meaningful improvement. It makes sense because customers have a lot of back and forth with consumers, and what Autopilot does in real time as the consumer is in the flow is find those things that will be the gotchas down the line. It shows the consumer, “We noticed that this account is in the name of a trust. We need to get your trust documentation right now,” versus asking for it a few days later once an underwriter reviews it and sends it to a processor, which sends it back to the loan officer. It short-circuits the process in a positive way. Our hope with Autopilot plus some of the Rapid products — put those two things together, call it Rapid Pilot — is you can get an application started and approved, because Rapid gives you an approval and an offer up front, and then once that customer is ready to go, get them clear to close in a matter of minutes, or conditionally clear to close on an appraisal if one is necessary. Where I have been more surprised is why the conversion is so much better, but it makes sense: when you give people more certainty faster, we are seeing good conversion uplift too. It is early, but that is even more valuable to our customers, because those are consumers who would be walking out the door that they had spent time and money on as a lender — not just credit pulls and other data pulls, but also their teams' time and energy. As we can shorten these cycles and make the process of lending more real time, it fundamentally transforms the industry. On consumer banking, we are building out the integrations to all the consumer banking products for Autopilot. There is opportunity there now. There are fewer manual tasks in consumer banking, but there is a lot more volume of those tasks. While it may not be worth thousands of dollars per loan in consumer banking, the scale matters, and they have very big operations teams managing these processes. Autopilot enables those teams to do a lot more volume. One other thing: rates really drive refi activity. If you are a mortgage servicer with a lot of refi volume, your only way to handle large volumes historically has been to scale up and scale down teams, and you cannot really predict when rates go down. The ability to create elasticity of workforce — with agents that a lender can spin up and spin down alongside their team, with agents taking a first pass — changes the economic profile of servicing and recapture. For our large servicing customers, I think it will change the way they do business because it will allow them to handle market fluctuations even better than on the purchase side. Jason Ream: Yeah, good question, Dylan. We are seeing volume growth. As I mentioned, we had better volume in Q1 than we had expected coming into the quarter. Part of that is our customers doing better; part of that was the market being a little better than we expected in the quarter. Of course, we are always trying to add share and bring new customers onto the platform. As far as per-funded-loan economics — putting aside the seasonal variability that comes from the mechanics I talked about — we are doing a much more concerted effort now to drive growth year over year with existing customers. Things like Autopilot give us better pricing leverage coming into new customer situations. Obviously, Autopilot drives its own revenue stream, but it also gives us leverage in the core platform as well. Rapid remains a driver as well on the refi side in particular. As Nima mentioned, refi is even more sensitive to rates than purchase, and we do not have a Rapid purchase product; we have a Rapid refi product. As rates come down, we should see a benefit in volume and revenue in that sense, but also, as we get more customers up on Rapid refi, we should see a benefit in PFL as well. Operator: Your next question comes from the line of Joseph Vafi with Canaccord Genuity. Your line is open. Please go ahead. Joseph Vafi: Hey, guys. Good afternoon. Thanks for taking my questions. Nima, just the most recent update on the Rapid product uptake — how you are seeing market reaction to them? Obviously, the market backdrop is not as strong as we would like, but any feedback you are getting? Nima Ghamsari: I would reiterate what I said about this Rapid Pilot. Rapid plus Autopilot together is getting momentum and focus from our customers. It is a lot of what I spend my time on. I have had two on-sites with two very large banks and lenders in the last two weeks about this specific thing that they want to get live in Q2. In practice, our customers — especially for refis and home equity — want to be able to make an offer in real time and then fulfill the work they need to get done on that offer in real time. The combination of those two things has been incredibly powerful. On top of that, we have some very, very large customers going live with Rapid home equity — some of the top home equity originators in the country. It is definitely a good time in the industry. If I had one criticism of myself here, it would be: how do I make this so easy to adopt that they flip a switch and turn it on, and now they have Rapid refi enabled in their environment? That is a challenge for us that we are thinking about going into the next couple of months, and we intend to make that happen. As we make that happen, our customers will be able to adopt it much more easily. That is a key learning for us from the Autopilot rollout: we made it truly self-serve for a customer to turn on, and we are seeing the adoption. The numbers we shared in terms of the number of lenders that have turned this on — think about large financial institutions turning on a new AI agent for their organization with the flip of a switch, even without calling us. The most surprising part was we had fairly large banks turning this on in beta and production without us even knowing about it. Then we saw it start to stream through our logs and reached out to them. We are a product-led growth company. We like to talk to our customers to help them get the most out of our product, but making things easy to adopt is going to be very good for Blend Labs, Inc. Everything comes back to speed — speed of adoption, speed of iteration for our team. We showed that with Autopilot, and I am very confident we can take that micro-culture and those concepts to the rest of what we do at Blend Labs, Inc. I will end with one last anecdote. Autopilot MCP has unlocked a lot of doors for us. I was on-site with one fairly large customer last week, and their head of engineering was in the room. The first thing he asked was, “We want to build this into our mobile app.” I said, great — you now have a way to do that. It is called Autopilot MCP. You can get all the capabilities of Blend Labs, Inc., and the intelligence layer of Autopilot, entirely in your own environment. He said, wow, okay. His first question to me after that was compelling: “Can I use this in other parts of my business? We do not use Blend Labs, Inc. for these other kinds of loans,” and he named a couple. I said, yes. Autopilot works. You can put custom guidelines in there yourself; you do not even need to talk to us. His eyes lit up, and he asked for a copy of the Autopilot MCP documentation, which we sent to him. Historically, those stakeholders struggled with how to fit their tech stack into the Blend Labs, Inc. world, and now we have opened that up. We had another really interesting sales call with a fairly large bank. The digital leader came on the call — historically someone who felt a little bit displaced by us sometimes — and his first question was, “Can I use this with my current digital stack?” As soon as the answer was yes, with Autopilot MCP, he went from potentially being a detractor to saying, “Oh, wow. This is actually really interesting. Now I can give new digital capabilities, improve my customer experience, in a powered-by way that would take months, if not years, to do internally,” especially building agents that are this powerful and complex. Operator: A reminder, if you would like to ask a question, please press star 1 now to raise your hand. Your next question comes from the line of Aaron Kimson with Citizens. Your line is open. Please go ahead. Aaron Kimson: Great, thanks for the questions. Nima, in your conversations, how do customers perceive the value that Autopilot is providing today? Do you feel like it is still primarily being thought of as a component of tech budgets, or are financial institutions increasingly open to viewing agentic products like Autopilot as a component of their labor budgets? And then one more: You have been working with financial institutions for a long time now. Can you talk about the appetite for adopting new products faster today than in the past, and how they are thinking about build versus buy — the balance between adopting AI products from AI-native startups versus established software vendors like Blend Labs, Inc. — and then where the frontier labs fit in? I think we are all trying to figure this out for application software in general. Thank you. Nima Ghamsari: It is interesting. Right now, companies are figuring this out as we speak, so they do not know the answer to that exact question yet. That goes to how we price this in the short term — to allow our customers to use it free for a few months, and even after that we will have flat pricing that is good for us economically and good for our customers, to give them time in the short term to make the right changes in their processes and organizations. Long term, they are aligned to the fact that labor does not need to be scaled up and down with volume anymore. I was having a conversation with the CEO of one of our large customers, and the idea of being able to scale their organization without having to add thousands or more heads is so compelling. It naturally ends up being a labor question. But the more important value proposition, as numbers around conversion rates get set in stone and we have a better understanding, will be even more valuable to our customers. There are so many consumers in this country who can benefit from lower interest rates, or equity from their homes, or consolidating debt — things that have been historically hard for our customers to capture, and hard for consumers because they have to go through a lengthy process. If we can make it really transparent with something like Rapid and then really automated with something like Autopilot, it is going to reduce friction, and therefore consumers will do it, and they will do it with our customers. On adoption appetite and build versus buy, we are in an interesting place where a switch flipped sometime in the first quarter of this year — I think February 2026 — where our customers started to realize how important a transformation this is going to be. Maybe it was because of the Anthropic Claude code explosion in the market. They started to realize the magnitude, and they have put budgets behind AI and AI initiatives. It is important for their customers, for their users, and for their long-term economics as a business. It can do really powerful things, and people are starting to believe that. It is no longer something they felt was a 2027 or 2028 thing; it is, “I can do this now.” The sheer number of our large financial institution customers that have turned these capabilities on on their own, and are in active discussions or in process with us of rolling them out broadly, speaks for itself. They do think through how this fits into their stack. Is it a company like Blend Labs, Inc. that is already driving a lot of their work, internally and for their customers? Are they working with Anthropic or OpenAI or some other company in a big project in a consulting-like fashion? Or are they working with a small startup? In the Autopilot versus small startup frame, because we already have so much of the workflow happening in our system — natural entry points to invoke and spin up AI agents, and then spin them back down — we have a good advantage to help move very quickly for our customers. Our job is to make sure Autopilot is the best product on the market for the exact types of work our customers need to do; in this case, underwriting intelligence like I referenced in the prepared remarks. As long as we do those things, I do not think they will go to a small startup. We have to move fast, and we are moving fast; we have to build a great product, and Autopilot is a great product, doing things that a year ago would have seemed like science fiction to our customers. On the labs versus a company like Blend Labs, Inc., some of that remains to be seen. I have heard of really great things the labs are doing with many of our customers. The size of the pie is probably a lot bigger than anybody understands. The labs are not going to go in and try to build into our workflow to drive value for our customers — I do not think they would — but even if they would, we are already there. We already have it. Speed is very important in adoption. If you have to do a nine- or twelve-month project to get something, versus being able to flip a switch, our job is to make that possible. Operator: We have now reached the end of the Q&A session. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us and welcome to the Outfront Media Inc. First Quarter 2026 Earnings Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. I will now hand the call over to Stephan Bisson with Outfront Media Inc. Please go ahead. Stephan Bisson: Good afternoon, and thank you for joining our 2026 First Quarter Earnings Call. With me on the call today are CEO, Nick Brien, and CFO, Matthew Siegel. After a discussion of our financial results, we will open the lines for a question and answer session. Our comments today will refer to the earnings release and slide presentation you can find on the Investor Relations section of our website, outfront.com. After today's call has concluded, an audio archive replay will be available there as well. This conference call may include forward-looking statements. Relevant factors that could cause actual results to differ materially from these forward-looking statements are listed in our earnings materials and in our SEC filings, including our 2025 Form 10-K, as well as our Q1 2026 Form 10-Q, which we expect to file tomorrow. We will refer to certain non-GAAP financial measures on this call. Any references to OIBDA made today will be on an adjusted basis. Reconciliations of OIBDA and other non-GAAP financial measures are in the appendix of the slide presentation, the earnings release, and on our website, which also includes presentations with prior period reconciliations. With that, let me hand the call over to Nick. Thanks, Stephan. And thank you everyone for joining us today. Nick Brien: We are pleased to be here reporting our first quarter results, which came in better than we had anticipated when we spoke two months ago. The strong demand and the excellent execution from our entire organization drove the performance. As you can see on Slide 3, it summarizes our headline numbers. Consolidated revenues were up 10% driven by 22% growth in transit and 7% growth in billboard, while consolidated OIBDA was up 56% to about $100 million and AFFO more than doubled to $61 million. Notably, these results include $13.5 million of combination billboard revenues and OIBDA that we highlighted when we provided our guidance in February. Slide 4 shows our more detailed revenue results. Billboard revenues were up 7.1%. Included in our comparative billboard results are two notable items this quarter. First, approximately $13.5 million of revenue in Q1 2026 related to the billboard combinations I just mentioned. Second, our previously announced exit of a large marginally profitable billboard contract in Los Angeles, as the revenues and expenses of this contract are still included in our reported 2025 financial statements. Excluding the billboard revenue generated by both of these items, billboard revenue growth would have been up over 4%. The strongest billboard categories in the quarter were legal and tech. Transit grew by 22%, again led by the New York MTA, which was up over 26% in Q1. Our strongest transit categories in the quarter were tech and financial. Slide 5 shows our detailed billboard revenue, which, as I mentioned earlier, was impacted by the outsized combination revenue and the large Los Angeles billboard contract that we exited. On a reported basis, static and other billboard revenues were up 7.6% during the quarter, and digital billboard revenues were up 6.1%. However, excluding the revenue generated by both of these items, static and other billboard revenues would have been up nearly 2%, and digital billboard revenues would have been up over 10%. Slide 6 shows our detailed transit revenue, which grew over 22% during the quarter. Our digital transit revenues were up over 26% to about $45 million, and static transit revenues were up almost [inaudible]. The strength in our transit business was led by our commercial team this quarter, which grew their revenues at a clip of 35%. We remain immensely proud of the performance turnaround in this important line of business, continuing to be driven through smarter product marketing and innovative focused sales approaches. While technically occurring in the second quarter, I would like to highlight a recent activation with British Airways in the New York MTA that you can see on the cover of our slide presentation. As part of this innovative campaign, we wrapped the shuttle to resemble an airliner and enabled their flight attendants to visit Grand Central and Times Square to hand out English biscuits to hungry commuters. Slide 7 shows our combined digital revenue performance, which grew over 11% in the quarter and represented about one-third of our total revenues. Even more impressive, excluding the aforementioned Los Angeles contract, digital revenues would have grown by nearly 15%. Programmatic and digital direct automated sales increased nearly 40% during the period, now representing 20% of total digital revenue, up from 16% a year ago. On the topic of programmatic growth, I would like to also highlight the recent addition of a very senior digital sales leader from the [inaudible] with deep expertise across programmatic advertising, data analytics, measurement, and omnichannel media activation. This strategic hire further advances our evolution into a modern media company built around digital expertise, audience intelligence, and measurable outcomes. Jeff Hackett’s leadership will help us maximize the value of our unified ad tech stack, update the management platform and trading partnerships, while strengthening our position with programmatic buyers who are increasingly extending audience-driven strategies into premium IRL media environments. In turn, we believe we are better positioned to capture this growing demand and demonstrate how IRL media enhances platform-based omnichannel campaigns through greater targeting precision, breakthrough creative, and measurable performance in the real world. Moving on, the breakdown of commercial and enterprise revenues can be seen on Slide 8. Commercial revenues were up 19% during the quarter, or 13% excluding the $13.5 million combination revenues that we realized during Q1. Enterprise was down about 2% during the first quarter, predominantly related to the exit of the large Los Angeles contract. Slide 9 shows our billboard yield growth, which was up 11% year-over-year to over $2.9 thousand per month, driven by higher rates as well as billboard combinations. Excluding combination revenue from both periods, billboard yield would have been up about 6.5% given our strong revenue performance and continued practice to prudently optimize our billboard portfolio. Summing up, we are pleased with our Q1 performance, and I am happy to report we are seeing these strong top-line trends continue into the spring and summer. I will discuss in greater detail later. With that, let me now hand it over to Matt, who is going to review the rest of our financials. Thanks, Nick. Good afternoon, everyone. Matthew Siegel: Please turn to Slide 10 for a more detailed look at our billboard expenses. In total, billboard expenses were up about $5 million, or approximately 2% year-over-year. Zooming in on lease costs, these expenses were up about $2 million, or about 2% year-over-year. The increase was driven by higher variable lease costs and contractual escalators on fixed leases, offset partially by $4 million of savings related to the large billboard contract in Los Angeles that we exited. Excluding the impact of the Los Angeles portfolio exit, billboard property lease expense would have been up about 5%. Posting, maintenance, and other expenses were up over $1 million, or about 4%, due to higher maintenance and utilities, higher site-related costs, and higher compensation-related expenses. SG&A expenses grew just over $1 million, or about 2%, due primarily to higher professional fees, including software and technology expenses, and a higher allowance for bad debt, partially offset by lower credit card usage by customers and lower compensation-related expenses. This $5 million increase in total billboard expenses, combined with the growth in billboard revenues Nick described earlier, led to billboard adjusted OIBDA increasing by about $17 million, or 18%. Excluding the impact of the billboard combinations in the quarter, billboard OIBDA would be up around 4%. Now turning to transit on Slide 11. In total, transit expenses were up $4.5 million, or just under 5% year-over-year. Transit franchise expense was up 3% due primarily to the annual inflation adjustment to the MAG for the MTA contract. Posting, maintenance, and other expenses were up just over $1 million, or about 8%, due primarily to higher display production costs and higher posting and rotation costs. SG&A expenses were up $1.5 million, or about 9%, due primarily to higher compensation-related expenses and higher professional fees, including software and technology expenses, partially offset by lower credit card usage by customers. The 5% increase in total transit expenses, combined with the 22% transit revenue growth described earlier, led to transit adjusted OIBDA improving by about $13 million during the quarter to an adjusted OIBDA loss of a little over $1 million. While on the topic of transit, I would like to quickly discuss some important developments regarding the New York MTA. Given our strong Q1 results and an improved outlook for the remainder of the year, we now believe that our 2026 New York MTA revenues will surpass the defined baseline revenue level, which we often describe as the MAG level. As a reminder, based on our prior expectations at the beginning of the year, we continued to record the MAG on a straight-line basis rather than account for the contract on a revenue share basis. Due to the seasonally lower revenues in Q1, this resulted in approximately $7 million of additional expense than if we had recorded the contract on a revenue share basis. We expect to account for this benefit from the straight-line MAG in Q2 and Q3 when the revenue share expense would have exceeded the MAG. By the end of Q3, we will be caught up on a year-to-date basis. Then for the fourth quarter, we will book the full calculated revenue share amount, which will show a substantial increase in transit franchise expense from the prior period when we were just recording the MAG. A benefit of being above the MAG level means that we will return to recouping the digital investments we have made in the MTA since the inception of this contract in 2018. Let me remind you how this works, as it has been a number of years since we last recouped. Any incremental transit franchise expense due to the MTA above the MAG will not be paid in cash, but rather utilized to reduce our significant recoupable investment balance with the MTA, meaning each incremental dollar of revenue will remain extremely accretive on a cash basis. Recoupment will positively impact our net working capital and cash balances but will not impact adjusted OIBDA, AFFO, or net income. Given the recoupment will not flow through net income, the monies recouped will not be subject to the redistribution requirements. On Slide 12, the company's adjusted OIBDA in the first quarter benefited from lower corporate expense, which declined by about $6 million due primarily to lower compensation-related expenses, including last year's severance, and lower professional fees. Combined with the billboard and transit OIBDA, which includes a benefit of the condemnation discussed earlier, adjusted OIBDA totaled about $100 million, up 56% compared to last year. Before moving on, I would like to quickly discuss some important growth investments we are making at Outfront Media Inc. during 2026 to support our ambitious revenue targets for this year and beyond. First, we are investing in our technology. We have modernized many of our systems in 2025 and early 2026, including a new CRM, training modules, and our partnership with AdQuick. While each of these improvements is more costly than the systems they are replacing, we expect that each will assist us in accelerating our top-line revenue growth. Second, we are investing to continue improving our workflow and processes. So far, we have started to improve how we approach inter-region revenue opportunities and our RFP response process. We have brought back the same consultant who assisted us last year, but importantly, much of their potential fee is success-based and, as such, will only be paid should we realize benefits from their efforts. Turning now to capital expenditures on Slide 13. Q1 CapEx spend was about $24 million, including about $7 million of maintenance spend. We converted 14 new billboards to digital in Q1 and expect to add a total of about 125 in the full year. For 2026, we still expect to spend approximately $90 million of CapEx, with $30 million to $35 million of this total expected for maintenance. Looking at AFFO on Slide 14, you can see the bridge to our Q1 AFFO of $61 million. The improvement is principally driven by higher adjusted OIBDA. Based on the first quarter results, our expected revenue growth for the remainder of the year, and our investment in our business, we now expect that our reported 2026 consolidated AFFO will grow in the mid-teens relative to our reported 2025 AFFO of $338 million. Included in this guidance is previously noted maintenance CapEx, interest expense of approximately $145 million, and a small amount of cash taxes. Please turn to Slide 15 for an update on our balance sheet. Committed liquidity is over $700 million, including $70 million of cash, around $500 million available via our revolver, and $150 million available via our accounts receivable securitization facility. As of March 31, our total net leverage dropped to 4.3 times, well within our four to five times target range. Turning to our dividend, we announced today that our board of directors maintained a $0.30 cash dividend payable on June 30 to shareholders of record at the close of business on June 5. We spent just over $8 million on acquisitions during the quarter, and looking at our current acquisition pipeline, we continue to expect our 2026 full-year deal activity to be similar to levels reached in recent years. With that, let me turn the call back to Nick. Let me jump in. Nick is having some audio problems. I will keep going. As Nick mentioned earlier, the top-line strength we saw in the first quarter has continued into the spring and summer, and from where we sit today, we expect second quarter revenue growth to accelerate to over 10% year-on-year, driven by about 30% growth in transit and mid-single-digit growth in billboard. These figures include a benefit related to the U.S. role as a World Cup host in June and July, as well as a headwind created by our strategic decision to exit a large marginally profitable billboard contract in Los Angeles, which generated about $4.4 million of billboard revenue in Q2 2025. Outfront Media Inc. has gone through significant change over the past year, executing the strategic imperatives we shared with you at that time. At the same time, we have reimagined out-of-home and our company's leading role within it. An important part of this process has been refining how we communicate our value proposition to the world, and just last week, we launched our new brand platform as a declaration: Outfront is the leader in IRL media. In a world of endless scrolling, muted ads, and algorithmic noise, we exist in the one place no one can opt out of, the real world. Our media does not just reach people. It moves them. IRL media is where culture lives. It is where brands stop interrupting and start belonging in the cities and communities that shape daily life. For far too long, our industry has defaulted to talking about inventory and impressions. That is not our story. Our story is influence and impact: the breakthrough experiences we create, the cultural moments we amplify, and the real outcomes we drive for partners looking to build trusted brands in the real world. Our clients know this and are increasingly choosing IRL media to drive the results they seek. To close, we are redefining what out-of-home means in a rapidly changing, agentic advertising world. The physical world is the last uncluttered, brand-safe, fully viewable canvas in media, offering brands the ability to show up and interact with people where their attention is the highest. Our premium inventory is immersive and experiential with national scale. In our view, the sky is the limit. Operator, let us now open the lines for questions. We will see if we can get Nick back on the line. We will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Daniel Osley with Wells Fargo. Daniel, your line is open. Please go ahead. Analyst: Thanks. Maybe a bigger-picture question: I wanted to get your industry outlook on measurement modernization. I saw the OAAA recently announced a new pilot program. What is your view on the timing of all this and the potential benefits the industry could see on the other side? And then as a follow-up, how do the measurement partnerships that Outfront Media Inc. has recently announced tie in here? Matthew Siegel: Dan, sorry. Nick is still having some audio problems. Obviously, measurement is a key factor for the industry overall. It is been something the industry has been lagging behind on. Nick and the other leaders of the industry are working with OAAA and Geopath, bringing in consultants, and really trying to move the measurement dialogue and capabilities forward. Some of the partnerships we have signed up, like AWS and AdQuick in particular, we think will help us. AdQuick has some great measurement capabilities, demonstrating a viable currency, and hopefully, over time, maybe a proof of concept for greater industry adoption. We will see how it works for us first. Thanks, Dan. Operator: Your next question comes from the line of Cameron McVeigh with Morgan Stanley. Cameron, your line is open. Please go ahead. Analyst: Great, thank you. First, I was curious about your view on one of your peers potentially being taken private and the implications on asset sales in your acquisition pipeline as you think through the remainder of the year. Is this a potential opportunity for you going forward? And then secondly, you mentioned this in the prepared remarks, but could you help size the potential impact of the World Cup over the next couple of quarters and the midterm elections in the back half of the year, just as we think through the cadence of growth? Matthew Siegel: Sure. First, peers. Obviously, we level our peers. They are fine people. With one of the large peers or competitors going private, it is interesting. A capital infusion will likely make them healthier, which I think is great for the industry. They can be more nimble and invest in the business and invest in the industry overall. We have not heard that there are any asset sales coming out of that, but to the extent there are asset sales from them or really from anyone else that are material in our footprint or would make strategic sense, we think our balance sheet is in a much better place than it has been in the last few years. Our capabilities are strong, and we would expect to participate in something that is interesting. As far as sizing the impact for the World Cup, we are not prepared to share numbers there. We have about 70 customers overall. The numbers that we have heard in media seem to be in the right neighborhood, but we are still calculating. We still think we have business to book in the second quarter and certainly in the third quarter, and we will give you a much greater in-depth explanation in August. Nick Brien: I just wanted to add on the World Cup. As Matt said, we have got over 40% of the FIFA sponsors. What is exciting is that a lot of those significant brands and the big sponsors actively use our medium, but they do not use it as much as we would like. We see FIFA and the World Cup as a way of really attracting some of the biggest brands to demonstrate how they are building their brands in real life. It is an exciting time for us. Matthew Siegel: Thanks, Cameron. Operator, next question. Operator: Your next question comes from the line of Kaleksi Filipov with JPMorgan. Your line is open. Please go ahead. Analyst: Yes, thank you very much. Transit grew 22% in the quarter, well above your high-teens guide that you gave in February. Can you help us understand what drove that upside relative to your preliminary expectations in February? And you mentioned 26% for New York MTA specifically. It looks like other transit contracts are also doing rather well. Is there an unexpected turnaround there too? And if I may follow up related to transit: thinking about FIFA benefit, is it primarily around billboards, or do you expect this to be a meaningful thing for New York MTA? Wonder how your clients think about that. Transit officials in New York already note the work-from-home impact on traffic inflow, so just qualitatively, how to think about benefits for New York? Thank you. Matthew Siegel: Sure, thanks for the question. I will start, and Nick, you can jump in. First, transit is going well. It is led by the MTA and, frankly, for the last few years, when transit was not, it was the MTA. The MTA is more than half of our transit revenue. It is about seven or eight times the next largest transit franchise. We have a great focus there. So the 26% growth in the MTA is obviously what is leading transit. Other transit franchises like BART in San Francisco are doing pretty well. San Francisco is one of our best performing markets in the first quarter. I think one of our peers also had very strong San Francisco growth, led certainly by tech and the repopulation of the city. As far as FIFA, we are taking business in both billboard and transit. Frankly, the influx in all the big cities of tourists—it is not just near the stadiums—but the influx of attractive demographic tourists and the ability for them to move around cities and move underground and above ground are hitting our inventory, again above and below ground, and we are very happy to have it. Nick, you want to add something on FIFA and transit? Nick Brien: Thank you for your question. As I mentioned earlier on the New York MTA, this has been significantly strengthened by dedicated focus on the product market and the unique attributes of our transit within the context of the cities that they serve, as well as the innovation and the opportunity for creating brand experiences. As you saw on the front cover, the British Airways wrap demonstrates that this is becoming more exciting because transit is a really compelling platform for IRL media activation. The experiences can be created, and we are celebrating those and pricing them accordingly. That has made a big contribution. Operator: Your next question comes from the line of Patrick Scholl with Barrington Research. Patrick, your line is open. Please go ahead. Analyst: Hi, thank you. Congratulations on the milestone on the MTA. Could you remind us how the revenue share on the MTA works when revenue generation is above the MAG? Matthew Siegel: Sure. It has been a while, so it is good to refresh everybody. The MTA is a 70% revenue share contract. The gap between 70% and the MAG level—which historically was around a 55% equivalent—was intended not to be a cash payment, but to allow Outfront Media Inc. to recoup the investment that we made in the screens upfront. We would qualify for that recoupment if we got above that baseline revenue line, which is what we commonly refer to as the MAG line. So while we will be expensing a 70% revenue share cost to the MTA, we will not be sending the MTA a check for the gap between the MAG and the revenue share. We will be using that to pay down some of our recoupable balance and offset some working capital. Obviously, it is a big number. It is not going to be paid down all this year, but it is good to get back to that recoupment plan and start to get paid back for some of the screens we invested in. Analyst: Okay, thank you. You had mentioned San Francisco doing a little bit better, and so has one of your peers. I was just curious, post-events, if that has been sustained and to what extent, and if there is a benefit from the World Cup on some of the depopulated cities to the extent that could benefit those markets as well. Thank you. Nick Brien: Yes, Patrick. We have definitely seen the early success, as well as having a very strong team. Also, obviously, the strength in San Francisco with AI developments. When I look at the size of not just the big players like OpenAI and Anthropic, but also the pure-play native AI companies, we have Genspark, CodeRabbit, Nebius, Arise.ai, and they are shifting towards a physical reality. These are pure-play technology companies that have a huge interest in the trust and the physical nature of our medium. Those campaigns are extending now outside of San Francisco, but that is providing a very solid revenue stream for us in that important market. Operator: There are no further questions at this time. I will now turn the call over to Nick Brien. Nick? Nick Brien: Thank you. I do not think I could have articulated my closing summary for the earnings better than that. I apologize again for the technology mishap here. The one thing that I want to close with is the fact that we have various conferences and events across the spring and summer, and I will continue to be with the team articulating how I see and feel this remarkable shift that we are experiencing now in the agentic advertising world: the power of this medium that I have always believed has been undervalued when we think about its tremendous scale, tremendous value, and proven trust, and therefore, the influence it has for consumers and people. As I said at the close, and Matt shared, the sky is the limit. I am excited that the organization has really stepped up to follow all those initiatives we set out for transformation velocity in March 2025, and here we are not far—about a year—after that and seeing the fruits start to appear. It is really a testament to the remarkable focus and hard work of the entire organization. I look forward to sharing more of that on the road and look forward to presenting our Q2 results to you in August. Thank you so much for your time. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Welcome to the SIGA Technologies, Inc. business update call. Before we turn the call over to SIGA Technologies, Inc. management, please note that any forward-looking statements made during this call are based on management's current expectations and observations and are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. SIGA Technologies, Inc. does not undertake any obligation to update publicly any forward-looking statement to reflect events or changes in circumstances after this call. For a discussion of factors that could cause results to differ, please see the company's filings with the Securities and Exchange Commission, including without limitation, the company's Annual Report on Form 10-K for the year ended 12/31/2025, and its subsequent reports on Forms 10-Q and 8-K. With that, I will turn the call over to Diem Nguyen, Chief Executive Officer of SIGA Technologies, Inc. Diem Nguyen: Good afternoon, everyone, and thank you for joining today's call and review of our business results. I am joined by Daniel J. Luckshire, our Chief Financial Officer, and we appreciate this opportunity to provide an update on our company. After the update, we will be happy to answer your questions. SIGA Technologies, Inc.'s focus remains unchanged: partnering with governments around the globe to build and strengthen long-term preparedness strategies against potential biological threats, specifically smallpox. We are proud to supply our smallpox antiviral treatment to many countries and NGOs, and we remain committed to ensuring that TPOXX is positioned for rapid, large-scale deployment whenever it is needed to help save lives. The case for preparedness has never been stronger. Smallpox and other high-consequence threats, whether the result of an accident, a deliberate act, or a natural occurrence, represent a real and serious threat that can be managed only with proactive, sustained investment. Stockpiling medical countermeasures is a cornerstone of preparedness strategies. And in today's environment of rising geopolitical tension, accelerating technological risk, including those enabled by AI tools, and growing biological threats, the urgency to make that investment is clear. We believe TPOXX is uniquely suited to meet the smallpox threat with a well-established safety profile and targeted mechanism of action that supports broad use in emergency situations. The 2026 period reflected a variable rhythm inherent to our business. Activity levels vary quarter to quarter. The first quarter had minimal product deliveries, whereas in the second quarter, we expect to deliver approximately $13 million of oral TPOXX to an international customer, as well as make additional IV TPOXX deliveries to the SNS. As a reminder, given this quarter-to-quarter variability, we recommend that our results be viewed in the context of our longer-term performance rather than in isolation. We believe our long-term outlook continues to offer substantial opportunities. This belief is grounded in the fundamentals of our business and the enduring need for governments to protect against biological threats. We continue to maintain engagement with the U.S. government, particularly key stakeholders at HHS. Although the pace of progress toward a new contract with the U.S. government has been slower than prior contract processes, we believe the $27 million in funding secured in 2025 to support pediatric formulation development and IV TPOXX technology transfer efforts, as well as the 2025 IV TPOXX order, are strong signals highlighting the continued role TPOXX is expected to play in U.S. biothreat preparedness. It is worth reiterating that SIGA Technologies, Inc.'s operating model is closely aligned with U.S. government priorities. Specifically, the U.S. government receives our lowest price for oral TPOXX, and our active pharmaceutical ingredient and all finished drug products are manufactured domestically. Turning to our international business, we continue to engage with governments and other key stakeholders around the world who continue to review their preparedness strategies and funding. Strategic stockpiling remains central to those conversations. Government procurement is a deliberate process. That said, discussions continue, and we see potential for additional international sales over time. As noted last quarter and earlier on this call, we received a $13 million order from a country in the Asia-Pacific region which we expect to deliver in the second quarter of this year. We also took important steps towards potential sales in a region where SIGA Technologies, Inc. has historically been underrepresented. We recently entered into an exclusive license and distribution agreement with Hikma MENA FZE. They give Hikma the right to register and commercialize TPOXX across the Middle East and North Africa, or MENA. Under the agreement, SIGA Technologies, Inc. will serve as the exclusive manufacturer and supplier of finished product for Hikma. This agreement represents a key step in our strategy to broaden global access to TPOXX, and Hikma is the right partner for it. Their unparalleled regional presence and deep expertise in bringing innovative medicines to market make Hikma well positioned to bring TPOXX to these markets. Turning to our pipeline, we continue to advance our post-exposure prophylaxis, or PEP, and pediatric programs. On the pediatric program, we filed our IND and initiated a Phase 1 study. Results are expected in the second half of this year, which will inform next steps. On the PEP program, the CDC continues work on the analysis of immunogenicity samples. We are targeting an FDA submission for the PEP indication in the next 12 months. Looking forward, we remain focused on what has always driven this business: financial and operational discipline, and building on the partnerships that position SIGA Technologies, Inc. for long-term success. As we move further into 2026, we do so with a clear sense of purpose. The global need for biological preparedness is real and growing, and SIGA Technologies, Inc. is prepared to meet it. We have a product approved by regulators around the world, strong government relationships, and a team that executes. We look forward to continued progress and to updating you along the way. I will now turn the call over to Daniel J. Luckshire for the financial results. Daniel J. Luckshire: As noted earlier in the call, the company had minimal product deliveries in the first quarter, reflecting the variable rhythm of SIGA Technologies, Inc.'s business model. Product revenues for this quarter include approximately $1 million of IV TPOXX deliveries to the SNS and approximately $2 million of reimbursement revenues in connection with the manufacturing technology transfer. In addition to product-related revenues in the first quarter, the company also had research and development revenues of approximately $3 million. As I talk about revenues, I would like to highlight that we expect second quarter product revenues to reflect the delivery of approximately $13 million of oral TPOXX to an international customer, as well as additional IV TPOXX deliveries to the SNS. Returning to the first quarter financial results, pretax operating loss for the quarter, which excludes interest income and taxes, was approximately $5 million, and net loss for this period was approximately $3 million. In turn, fully diluted loss per share for the three months ended 03/31/2026 was $0.05. The company continues to maintain a strong balance sheet. As of 03/31/2026, the company had a cash balance of approximately $146 million and no debt. Based on the company's substantial cash balance, a special cash dividend of $0.60 per share was declared on March 26 for shareholders of record as of April 7. The special cash dividend was paid on April 23. This concludes the financial update. I will now turn the call back to Diem Nguyen. Diem Nguyen: Thank you, Dan. We will now open the call for questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. Your first question comes from Jyoti Prakash with Edison Group. Please go ahead. Jyoti Prakash: Hi, good afternoon, and thanks for taking my questions. My first question is related to CHMP's recent recommendation that TPOXX should not be used for MPOXX treatment. Now this is largely expected, and you had also guided for this previously. But do you see any impact of this decision on TPOXX's broader labeling in smallpox and other orthopoxviruses in Europe? Diem Nguyen: Jyoti, thank you so much for asking the question. Just as a reminder for those on the call, we had shared earlier that the CHMP has confirmed the positive benefit-risk balance of tecovirimat, which is known as TPOXX in Europe, as a treatment for smallpox, cowpox, and vaccinia complications. Those indications have been reaffirmed by CHMP. And as you mentioned, the CHMP had recommended to the European Commission to withdraw the MPOXX indication. We are currently taking the necessary regulatory steps to inform all relevant stakeholders, as well as implement the CHMP recommendation following its adoption by the European Commission. Having said all that by way of background, TPOXX was developed as a treatment for smallpox to save lives and to serve as a critical countermeasure against smallpox. Smallpox is one of the world's most dangerous biothreats, and this antiviral is needed in the event of an outbreak. In contrast, the MPOXX trials measure tecovirimat's benefit using complete lesion resolution, an endpoint related to the immune activity in patients already progressing toward self-resolution. Stabilized patients suffering from smallpox have been and will continue to be SIGA Technologies, Inc.'s focus. Jyoti Prakash: Thank you, this was quite helpful. And my next question is related to the dividend payout. You recently paid out the fifth consecutive annual special dividend. Now this is a sign of a strong balance sheet, but how comfortable are you returning this level of capital while maintaining sufficient liquidity through the potential gaps in government ordering, particularly given that the revenues tend to be lumpy? Daniel J. Luckshire: Hi, Jyoti. Maybe as a starting point, just to point out that the 2026 dividend, as well as prior dividends, were declared and have been declared and paid with the understanding that we do have a business model that is subject to variability. This variability has been a consistent feature of SIGA Technologies, Inc.'s business model, so it is not really a new thing. We have been navigating this over the years. In assessing a potential dividend in 2026, we considered many factors, including our continuing focus on deploying capital to drive the greatest value for shareholders, as well as our substantial cash balance, which at March 31 was approximately $146 million. When you take into account the dividend on a pro forma basis, the cash balance would still be over $100 million, and with no debt. So when you take all these things into account, as well as multiple other considerations, the company believes that we continue to be well positioned to navigate any near-term gaps in government ordering. Jyoti Prakash: That is great, Dan. And you mentioned that your cash position remains strong even after the dividend payout. Now if we look ahead, what would be your key priorities for capital deployment? And we have asked this previously, but are you actively considering acquisitions or in-licensing opportunities? Daniel J. Luckshire: Yes. As you mentioned, it has been a discussion point in the past. And the answer is yes, we continue to explore ways to expand the pipeline, either through acquisition or in-licensing. As we have highlighted on prior calls, we remain committed to deploying capital in ways that we believe will drive the greatest value. That could be through dividends, through acquisitions, through in-licensing, or through other means. Jyoti Prakash: Thank you, that is very helpful. And I have one final question, and this relates to international markets. You have announced a large $13 million order from the Asia-Pacific, which will be delivered in Q2. And you also announced the recent licensing agreement with Hikma for the MENA region. Are you seeing a broader increase in stockpiling interest across all international markets, or is it restricted to any particular geographies? And just following on from that, on the Hikma agreement, can you provide a bit more color on the deal economics, and if it is structured similarly to your previous partnership with Meridian? Diem Nguyen: Yes, I can take that. As we mentioned earlier in the call, we do expect to deliver approximately $13 million of oral TPOXX to an international customer in the second quarter. We remain engaged and active with other potential customers, and we will provide updates as additional orders occur in this region as well as others. It is not specific to a target region. In addition, with our conversations with Hikma, we are quite enthusiastic and excited about the opportunity, as we believe Hikma can help unlock demand across the MENA region, which was underrepresented for SIGA Technologies, Inc. before. As noted in our prepared remarks, their strong regional presence and deep expertise navigating complex procurement processes make them a highly strategic and attractive partner to bring TPOXX to these markets. In short, from a deal construct perspective, we will supply finished product to Hikma, who will manage the customer relationships in the region. TPOXX will be sold at a price set forth in the agreement. SIGA Technologies, Inc. may also be entitled to additional payments under certain conditions. The financial terms of the agreement are confidential and will not be further disclosed. Jyoti Prakash: Thank you, this is very helpful. No further questions from my side. Operator: There are no further questions at this time. I will turn the call back over to Diem Nguyen. Diem Nguyen: I would like to thank everyone for making the time to join us on today's call and for your ongoing interest in SIGA Technologies, Inc. We look forward to speaking to you again in our second quarter call. Operator: Have a great evening. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Full House Resorts, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, as a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Adam Campbell, Corporate Controller. You may begin. Adam Campbell: Thank you, and good afternoon, everyone. Welcome to our first-quarter earnings call. As always, before we begin, we remind you that today's conference call may contain forward-looking statements that we are making under the Safe Harbor provision of federal securities laws. I would also like to remind you that the company's actual results could differ materially from anticipated results in these forward-looking statements. Please see today's press release under the caption “Forward-Looking Statements” for a discussion of risks that may affect our results. Also, we may reference non-GAAP measures such as adjusted EBITDA. For reconciliations of these measures, please see our website as well as various press releases that we issue. Lastly, we are also broadcasting this conference call at fullhouseresorts.com, where you can find today's earnings release as well as all of our SEC filings. With that said, we are ready to go, Lewis. Lewis A. Fanger: Good afternoon, everyone. We will be quick with our prepared remarks today since I know there is another call about to start. We had a solid first quarter. Revenues were $74.4 million in 2026, which compares to $75.1 million in last year's first quarter. Within this, American Place was up about 7%. Also, keep in mind that last year's number included $1.3 million of revenue from Stockman's, which we sold in April 2025. So on an apples-to-apples basis, revenues grew by 0.9% in the first quarter. Adjusted EBITDA in 2026 rose to $13.2 million. That is almost 15% higher than our adjusted EBITDA in last year's first quarter, which was $11.5 million. We had growth at almost all of our properties: American Place, Chamonix and Bronco Billy's, Silver Slipper, and Rising Star all had large percentage increases in EBITDA. At Grand Lodge, which is our smallest property, we continue to be impacted by refurbishment work that, when it is done, should meaningfully upgrade the overall experience. Regarding our sports skins, last year we had an additional active skin. So the decline in 2026 reflects that fact. At American Place, our temporary casino continues to show significant growth. Revenues increased by 7% to $31.8 million in 2026. Adjusted property EBITDA rose 8% to $8.3 million in 2026. Our table games hold was 1.2 percentage points lower than in last year's first quarter. For April 2026, the state's gaming revenues just came out. We had a very good April, which you probably already saw yesterday, with total gaming revenues up almost 6% versus April 2025. Our table hold percentage was off again in April 2026. If we held as expected, our total gaming revenues would have been up almost 16% versus April 2025. Turning to Chamonix and Bronco Billy's, our revenues were down slightly to between $11.3 million and $11.6 million. Revenues were affected by several things. First, the Bronco Billy's casino was pretty torn up in January and February as we replaced carpets and installed new ceilings. The Bronco Billy's side now feels quite complementary to the Chamonix experience. Second, the unseasonably warm weather resulted in less cash business in the quarter. Two of Cripple Creek's biggest events both occur in the winter—Ice Fest and Ice Castles—both great experiences, and each one brings more than 100 thousand people to town. But warm weather hindered those experiences and adversely affected city visitation. Third, we had some unprofitable promotional activity in the prior-year period. We have an entirely new management team that joined us beginning in April, and they are working to make sure that our marketing spend is much more efficient. We had a good quarter in Colorado despite those factors. In last year's first quarter, adjusted property EBITDA was minus $2.3 million. In this year's first quarter, it was minus $1.3 million, an improvement of 42%. It is a seasonal market strongly favoring the upcoming summer months. With the new property team, we have spent a lot of time focusing not just on efficiency and cost, but also on our overall marketing efforts. That analysis continues to show a huge opportunity for us. Awareness and penetration in Colorado Springs remains extremely low. As guests visit us for the first time, they realize that we did not build a commodity product of more slot machines. They realize that we created a very unique experience. We often compare Chamonix to Monarch in Black Hawk, as both have similar levels of quality and are targeting a similar type of guest. The total Black Hawk gaming market, not including the neighboring casino town of Central City, was about $875 million over the last 12 months. Monarch has a third of the hotel product in Black Hawk, so it is reasonable to think that they have at least a third of the gaming revenue. The reality is they could be higher than that given their skew toward a higher-end guest. Using those numbers as a basis, our slot win per day at Chamonix and Bronco Billy's was about one-fourth of Monarch's slot win per day. Our table win per day was about 16% of Monarch's. Therein lies the opportunity. The numbers that Monarch is generating are not unusual when an underserved gaming market is presented with a high-quality destination. If we can improve our win-per-day figures so they are just 45% of Monarch's, then we will have earned a very good return on our investment in Chamonix. Part of that improvement will involve ramping our hotel occupancy from 41% today to the 80%+ that Monarch achieves. And so the marketing team is laser-focused on awareness. There are about 1 million people in the broader Colorado Springs area. There are another 400 thousand people that live in the southern suburbs of Denver. That is about 1.4 million people for our 300 guest rooms and 700 gaming positions. Within that geographic spread, there are several specific ZIP codes that can meaningfully move the needle, and those ZIP codes are receiving a lot of our attention in a new digital campaign that we are rolling out. Preliminarily, April had good numbers with an estimated 9% increase in net slot win and a 20% increase in net table win. On the balance sheet side, we had about $41 million of liquidity at the end of the quarter, including the undrawn portion of our revolver. The summer season tends to be our strong season. That, combined with a lack of any major construction spend right now, should benefit overall cash flow in the near term. We have been very transparent about our efforts to fund the permanent American Place casino as well as refinance our existing debt. If you recall, we mentioned on our last earnings call that we have been working with a funding source that is prepared to fully fund construction of the permanent American Place casino. We have funded the gaming license, land, slot machines, temporary casino, assembly of the workforce, and the mailing list—all at a total investment today of about $170 million. The new financing will provide the approximately $300 million needed to move into the permanent facility. That solution requires a lot of legal paperwork, which the team is diligently making its way through. We continue to feel very good about that solution and look forward to giving you more details once we can, potentially in the next few weeks. We are confident enough on that financing that we expect to commence construction within the next few weeks. The early stages of construction take time but not much capital. By starting now, we hope to open the permanent American Place about two years from now. Our earthmoving drawings were approved a couple of weeks ago by the City of Waukegan, and we are working to obtain the other government approvals needed to begin construction. We have put together a good construction team that is well-versed in building regional as well as destination casinos. They include Power Construction, which is currently building the new Hollywood Casino in Aurora, Illinois—one of the largest builders in the Chicagoland area. We have W.A. Richardson Builders, who will act in an oversight role—one of the largest construction firms here in Las Vegas with great experience developing casinos from their days at Mandalay Resort Group, including the Grand Victoria Casino in Elgin, Illinois. They also recently built the Fontainebleau and Durango resorts here in Las Vegas. And then we have WATG as architects. Their team has a long list of hospitality projects under their belts, including The Venetian in Las Vegas and the Hard Rock in Rockford, Illinois. Lastly, we are concurrently allowed to operate our temporary until August 2027. In conjunction with our anticipated financing, a bill was introduced in the Illinois legislature to extend that date by 18 months. That would ensure a smooth transition from the temporary to the permanent, including continuation of the approximately $30 million per year in gaming and other state taxes that we currently pay. Typically, items like this in the legislature are voted on late in the session, which ends on May 31. That is everything I had, Dan. What did I miss? Daniel R. Lee: I do not think you missed it. Lewis A. Fanger: Let us go to questions. We will now open the call for questions. 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. Our first question comes from the line of Jordan Bender with Citizens Bank. Please proceed with your question. Jordan Bender: Hi, everyone. Good afternoon, and thanks for the question. Maybe not the quarter that you wanted necessarily in Colorado, but on the expense side, that continues to look better. I see my math gets me to expenses down about 10% in the quarter. How much more do you think you have left to take out if we do not get any material revenue uplift from here? Daniel R. Lee: There is a lot of blocking and tackling that has happened, and we will continue to control costs. But there is stuff like we have an outsourced housekeeping service, which only cleans about nine rooms a day, and we end up paying for that. Down at the Silver Slipper, we clean 14 rooms a day. So we are looking to bring that in-house, and we have to hire about 30 housekeepers to do that. Our laundry service—we think we can get more efficient. We hired an AGM in the first quarter who has a background in hospitality and food and beverage, and he was in a similar role at the Ameristar in Council Bluffs, and before that the Ameristar in East Chicago. He is a really good guy, and he is working on that sort of thing. We also hired a finance director in the first quarter. Frankly, we are getting much better reporting out of it, and that is helpful. But to really get to where we want to be, we need to improve the revenues. We have a lot of new marketing people working on that, and it is much more sophisticated than it was a year ago. It is a constant process to try to make the marketing spend more efficient and targeted—like Lewis mentioned, digitally approaching certain ZIP codes. That is a more efficient way to do it. Of the other things we are looking at doing, the business there is very—like most casinos—slanted towards the weekend. You are trying to hire people in a somewhat difficult place to hire them up in the mountains. So we are looking at going out and offering people a $5-an-hour premium if somebody only wants to work on weekends. The backstory on that is if somebody is willing to go on our payroll working only, say, Friday and Saturday, they will not qualify for the health plan because it is less than 32 hours a week. The health plan costs us more than $5 an hour per employee. You might find somebody who is already gainfully employed, or maybe they are retired non-Medicare, but they like the idea of being a barista in our coffee place on Saturday mornings—it gets them out of the house. We would love to have that employee. We are looking at all sorts of ways to be more thoughtful, efficient, and effective. It does not happen overnight, but it is happening. Frankly, the April numbers are pretty encouraging because I feel like we have our footing on the marketing stuff, and we are starting to show really strong numbers. April was a good month. May looks pretty good so far. Hopefully we continue to build on that going into the summer. We are controlling costs, but ultimately it is about growing the revenues. Lewis A. Fanger: And those incremental revenues—you have probably heard me say this before—at this point the cost structure is pretty fully baked, so the flow-through from those incremental revenues should be pretty steep. We did just reopen a Mexican restaurant that had been closed for a while. We revamped it, promoted from within a new food and beverage manager who is a very talented chef, and he did a phenomenal job on new menus and recipes. I would argue we probably have the best Mexican restaurant in Colorado at this point. We renamed it Don Juan's—it is a fun name—and we also tied it into the elevator to get to it. We are going to start offering brunch on Saturdays and Sundays in 980 Prime, which is a wonderful venue for a brunch. We are doing it in ways where we know on Fridays, Saturdays, and Sundays there is demand for that brunch, and we are not doing it every day of the week. Jordan Bender: Great. And on the follow-up, good to hear in Waukegan that is going to get going here in the next couple of weeks. Just curious your view on the casino proposal up in Kenosha and kind of where that stands, and how you underwrite that property in relation to yours. Daniel R. Lee: First off, our customers primarily come from Lake County, and to the extent they come from outside of Lake County, it tilts towards the south. If you drive north from us to Kenosha, there is some farmland out there, so there is kind of a gap. They would have a much bigger impact on the Pottawatomis in downtown Milwaukee than they would on us. That tribe is pretty powerful. Which brings up the second question: do they ever get there? They have been working on this for 20 years. This is not an Indian tribe from Kenosha. This is the Ho-Chunk Nation. They have a small casino a couple hundred miles away in the middle of Wisconsin. They are trying to create a whole new piece of land and reservation trust strictly for commercial purposes to cut into the Pottawatomie business. So it is more of a tribal war than it is an issue for us, and I do not think it would have much impact on us. If they get there, it is going to take them a long time. If everything went smoothly for them, it would be a few years before they got open. Even when they did get open, I do not think it has much impact on us. My first guess is they never get there, because what they are trying to do is not easy. It is one thing if you are a poor Indian tribe trying to get a casino on your reservation—you are somebody that deserves empathy, if you will. This is not a poor Indian tribe trying to get a casino on their reservation. This is reservation shopping and trying to get in a commercially better spot than where their existing casino is. It takes a lot of different regulatory approvals and state approvals, and they are a long way from having it. Lewis A. Fanger: I will tell you that the legal hurdles preventing that are still a very, very long list. Daniel R. Lee: Where this really gets us is there is an analyst out there who is negative on us. He brings this up every time. If he did not have this, he would have something else. I heard yesterday that six months ago he was telling everybody to invest in the Affinity bonds instead of us, and it was with great pleasure to tell you that Affinity is shutting everything down they have in Primm. So he has some mud on his face, and that mud is getting thicker by the day. Jordan Bender: Thanks, everyone. Daniel R. Lee: Thanks. Operator: Thank you. Our next question comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Please proceed with your question. Ryan Sigdahl: Hey, guys. Good afternoon. On the financing for American Place, good to hear the progress—should hear something in the next couple weeks—is fantastic. On the last call, Dan referred to it as acceptable terms. Lewis, you referred to it as attractive terms. Curious if you could give an update on how it is trending at the moment. Daniel R. Lee: We are not a AAA credit, and we are not borrowing money at 5%. But it is also not 15%. We think we can get our existing debt refinanced and the incremental money, and all be not a little bit higher than where our debt is today, but not much. Lewis A. Fanger: I do not have anything to add other than what we have said. I do not think you are going to have to wait too much longer. The amount of work that has happened behind the scenes has been extensive, and we continue to push forward and certainly feel better about where we are today than we did at the last earnings call. Daniel R. Lee: It is understandable. The firm on the other side of this does not want us to disclose their name or details until we have the final docs signed. We are working to do that, and that is understandable. I will look on the positive side. The world has been such a mess lately with everything going on in the Middle East, and the high-yield market has hung in there. It has been pretty stable through all this, which is somewhat remarkable and encouraging. Lewis A. Fanger: The high-yield markets have held up. Daniel R. Lee: American Place has continued to display pretty strong numbers. Chamonix is starting to hit its stride. There is a lot of good happening, so all in, I think we are sitting in a good spot. Ryan Sigdahl: Good. Chamonix is a good transition. It is good to see the scrappy nature of spending and cost efficiencies across that entire property. But ultimately, to go from losing a couple million in EBITDA to making a couple million—we want to get to tens of millions—you probably have to really start to ramp the revenue as well. Have you had any renewed thoughts around how to drive that new customer to try the property and really start to build the base of business there on the revenue side? Daniel R. Lee: We are firing on all cylinders here. We now have a four-person sales force, and we are looking for another person, focused on meetings and conventions. They are putting quite a bit on the books, but that stuff is ahead of time, so it really starts to bear fruit in 2027 and 2028. We have a new advertising agency. We have a chief marketing officer here. We have a new director of marketing at the property. We have an advertising person here that we have added. We have subscribed to some third-party research firms who are giving us much more detail on not only who our customers are, but who is out there. We are getting a lot more sophisticated in our targeting. April was the first month where we said, “Okay, this is starting to bear fruit.” Hopefully we will continue to show good results every month going forward. Some months you are going to have off win percentage or something, but I think we have a base to build on. We lost only a little bit of money through the worst part of the year seasonally, so we will end up making money this year—not as much as we would like given our investment—but I think it forms a good base this year and then better results next year. We have also been working with the City of Cripple Creek to get them more focused on how to build it as a destination. If you pull up Telluride, Colorado—believe it or not, its population is not that much more than Cripple Creek. Of course, they have a famous ski area, but they are four-and-a-half hours from any metropolitan area. They have a festival every weekend all year long—everything from a country music festival to a film festival. Our single biggest weekend of the year is Ice Festival, where the city buys blocks of ice, puts them on the street, and people carve them with chainsaws. It sounds kind of hokey, but it gives people the excuse to come up, and our biggest weekend of the year is in the middle of the winter when normally we are summer seasonal. We are now working with the city, which has hired a new director of marketing, to have more of these festivals. We just celebrated Cinco de Mayo. How do we do more of that? The city is starting to get smarter about it. This little town has the potential of being a pretty significant destination for people from Colorado Springs and Denver, but you have to get them up there. Lewis A. Fanger: People do forget sometimes—and not to make myself sound old—but if you go back to when Ameristar took over their property in Black Hawk, they relaunched a rebranded and expanded, much nicer Black Hawk casino in 2006, and opened their hotel tower in 2009. It was a multiyear process—they took over a failed Hyatt casino 100%. If you compare their revenues from 2005 to 2010, the five-year CAGR of gaming revenues was about 24%. That is phenomenal. They were the ones that reinvented that market and said, “Look, there is actually something nice in Colorado to go and gamble at.” What Monarch benefited from was that, 20 years ago, someone changed the mentality in Denver and said, “There is something nice.” When Monarch opened, people were already accustomed to a nicer building in Black Hawk. We did not have that. We are only starting to get that. When we look at penetration—when I say it is massively low, in the ZIP codes I mentioned, we have like 8% penetration. There is no reason why it should be that low. That is exactly why we are focusing the digital efforts. We are not talking about finding hundreds of thousands of new people; we are talking about finding 20,000 new people to bring into the building on a regular basis. That is what moves the needle to a very good investment. We feel very good about where the marketing sits right now. The new ad agency started late in the fourth quarter; it took a few months to get their hands around things, so their true efforts did not really launch until March. We are showing very good signs in April; May is off to a good start. Looking at the penetration stats and the win-per-day stats I mentioned earlier, I think it is harder to think that we cannot achieve those than that we can. Daniel R. Lee: Sometimes we are so used to the numbers. The American Gaming Association has a survey that shows that 30% of American adults visited a casino within the past 12 months. That is the U.S. average. Colorado Springs is less than a third of that. Ryan Sigdahl: Very good. Dan, well done—you never fail to have me learn something new, and “mushroom festival” is one. Well done, and I look forward to a 24% CAGR over the next five years, Lewis. Good luck, guys. Daniel R. Lee: Thank you. Operator: Thank you. Our next question comes from the line of John DeCree with CBRE. Please proceed with your question. Maxwell Marsh: Hey, guys. This is Max Marsh on for John. Still clearly in the early innings of GGR penetration in Colorado, but is there any difference in what you are seeing on the database side? Any insight into the database sign-up trends would be helpful. Thanks. Lewis A. Fanger: The database trends are good. If you look in the month of April as an example, new sign-ups were up 12%, rated visits were up 19%, and win per rated visit was up about 14%. Short answer: the trends are good. We continue to grow the database pretty meaningfully, and we are also bringing in a higher volume of higher-rated guests through the doors. Daniel R. Lee: By the way, I am smiling because he is reading that off a daily operating report. We hired a new finance director from outside of the casino business with a lot of experience in the hotel business, and he has gotten it organized pretty fast. A year ago, we would not have had those numbers by this point in May, and if we had them, they probably were not reliable. Now we are getting them on a daily basis, and they are quite reliable. That is one of the first steps in getting this thing going well. Maxwell Marsh: Great. Thanks for that. And could you give us a little bit more detail about what is driving the growth at Silver Slipper? I know we have a new management team there as well. Is that coming from better OpEx management, or could there be some broader tailwinds there? Lewis A. Fanger: It is a little bit of both. It is probably a little more on the OpEx side versus the revenue side, but it is a little of both. On the OpEx side, we have a new GM there. She is looking at things differently than the prior GM and is finding more efficient ways to do some of what we are doing. A big part has been on the marketing side—being smarter about the marketing dollars that go out the door. As an example, we used to have a weekly seniors day where we would give you a breakfast buffet for $0.99. We found out that a nearby senior center was bringing people in for their weekly nearly free breakfast. When we ran the numbers as to how many of those people were actually in the database and gambling in the casino, the answer was very, very few. It is about taking a fresh look at different marketing ideas and making sure there is a return there. Maxwell Marsh: Gotcha. Thank you, guys. Lewis A. Fanger: Thanks, Max. Operator: Thank you. Our next question comes from the line of Chad Beynon with Macquarie. Please proceed with your question. Sam: Hi. This is Sam on for Chad. Thank you for taking our questions. Switching over to Waukegan, now that you have made more progress toward the permanent construction of that property, any updated thoughts on the earnings power of that property? I know in the past, $90 million of EBITDA was put out there. Any update or color on the timeline to get to that point and what is needed to get to that level? Daniel R. Lee: Even the temporary continues to progress. The run rate today is in the ballpark of $40 million per year of EBITDA. If you start thinking about it, we have indicated it takes about $300 million to build the permanent, and the cost of that money is probably a little higher than our existing bonds—but use 10% for a big round number. Ten percent on $300 million is $30 million a year. The permanent casino is roughly twice the size of the temporary in terms of square footage. It has more restaurants, a much better street appeal, much better decor. In terms of slots and tables, it is not quite double, but it is up significantly. We expect the permanent to do much more business than the temporary. There are a lot of examples, like the Hard Rock in Rockford, which also went from a temporary to a permanent—their revenues doubled. You see it in the Hollywood in Joliet that moved from an old boat to a permanent building. You see it in New Orleans at Treasure Chest, and others, where people went from temporary to permanent, and in every case it has shown a big increase in revenues and profitability. So we do think it gets to $100 million—you said $90 million; I actually think it is $100 million. It does not happen overnight. It might take three years or something. If it takes us two years to build and we open two years from now, then five years from now it is doing $100 million. Lewis A. Fanger: We say it does not happen overnight—although in all the examples we threw out, it did happen overnight—but nonetheless, we assume that it does not and builds over time. Daniel R. Lee: I think even in the temporary, it continues to grow. At some point, you start to max out on weekends—our win per slot machine per day is pretty high in the temporary. We will continue to show growth even before we build the permanent, and then you will have a step to a new plateau in the permanent and then it will grow from there. Sam: Thank you. Appreciate that. And then switching over to your sports skins, wondering on the outlook for those—if you see upside or downside to the current run-rate EBITDA related to those sports contracts over the next few years. Daniel R. Lee: At this point, we only have two. In that industry, we used to have agreements with Wynn and Churchill Downs in markets, but DraftKings and FanDuel—and to a lesser extent, BetMGM—have moved in and dominated the market. A lot of these other guys have pulled away. In Indiana, we have one. They paid us in advance because for a while they had not been paying us, and we said if you want to extend the contract, fine, but you have to pay us in advance. The accountants do not let us book it all at once, but we already have the money. We are going to recognize that income over time. Lewis A. Fanger: It is the initial access fee, recognized over the life of the agreement. Daniel R. Lee: The other one is with Circa, who is a niche player. Their sportsbook here in Las Vegas is probably the biggest single sportsbook in the country, and they have a good forte with that. In Illinois, you only get one license. We had three skins for our license in Indiana, and we also had three skins in Colorado. We only have one in Illinois. The population of Illinois is much bigger, and that is by far the most valuable skin. That is with Circa, and I think they are doing okay. They know that business probably better than anybody, and they are good at it. We will have a beautiful permanent sportsbook in our new facility, which I think they are quite excited for. We continue to look for people who want to get into the sports business, but frankly, at this point there are not a lot of new companies looking to get in—it is so dominated by DraftKings and FanDuel. Lewis A. Fanger: On the flip side—not that I expect this to happen anytime soon—our agreements only include sports betting. They do not include anything for true online casinos. To the extent that were ever to happen, there is the potential for more upside as we would monetize that bit. Daniel R. Lee: I had forgotten—at Tahoe, we had a tiny sportsbook that had been run for a long time by William Hill. A former CEO of William Hill started a new company called Boomers. He came to us and made us an offer, and he is paying us significantly more in rent than we were getting. It is still not a big number, but it is roughly two times what it used to be, and he is promoting it much more than William Hill was. The sports betting companies are also having to deal with competition from prediction markets. They have started branches where they are going into prediction markets under the auspices of being commodities trading firms, offering sports betting in places like Texas and California where it is not been legal, and doing it without paying any state gaming taxes. From DraftKings and FanDuel, that is like, “If they can do it, why cannot we?” Nevada came out and said if you do that, then you cannot operate in Nevada, so they both backed away from operating in Nevada. That opened the opportunity for Boomers, who is not going to try to operate elsewhere. There is a little turmoil there, and we will see where it goes because from the gaming industry's perspective, the idea that somebody can start taking bets on the Super Bowl in Texas without any approval of the Texas legislature—given that the Texas constitution forbids gambling—is problematic. These people are offering Super Bowl bets in places like Texas—unregulated and untaxed—and not surprisingly, they are probably making pretty good money with it. Operator: Thank you. There are no further questions at this time. I would like to turn the floor back over to Full House Resorts, Inc. CEO, Daniel R. Lee, for any closing remarks. Daniel R. Lee: We are making good progress, and I think it is going to be an exciting quarter because we are going to get under construction and get this financing done. By the way, we do not take this lightly, but starting construction will cost us a couple million dollars, and you do not normally want to do that unless you are certain you have the money to finish. We are confident enough that this financing is going to come through that we are going to start, because otherwise the opening day keeps sliding. The initial stages of construction are guys driving bulldozers around—it is not a lot of money—so we are going to go ahead and start because we are pretty confident that it is all going to come together here. Lewis A. Fanger: Thank you. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good afternoon, and welcome to Artivion, Inc.'s fourth quarter and year-end 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to your host from the Gilmartin Group. Thank you. You may begin. Unknown Speaker: Thank you. Good afternoon, and thank you for joining the call today. Joining me from Artivion, Inc.'s management team are Pat Mackin, CEO, and Lance Berry, COO and CFO. Before we begin, I would like to make the following statements to comply with the safe harbor requirements of the Private Securities Litigation Reform Act of 1995. Comments made on this call that look forward in time involve risks and uncertainties and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements made as to the company’s or management’s intentions, hopes, beliefs, expectations, or predictions of the future. These forward-looking statements are subject to a number of risks, uncertainties, estimates, and assumptions that may cause results to differ materially from these forward-looking statements. Additional information concerning certain risks and uncertainties that may impact these forward-looking statements is contained from time to time in the company’s SEC filings and in the press release that was issued earlier today. You can also find a brief presentation with details highlighted on today’s call on the Investor Relations section of the Artivion, Inc. website. Lastly, please refer to our release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Unless otherwise stated, all comments today will be using our non-GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis. Revenue growth rates will be at adjusted constant currency rates, and expenses as a percentage of sales will be based on adjusted revenues. With that, I will turn the call over to Pat Mackin. Pat Mackin: Thanks, and good afternoon, everyone. Through 2026, we continued to execute our strategy designed to drive long-term profitable growth through an expanding and clinically differentiated product portfolio. In the quarter, we delivered constant currency revenue growth of 12% and adjusted EBITDA growth of 26% year over year. Revenue growth was driven primarily by On-X and stent grafts, including AMDS. We also benefited from growth within preservation services as tissue processing volumes normalized following the 2024 cybersecurity event. Before expanding further on product line performance, I would like to address today’s exciting news regarding the exercise of our option to acquire Endospan. This follows the PMA approval of its NEXUS aortic arch stent graft system for chronic aortic dissections, which was achieved in early April. NEXUS is a branched endovascular stent graft system purpose-built for minimally invasive treatment of aortic arch disease, where patients often have no choice other than open-heart surgery. The clinical data are compelling. Data from the chronic aortic arch dissection cohort of the TRIUMPH trial demonstrated 93% survival from lesion-related death and 90% freedom from disabling stroke at one year post-treatment. Also, 95% were free from intervention due to endoleaks, excluding type II endoleaks, at one year in this very high-risk population. As a reminder, the total annual U.S. addressable market opportunity associated with both cohorts is estimated to be around $150 million, with dissections representing about $100 million of that. We plan to pursue supplementing the label to include aortic aneurysms through formal regulatory processes expeditiously post acquisition. Importantly, our anticipated acquisition of Endospan and its NEXUS system will complete our market-leading three-pronged aortic arch portfolio. This technology, acquired alongside AMDS and our E-vita OPEN NEO with LSA branch (C-Branch LSA), will position us at the forefront of this segment as the only company globally with a complete portfolio of aortic arch solutions. Importantly, NEXUS is a platform technology, not just a single product. It is supported by three additional PMA programs in development that we expect will further extend and solidify our leadership in the aortic arch market over time. We are pleased to have the financing already in place for this acquisition, and, subject to satisfactory and customary closing conditions, we expect to close in 2026. We expect to be ready for a full U.S. commercial launch of NEXUS in January 2027, following efforts to scale inventory production, complete value analysis committee processes, and augment our U.S. sales team. With that, let me turn back to our Q1 2026 results. From a product category perspective, stent graft revenues grew 10% on a constant currency basis in the first quarter compared to the same period last year. Year-over-year constant currency growth fell below our expectations due to lower than expected AMDS starter set sales in the U.S., as well as softer than expected performance internationally, particularly in the Middle East. Year-over-year growth also reflects a tougher comp in Europe, following a strong Q1 2025 performance as we recovered from the 2024 cybersecurity event. While U.S. AMDS sales associated with initial stocking fell short of our expectations in Q1, we have been very encouraged by implant and reorder patterns within the accounts already using AMDS. We view this as much more critical than the immediate impact of sales from starter sets. Strong reordering patterns reflect positive user experience and ultimately our long-term adoption and growth thesis. Looking ahead, we expect U.S. AMDS starter set sales to accelerate as more accounts get through the VAC process and finalize their procurement, and as we benefit from steps being taken to mitigate the initial upfront $100 thousand cost burden associated with stocking. We also anticipate PMA approval of AMDS in the coming months, which will obviate the need for entirely new accounts to go through the IRB process; some have deferred until PMA approval because of this increasingly imminent date. Ultimately, we see our comprehensive stent graft portfolio as a foundational component of our growth strategy. We are encouraged by our enduring fundamental strength and increasingly strong competitive advantage within the segment. Looking ahead, we intend to replicate our proven strategy by bringing additional stent graft products that are already generating revenue in Europe to the U.S. and Japan, which we believe will unlock further meaningful expansion of our stent graft total addressable market. Meanwhile, our Q1 On-X revenue was up 17% year over year on a constant currency basis. This growth was driven by further global market share gains and continued early traction in our new $100 million U.S. market opportunity unlocked by recently published data demonstrating improved outcomes with mechanical valves versus bioprosthetic valves for younger patients. We maintain our conviction that On-X is the best aortic valve in the market for patients under 65, and we will continue to take market share worldwide in that product line. Tissue processing revenues increased 23% year over year on a constant currency basis in the first quarter, as demand for our products remained strong and tissue volumes normalized year over year following the cybersecurity incident in late 2024. Q1 results were slightly ahead of our expectations of roughly $24 million per quarter for that business. Lastly, BioGlue was relatively flat on a constant currency basis compared to the same period last year. While this performance was slightly lower than our mid-single-digit growth expectation contemplated in our previously communicated full-year revenue guidance, it falls within the range of normal quarter-to-quarter growth variability due to the significant amount of stocking distributor business in that product line. Lastly, on our pipeline, we continue to make great progress on the ARTISON clinical trial for our next-generation frozen elephant trunk. We have 26 patients enrolled in the trial, which is a non-randomized clinical trial consisting of 132 patients in the U.S. and Europe at up to 30 centers for treatment of aortic dissection and aneurysm in the arch. We anticipate completing full enrollment in mid-2027. We are optimistic that the trial will be successful, supported by our clinical results from our current-generation frozen elephant trunk, E-vita OPEN NEO, which is available outside the U.S. Following the one-year follow-up period, assuming the trial meets its endpoints, we anticipate FDA approval for our C-Branch LSA in 2029, unlocking an incremental $80 million annual U.S. market opportunity. In conclusion, while Q1 results fell short of our constant currency expectations and reflected some moving pieces that Lance will walk you through in detail, it was a quarter of meaningful progress against our long-term strategy. The fundamentals that underpin our growth strategy remain intact: a comprehensive, clinically differentiated portfolio, a focused commercial organization, and a pipeline that stands to expand our total addressable market continuously over time. The reordering behavior we are seeing within AMDS accounts reinforces our conviction in the long-term adoption story, and we have a clear line of sight to near-term drivers that will accelerate new account conversion. On-X continues to take share from both mechanical and bioprosthetic valves and is the leading aortic valve on the market for patients under 65. With the addition of NEXUS, we now have what we believe is the most comprehensive aortic arch portfolio in the world, a position we have built deliberately and intend to extend. With that, I will now turn the call over to Lance. Lance Berry: Thanks, Pat, and good afternoon, everyone. Before I begin, please refer to our press release published earlier today for information regarding our non-GAAP results, including a reconciliation of these results to our GAAP results. Additionally, all percentage changes discussed will be on a year-over-year basis, and revenue growth rates will be in constant currency unless otherwise noted. Total revenues were $116.3 million for Q1 2026, up 12% compared to Q1 2025. Adjusted EBITDA increased approximately 26%, from $17.5 million to $22.1 million in Q1 2026. Adjusted EBITDA margin was 19% in Q1 2026, an approximate 130 basis point improvement over the prior year, driven by leverage in SG&A and gross margin improvement. From a product line perspective, stent graft revenues increased 10%, On-X grew 17%, tissue processing revenues grew 23%, and BioGlue revenues were relatively flat in Q1 2026. On a regional basis, revenues in Asia Pacific increased 6%, North America 23%, EMEA increased 5%, and Latin America decreased 23%, all compared to Q1 2025. International growth was below what we typically see from that part of the business. EMEA underperformance was driven by the stent graft-related factors that Pat discussed earlier, while underperformance across APAC and LatAm was driven primarily by quarterly fluctuations in distributor ordering patterns, which we expect to normalize over the course of the year. Q1 gross margins were 64.9%, an increase from 64.2% in Q1 2025, primarily due to favorable product and geographic mix. General, administrative, and marketing expenses in the first quarter were $60.8 million compared to $54.7 million in Q1 2025. Non-GAAP general, administrative, and marketing expenses were $59.3 million, or 51% of sales in the first quarter, compared to $53.0 million, or 53.6% of sales, in Q1 2025, reflecting a 260 basis point improvement. Approximately 170 basis points were driven through leveraging existing infrastructure and annualizing our year-one AMDS launch costs, and approximately 90 basis points were from stock-based compensation. Our as-reported expenses included a gain of approximately $1.5 million in Q1 associated with insurance reimbursement for cybersecurity costs incurred in previous periods, and approximately $1 million of diligence and integration planning costs associated with the planned acquisition of Endospan, both of which are excluded from adjusted EBITDA. R&D expenses for the first quarter were $8.8 million, or 7.6% of sales, compared to $6.7 million, or 6.8% of sales, in Q1 2025. Interest expense, net of interest income, was $5.2 million as compared to $7.5 million in the prior year. Other income and expense this quarter included foreign currency translation losses of approximately $800 thousand. Free cash flow was negative $6.8 million in Q1 2026 as compared to negative $20.6 million in Q1 2025. As a reminder, the first quarter is typically our seasonally lowest free cash flow quarter, and although negative, this quarter’s free cash flow results were slightly better than anticipated. As of 03/31/2026, we had approximately $55.8 million in cash and $215.4 million in debt, net of $4.6 million of unamortized loan origination costs. At the end of the first quarter, our net leverage ratio was 1.8x, down from 4.0x in the prior year. Now for our outlook for 2026. As Pat stated, our Q1 stent graft results did not meet our expectations, due to factors that could continue to impact our revenue in the near term, primarily softness in our international markets, particularly in the Middle East, and timing of AMDS starter set sales in the U.S. It is early in the year, and we are working to mitigate or offset these issues. However, given the uncertainty around the timing and impact of those actions, we believe it is prudent to adjust our guidance. We now expect adjusted constant currency growth between 7% and 11% for full year 2026, representing a reported revenue range of $480 million to $496 million. This guidance contemplates FX to have an approximate one percentage point tailwind on as-reported revenue for the full year. From a product line perspective, the reduction relates primarily to stent grafts due to the factors we have discussed. This guidance assumes inconsequential revenue from U.S. NEXUS sales in 2026 as we seek value analysis committee approvals and build supply for an anticipated 01/01/2027 U.S. launch. As a reminder, growth in Q1 2026 was anticipated to be higher than the remaining quarters, driven by the easier comps for the preservation services business from the prior-year cybersecurity event. These flip to difficult comps for the preservation services business in Q2 and Q3 before normalizing in Q4 2026, followed by a more consistent sequential improvement as our U.S. AMDS and U.S. On-X sales accelerate during the year and we return to normal costs for the preservation services business in Q4. Excluding the impact of the planned Endospan acquisition, we now expect full year 2026 adjusted EBITDA to be in the range of $100 million to $107 million, representing a range of 12% to 20% growth over 2025 and approximately 100 basis points of adjusted EBITDA margin expansion at the midpoint of our ranges. Please note that this full-year adjusted EBITDA guidance excludes potential impact from the anticipated completion of the Endospan acquisition. Assuming the acquisition closes later in the quarter as anticipated, we would expect to incur approximately $8 million of incremental expense through 2026. This would include investments in launch costs and commercial infrastructure while also accounting for the absorption of Endospan operating costs, including ongoing R&D and clinical expenses. Given our expectation for immaterial revenue contribution from U.S. NEXUS sales in 2026, this incremental $8 million would be expected to reduce our full-year 2026 adjusted EBITDA to $92 million to $99 million. Looking forward, we would expect the first meaningful revenue contribution to begin in January 2027, and we anticipate our combined results to be EBITDA neutral for full year 2027 as U.S. NEXUS revenue ramps over the course of the year and as we get combined R&D and clinical spending into our targeted range of 7% to 8% of sales. Relative to the pending acquisition, we also announced today that we drew $150 million under our existing term loan facility. The proceeds will be used to fund the $135 million upfront purchase price for the anticipated Endospan acquisition. Assuming the acquisition closes as anticipated, quarterly interest expense would increase to approximately $8 million starting in Q3 2026, with Q2 2026 interest expense expected to be slightly lower than that. As a reminder, we also continue to anticipate paying a $25 million earnout in 2026 following the anticipated mid-2026 AMDS PMA approval. With that, I will turn the call back to Pat for his closing comments. Pat Mackin: Thanks, Lance. Overall, we have near-term work to do, and we exited Q1 with greater conviction in our foundational growth strategy. We are excited to move forward with our pending acquisition of Endospan, as the NEXUS platform stands to complete our market-leading aortic arch portfolio. We see PMA approval of AMDS on track for midyear. Implant adoption for AMDS continues to build, and our broader market expansion pipeline is accelerating as planned, particularly with ARTISON enrolling as expected. Our long-range growth thesis remains intact. More specifically, we expect future growth to be driven by four key growth drivers: number one, the AMDS PMA; we are commercializing AMDS in the U.S. under HDE, increasing penetration of the annual U.S. market opportunity, with new clinical data, reimbursement dynamics, and PMA approval likely to be further tailwinds. Number two, the On-X heart valve data; we are continuing to educate providers on clinical data showing mortality and reoperation benefits in patients under 65 compared to bioprosthetic valves, which we expect to translate into greater market share globally. Number three, NEXUS; we are moving forward with our strategy to acquire our partner Endospan following the FDA approval of NEXUS. This acquisition, if closed, will provide an additional near-term growth driver, position us at the forefront of this segment, and significantly expand our pipeline with three additional PMA programs in development, extending our runway well beyond the initial approval. Number four, the ARTISON IDE trial; we continue to make progress in our third-generation frozen elephant trunk program, our C-Branch LSA. This clinical trial represents an incremental $80 million U.S. annual opportunity. I want to thank our employees around the globe for their continued dedication to our mission of being a leading partner to surgeons focused on aortic disease. We will now open the call for questions. Operator: At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. One moment, please, while we poll for questions. Our first question comes from Stifel. Your line is now live. Analyst: Hi, Pat and Lance. Thanks for taking the question. I just want to understand better on this guidance reset what is exactly contemplated in it now, because I think there are a few key assumptions, and the key one is exactly when AMDS receives PMA and then more broadly what kind of opportunity the PMA unlocks. Is this truly conservative, adequate, or how would you frame it in terms of expectations for when you get this AMDS approval, and then how should we think about the opportunity that approval unlocks in the context of the revenue ramp throughout the year? Pat Mackin: Thanks. I would say a couple of things. There were two things that did not go as planned in the first quarter. Number one was international stents were off, mostly due to unplanned things: one was the Middle East, and two was some supply chain challenges. Those are temporary, and we are working to fix those. Second, as we pointed out, was the AMDS starter set sales. Those are the starter sets where the hospital has to buy four. We do think that the PMA will help. We have been saying all along that we did not think the PMA was going to make that much of a difference, but the closer we get to PMA approval, there is some bureaucracy and work that hospitals have to do to get IRBs in place, and with the PMA so close, many are just going to wait. So we do think that will be helpful. We are also working to knock down some of the barriers that we are seeing on getting these starter sets. The encouraging thing is that we were ahead of plan on the actual implants. That is what we are working on now—making sure we can get access to these starter sets and working through that process. Lance Berry: We have been saying we expect PMA approval midyear. We still expect that. As far as what the guidance contemplates, it basically contemplates the trends we are seeing right now. We are working to improve those, but that is probably going to take a little bit of time. We think this is prudent guidance given the trends we have right now. Analyst: Got it. That is helpful. And then I also wanted to hit on NEXUS. You talked about working towards closing the acquisition. What are you doing as you work up to 01/01/2027 in terms of building out the commercial infrastructure from here, whether it be hiring or whatever else is required? Key next steps as you build to NEXUS would be great. Pat Mackin: We are very excited about this NEXUS platform. It is the third piece of the puzzle—AMDS, our LSA branch solution, and NEXUS—and that really gives us a comprehensive portfolio for the arch. We will need to do a few things to get ready. Number one, we must go through the value analysis committees. As you have experienced with AMDS, it can take four to six months. We will use that time to do two things: build inventory and hire dedicated clinical specialists. The good news is this is a very different market than AMDS in that there are only about 100 accounts on our initial list. These are very high-end, high-volume accounts. We know who they are, and we can cover that call point with not a lot of reps. We have already started hiring and will continue to add as we go through the value analysis process. Those are the two main focuses once we close this transaction to be ready for a January 1 launch. Analyst: Thanks. That is helpful, and thanks for taking the questions. Pat Mackin: Yep. Operator: Our next question comes from Lake Street Capital. Your line is now live. Frank Takkinen: Great. Thank you for taking the questions. I was hoping to get a little more color on reordering versus a potential plateauing of new accounts. Are new accounts starting to slow down or is the reordering not yet occurring? It feels like we had a steep trajectory with some of the initial ordering patterns, and then we are just waiting for the reordering, or are new orders starting to plateau? Pat Mackin: Let me clarify. We have started using the term “starter sets,” which is basically an account that does not have AMDS. To get AMDS, they need to purchase four devices for $100 thousand. That is not a normal practice for a lot of businesses that will consign units or sell out of trunk stock. We are having hospitals acquire four units. The other piece is the actual implants of the existing accounts. Those went quite well and were ahead of our plan. We are very encouraged and pleased by adoption in the accounts that purchased. What we are working on now is a lot of accounts that have AMDS in the queue, and we are working to get the units on the shelf. Barriers include the IRB or the $100 thousand upfront purchase. We are working on programs to minimize that burden. Lance Berry: In summary, there is the upfront $100 thousand, and every time the device gets used, they need to reorder a device. We call that initial $100 thousand a set sale, and everything after that is implant sales. Implant sales went great. They were ahead of our expectation, and all the feedback we are getting on those is fantastic. We are running into barriers getting the upfront $100 thousand investment approved for a number of different reasons—IRB, financial considerations—so we are putting things in place to help overcome those barriers. We think we will see a reacceleration of starter set sales. Pat Mackin: Because the $100 thousand upfront lands on someone’s desk, it can get stuck there for a while. A key point is DRG 209 for complex arch work—there is very strong reimbursement for AMDS. It takes time for that information to be disseminated to the account, so we are working to ensure they have good visibility to the publicly available information on DRG 209 and what that means to their procedural billing. Frank Takkinen: Got it. Very helpful. Thank you. And then as a second one on NEXUS, how should we think about the growth trajectory? There is potentially more training upfront, but it is very novel, so I would expect a strong growth trajectory coming out of that. And is there a point in time that the $8 million incremental cost is offset by revenue as you think about the ramp? Pat Mackin: Surgeons, particularly vascular surgeons, have a lot of patients who are not being treated right now because there is no option. These are patients too sick for cardiac surgery, and we now have a solution in the arch to treat those patients. They adopt technology rapidly because of the unmet need. The building blocks are: get through value analysis committees, train the surgeons, hire the team, and build inventory. Our goal is to be ready by January 1. We believe this technology has real opportunity to drive growth for the company and help a lot of patients. We will give you more information as we go into 2027. Lance Berry: On the $8 million, it is broken into three pieces. One is initial launch preparation costs that will not carry forward into next year. There are R&D and clinical related expenses that are incremental this year, but as we roll into 2027, we will fit those into our normal 7% to 8% of sales; it is not really incremental from a 2027 standpoint. Then there are run-rate expenses for the sales force and some G&A that will carry forward, and we think those will be covered by actual NEXUS revenue in the U.S. in 2027, making it EBITDA neutral overall. On supply chain and logistics, NEXUS is very different than AMDS. We are not making people buy it upfront. AMDS cases are acute type A emergencies, so you have to have stock on the shelf. Chronic dissections are elective, so we have time beforehand to know exactly what devices are needed, and we will ship them into the cases and get paid at the case. There will be no shelf stocking limiter for NEXUS. Frank Takkinen: Got it. Very helpful. Thank you, guys. Lance Berry: Thanks, Ryan. Operator: Our next question is from Canaccord Genuity. Your line is now live. William Plovanic: Hey, thanks. Good evening. I just wanted to unpack AMDS a little more. One of the challenges brought up multiple times is starter sets. You mentioned strategies to get around this. Are you going to shift the product to consignment, or do you believe the PMA is really going to open that? Is there a backlog? Are we through the early adopter phase and now getting into a broader customer base, implying a slower ramp for new accounts? Lastly, what was the growth of the core stent business if you back out AMDS? Pat Mackin: We have plenty of hospitals. When we set our internal plan and expectations for the year, we had more than enough target accounts to hit the numbers we communicated. We were pleased with implants—ongoing implants were ahead of what we expected. The challenge is getting into hospitals with this upfront $100 thousand purchase. We are not going to consignment. That could always be a last resort, but that is not our strategy. We have programs to address barriers to the $100 thousand upfront. Once PMA is out, there is no longer an IRB, and we think that will be very helpful. Getting accounts through those processes is what we are working on. That timing is harder to control than implant timing. Lance Berry: We do not break out the details on U.S. AMDS revenue compared to international stent grafts. You can tell by geographic growth rates: international growth was much lower than we typically expect this quarter for the reasons discussed. If you normalize North America for easier comps in Q4 and Q1, the North America growth rate is pretty similar in Q4 to Q1, which points to the slowdown being driven significantly by international. But U.S. AMDS starter set sales were below our expectations for the quarter. William Plovanic: When you started out the launch in the first quarter last year, you talked about 140 targeted accounts, with 600 full potential. Can you give any sense of the total targeted number of accounts today and how far you have penetrated? Lance Berry: We have not broken that out. I would say at this point we still have plenty of opportunity to sell starter sets. As we move along, we will consider giving more detail because at some point the starter set is a one-time revenue event, and the implants matter most long term. We will consider providing more information later, but we are not breaking that out at the moment. William Plovanic: On NEXUS, you are pushing to a 2027 launch. Is manufacturing scaled and ready to go? Lance Berry: They are manufacturing today. We have been selling the product in Europe for over five years. We do need to expand and build inventory for the U.S. launch. Endospan had an agreement with us to be acquired upon PMA approval and had no intention of commercializing the U.S. product themselves, so they did not build inventory for a U.S. launch. There is some scale up, but mainly we just need to build product. William Plovanic: Thanks for taking my questions. Pat Mackin: Thanks, Bill. Operator: Our next question is from Oppenheimer. Your line is now live. Analyst: Hi, Pat. Hi, Lance. Thank you for taking our questions. On AMDS, can you quantify how many accounts are deferring AMDS for PMA approval? Is this the first time you are calling it out, or has this been an ongoing trend that is now coming to a head? And with that, should we expect a bolus once you get PMA approval? Pat Mackin: We have been saying for several quarters that we did not really see PMA as a big catalyst. What has happened is practical: for example, we have to go to an IRB at a hospital and the surgeon has to take four hours of training. If PMA is expected in the second quarter, the surgeon may say, “I will just wait. I am not going to do four hours of training for this IRB.” We do have a number of accounts impacted by this. We are not giving specifics on counts. As PMA gets closer, people are less inclined to do the IRB work, and we see PMA as an opportunity. That is contemplated in our guidance. Analyst: On cross-selling with On-X via AMDS, any differences you are seeing in physician utilization? Are they ramping up on a similar curve, or is it more additive but minimal? Pat Mackin: It speaks to our strategy. We are a valve company that treats patients under 65 with the Ross and with On-X, and we are an aortic arch company. Our interactions with top aortic surgeons span our trials—PERSEVERE, ARTISON, TRIUMPH. We are training AMDS centers, and we will have NEXUS trainings that bring heart and vascular surgeons together. We have ARTISON investigator meetings. All of those events help us build relationships with aortic surgeons and deliver our messages across On-X, AMDS, and NEXUS. It is all about the aorta and is highly complementary. We are already seeing cross-selling, and it will get better as we scale trainings. Operator: Our next question comes from Ladenburg Thalmann. Your line is now live. Jeffrey Cohen: Hi, Pat and Lance. Thanks for taking the questions. Two from us. Any updates as far as the commercial organization, both U.S., EU, and perhaps Japan—W-2s and 1099s—for the balance of this year that we should anticipate? Lance Berry: We will have to hire some specialists for NEXUS, but other than that, sales force additions would be fairly limited across the globe and still highly leverageable with our focused sales force. Pat Mackin: On NEXUS, our initial target is about 100 U.S. accounts. We can cover that with a small, dedicated team because these are elective cases. In Japan, we have a relationship with a distributor that has a dedicated team on the ground. We have the commercial infrastructure in Japan; we just need to work through the approval process. Jeffrey Cohen: As a follow-up, can we touch upon the tissue business? It was a strong quarter. Any puts and takes or trends for the balance of the year? Lance Berry: We have told people to think about that as a $24 million per quarter business. We did a little better this quarter, which is great, but that is within normal quarterly fluctuations. If it is a little less in a future quarter, do not read into it. As long as it averages to about $24 million for the year, that is in line with expectations. Jeffrey Cohen: Got it. Thanks for taking the questions. Operator: Our next question comes from Needham & Company. Your line is live. Michael Matson: Thanks for taking my question. Starting with AMDS, I understand the commentary around consignment and the $100 thousand sets, but why not put it on consignment? Is it tying up too much of your capital and inventory on hospital shelves, or is there another reason you are requiring hospitals to have this big expense to get started? Lance Berry: You can always flip to consignment; you can never flip back. It is an emergency case; they need it on the shelf. It is a differentiated product with incredible reimbursement, and we think it is something they should stock. Many accounts have made the purchase. We have hit a point where, further down the list, we are seeing resistance that we had not seen earlier. Our job is to overcome that barrier. We have multiple levers to pull and will come up with solutions as we move along. We are not going to throw in the towel at the first sign of resistance. Pat Mackin: The data are extremely compelling. AMDS can convert malperfusion to non-malperfusion with associated mortality and blood flow restoration benefits. It eliminates the need for vein grafts, with about a 30% difference in reoperation at 10 years and a 20% difference in mortality at five years. It is an emergency, there has not been innovation in 50 years, and it has the best DRG in the market. It should be stocked. Once you start consignment, you typically do not reverse it. Michael Matson: On international stent graft issues, you called out the Middle East and supply chain. Which was bigger? Pat Mackin: About half and half. We have significant business in the Middle East, and we did not contemplate the current situation impacting results, but it did. We also had supply chain items we were not anticipating. Michael Matson: On the revenue guidance of 7% to 11% constant currency, what are your assumptions for AMDS sets and international stent graft sales? Any improvement assumed? Lance Berry: There is definitely some improvement expected for AMDS starter set sales, but at a rate lower than originally anticipated. Roughly half of the guidance reduction is AMDS starter sets and half is international stent grafts. The international stent graft impact is split roughly evenly between the Middle East situation and supply chain issues we are working through. Michael Matson: Got it. Thank you. Operator: Our next question comes from Citizens. Your line is now live. Daniel Walker Stauder: Thanks for taking the questions. First on AMDS reordering behavior, usage was more than you expected. Are multiple surgeons utilizing at some of your larger accounts? Any additional color? Pat Mackin: Typically, a surgeon from an account goes to the training program, returns, and starts implanting, then trains partners or they attend training. In bigger centers, there are often two, three, or four surgeons handling acute type A dissections. We might train one at a hospital, but there are multiple on call. We are training more surgeons per account over time. As usage spreads within accounts, reorders increase. We were pleased that reorders were ahead of expectations. Daniel Walker Stauder: Any different margin contribution from reorders compared to initial orders? Gross margins were strong despite starter set softness. Lance Berry: There is no meaningful difference to gross margin. Both are strong. Daniel Walker Stauder: Thank you. Operator: Our next question comes from Freedom Capital Markets. Your line is now live. Analyst: Thank you. On On-X, can you talk about current usage split between younger and older patients before the new data and where it is today? Pat Mackin: We do not get real-time patient-level age data, but we have historical profiles. Based on recent conferences, there is a lot of discussion about papers showing a mortality benefit for mechanical valves in patients under 60 and about a 20% reoperation benefit at 10 years in mechanical versus tissue valves for patients under 65. We are getting that data out and are growing share in the bioprosthetic space where we previously had not. Much of our growth is from patients aged roughly 50 to 65, which is our focus segment. Analyst: On NEXUS go-forward plans, are there plans to bring Duo and Tre to the U.S., and what regulatory steps are required? Any logistical issues having a custom-made product coming from Israel into the U.S.? Pat Mackin: It is still early; we do not own the company yet, but we have strong collaboration. We are planning to bring Duo and Tre to the U.S. It will require a clinical trial. We will have an off-the-shelf version rather than a custom-made version, which is part of the innovation. We are working on timing and will update our pipeline after closing and integration. On logistics, for U.S. commercialization we will align supply to elective case scheduling, so we do not anticipate custom-made logistical constraints for the U.S. launch plan. Operator: We have an additional question from Canaccord Genuity. Your line is now live. William Plovanic: There has been some discussion on supply chain challenges, and it sounds like that will continue to impact going forward. Can you unpack what it is, the solution, and timing? How much of the portfolio does it impact? Lance Berry: We are not going into a lot of detail, but we have ring-fenced the issue. It relates to our supplier network. We have our arms around it and feel confident about solving it, but it will take a little time. The time to solve it is contemplated in our guidance. It is not broadly across the stent graft portfolio—specific to a small number of products. William Plovanic: Okay. Great. Thanks. Operator: We have reached the end of the question-and-answer session. I would now like to turn the call back over to management for closing comments. Pat Mackin: Thank you for joining the call. We are excited about the Endospan transaction and will be working to close that. This is an exciting day for the company as it is the final piece to the puzzle of our aortic arch solutions. We have AMDS approved under HDE in the U.S. now and are hoping to get PMA midyear. NEXUS just received approval, and you heard our launch plans. ARTISON is enrolling as expected. We have three PMAs in the arch—one approved, one about to be approved, and one on its way. It is very exciting for the company, and we appreciate your support as we continue to build this aortic company. Thank you. Operator: This concludes today’s call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful evening.
Operator: Hello, everyone, and welcome to Rocket Companies, Inc. First Quarter 2026 Earnings Call. Please note that this call is being recorded. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during that time, please follow the instructions provided. I would now like to hand the call over to Sharon Ng, Head of Investor Relations. Please go ahead. Sharon Ng: Good afternoon, everyone, and thank you for joining us for Rocket Companies, Inc.’s earnings call covering the first quarter 2026. With us this afternoon are Rocket Companies, Inc. CEO, Varun Krishna, and our President and CFO, Brian Brown. Earlier today, we issued our first quarter earnings release, which is available on our website at rocketcompanies.com under investor info. Also available on our website is an investor presentation. Before I turn things over to Varun, let me quickly go over our disclaimers. On today's call, we will provide you with information regarding our first quarter performance as well as our financial outlook. This conference call includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions we mention today. We encourage you to consider the risk factors contained in our SEC filings for a detailed discussion of these risks and uncertainties. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. This call is being broadcast online and is accessible on our Investor Relations website. A recording of the call will be posted later today. Our commentary today will also include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for reported results can be found in our earnings release issued earlier today as well as in our filings with the SEC. And with that, I will turn things over to Varun Krishna to get us started. Varun? Varun Krishna: Good afternoon, everyone, and thank you for joining our first quarter 2026 earnings call. There is a lot happening at Rocket Companies, Inc., so I am going to keep this simple. Three things matter this quarter. First, we delivered strong performance in a volatile market. Second, we are using AI, data, and distribution to create opportunity instead of waiting for the market to hand it to us. And third, Rocket Companies, Inc. is no longer the same company that it was three years ago. The shape of our business has not just changed; it has fundamentally evolved. Let us start with the quarter. Adjusted revenue came in at $2.8 billion, above the high end of our guidance range. That is not an accident. It reflects the durability of our model, the strength of our execution, and the discipline and resilience of our team. We do what we say. We say what we do. And we have done that through some of the most volatile operating conditions this industry has ever seen. That consistency is not cosmetic. It defines Rocket Companies, Inc. Our $2.1 trillion unpaid principal balance stands out for both scale and quality. In Q1, we generated over $1 billion in income from servicing fees. The power of that portfolio is simple. It creates stable cash flow, it balances the company, and it gives us a built-in engine for future growth. When you combine that with our origination business, you get a massive platform that expands the top of our funnel without traditional client acquisition costs. That is a rare combination: recurring cash flow, deep client relationships, and built-in upside when the market moves. Net rate lock volume was $49 billion, up 19% from last quarter. We gained market share in both purchase and refinance, quarter over quarter and year over year. Adjusted EBITDA reached $738 million with margin expanding to 26% from 23% in the prior quarter. Adjusted diluted EPS was $0.15 compared with $0.11 in the fourth quarter. Now when I look at the housing market, there are two forces at work. The first is the market itself: rates, affordability, inventory, consumer confidence. Q1 was a wild ride. Rates moved down through the early part of the quarter. The 30-year fixed rate went from 6.15% in January to just under 6% by February. That helped spark both purchase and refinance activity. Then volatility returned. Rates moved back up to 6.5% in March. Affordability tightened. The spring season started unevenly. You can see it in the data. Existing home sales in March were down 1% year over year and nearly 4% from February. That is the market. It moves. It stalls. It surprises people. We do not build Rocket Companies, Inc. around being surprised. The second force is much bigger: AI. AI is changing how every industry works, and housing is one of those industries. For decades, housing has been slow, manual, fragmented, and expensive. Consumers have carried too much of the burden. Agents, loan officers, and servicers have fought through too much friction—too many steps, too many handoffs, too much waiting. Artificial intelligence fundamentally changes that. Real-time data, predictive insights, and intelligent automation can make the homeownership experience faster, simpler, more personal, and more affordable. A lot of companies are talking about AI right now. Some are still trying to find a strategy. Others are bolting tools onto businesses that were never built to use them properly. That is not Rocket Companies, Inc. We have been building toward this for years. Over the last six years, we have invested more than $500 million in AI, automation, and the infrastructure underneath it. So when people ask what AI changes for Rocket Companies, Inc., the answer is clear: it helps us scale what we already do well. That distinction matters. AI without proprietary data is not much of an advantage. AI without distribution is not much of an advantage. AI without workflow integration—not much of an advantage. The advantage really comes from putting it all together. At Rocket Companies, Inc., we have the clients, data, servicing relationships, brand, technology, loan officers, agent network, marketing engine, and operating discipline to put AI to work where it actually matters—not in a demo, not in a lab, in the business at national scale. When AI is woven into the homeownership experience, we can do things others simply cannot match. A client can describe their dream home to Redfin and find listings that fit what they actually mean, not just what they typed. A servicing client can be notified when it is time to refinance, understand their options, and move through the process in minutes. A home buyer can get preapproved when it is convenient for them, not when the industry feels like picking up the phone. That is where this gets extremely powerful. Let me give you two examples. First, AgenTik AI is now managing client prospecting and outreach at the top of the funnel. That includes helping clients find homes through conversational search, reaching servicing clients when they are in the money, and prequalifying purchase clients. This gives us the ability to contact, engage, and qualify our entire book along with new leads across chat, voice, and text. Prospecting used to be one of the most time-consuming and lowest-converting activities for our loan officers. In some cases, a loan officer might dial 14 clients just to get one on the phone. Now AI works those leads with precision. It knows the client's preferred time and channel. It uses our proprietary data to personalize the experience. It helps us reach the right client with the right message at the right moment. When you service one in six mortgages in America, speed and scale matter. When the market moves, we need to move at a level most of the industry cannot touch. AI prospecting has reduced loan officer prospecting time from up to two hours per day down to zero. That time is now being used with clients who are already engaged and prescreened, driving conversion higher by double digits. That is not theory. That is production. Here is the second example. In late February, we launched AI-powered purchase preapproval letters. The process is fast and simple, and it is available 24/7. No loan officer assistance is required. Clients can get preapproved when it works for them, and they are doing exactly that. Forty percent of our digital preapprovals are now completed outside of traditional business hours. In just a few months, AgenTik preapprovals have grown to 10% of all preapprovals, are generating more preapproval letters overall with a lower percentage requiring loan officer involvement, while driving 33% higher conversion through AI. That is the model: automate the work that should be automated, let our people spend more time where judgment, expertise, and human connection matter most, create a better experience for the client, and better economics for the business. Last quarter, I talked about an incremental $1 billion in monthly volume driven by our AI innovations. With our latest launches, we have added another $1 billion in volume per month. Our launch velocity has also changed fundamentally. We are now pushing out new features and experiences five times faster than we were just two years ago. That means faster scale, higher conversion, more capacity, and better unit economics. Turning now to integration. We are tracking very well against our major milestones. We now expect Mr. Cooper expense synergies to be fully realized by 2026, one year ahead of the original plan. That is a major proof point. Integration is not putting logos next to each other. It is making the company work better, faster, and with more force. That brings me to who Rocket Companies, Inc. is today. Three years ago, we began reconstructing the company and made aggressive moves to restructure, refocus, and reorganize Rocket Companies, Inc. into something much larger than a mortgage lender. In 2025, we built the foundation. We expanded the ecosystem. We strengthened the platform. We widened the top of funnel. We improved distribution. In 2026, we are bringing it all together across search, origination, servicing, data, and, of course, artificial intelligence. That is how we create our own opportunity. We are not waiting for a perfect rate environment. We are not waiting for the market to normalize. We are building a company that can win in the market we have and take even more ground when the market improves. So when you think of Rocket Companies, Inc. today, you should think of three things: platform, distribution engine, and ecosystem. These are not slogans. They are the machinery of the company. No one matches our top of funnel when you combine home search, marketing, and servicing recapture. No one matches the combination of our brand, scale, distribution, and data. We have hundreds of thousands of real estate agents in our network and more than 10 thousand loan officers and broker partners. We have a technology platform custom built for this industry. We have proprietary data that gets smarter with every client interaction. That is very hard to copy. Others may copy pieces—a feature here, a workflow there, a marketing claim, a model, a partnership—but a piece is not the system, and the system is what matters. Scale matters. Servicing matters. Recapture matters. Distribution matters. Data, compliance, and execution all matter. Without those things, AI is just a tool. With those things, AI becomes leverage. And then there is culture. Culture is still one of Rocket Companies, Inc.’s sharpest advantages. Whether someone came from legacy Rocket, Redfin, or Mr. Cooper, they are here because they believe in the mission to help everyone home. That matters more than people think. We are ambitious. We are competitive. We want to win badly. But we also care deeply about the client, and we care about each other. That combination is rare. Hard edge, real heart—that has always been Rocket Companies, Inc. For 40 years, our culture has helped us move through change before others were ready. It helped us lead through the Internet era. It helped us lead through mobile, and it is helping us lead again in artificial intelligence. We do not wait for change. We engineer it. That is who Rocket Companies, Inc. is today. This quarter shows the model is working. The AI work shows the model is getting stronger. And the company is built to take ground in whatever market shows up. With that, Brian, over to you. Brian Brown: Thank you, Varun, and good afternoon, everyone. Today, I will discuss Rocket Companies, Inc.’s strong first quarter results, which reflect the power of the Rocket Companies, Inc. ecosystem and platform. I will also provide an update on how we continue to make progress on our fixed cost and walk through our outlook for the second quarter. Let me start with our financial performance. Over the past year, we have intentionally transformed Rocket Companies, Inc., and it is showing up in the numbers. In Q1, we beat guidance, expanded EBITDA margins, and grew market share in both refinance and purchase. Adjusted revenue grew to $2.822 billion, surpassing the high end of our guidance range. Adjusted net income was $422 million, or $0.15 of adjusted EPS. Adjusted EBITDA rose to $738 million, up from $592 million last quarter, with margins expanding to 26%. This was our most profitable quarter in four years. This performance was a direct result of deliberate strategy and sustained investment. Rocket Companies, Inc. was built to perform through volatility across every rate environment in every market cycle. The industry experienced a favorable origination environment in January and February as rates cooperated, followed by a sharp reversal in March as energy prices surged with the outbreak of the conflict in the Middle East. Rocket Companies, Inc. navigated both environments with strength. Net rate lock volume reached $49 billion, a 19% increase quarter over quarter, driven by growth across all origination channels. The serviced client recapture and Rocket Pro channels led the way. The combination of the Rocket Companies, Inc. brand, more personalized experiences, and AI-powered origination capabilities drove recapture on Mr. Cooper-originated clients to an all-time high. The gains we have seen in the first two quarters since closing have exceeded our internal expectations, and the numbers reflect it. Closed loan volume from our servicing portfolio hit an all-time high, with 54% of refinance closings coming from existing serviced clients. On the wholesale side, Rocket Pro built momentum throughout the quarter. A big catalyst came from Rocket Ignite, our large-scale event bringing our mortgage broker partners across the country together. At Ignite, we launched Jupiter, a white-labeled loan origination system we are offering to our broker partners at no cost. Jupiter streamlines workflow, automates follow-ups, and manages the loan life cycle from registration to closing. We also announced an expansion of our partnership with Compass and launched a special pricing incentive for Rocket Pro partners working with Compass agents. The market response has been immediate. In just the last two months, we have already added nearly 180 new Rocket Pro partners, which collectively represent $5 billion in annual closed loan volume. The pace at which we are adding partners continues to increase. Cutting across all channels was the growth of our home equity and jumbo loan products, with both doubling year over year. This growth translated directly into market share expansion quarter on quarter and year on year. These increases were accompanied by healthy margins. Gain-on-sale margin, excluding correspondent, was 322 basis points in the first quarter, our highest since 2021. But what makes these results particularly meaningful is not just their scale and magnitude; it is the foundation upon which they are built. With the acquisition of Mr. Cooper and Redfin, the composition of Rocket Companies, Inc.’s revenue is more diverse than ever. In the first quarter, roughly 70% of Rocket Companies, Inc.’s revenue came from recurring or less rate-sensitive sources. We think about our business across three distinct revenue categories. First, recurring revenue, which includes the servicing business and the Rocket Money subscription business. This category represents our durable, fee-based foundation. Second, our less rate-sensitive revenue, which includes purchase mortgages, cash-out, closed-end seconds, and the Redfin business, is primarily driven by housing activity and client demand. While these products have some relationship to rates, they offer an addressable market that is large and relatively stable. The third category is rate-sensitive revenue, consisting of rate-and-term refinances and other items. Our rate-sensitive revenue has the most direct exposure to rate movements, but it is also our greatest source of upside when rates decline. This is what a balanced business model looks like. More than two thirds of our revenue provides stability and predictability through the cycle. Rocket Companies, Inc. is no longer solely a rate-driven business. We are a business with durable, recurring revenue streams that also retains significant upside when rates fall. Now let me share an update on integration synergies. Integrating a business of this scale demands disciplined execution. Our teams have moved with speed and precision with a strict focus on protecting the Rocket Companies, Inc. client experience. The Mr. Cooper integration is running well ahead of schedule. As we mentioned last quarter, we identified the full $400 million target for annualized expense synergies with full realization expected by 2026. That puts us an entire year ahead of our original plan. Here is how we expect these savings to phase in between now and the end of the year. Through the end of the first quarter, we have realized $75 million in annualized run-rate savings. By the end of the second quarter, we expect to capture another $100 million in annualized savings, and the remaining $225 million of annualized savings is planned to be captured in the second half of this year. These synergies flow directly into our fixed cost structure, primarily through the elimination of overlapping vendor contracts and the rationalization of duplicative functions. On a related note, I would like to give an exciting update on our origination capacity. At our September 2024 Investor Day, we shared that at that time, Rocket Companies, Inc. had the capacity to originate up to $150 billion without adding fixed costs. We also shared that we expected to double that capacity to $300 billion by 2027. Since then, the pace of deployment has accelerated materially with the power of AI. End-to-end digital refinancing, digital preapprovals for purchase mortgages, voice AI and SMS texting for prospecting clients, AI underwriting agents—these capabilities, backed by sustained investment, are live at scale today and driving real operating leverage. The result is that we now have up to $300 billion of origination capacity with several hundred fewer production team members than we had back in 2024, and we have done this two years ahead of schedule while actively reducing fixed costs through synergies. March is the clearest proof point. We ramped up volumes quickly from January and February’s levels, closing nearly $20 billion in volume without straining the platform. Loans closed per team member were up 75% compared to two years ago. AI is sharpening our unit economics and widening our competitive moat. Now turning to our outlook for the second quarter. Before getting into the numbers, let me frame up the current market environment. Since the outbreak of conflict in the Middle East in late February, rising energy prices have weighed on consumer sentiment and raised concerns about the future of inflation. Mortgage rates are approximately 50 basis points higher than their February lows. Homes are taking longer to sell, averaging 51 days on market, the longest stretch since 2019. The spring home buying season is off to a slow start. Our real-time market indicators suggest that the mortgage market will not see the same sort of uplift in Q2 that historical seasonality would typically suggest. Our guidance reflects this reality and reflects our ability to outperform within it. For the second quarter, we expect adjusted revenue to be between $2.7 billion and $2.9 billion. The midpoint of this range reflects our confidence in continued share gains. On the expense side, we anticipate approximately $2.43 billion at the midpoint of the revenue range. This includes $110 million in amortization of intangible assets, $100 million for stock-based compensation, and $20 million in estimated one-time acquisition costs. Excluding these items, expenses are expected to be $2.2 billion, which is approximately $60 million lower than the first quarter due to the realization of synergies and ongoing benefits of our AI initiatives. As a reminder, this Q2 expense guidance reflects the reclassification of warehouse interest expense from a contra revenue account to an expense line item, which is consistent with the Q1 financials in the earnings release. The net result implies higher profitability in the second quarter, in what we expect to be a tougher market. 2026 is a pivotal year, and this platform is built for it. Our top-of-funnel reach, distribution network, massive servicing and technology platform form a durable, self-reinforcing competitive engine. Today, these strengths drive profitable growth regardless of how the macro environment shifts. With that, operator, we are ready to take questions. Operator: We will now open the call for questions. If you would like to ask a question, please press star followed by one on your telephone keypad. Kindly limit your participation to one question only. Your first question comes from the line of Mihir Bhatia of Bank of America. Your line is now open. Mihir Bhatia: In terms of the guide, you are guiding a little bit below where Q1 ended up. Could you talk through some of the internals—what is driving that? Is it volume, margins? I know rates have backed up a bit, but its impact is [inaudible]. Varun Krishna: Mihir, thank you for the question. Let me start by talking a little bit about our market outlook, and then I will ask Brian to unpack more detail on the specifics of our actual guide, because I think that context is important. Q1 started extremely strong—rates were cooperating—and you really saw Rocket Companies, Inc.’s business model snapping into action exactly as designed. That is what is unique about our ecosystem and platform working. Obviously, what happened later in the quarter is that a major conflict in the Middle East exploded. With the war, oil prices went up, inflation pressure increased, and then rates moved up. That certainly changed some of the trajectory as we moved into Q2. I think the industry forecasts are expecting a step-up in Q2; I would say we are just not seeing that. What we see in our real-time data is that Q2 is probably going to look a little bit more like Q1. Yes, the environment has shifted, but the underlying demand is still resilient, and that is the most important thing. Specifically for Rocket Companies, Inc., when you have an ecosystem and a platform that is built for this environment—when you can convert demand at scale—you have a self-perpetuating ecosystem with servicing that is built for this exact moment. All of that is reflected in our guide, which is strong, and, obviously, when the conflict resolves, we expect to benefit further. With that backdrop, let me hand it over to Brian to unpack a little bit more about Q1 and our Q2 guide. Brian Brown: I think January and February—and really even March—demonstrated our ability to capture the upside when rates cooperate. All of our channels outperformed. That includes recapture, our new client acquisition, and especially the Pro business. But to Varun’s point, today the rate environment is completely different. The ten-year is hovering somewhere around 440 basis points; you have to go all the way back to July to see rates that high. So we have seen an expected pullback from rate-and-term refinance—there is no doubt about that. The good news is as we move into Q2, our less rate-sensitive products like cash-out and closed-end seconds continue to perform at those Q1 levels. Another thing worth mentioning is servicing amortization—it has slowed down—which really demonstrates this balanced business model in action. On the purchase side, it has been a slow-forming season, but it is important to note the pipeline of preapproved purchase clients is at our highest level of all time, proving that there are clients in market who want to buy homes; they just need a little bit of cooperation from rates. On Q2 guidance, we think the market is tougher than the industry forecasts would suggest. From a volume perspective here at Rocket Companies, Inc., we expect volumes to be similar to Q1, which is really impressive when you think about rates being more than 50 basis points higher than those Q1 levels. On the gain-on-sale margin front, margins so far in Q2 are holding consistent with Q1 on an individual channel level. We are seeing a little bit of downward pressure from mix shift to more Pro during a heavier purchase season, but overall margins remain healthy at the channel level. Operator: Your next question comes from the line of Jeffrey David Adelson of Morgan Stanley. Your line is now open. Jeffrey David Adelson: Good afternoon, and thanks for taking my question. I wanted to focus on expenses. It looks like your expenses came down quite a bit this quarter—about 2%, or maybe $60 million below your guide. Can you talk about what drove that beat? Was this synergy execution or something else? Historically when you come in at the higher end of your revenue guide, your expenses tend to go above the midpoint of the guide you gave for the quarter. And then your incremental margin also stepped up a bit this quarter. How are you thinking about the business’s incremental margins over time? I know you talk a lot about the 70% on the Rocket standalone side, but could you help us unpack the different incremental margins for the two big parts of the business you now have? Brian Brown: Thanks, Jeff. Really proud of the work we have done on the expense side. Our goals are simple: take fixed costs out of the system while increasing efficiency and capacity—essentially growing operating leverage. Since we are talking about capacity, we have $300 billion of origination capacity right now, more than double in two years. It is kind of crazy to think about where our capacity could be two years from now at this velocity. On the margin piece, remember when we are doing recapture loans—a big part of our business—you have a cost of acquisition that is close to zero, and you are generating 50% to 70% incremental EBITDA margins after amortization when we fill up that capacity. On the better-than-expected expenses in Q1—and note Q2 expense guidance is down as well—it is the synergies. It is taking fixed costs out of the system and being ahead of our plan. The Q2 guide, at the midpoint, has expenses down about $60 million versus Q1 after adjustments. That is almost two pennies of EPS. You can see operating leverage increasing and EBITDA margins expanding. We are a full year ahead of our original goal on expense-side synergies. We set $400 million by the end of 2027, and we will have that in the books by the end of 2026. We are decreasing fixed costs, increasing operating leverage, and getting more efficient along the way. Operator: Your next question comes from the line of Chad Larkin of Oppenheimer. Your line is now open. Chad Larkin: You gave a couple of really good examples of how AI is benefiting your business today. How should we think about future AI benefits to the business? I would think it should help you drive better long-term recapture rates over time, for one. And how should we think about AI benefits to margin over the medium and long term? Varun Krishna: Thanks for the question, Chad. The simple answer is we expect the benefits of our technology and AI investments to compound in a nonlinear way. There is a lot of hype in the market around AI, and most of what you are seeing from other players are really narrow use cases—they work for one loan, one scenario, or a demo here or there—but those claims are not translating into real outcomes. What matters in AI is not the model; it is the system attached to the model that feeds it. That is where Rocket Companies, Inc. is very special. We have the intent with Redfin—50 million monthly active users at the top of the funnel. We have the economics in financing with Rocket Mortgage at national scale. We have the ongoing servicing relationship with Mr. Cooper. This creates a proprietary dataset across the entirety of the homeownership life cycle. Operating that system at scale is key. Our chat pulls credit 4 thousand times per day. Our AI prospecting processes more than 32 thousand outbound leads every single day. That is real productivity. From March 2024 to March 2026, closings per team member are up 74%. There is no one else in this industry operating AI at that level. We are building the system that AI runs on, at scale from day one. As you assess other players, ask: what outcomes are being driven at scale? How many clients benefit? How much cost comes out? What is the net conversion improvement? How many loans are actually closed? We expect benefits across every aspect of our company—from how we acquire and grow demand at the top of the funnel, to how we drive conversion, to how we reduce the cost to originate a loan, and ultimately how we force-multiply recapture—to increase and compound in a nonlinear way over the coming years. Operator: Your next question comes from the line of Mark DeVries of Deutsche Bank. Your line is now open. Mark Christian DeVries: It looks like you are tracking well on recapture on the Mr. Cooper servicing book. I thought I heard something about 54% recapture. Was that just for Mr. Cooper? And could you talk about your optimism of ultimately getting to the low-60% range that was assumed in the deal economics? Varun Krishna: Great question, Mark. We are very bullish. We are in the midst of a pretty massive integration of two big public companies, and I could not be more proud of the progress. You have multiple companies, systems, and cultures coming together at scale, impacting thousands of team members. Three data points give me a lot of confidence. First, complexity: we have completed the largest servicing transfer in industry history, bringing our servicing platforms and client base into one unified experience—millions of clients, trillions of dollars of unpaid principal balance, and thousands of workflows now fully unified into a single system. Second, culture: integrations only work if the culture works, and we are seeing that. A baseline survey across the integrated organization—including Redfin and Mr. Cooper—shows engagement at 82%, up two points. Third, execution: we are well ahead of plan. We originally guided to 2027 for Mr. Cooper expense synergies and now expect to achieve that in 2026. We are doing that while increasing capacity, continuing to invest, and running the business quarter over quarter meeting or beating our guidance. It is not just about taking out cost—it is about building a more scalable, efficient system and bringing the team along. Overall, we feel very good about progress and are very bullish on recapture ahead of schedule. Brian can unpack more detail. Brian Brown: On recapture specifically, we are ahead of plan relative to what we set out to do. The 54% figure refers to the share of refinance closings coming from the serviced portfolio, inclusive of Rocket Companies, Inc. and Mr. Cooper, combined. Looking at recapture rates, the Mr. Cooper-originated portfolio is at the highest recapture in Cooper’s history—that is great to see. I am equally excited about the Cooper portfolio that was acquired or purchased—we are seeing really nice increases in recapture there as well. Both matter, because if we can continue to prove higher recapture on purchased portfolios, that opens many different ways of acquiring MSRs, putting them on the portfolio, and increasing LTV through great recapture. So we are ahead of plan on Cooper recapture, which, as you know, is the lion’s share of revenue synergies. On the Redfin side, it is all about attach rates—we have line of sight to 50% attach already. We are hovering around 45% and continuing to increase, so we are seeing really nice revenue synergies there as well. Operator: Your next question comes from the line of Ryan McKeveny of Zelman. Your line is now open. Ryan McKeveny: I wanted to dig in on the Compass partnership. I know it has only been a couple of months, but can you talk about what you are seeing thus far—both on the Redfin side in terms of traffic to the website and lead generation, and also on the Rocket Companies, Inc. side being embedded as the digital mortgage provider within the Compass platform? Anything you can share on what you are seeing so far from the relationship? Varun Krishna: Thank you for the question, Ryan. This partnership is very exciting to us. It is about skating to where the puck is going and impacting how this industry fundamentally works. Today the home buying process is extremely fractured—inventory and real estate, traffic, mortgage, and servicing are separate. That is not good for consumers; it creates friction, makes things more expensive, and is antiquated. We are bringing these closer together and connecting them so the buyer and seller benefit. The idea is simple: inventory drives traffic, traffic drives leads, leads drive mortgage, mortgage leads to servicing, and that creates recapture. It is early days, but a couple of data points: we have already generated nearly 10 thousand exclusive listings on Redfin—inventory that drives traffic and discovery. We have delivered just shy of 30 thousand leads into the Compass ecosystem as an evolution of the Redfin business model. One in four of our purchase loans in our TPO broker channel are coming from Compass. These are promising early signals. With any large-scale enterprise partnership, there is more work to do, but this is an extension of the platform we are building—one system that benefits the client with better, faster experiences and lower rates and fees. The teams are working well together, and we will keep sharing progress. Operator: Your next question comes from the line of Donald Fandetti of Wells Fargo. Your line is now open. Donald Fandetti: Could you provide updated thoughts on the competitive landscape? It seems like some other originators and servicers are struggling to keep up with expense and AI investment. Related to that, how are you tracking toward your market share goals? Varun Krishna: Thank you for the question, Don. We respect our competitors and learn from them, but our maniacal focus is on the client and executing our strategy—building a fully integrated platform across search, mortgage, and servicing. That is what you see with Rocket Companies, Inc., Redfin, and Mr. Cooper coming together, and you see it in the outcomes. Across the industry, the average time to close a loan is around 45 days. In March, Rocket Companies, Inc.’s days to close was less than half of that, and almost half of our loans closed in 15 days or less. That tells me many competitors’ technology investments are not translating into real operational performance—it is more marketing architecture. Our technology is built for scale, to benefit millions of clients on day one. There are a lot of AI claims in the market, but many operate in extremely narrow use cases. Ask: at what scale does it operate, how many loans are closed, how much revenue is generated, how much cost is taken out? That is where the difference shows up. On market share, we feel very good about our progress and our ability to achieve our goals. Q1 is a good example—we gained share in both purchase and refinance, quarter over quarter and year over year. Growth will not be perfectly linear. But the underlying drivers are working: Redfin attach rate and traffic converting into mortgage; servicing recapture as a strong lever; continued new client acquisition through brand marketing and AI-driven prospecting. We are principled in how we invest to drive growth. We will not sacrifice profitability to chase share. We are focused on growing share the right way for the long term. Operator: Our last question comes from the line of Bose George of KBW. Your line is now open. Bose Thomas George: Good afternoon. How do you feel about growing the correspondent channel as a way to increase market share? Brian Brown: Thanks, Bose. We really like the correspondent channel. It was not a big focus for Rocket Companies, Inc. before, but it was one of the attractive points of Mr. Cooper. There are several ways to acquire MSRs. Our favorite is acquiring the client and doing the first loan organically. Rocket Companies, Inc. has traditionally participated in the bulk market and we will continue to look at that. The correspondent channel is a really efficient way to fill the servicing funnel. Going back to recapture, we know our recapture rate even on acquired MSRs is higher than the industry and it is rising every day, which allows us to be very thoughtful in the ROI equation. It is a big part of our capital waterfall and a place we will continue to invest. Ultimately it comes down to best execution decisions we make almost every day among acquiring clients in market, bulk acquisitions, correspondent, and even the co-issue business, which is also a very attractive way to acquire MSRs. Operator: I would now like to hand the call back to Varun Krishna for closing remarks. Varun Krishna: Thanks, everybody, for listening, and we look forward to seeing you next quarter. Operator: Thank you for attending today’s call. You may now disconnect. Goodbye.
Operator: Thank you for joining us, and welcome to DXP Enterprises, Inc. first quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to David Little, CEO. David? Please go ahead. Kent Yee: Yep. Actually, Samantha, this is Kent Yee, Chief Financial Officer. I will walk through a few comments, and then we will hand it over to David Little, our CEO and Chairman. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. DXP Enterprises, Inc. assumes no obligation to update that information because of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our Chairman and CEO, to provide his thoughts and a summary of our first quarter performance and financial results. David? David Little: Good afternoon. Thanks for joining us today on DXP Enterprises, Inc.'s fiscal 2026 first quarter conference call. Well, we delivered a slow start to 2026, especially sales in January, which improved in February and improved to a greater extent in March. We are not sure why sales in January were so soft, but we are glad to see the growth in the other two months and the growth in bookings during the quarter plus continuing in April. We also maintained gross margin discipline and generated meaningful free cash flow that gives us confidence in the quarters ahead. From an earnings standpoint, the quarter included increased interest expense amortization and a few discrete items in SG&A, like health care, legal, and audit-related costs tied to our acquisition activity, which we view as timing-related and will normalize and are not reflective of our underlying earning power. Our strategy remains simple and consistent: be customer-driven experts, execute operationally, grow where we have competitive advantage, and allocate capital in a disciplined way. This quarter reflects steady execution across our diversified platforms. We grew sales nearly 10%, expanded gross profit margins, delivered EBITDA margins above 11%, all the while generating strong cash flow. On behalf of the 3,497 DXP Enterprises, Inc. people you can trust, I want to thank our customers, suppliers, and shareholders for their continued trust and support. Our team continues to execute with consistency. We remain focused on profitable growth and cash generation. Consolidated performance in the first quarter: sales were $521.7 million, up 9.5% year over year. Sales per business day increased to $8.28 million from $7.57 million. Gross profit margins expanded to 32.3%, nearly 80 basis points higher. Adjusted EBITDA was $57.8 million, or an 11.1% margin. Operating income totaled $42.5 million. Adjusted diluted earnings per share was $1.26. Free cash flow was $26.3 million. These results are driven by a combination of organic growth, favorable mix, operating execution, and contributions from accretive acquisitions. Margin performance reflects pricing discipline, cost controls, and an ongoing shift towards higher-value products, engineered solutions, and services. SG&A was higher year over year due to several unique and some nonrecurring items, including health care claims volatility, and legal and audit costs tied to acquisitions, and other one-time expenses. We expect those to normalize as the year progresses, and we remain focused on managing SG&A while continuing to invest in growth initiatives that generate acceptable returns. From a growth standpoint, we continue to lean into markets where demand is durable and where DXP Enterprises, Inc.'s capabilities matter. Water and wastewater, energy infrastructure, general industry, and selected technology-driven markets like data centers and air compression continue to provide attractive long-term demand drivers. Across DXP Enterprises, Inc., growth is coming from several consistent things: expanding technical and engineered solutions; broadening solutions around pumps, automation, filtration, and process equipment; leveraging our decentralized model to pursue local growth opportunities; and cross-selling across platforms and integrating acquisitions more effectively. We are not chasing volume for volume’s sake. Growth is targeted at areas where we can maintain margins, generate cash, and deepen our customer relationships. Thank you, DXP Enterprises, Inc. sales and operational professionals, for teaming up together and winning for our customers and stakeholders. Thank you to our corporate support for their efforts to support both internal and external customers. Segment performance: Innovative Pumping Solutions continues to deliver engineering solutions that matter. Sales increased 37.7% to $111.7 million. Growth was driven by energy-related and water and wastewater activity, along with contributions from recent acquisitions. Bookings and backlog in energy infrastructure remain above long-term averages, and we are encouraged by the traction we are seeing early in fiscal 2026. Many of these engineered solutions are large, multi-quarter in nature, which support revenue visibility and backlog conversion moving forward. We also continue to build scale in water and wastewater markets within IPS, where municipal infrastructure investments and regulatory requirements create long-cycle demand for pumps and treatment solutions. Service Centers produced 3.3% total sales growth. This segment continues to benefit from its diversification across end markets and its multi-product MRO-focused model. Growth is coming from technical products such as automation, vacuum pumps, filtration, and newer pump brands serving water and industrial applications. We are also seeing demand improvements in markets like air compression and data centers where customers need reliable systems for pumping, cooling, power, and filtration—areas where DXP Enterprises, Inc. can provide bundled solutions rather than just individual components. Supply Chain Services grew 2.7% year over year and 6.2% sequentially. This business continues to onboard new customers. As we have discussed before, implementation timing and facility-level ramp-up can create temporary variability, but demand for SCS’s technology that enables integrated supply solutions continues to build. The sales pipeline remains encouraging, and we expect performance to improve gradually as onboarding matures and program volume scales. Cash flow, capital discipline, and balance sheet: cash generation remains a core focus for DXP Enterprises, Inc. In the first quarter, we generated $29.6 million in operating cash flow and $26.3 million of free cash flow, even while investing in working capital to support growth, particularly in IPS and our water-focused business. Our balance sheet remains strong with ample liquidity to fund organic growth initiatives, integrate recent acquisitions, pursue disciplined accretive M&A, and maintain financial flexibility through different macro environments. We continue to emphasize cash conversion, working capital discipline, and return on invested capital when making growth and acquisition decisions. As we move through fiscal 2026, our priorities remain clear: drive organic growth in attractive end markets, maintain margin discipline and operational execution, execute strategic accretive acquisitions, and generate cash and allocate capital thoughtfully. We like the current setup in our markets: water, general industry, and energy-related infrastructure. Bookings are trending higher, backlog remains healthy to higher, and based on current visibility, we are encouraged about the second quarter and the remainder of the year. DXP Enterprises, Inc.'s diversified model, improving demand indicators, and consistent operating discipline give us confidence in our ability to execute through fiscal 2026. In closing, I want to thank our DXP Enterprises, Inc. people for their execution, teamwork, and commitment. They continue to differentiate DXP Enterprises, Inc. in the markets we serve and create value for our customers and shareholders. With that, I will turn it over to Kent to walk you through the financial details. Kent Yee: Thank you, David. And thank you to everyone for joining us for our review of our 2026 financial results. Q1 shows that we carried momentum from last year into fiscal 2026, but started off slower than anticipated. That said, at this time last year, we experienced a similar trend and finished 2025 strong. Likewise, we anticipate 2026 to be another strong year. Specifically for Q1, we had strength in sales during the months of February and March, strong gross margin performance, and good free cash flow generation. To summarize the quarter, Q1 key takeaways are as follows: 9.5% sales growth, with sales per business day showing 28% growth between January and March; strong gross margin performance, with gross margin improvement sequentially and year over year; and great quarterly free cash flow generation. In terms of our detailed results, total sales for the first quarter increased 9.5% year over year to $521.7 million. Acquisitions that have been with DXP Enterprises, Inc. for less than a year contributed $40.7 million in sales during the quarter. Average daily sales for the first quarter were $8.3 million per day versus $7.6 million per day in 2025. Adjusting for acquisitions, average daily sales were $7.6 million per day for 2026 versus $7.1 million per day during 2025. As is typical, sales accelerated through the quarter, with average daily sales increasing from $7.2 million per day in January to $9.2 million per day in March, reflecting a normal quarter-end push but highlighting strong acceleration coming into quarter end. In terms of our business segments and on a year-over-year basis, Innovative Pumping Solutions grew 37.7%, followed by Service Centers growing 3.3% and Supply Chain Services growing 2.7% year over year. In our Service Centers, sales grew 3.3% year over year and declined 5.1% sequentially. Regions that experienced sequential as well as year-over-year sales growth include our South Central, South Rockies, and South Atlantic regions. From a product perspective, our Metalworking division also experienced sequential and year-over-year sales growth. From a segment operating income perspective, we have had four consecutive quarters of around 14% or greater, and we look for this to continue as we still believe there are regions that can enhance or become more consistent in their operating income margins. In terms of Innovative Pumping Solutions, we continue to experience strong backlogs in both our energy and water and wastewater businesses. Our Q1 2026 energy-related average backlog increased 2.1% sequentially, stemming the declines we saw in Q3 and Q4 of last year. As David mentioned and as we have been discussing on previous earnings calls, we have booked a few large engineered projects in both energy and water that we recognized some revenue on in 2025 and will continue into 2026. The conclusion remains that we are trending meaningfully above all notable sales levels based upon where our backlog stands today. Our DXP Enterprises, Inc. Water platform experienced our fourteenth consecutive quarter of sequential sales growth, and we look for this to continue as we move through 2026. That said, we are seeing project and product delivery timelines stretch in our already long-cycle business. We also see strength in our IPS water backlog as it continues to grow due to a combination of our organic and acquisition additions. It is worth noting that DXP Enterprises, Inc. Water was 66% of IPS sales in Q1. Supply Chain Services performance primarily reflects a 6.2% increase sequentially as well as 2.7% growth year over year. As we discussed during Q3 and Q4 of last year, we experienced an uptick in Supply Chain Services performance, which we are seeing again in Q1. Interest in and demand for SCS services is increasing because of the proven technology and the efficiencies they provide for industrial customers, and we expect a stronger 2026 as we onboard new customers. Turning to our gross margins, DXP Enterprises, Inc.'s total gross margins were 32.3%, a 79 basis point improvement over 2025. This improvement is attributed to increased margins year over year across all three business segments and the contribution from acquisitions at a higher overall relative gross margin versus our base DXP Enterprises, Inc. business. That said, from a segment mix standpoint in Q1, Service Centers contributed 65%, Innovative Pumping Solutions was 23%, and Supply Chain Services was 12% of sales. With our mix increasing more towards Innovative Pumping Solutions, this continues to elevate DXP Enterprises, Inc.'s gross margins. In terms of operating income, combined, all three business segments increased 105 basis points year-over-year in business segment operating income margins. This was driven by improvements in operating income margins across all three segments year over year and sequentially. Total DXP Enterprises, Inc. operating income was $42.5 million in 2026. Our SG&A for the quarter increased $16.1 million from 2025 and $6.2 million sequentially to $126.1 million. The increase reflects normal seasonal amounts in terms of payroll taxes, insurance, and other administrative items, as well as the growth in the business and associated incentive compensation. Additionally, as David mentioned in his comments, the quarter included some unique and discrete one-time items, including elevated health care costs, excess legal and consulting costs, as well as one-time equipment and fleet costs. SG&A as a percentage of sales increased 115 and 144 basis points year over year and sequentially to 24.2% of sales. Turning to EBITDA, Q1 2026 adjusted EBITDA was $57.8 million. Adjusted EBITDA margins were 11.1%. It is worth noting that our adjusted EBITDA margins remain above 11% amidst our normal financial seasonality associated with higher payroll taxes, insurance, and associated items. We continue to expect to benefit from the fixed-cost SG&A leverage we experience as we grow sales and anticipate there is further operating leverage as we move through fiscal 2026. In terms of EPS, with a Q1 net income of $20.0 million, our earnings per diluted share for Q1 2026 was $1.22 per share versus $1.39 per share for 2025. We would point out that in the fall, we repriced and raised an incremental $205 million in debt; interest expense increased by $1.8 million compared to the first quarter of last year. Conservatively adjusting for some of the one-time acquisition and excess expense items, adjusted earnings per diluted share for 2026 was $1.26 per share. Turning to the balance sheet and cash flow: in terms of working capital, our working capital increased $17.9 million from December to $379.6 million. As a percentage of sales, this amounted to 18.4%. As mentioned during Q4, we will continue to grow into the working capital as a percentage of sales, specifically the impact from recent acquisitions. We do anticipate further acquisitions, however, which could cause us to move up, albeit we are focused on managing working capital as efficiently as possible as we scale and grow. In terms of cash, we had $213.4 million in cash on the balance sheet as of March 31. This is a decrease of $90.4 million compared to the end of Q4, and this primarily reflects the acquisition of Mid Atlantic Storage Systems, Premier Flow, and Ambiente H2O. In terms of CapEx, CapEx in the first quarter was $3.3 million, essentially flat compared to 2025, and a decrease of $16.6 million compared to 2025. As we have discussed, we were making investments in the business as we grow, and this began to taper during the second half of last year. We see our current levels at less than 1% of sales as more of what we would expect in terms of maintenance capital expenditures. Turning to free cash flow, cash flow from operations was $29.8 million in Q1 of this year versus $3.0 million in Q1 of last year. As a reminder, during 2025, we included tax payments which were deferred from Q2 of last year due to storms that were paid in 2025. That said, we continue investing in projects and experienced an uptick in receivable days during Q1. As we move through 2026, this should balance out, and we should see a decrease in receivable days. We continue to focus tightly on managing projects from a cash flow perspective and look to align billings with the investments. Return on invested capital, or ROIC, at the end of the first quarter was 34.1% and is consistent with DXP Enterprises, Inc. driving margins, operating leverage, and improving our run-rate EBITDA. As of March 31, our fixed charge coverage ratio was 2.5 to 1 and our secured leverage ratio was 2.6 to 1, with a covenant EBITDA for the last twelve months of $243.9 million. Total debt outstanding on March 31 was $844.7 million. In terms of liquidity, as of the first quarter, we were undrawn on our ABL with $31.7 million in letters of credit, or $153.3 million in availability, and liquidity of $366.7 million, which includes $213.4 million in cash. DXP Enterprises, Inc. is poised to execute our acquisition strategy and we anticipate closing another one to two acquisitions before the second quarter ends. In terms of acquisitions, we closed three during the quarter: Mid Atlantic Storage Systems, Premier Flow, and Ambiente H2O. DXP Enterprises, Inc.'s acquisition pipeline continues to remain active, and the market continues to present compelling opportunities. As we discussed during the Q4 earnings call, we anticipated closing one to three acquisitions before midyear, and we have closed three deals year to date. We have another three under letter of intent and another two close to coming under letter of intent. That said, we are stressing sustainable performance with our acquisitions and remain comfortable with our ability to execute on our pipeline. Heading into 2026, we refreshed our balance sheet, which has allowed us to continue to invest in the business both organically and through acquisitions while also returning capital to shareholders. We are excited about the future. We are excited because there is still substantial value embedded in DXP Enterprises, Inc. We look forward with great confidence to a future of sustained growth and market outperformance. Our resilient and critical MRO and supply chain solutions combined with our engineered solution capabilities and exposure to secular trends, including water and wastewater, will continue to drive our future sales and profitability. We are excited about the future. We will now open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from the line of Zach Marriott with Stephens. Zach, line is open. Please go ahead. Zachary Ryan Marriott: Good afternoon, and thank you for taking my questions. I heard you give the January and March daily sales numbers thus far. Could you please fill us in for February and then Q2? And is there anything that should drive a meaningful margin difference, whether up or down, when comparing Q2 to Q1? And then just one more if I could: corporate expenses have fluctuated over the last year from as low as $20 million to up to $28 million this last quarter. Should we use the $28 million as the best proxy for Q2 and beyond, or should this number vary significantly over the balance of the year? Kent Yee: Absolutely. I will go from the beginning of the year. January was $7.2 million per day. February was $8.4 million per day. March was $9.2 million per day. And then April was $9.0 million per day. On margins, there is SG&A leverage, which we discussed in our comments. January was a light month, and we came in around 11.1% EBITDA margins, which is where we have been the last three quarters or so. That said, we feel good going into Q2. We do not provide direct formal guidance, but we believe there is more leverage in the business and margins could be higher. If sales keep trending as they have—by the way, on a monthly year-over-year basis, that April number is up 15% year over year compared to April last year—that is going to drive incremental margin to the bottom line as we move forward. On corporate expenses, we pointed out in our comments that there were some discrete, unique one-time items, including consulting fees and fleet costs that we normally would not incur. There are also costs like health care claims that we do not fully control, and as we grow and add people, that category naturally increases. From an absolute dollar perspective, I would not say it would be $20 million, but it could be a blend between the $20 to $28 million range in the short to medium term. As we grow through acquisitions and add people, you are going to have increased health care claims in particular—we are self-insured as a company. We hope for a healthy employee base, but the reality is costs scale with headcount, and we have grown significantly through acquisitions recently, so some costs have gone up correspondingly. Operator: Your next question comes from the line of Diletta Sayobayeva. Diletta, your line is open. Please go ahead. Diletta Sayobayeva: Yep. Hello? Can you hear me? Kent Yee: Yes, we can hear you. Diletta Sayobayeva: Hello, everyone. Are you seeing any changes in pricing dynamics across your key end markets, particularly in energy? And how is that impacting margins and demand? And then you recently participated in DICE, the investment conference. Did you identify any meaningful opportunities, either from a commercial or acquisition standpoint? David Little: I believe the question was about pricing and demand in oil and gas. Our oil and gas business is doing well, and it is growing. As we have said in the past, we have booked some really large orders, and we have booked some very nice orders recently. It can be competitive, but we also do remanufacturing of pumps, and when we are able to sell those types of products, they are based on delivery. We can produce pumps faster than anybody else can. When speed to delivery matters, our margin goes up. We have some very nice margins in that area. In general, demand is up, but it is twofold. Oil companies are not going crazy just because oil prices are $100 or above. They feel like the war and things like that will be resolved at some point, so they cannot count on those prices and expect them to come down some, so they are not going crazy. On the other hand, they have a lot of cash flow, and they are spending it. So demand is up, but it is not booming—that is how I would answer that. Kent Yee: On DICE and opportunities, from an acquisition standpoint, we are always out there as a business—both in the field and here at corporate. As I mentioned in my comments, we have three letters of intent in place today that we are working through due diligence, and we have another two that are close to being under letter of intent. We are still in acquisition mode. There are compelling opportunities out there. Our recent focus has been on the water and wastewater side, and we are still finding opportunities in that space. As we always say, DXP Enterprises, Inc. is in the business of buying businesses, and we spend a lot of time finding the right fit. Operator: We have reached the end of the Q&A session. I will now turn the call back to David Little for closing remarks. David Little: I would reiterate that January was surprisingly slow. I do not have a clue as to why—it was across the board: water, oil and gas, and general industry. I do not have anything to point to, and that threw us off stride a bit, and we did not produce great results. With that said, bookings in January ticked up, higher in February, and higher in March. We feel good about what we are doing going forward. Sorry about January, but we feel good about the year. We are looking forward to a great year, and appreciate everybody hanging in there. Thanks. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Flux Power Holdings, Inc.'s fiscal third quarter 2026 earnings conference call. At this time, participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the Q&A session. As a reminder, this conference call is being recorded today, 05/07/2026. If you require operator assistance, please press star then 0. I would now like to turn the call over to Joel Achramowicz of Shelton Group Investor Relations. Joel, please go ahead. Joel Achramowicz: Good afternoon, and welcome to Flux Power Holdings, Inc.'s fiscal third quarter 2026 earnings conference call. I am Joel Achramowicz of Shelton Group, Flux Power Holdings, Inc.'s investor relations firm. Joining me on today's call are Krishna Vanka, Flux Power Holdings, Inc.'s CEO; Kevin Royal, Flux Power Holdings, Inc.'s Chief Financial Officer; and [inaudible], Flux Power Holdings, Inc.'s new Director of OEM Sales. Before I turn the call over to Krishna, I would like to remind our listeners that during the course of this conference call, the company will provide financial guidance, projections, comments, and other forward-looking statements regarding future market developments, the future financial performance of the company, new products, or other matters. These statements are subject to the risks and uncertainties that we discuss in detail in our documents filed with the SEC, specifically our 10-K and our most recent 10-Q, which identify important risk factors that could cause actual results to differ materially from those contained in the forward-looking statements. Also, the company's press release and management's statements during this conference call will include discussions of certain adjusted or non-GAAP financial measures. These financial measures and related reconciliations are provided in the company's press release and related current report on Form 8-Ks, which can be found in the Investor Relations section of Flux Power Holdings, Inc.'s website at fluxpower.com. For those of you unable to listen to the entire call at this time, a recording will be available via webcast on the company's website. It is now my great pleasure to turn the call over to Flux Power Holdings, Inc.'s CEO, Krishna Vanka. Krishna, please go ahead. Krishna Vanka: Thank you, Joel, and welcome, everyone, to our third quarter conference call. As we anticipated and signaled last quarter, third quarter revenue was impacted by two factors: our largest material handling customer implementing a capital freeze and dynamic ordering patterns across the business. Late in the quarter, rising geopolitical tensions in the Middle East drove fuel prices higher, which further delayed some customer spending. Together, these headwinds pulled consolidated revenue below our expectations entering the quarter. Importantly, however, in both the ground service equipment business and with our material handling customer navigating their capital freeze, customer commitment to Flux Power Holdings, Inc. remains strong. We expect order activity to return to prior levels once these near-term headwinds subside. Given these headwinds, we moved decisively on cost. With our targeted headcount reductions and broader efficiency actions, operating expenses are down 30% versus the prior-year period. We continue to optimize our sales team, launching aggressive new marketing programs and expanding our OEM partner engagements. We have been successful in adding senior industry sales professionals to the team, and we are in the process of replacing our sales leader; we are anxious to have this position filled soon. Further, under new marketing leadership, we launched a comprehensive digital strategy spanning social media, lead generation, and brand awareness initiatives. We also had a strong showing at the MODEX show in Atlanta last month, one of the most important industry events on our calendar. The highlight was winning the Innovation in Sustainability Award. After a rigorous vetting process, including multiple booth visits from an elite panel of industry judges, Flux Power Holdings, Inc. was recognized for delivering an innovative sustainability solution not currently offered by any other company in our space. This award reflects our commitment to cleaner, more efficient, and holistic energy life cycle management from design through deployment to recycling. We believe no one in the lithium-ion battery industry does this better than Flux Power Holdings, Inc. Beyond the award, MODEX delivered on several fronts. Booth traffic was strong, with meaningful engagement from both new prospects and existing customers. We showcased recent advancements to our Sky EMS Fleet Intelligence platform, including mobile dashboards, real-time notifications, expanded data integration and API connectivity, and advanced reporting and analytics. We also featured our newly patented state-of-health technology, which we believe represents a significant advancement in battery life cycle management. I want to highlight another development driving new business activity. You may recall that we announced last quarter that we hired a new director to work with our existing OEM partners and to identify and cultivate new OEM partnerships. He has more than 20 years of experience working for material handling OEMs and their dealer networks. I will now turn the call over to our Director of OEM Sales to provide an overview of these efforts. Unknown Speaker: Thank you, Krishna. I am very happy to be with Flux Power Holdings, Inc. I am thoroughly enjoying working with our existing OEM partners and also working with other OEMs to introduce them to Flux Power Holdings, Inc. and identify how we can work together. I would like to highlight a few data points related to the global forklift market and the status of the electrification of the forklift industry. The global forklift market was approximately $87 billion in calendar year 2025. The electric share of new purchases in North America was 65% for the same period. Lithium-ion penetration stands at 32% at the end of calendar year 2024 and is projected to exceed 70% by 2034, with calendar year 2027 being the year that lithium-ion overtakes lead-acid as the preferred power source for electric forklifts. In addition, the North American forklift market is projected to grow at a compound annual growth rate of 17.2% through calendar 2031. These factors, along with Flux Power Holdings, Inc.'s strong product portfolio, are the primary reasons I am excited to be a part of the team. I have already been in contact with several OEMs. I am pleased with the responses I have received and look forward to securing new OEM partners. I will now turn it back over to Krishna. Krishna Vanka: Thank you. The company has also been working closely with existing OEM partners to optimize our pricing structure for our white-label products. We believe this initiative increases our competitiveness in the market and has resulted in increased volume commitments from our existing OEM partners. As a result of these developments, along with the proactive efforts I have outlined above, we are seeing positive indications of increased order activity going into the fourth quarter and expect sequential revenue growth of approximately 20% in the fourth quarter. Additionally, we are aggressively working to improve margins through near-term supply chain optimization, vendor renegotiations, and product redesign efforts. We believe that these initiatives will have a significant impact on our operating model and will improve our profitability. I look forward to providing additional details of these new efforts and our results on the next earnings call. Let me be clear. While I am excited with our new initiatives and we believe we are positioned positively in the market, I am not satisfied with the results. We are taking every step we believe is necessary to meet and ultimately exceed historic revenue levels, achieve profitability, and build a stable recurring revenue stream business. We have proven our potential to get there based on our Q2 performance. To achieve this profitability goal, the Flux Power Holdings, Inc. team remains intensely focused on the five strategic initiatives that continue to guide us, which include: number one, profitable growth; number two, operational efficiencies; number three, solution selling; number four, building the right products; and number five, integrating value-added software. We continue to make progress on these initiatives each quarter as they remain a top priority for the company. With that, I will now turn the call over to our CFO, Kevin Royal, to discuss our third quarter financial results in more detail. Kevin, please go ahead. Kevin Royal: Good afternoon, everyone. Revenue for the third quarter of 2026 was $6.6 million compared to $16.7 million in the same quarter last year. Gross margin in the third quarter was 27.3% compared to 32% in the prior-year period. The year-over-year decline in gross margin was largely due to changes in product mix and lower volumes resulting in higher unabsorbed labor and overhead. Operating expenses in the third quarter of 2026 were $4.8 million compared to $6.9 million in the third quarter of 2025. The year-over-year decrease in operating expenses primarily reflects cost reduction actions taken to reduce headcount and streamline the operating model. Net loss for the third quarter was $3.2 million, or $0.15 per share, compared to a net loss of $1.9 million, or $0.12 per share, in the third quarter of 2025. Excluding stock-based compensation, third quarter non-GAAP net loss was $2.9 million, or $0.14 per share, compared to a non-GAAP net loss of $1.1 million, or $0.07 per share, in the prior-year period, which also excluded costs associated with the multiyear restatement of previously issued financial statements. Adjusted EBITDA for the third quarter was negative $2.5 million compared to negative $500 thousand in the same quarter a year ago. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $400 thousand compared to $1.3 million at the end of our 2025 fiscal year. I will now hand the call back to Krishna for closing comments before we open it up to your questions. Krishna Vanka: Thank you, Kevin. In summary, I want to emphasize that the entire Flux Power Holdings, Inc. team remains fully focused on executing our key strategic initiatives as we navigate these short-term challenges. We believe the markets we are targeting in the global lithium-ion industry continue to offer expanding growth opportunities. In addition, our leaner cost structure, margin improvement initiatives, new product development, and enhanced sales and marketing efforts are designed to position us for a return to growth and profitability as revenue recovers. Thank you for your continuing interest and support of Flux Power Holdings, Inc. Operator, you may now open the line for questions. Operator: We will now open the call for questions. To ask a question, please press star then 1. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Mr. Vanka, you have a clarification. Krishna Vanka: Yes. I want to clarify the sequential revenue growth. It will be approximately 20% in the fourth quarter. I want to make sure that came out clearly; there was some double connection on the line. Operator: The first question comes from Sameer Joshi with H.C. Wainwright. Please go ahead. Sameer Joshi: Good afternoon, Krishna and Kevin, and welcome to the team. Thanks for taking my questions. Maybe the first question is for your Director of OEM Sales. You highlighted the market growing at around 17.2% CAGR to 2031. What is the approach you are taking to grow faster than this 17.2% for Flux Power Holdings, Inc.? Krishna Vanka: I will start the answer, and then we will have our Director of OEM Sales follow up. Our approach is to continue working with existing OEMs to further gain share of wallet, as well as work with new OEMs so that we are not only certified, but eventually work more closely with them. Unknown Speaker: Thank you, Krishna. That is a very good question. We are working with OEMs—some under nondisclosure agreements—whose path forward in the market is to transition the majority of their product lines to electrified lift truck models. That aligns with our goals to grow with them and ahead of them, so that we are ready for the market as they continue to phase lead-acid out of their operations. Sameer Joshi: Understood. Krishna, you mentioned 20% sequential growth. Do you have any further visibility beyond that for 2027 in terms of the pipeline you are looking at and maybe orders that are already on the books that will be executed in the fiscal first and second quarters? Krishna Vanka: We are definitely seeing increased activity, and we believe we are coming back up from this quarter—picking up 20% this quarter—and then hopefully continuing that trend forward. The geopolitical situation is not helping, so we hope that will subside soon. We are investing significantly into marketing. We have optimized pricing as we mentioned on the call. We are working closely with our Director of OEM Sales on more OEMs, and we are looking at a new sales leader. All of the above should allow us to continue to grow beyond Q4 and into Q1. Sameer Joshi: Understood. On your comprehensive social media strategy, can you give a bit more insight into what that entails, and does it incrementally add to operating costs going forward? Krishna Vanka: Our digital strategy focuses on generating more qualified leads for our sales team, especially as we target top fleets. This includes collecting information through social media and running significant account-based campaigns. We are seeing good feedback. MODEX proved that we are not only getting good leads, but also quality leads as we follow up. We are doing all of this within the existing budget by focusing the team on what is important. With Michelle, our Director of Marketing who joined about six months ago, we put this program together and started executing in January. We are starting to see the fruits of it, and we are positive it will help build pipeline and backlog. Sameer Joshi: Understood. Thanks for taking my questions. Congratulations on the success at MODEX, and good luck for the rest of the year. Operator: The next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Rob Brown: Good afternoon. Thanks for taking my question. Just to clarify the outlook, it is 20% growth off what you reported here in Q3. Is that the baseline? Krishna Vanka: Yes, that is correct—sequential. Rob Brown: And then on visibility for the lifting of the capital freeze, do you see that coming, or is that still to be determined? Krishna Vanka: We do see indications of an eventual lift, but not this calendar year. Rob Brown: Thank you. Operator: Again, if you have a question, please press star then 1. The next question comes from Craig Irwin with ROTH Capital Partners. Please go ahead. Craig Irwin: Good evening, and thanks for taking my questions. Can you compare the relative levels of activity you are seeing in the electric forklift market versus the airport ground equipment market? You have introduced new technology to these customer groups over the last few years with specific product introductions. Can you help us unpack relative activity in these two markets and whether some of these product changes are helping you generate leads that will convert to revenue over the next couple of quarters? Krishna Vanka: Thanks, Craig. Our solutions are being very positively received. We continue to lead the GSE space with respect to lithium-ion solutions through our partner. Any lag we are seeing is due to broader market dynamics, not our product portfolio or GSE in particular. The forklift market has been moving up and down with tariffs and sensitivity to capital spending, and we were particularly affected by one customer's capital freeze, which was beyond our control. Overall, we are seeing increased activity. There was a pickup during the tariff changes, and then the war added some stress again. In both cases, we are looking at growth. In forklift, we are working closely with OEMs and dealerships and pursuing more certifications. In GSE, we remain committed to working with our partner as they bring new airlines into the mix. Craig Irwin: Thank you. Given the sequential progression in revenue, I was pleasantly surprised that margins were as strong as they were. Can you talk about what went right on gross margin and how this should impact progress over the next couple of quarters toward your longer-term targets of 40%? Kevin Royal: We have focused on improving product cost, working with existing vendors in some cases and, in other cases, creating competition by putting certain subassemblies out for bid, thereby lowering cost. That work is ongoing. We have seen a fair amount of progress that has not fully rolled through cost of sales yet because we hold inventory of older, higher-priced components. We also have additional plans for product redesigns, which take longer, so we will not realize those improvements for probably 12 to 15 months. We are happy with the progress thus far from working the supply chain side of the equation. Craig Irwin: Understood. Last question is on the balance sheet. Kevin, inventory management looked good. What stood out was approximately $4.6 million in cash in from receivables. Did you change terms, offer discounts, or were there specific items that allowed you to cut receivables by more than 50% in the quarter? Kevin Royal: We did not change terms. We have been fortunate, even with deteriorating conditions in some cases, to hold the line on payment terms. We had strong collections from last quarter’s shipments, which helped reduce receivables by the March 31 balance sheet date. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Krishna Vanka for any closing remarks. Krishna Vanka: Thank you again for joining today's call. We look forward to speaking with you all again on our Q4 call during the September timeframe. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day and welcome to the Myomo, Inc. First Quarter 2026 Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Bruce Voss of Alliance Advisors. Please go ahead. Bruce Voss: Thank you and good afternoon, everybody. This is Bruce Voss with Alliance Advisors IR. Welcome to the Myomo, Inc. First Quarter 2026 Financial Results Conference Call. With me on today's call are Myomo, Inc.'s Chief Executive Officer, Paul R. Gudonis, and Chief Financial Officer, David A. Henry. Before we begin, I would like to caution listeners that statements made during this call by management other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, intend, guidance, outlook, confidence, target, project and other similar expressions are typically used to identify such forward-looking statements. These forward-looking statements are not guarantees of future performance and may involve and are subject to risks, uncertainties and other factors that may affect Myomo, Inc.'s business, financial condition and operating results. These risks, uncertainties and other factors are discussed in Myomo, Inc.'s filings with the Securities and Exchange Commission. Actual outcomes and results may differ materially from what is expressed in or implied by these forward-looking statements. Furthermore, except as required by law, Myomo, Inc. undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call today, 05/07/2026. Now it is my pleasure to turn the call over to Myomo, Inc.'s CEO, Paul. Paul, please go ahead. Paul R. Gudonis: Thanks, Bruce. Well, good afternoon, and thank you all for joining us today. We remain very excited about the opportunity in front of us to improve lives and grow our company. Chronic upper-limb paralysis is an underserved medical condition and each year stroke leaves hundreds of thousands of Americans with long-lasting arm impairments. When you add in spinal cord injury, traumatic brain injury and brachial plexus injuries, the addressable U.S. population reaches into the millions, and globally millions more. For most of these patients, the standard of care has been a passive brace, ongoing physical therapy with diminishing returns, or resignation to permanent loss of function. Our MyoPro is the only commercially available powered arm orthosis in the U.S. that uses non-invasive EMD sensors to detect the patient's own muscle signals and amplify them into functional movement, thereby permitting paralyzed individuals to feed themselves, carry objects, return to work, and reclaim independence at home. It is not an incremental improvement on existing care. It is really an entirely different category of device and Myomo, Inc. owns it. Let me start with a quick real-life story. Our staff just helped Mike, who lost the use of his right arm due to a brachial plexus injury from a motorcycle accident when he was just 17 years old, and now some 50 years later, he is using both arms again with the help of a MyoPro, carrying objects safely around his home and doing household tasks such as mowing his lawn. Our MyoPro has improved the quality of life for Mike and for his wife, reducing the burden of care from his impairment, and that is what this is all about. Several positive factors are converging right now to drive Myomo, Inc.'s success: reimbursement, distribution, and technology. Reimbursement by CMS and a new Medicare Part B benefit category with HCPCS codes for the MyoPro have opened access to the Medicare population of tens of millions and removed the single largest historical barrier to adoption. New clinical studies and in-network contracts with a growing number of commercial payers have significantly increased market access for patients covered by these plans. We are transitioning our go-to-market strategy with a distribution system based on recurring patient sources from rehab hospitals and O&P providers to reduce our customer acquisition costs and to build the foundation for accelerated growth going forward. And our investments in technology are increasing the value to patients and clinicians while reducing our operating costs as we scale the business to sustain profitability. Earlier this year, we established four success pillars for 2026: recurring revenue, market access, operating leverage, and innovation, with strong progress against each. First quarter revenue and profitability exceeded our targets. To measure our progress against these four success pillars, let us review each of them. Number one, the shift to recurring patient sources. We launched the MyoConnect program in mid-2025 to encourage therapists and physicians at rehab hospitals, stroke clinics, and other healthcare facilities to refer prospective MyoPro patients to us or to a local O&P partner. These channels not only provide recurring referrals but they also carry lower acquisition costs and higher conversion rates versus direct-to-patient marketing. With Medicare coverage in place and the new MyoPro 2X introduced last year, it was the right time to bring the benefits of the MyoPro to the incidence population of patients who are currently in outpatient therapy, expanding our target market beyond individuals with chronic arm paralysis and the large prevalence population. We reoriented our field clinical team, added sales specialists, and conducted numerous in-service educational sessions at these rehab locations. I am pleased to report that more than 150 rehab facilities are now referring candidates to us. The O&P channel is another source of recurring referrals, and our O&P revenue grew 79% year-over-year as we trained and certified additional CPOs and jointly implemented outreach programs. Earlier this week we announced that we have been working with Autoboc U.S. Clinical Operations to certify them as MyoPro Centers of Excellence, and we recently conducted training for over 20 clinical specialists from around the country, part of their national rollout. Autoboc is the world's largest provider of O&P products and clinical services, and we are very pleased to be working so closely with them. In Germany, we have more than 100 O&P practices working with us to provide the MyoPro to their patients. The insurance environment in Germany is highly favorable and our international revenues reached a Q1 record of approximately $2 million. We continue to expand our sales and clinical staff in Germany and later this month we will be attending the OT World Conference in Leipzig to engage with additional O&P clinics. This conference is the largest O&P event in Europe. As a result of these efforts, we are tracking extremely well against our targets at consistently increasing revenue from recurring patient sources. Pillar number two, the second success pillar, is to increase market access for patients by signing additional payer contracts. As discussed in March, we signed a national arrangement with Elevance, which manages a number of Anthem Blue Cross Blue Shield plans in 27 states including large ones like Texas, Ohio, Virginia, and California. We have been entering into these payer contracts to secure Myomo, Inc. as an in-network provider with case-by-case coverage determinations and an agreed-upon price for the MyoPro. As a result, we are now seeing a significantly higher authorization rate from these Medicare Advantage and commercial plans. Over the next several months, I expect we will sign additional state contracts under the Elevance national arrangements. Since we secured Medicare coverage in April 2024, and added various commercial and Medicare Advantage contracts, we have gone from just 9 million covered lives to 158 million lives currently. Pillar number three is to demonstrate operating leverage and the path to profitability. We demonstrated early operating leverage in the first quarter with revenue up 3% while OpEx was down 1% year-over-year. We also expanded gross margin by 100 basis points, and the combination of these accomplishments resulted in a 20% improvement in adjusted EBITDA. Pillar four is to continue to invest in product development and clinical research. In March, we launched a new mobile app which allows clinicians, patients, and caregivers to use their smartphones to adjust the device settings, display their muscle movements and EMD signals, and collect usage data that can be used by therapists and physicians. The app also eliminates the need to ship a laptop with our proprietary software to each user, reducing our MyoPro material costs by about 10%. You will see this benefit flowing through to gross margin beginning in the second quarter. Another R&D investment is a randomized control trial being conducted by the University of Utah Rehabilitation Hospital. After a successful pilot last year, the university's IRB approved the study, which will compare the outcomes of users with the MyoPro against those who receive the current standard of care of occupational therapy. We have enrolled 18 of the 50 subjects to date and, when completed, and assuming similar results to our pilot last year, this clinical evidence is expected to support increased reimbursement of the MyoPro. Finally, development of the MyoPro 3 next-generation platform is progressing and focused on enhanced functionality and increased processing power to support future software-driven innovations. The progress on each of our four success pillars is tracking with our targets, and we are excited to keep on delivering. On the marketing front, we added a new marketing executive and engaged a new digital ad agency in Q1. As a result, we have refined our marketing strategy with a new approach to digital channels and data-driven targeting. We are also expanding the use of social media to engage directly with healthcare providers and to introduce the MyoPro in geographies with payer contracts. These initiatives are already improving lead quality, which is resulting in more pipeline adds per lead generated and reducing patient acquisition costs. We expect further efficiency gains as these programs scale throughout 2026. With that overview, I will turn the call over to our CFO, David A. Henry, to walk through the financial results in more detail. David A. Henry: Thank you, Paul, and good afternoon, everyone. As Paul just discussed, we have been busy executing against the success pillars we introduced earlier this year, and I am pleased to report on the progress we have made. Our revenue for the first quarter of 2026 was $10.1 million, up 3% versus the prior-year period. The increase was driven by a higher average selling price, or ASP, partially offset by a slightly lower number of revenue units. ASP in the first quarter was $58,800, up 9% versus the prior year due to higher Medicare Part B and Medicare Advantage reimbursement amounts reflecting beginning-of-year fee updates, as well as a positive channel mix, including higher international and Medicare Advantage revenues. We delivered 172 MyoPro revenue units during the quarter. Looking at payer mix, Medicare Part B patients in our direct billing channel represented 51% of revenue in the first quarter, which was down 12% in dollar terms compared with the prior year. Medicare Advantage patients in our direct billing channel represented 19% of first quarter revenue and, in dollar terms, were up 11% compared with the prior-year quarter. As many healthcare providers are seeing, the macro environment for Medicare Advantage plans continues to be challenging. To mitigate the impact, we are focusing on in-network patients obtained through our contracting efforts; early results are showing higher authorization rates compared with non-contracted payers. The direct billing channel represented 71% of revenue in the first quarter compared with 79% in the prior-year quarter. Direct billing revenue declined as we continued transitioning our business toward recurring patient sources. Revenue from recurring patient sources represented 49% of first quarter revenue, up from 25% in the prior year. As you can see, we have made significant progress in shifting toward recurring patient sources at a lower patient acquisition cost compared with advertising-driven direct patient revenues, which carry a much higher cost to acquire. Breaking down the recurring patient sources, approximately 20% of first quarter revenue was generated by direct billing referrals, another 20% was generated by the international channel, 8% from the U.S. O&P channel, and the rest was from VA payers. International revenue was up 53% year-over-year and the U.S. O&P channel was up 79% year-over-year. As of 03/31/2026, the pipeline stood at 1,680 patients, an increase of 10% sequentially and 13% year-over-year. During the first quarter, we added 723 patients to the pipeline, which is up 7% sequentially and 3% year-over-year. 11% of first quarter pipeline adds were generated from direct billing referrals, demonstrating the traction so far with the MyoConnect program. 62% of first quarter revenue units were from intra-quarter fulfillments, which is up from 45% of revenue units a year ago and demonstrates our increased velocity in fulfilling orders. 16% of first quarter orders came from direct billing referrals. We exited the quarter with a backlog of 226 patients. Gross margin for the first quarter of 2026 was 68.2%, up from 67.2% a year ago, driven by a higher ASP and material cost reductions, partially offset by higher labor and travel costs needed to fit patients on-site. Operating expenses for the first quarter of 2026 were $10.1 million, down 1% over the prior-year quarter. The decrease was driven primarily by lower R&D and G&A expenses, partially offset by higher sales, clinical, and marketing expenses. Operating loss for the first quarter of 2026 was $3.2 million, which narrowed from an operating loss of $3.5 million in the prior-year quarter. Adjusted EBITDA for the first quarter of 2026 was a negative $2.3 million compared with a negative $2.8 million in the prior-year quarter. The improvement was driven by the lower operating loss I just mentioned and higher add-backs for depreciation expense and stock-based compensation. First quarter non-operating income includes a mark-to-market gain from the change in fair value of derivative liabilities, partially offset by cash and non-cash interest expense through the Avenue Capital term loan. Net loss for the first quarter of 2026 was $3.0 million, or $0.07 per share. This compares with a net loss of $3.5 million, or $0.08 per share, in the prior-year quarter. Turning now to our balance sheet and cash flow. As of 03/31/2026, cash, cash equivalents and short-term investments were $15.7 million. Reflective of the improvement in adjusted EBITDA, our use of cash was $2.7 million in the first quarter compared with $3.2 million used in the first quarter of 2025. Let me conclude my remarks with our forward-looking guidance. As you just heard, we are making tremendous progress on our 2026 objectives. In the first quarter, we achieved higher year-over-year revenue, improved gross margin, and lower operating expenses, resulting in improved adjusted EBITDA. Our transition of the business toward recurring patient sources is running ahead of plan. In addition, the marketing changes we initiated are beginning to take effect. As a result, we expect second quarter revenue to be in the range of $10.3 million to $10.8 million, which is up 7% to 12% year-over-year and up 2% to 7% sequentially. We expect gross margin in the second quarter to be higher year-over-year but lower sequentially due primarily to channel mix. We expect operating expenses to increase slightly versus the first quarter, reflecting a modest increase in advertising spending. For the full year, we are reiterating our revenue guidance in the range of $43 million to $46 million, and we reaffirm our full-year operating leverage expectation to limit the growth of operating expenses in 2026 to about one-half the growth of revenue. With that financial overview, I will turn the call back to Paul. Paul R. Gudonis: Thanks, Dave. To summarize, we are keenly focused on implementing our four success pillars to grow MyoPro volume and revenues while improving key financial metrics including gross margin, adjusted EBITDA, and cash usage. Our technology is making a dramatic difference in the lives of patients who are suffering with chronic arm paralysis. And now Dave and I are ready to take your questions. Operator? Operator: Thank you. We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing any keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Paul R. Gudonis: While we are waiting for the first question, I would like to mention that in May, we will be participating in the Sidoti Virtual Investor Conference and AGP's Annual Healthcare Company Showcase. And on June 23–24, we will be presenting at the iAccess Alpha Select Virtual Conference and holding one-on-one meetings with investors. Operator, let us take the first question whenever you are ready. Operator: Our first question comes from Chase Richard Knickerbocker of Craig-Hallum. Please go ahead. Chase Richard Knickerbocker: Good afternoon. Thanks for taking the questions. Maybe just first on the ASP increase, could you go into a little bit more detail as far as what drove that as far as the mix specifically that you were referring to and the drivers within that mix, higher or lower within ASP? And then how sustainable is that? How should we be thinking about ASP sequentially through the year? Thanks. David A. Henry: Yeah, sure. So the ASP was $58,800. The increase was due in part to the fee increase that happens at the beginning of every year with CMS. That also affected the Medicare Advantage payers as well. So both Medicare and Medicare Advantage—those were about 70% of revenues in the first quarter—and those were all subject to that fee increase. Also, in international revenues we get some foreign currency benefit from that. So international is our second largest channel in terms of both revenues and ASP, and they were 20% of revenue. So those are the reasons why. And then in terms of sustainability, I do expect that the ASP will come down a bit through the channel mix in the second quarter, and I think it is still prudent to assume maybe around, you know, $55,000 ASP on a more longer-term basis. Chase Richard Knickerbocker: Understood. Maybe just on the advertising side, can you break down what the percentage benefit was in the quarter from MyoConnect? Was the majority of that decrease in cost per pipeline add driven by MyoConnect, or were there some improvements that you are seeing on the digital marketing side? David A. Henry: Just in terms of the metrics, you know, 11% of the pipeline adds in the quarter were MyoConnect, and those come at a low cost per pipeline add because we are not advertising to get those. So that is a big part of it, plus just some of the efficiencies we are seeing. As Paul mentioned, we are seeing a lower cost or more pipeline adds per lead that we are generating through some of these efforts that we are making. Paul R. Gudonis: Yeah. We are finding that the quality of the leads, which was an issue a year ago, Chase, has really turned around. Now we are getting more of the leads that are generating; we are engaging with those patients, and they are medically qualified, they are moving into the pipeline. We redid our TV advertising as well with a new 120 seconds slot, and that has paid off really well—a good cost per call—and the patients who see that, or their caregivers, are really engaged. Those couple factors have reduced our cost per pipeline add. Chase Richard Knickerbocker: And you had mentioned ramping some of the marketing spend as we go through the year here into Q2. Is that driven by seeing some improvement on that side of things? Or maybe talk me through the drivers behind that reinvestment? David A. Henry: Yeah, I would say that is the case. And it is also something that we do typically every year. Second and third quarters are typically our highest spending for advertising, then it comes back down again in the fourth quarter just because of the inefficiencies that happen in the fourth quarter. Paul R. Gudonis: But also due to the revenue cycle, which could be four to six months or longer depending on the patient's insurance. Advertising now builds a good pipeline and backlog for Q3 and Q4 revenue. Chase Richard Knickerbocker: And then just last for me. Guidance assumes a step up in growth in the second half. Guidance was reiterated; the mix on a quarter basis was a little bit different than what we expected. Can you walk us through what the top end of your guidance assumes and the bottom end, as far as the moving pieces and the assumptions in there? Thank you. David A. Henry: I think the top end of the guidance would reflect more from the direct billing channel, particularly as it relates to more on the referrals side of things. MyoConnect, I think, is probably the biggest swing factor in terms of our guidance. Good news and good traction with that—which so far we are seeing—would lead us to trend toward the higher end of our guidance. If for some reason some of those results were to begin to flatten out or go down, that would drive us toward the lower end of our guided range. Chase Richard Knickerbocker: Understood. Thank you. Operator: Our next question comes from Edward Wu of Ascendiant Capital. Please go ahead. Edward Wu: Yes. Congratulations on the quarter. My question is on international. Once again, you had another very strong quarter, very good growth, record revenue. How much potential can the German market have, and is there ability to accelerate the growth near term? Paul R. Gudonis: Well, you look at the German market, over 80 million population compared to, let us say, 330 million here in the U.S., so it is about 25% to 30% of the total size of the U.S. market. So you can see that there is definitely upside potential there. Also, as we have seen, because of the statutory health insurance and social court rulings over there, we are getting good traction with the insurance companies there. So that is why we are continuing to add resources, which is the way to grow that German business. I will be there later this month in Leipzig, Germany for the OT World Conference to recruit more O&P providers. We will also start looking at some other international markets. Edward Wu: That sounds good. You mentioned other international. I know you previously have said that the German market was kind of unique. Other European markets, or would it be possibly markets in other areas? And any updates on the Chinese market? Paul R. Gudonis: Well, probably the other European markets where we can get the reimbursement relatively quickly. So we will be talking to some O&P providers in these other countries to see what they feel about the reimbursement environment. And we always look at where investing another euro is the best place to put it; so far the best return has been in Germany. Also, staying in Europe would help us leverage infrastructure we have over there. In China, we continue conversations with China Lead Ventures, which was one of the major investors in the joint venture. We have had regular conversations to introduce new potential partners, medical device manufacturers and investment partners into the JV, but nothing has been finalized over there as far as the next step with the JV. Edward Wu: And I wish you guys good luck. Thank you. Paul R. Gudonis: Thank you, Ed. Operator: Our next question comes from Jeremy Pearlman of Maxim Group. Please go ahead. Jeremy Pearlman: Thank you for taking my question. Firstly, I want to talk about MyoConnect. You have mentioned that you have roughly 150 rehab facilities that are referring patients currently. How extensive do you think that runway is? How many more rehab clinics are in the pipeline to convert to this MyoConnect? Paul R. Gudonis: Well, we have had tremendous results in just the first nine months, Jeremy, since we started that in mid-2025, and I expect we are going to add new clinics every month. I would love to get to the point where we have several hundred by the end of this year. There are about 1,500 stroke clinics in the United States plus many other major hospitals that treat stroke patients. Then on top of that, we are finding a lot of success with these smaller private rehab clinics. There are therapists out there who have their own clinic, and they are referring MyoPro patients to us. Our goal is to grow the number of rehab facilities to a couple of hundred by the end of the year. We also see what I call same-store sales growth where, after referring that first patient, they will refer a couple of others, and that should grow not only this year but well into next year. And that is why I see we are laying the foundation for accelerated growth next year. Imagine hundreds of these clinics, then growing the number of patients they refer next year, plus new clinics that come online next year as MyoConnect partners, and you have more and more OT providers coming on. We just announced Autobot; they have over 50 locations in the U.S. We just trained 20-some of their clinicians around the country who are going to be spreading the word within their territories. We have other major national accounts lined up for similar type of training going on. Jeremy Pearlman: Okay, that is great. And then just to follow up, you mentioned that you hope this is laying the foundation for accelerated growth. Once they refer the first patient, they will refer more. Is it too early to tell? Have you seen that play out with the rehab clinics that are already in the program—that once they refer the first patient, does that give you confidence that 2027 we could see a big uptick? Paul R. Gudonis: We are starting to see those green shoots. Remember that most of these have just come online, maybe made their first referral in December or January. The patient has to go through the insurance process, has the fit with the device, then goes to that clinic for therapy services, then they see the outcome. It may be six months from the time they make their first referral until they make the second, but I am confident that with the way our device performs for these patients, we will get these ongoing referrals. Jeremy Pearlman: Okay, understood. And then also, related to MyoConnect, do a higher percentage of the patients that are referred through this program convert eventually to the backlog into a paying customer? Or is it similar to your legacy advertising direct-to-consumer marketing where a certain percentage drops off and then whatever percentage goes through the funnel? Paul R. Gudonis: That is a very good observation because patients are better in two respects. One, we have trained the clinicians that are referring to pre-qualify these patients for us. So they are sending us better quality patients, meaning they are more likely to benefit from MyoPro in terms of their medical qualifications. That is a plus; they are higher quality patients than what comes in from the general advertising. And number two, because these clinicians know that Medicare will cover this, they are sending us a higher percentage of Medicare than in the general population. So it is almost like a double win from these referrals from the MyoConnect program. Jeremy Pearlman: Okay. That is great. I understand. And then just last question. I know you mentioned at last year’s Investor Day a section about adjudicating denied claims. Any follow-up—how has the success rate of that been? Is that steady? Has it been improving? Maybe anything you could talk about there? David A. Henry: Yes, we are continuing to do these ALJ hearings, still running about that same success rate. However, as we mentioned, where we have contracts with these various plans we have a much higher authorization rate right up front, and so you do not even need to go to the hearings. Jeremy Pearlman: Okay. That is great. Thank you for taking my questions. I will hop back in the queue. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Paul for any closing remarks. Paul R. Gudonis: Well, thanks, operator, and thank you all for joining us today and for your questions. We look forward to seeing and hearing from you in the coming months. Thanks again, and have a good evening. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Quantum-Si incorporated First Quarter 2026 Earnings Call and Business Update. 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 during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Risa Lindsay. Risa, go ahead. Risa Lindsay: Good afternoon, everyone, and thank you for joining us. Earlier today, Quantum-Si incorporated released financial results for the first quarter ended 03/31/2026. A copy of the press release is available on the company's website. Joining me today are Jeffrey Alan Hawkins, our President and Chief Executive Officer, as well as Jeffry R. Keyes, our Chief Financial Officer. Before we begin, I would like to remind you that management will be making certain forward-looking statements within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements of our press release. For a more complete list and description of risk factors, please see the company's filings made with the Securities and Exchange Commission. This conference call contains time-sensitive information that is accurate only as of the live broadcast date today, 05/07/2026. Except as required by law, the company disclaims any intention or obligation to update or revise any forward-looking statements. During this call, we will also be referring to certain financial measures that are not prepared in accordance with U.S. Generally Accepted Accounting Principles, or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in the press release filed earlier today. With that, let me turn the call over to Jeffrey Alan Hawkins. Jeffrey Alan Hawkins: Good afternoon, and thank you for joining us. On today's call, we will provide a business update and review our operating results for 2026. After that, we will open the call for questions. As we communicated on our last earnings call, we expect that 2026 will be a transition year with revenue primarily driven by consumable utilization from our installed base, some new placements of Platinum, very modest new capital sales, and a laser focus on Proteus development, preparing the market for a strong commercial launch by 2026. As such, our three corporate priorities for 2026 are as follows: to deliver Proteus with the capabilities customers need, to prepare the market for Proteus launch, and to preserve our financial strength. Our first priority is to deliver Proteus with the capabilities customers need. We made significant progress with the Proteus development program during 2026. The results of this progress were highlighted in our recent announcement regarding the successful completion of sequencing on fully integrated Proteus instruments. The achievement of a milestone of this complexity is a significant de-risking event for any new platform development program. To accomplish this result, we had instruments and software that automatically performed all the steps in the sequencing process from reagent preparation to sample loading through to sequencing and data capture and analysis. We also had developmental sequencing reagents, kinetic arrays, and associated surface chemistry that enabled single molecule loading and sequencing with the detection of 17 amino acids. While there is more work to do to get to the commercial launch, it is clear that the Proteus platform is a fundamentally superior technology compared to Platinum. Beyond automation and throughput, which customers will certainly value, the core technology in Proteus consistently delivers higher proteome coverage. At its core, Proteus has a better signal-to-noise ratio and can reliably detect much shorter pulses of recognizers, which translates into detecting more amino acids per peptide and longer average peptide read lengths. In terms of recognizer development, we recently reported that our internal developmental sequencing kit was able to detect 17 amino acids. Not only have we increased the number of unique amino acids detected from 15 in December 2025 to 17 in just four months, but we have also made improvements that increased detection frequency across all the amino acids we detect. Our recent progress in this area and the pace of improvement we are seeing provide us with high confidence that we are well on our way to delivering Proteus by 2026 with the detection of 18 amino acids, demonstrating detection of all 20 amino acids during 2026, and, in turn, delivering a sequencing kit in 2027 that detects all 20 amino acids. Finally, I want to provide an update on our progress toward enabling post-translational modification capabilities on Proteus. For background, depending on the PTM, customers today have two choices: affinity-based methods, which are limited to a specific site or specific protein of interest, or mass spectrometry, which requires complex sample preparation procedures and access to sophisticated bioinformatics personnel to collect, filter, and analyze the data using a variety of software tools that are required to provide site-resolved profiles. This is true for a well-studied PTM like phosphorylation. When you move into other PTMs like methylation, acetylation, or citrullination, the options are even more limited, with the available analysis tools often being lab-developed versus commercially available. During our November 2025 investor and analyst day, we provided insight into three different ways that our technology can detect PTMs. One of those ways is via kinetic signatures. In short, using the rich set of data that each recognizer generates as the sequencing reaction moves through each amino acid in the peptide, the software can automatically determine if a PTM is present or not, which PTM it is, and at which specific amino acid site. The primary advantage to this method is that the sequencing chemistry is universal, and the PTM detection is accomplished using automated analysis algorithms. This is in stark contrast to affinity-based methods, which require site-specific PTM reagents and, in some cases, those reagents are protein-specific as well. Given the extremely large amount of data we expect to generate in a Proteus sequencing run, and leveraging the power of advanced AI tools, the potential to develop PTM capabilities using kinetic signatures and continuously expand those capabilities over time is immense. This is why we are laser focused on this approach, and I am pleased to report that we are making great progress in this area and expect to have more specific updates to share in the near future. Our second corporate priority is to prepare the market for Proteus launch. In preparation for commercial launch of Proteus, we are focusing our commercial and scientific affairs teams on three main strategic initiatives: demonstrating the value of our single molecule protein sequencing technology, expanding awareness of Proteus across geographies and end market segments, and identifying and developing a funnel of potential Proteus customers to ensure successful commercial adoption upon launch. To demonstrate the value of single molecule protein sequencing, our scientific affairs team has been working with customers using our first-generation Platinum instrument and commercially available kits to generate data and release the results via posters at industry conferences and manuscripts via preprint and peer-reviewed publications. Since the start of 2026, we have had a total of three customer manuscripts released via preprint or peer review, five posters presented at industry conferences, and a customer podium presentation during US HUPO. The data released this year show a wide range of applications, from rapid pathogen and toxin detection to clinical proteomics to detection of post-translational modifications in translational research. Importantly, the data released this year also span multiple end market segments, including academic research, clinical, biopharma, and government. We believe that these sets of customer data and other studies in the pipeline will continue to demonstrate that the potential opportunity for our technology extends well beyond the basic research markets that we operate in today. This is important since customers in biopharma, translational research, and clinical testing typically have higher consumable utilization rates and repeat order patterns compared to basic research customers. Turning now to our work on expanding awareness of Proteus across geographies and end markets: In April, we announced the beginning of the Proteus roadshow series. These events are designed to educate the market on the value of our proprietary single molecule protein sequencing technology and the Proteus instrument and projected capabilities. The individual roadshow events can take the shape of one of two types of formats. First, in institutions where we have an existing customer, we work with them to bring together as many of their colleagues as possible to expand the institutional awareness of our technology. Expanding institutional awareness can benefit our existing user by creating more demand for inclusion of our technology in ongoing research studies, and it also aids us in building a large community of interested users for Proteus, increasing the number of potential avenues to pursue for funding the purchase of the instrument in the future. The second type of event is tailored to locations where we do not have an existing customer. In these locations, we focus on a centrally located venue, and our outreach focuses on engaging potential users from as many unique institutions in the surrounding area as possible. While we have just started the roadshow series, the early data are encouraging. At one recent event, we had 25 people register or attend, but on the day of the event, we had 35 people in attendance. All the attendees were researchers who currently use or want to begin to incorporate proteomic technologies into their research. Importantly, these 35 attendees invested nearly two hours of their time to learn about our technology, the Proteus system, and to discuss potential applications with members of our commercial and scientific affairs team. We expect to continue with roadshows throughout the year, and we will provide more updates on specific cities and associated event metrics as the program progresses. Finally, in addition to supporting our existing Platinum users, our sales team is focused on identifying and developing a funnel of potential Proteus customers to ensure successful commercial adoption upon launch. Our team has been assigned quantitative goals for each quarter, and we are pleased with the current progress we are seeing. As part of this process, we recently announced that we had completed sequencing of our first customer samples on the Proteus prototype. In this first instance, the customer is an existing Platinum user, and they were interested in seeing how much better the data would be with Proteus. While there were many exciting takeaways from the data, two that resonated the strongest with the customer were the increase in the number of amino acids detected and the increase in the average read length on Proteus compared to Platinum. When combined, improvements in these two attributes provide the customer with significantly more sequence-level information about each of their proteins of interest. The positive response from this customer confirms our belief that offering the ability for customers to send in samples for evaluation could be a valuable tool to deepen engagement and advance the customer through the buying process prior to Proteus commercial launch. We are working closely with our manufacturing partners to increase the number of Proteus instruments available within our R&D labs, and once complete, we expect to be able to offer sample evaluations more broadly to prospective customers. Our third priority is to preserve our financial strength. We believe that the data we will generate over the coming months will continue to demonstrate that Proteus is not only a new architecture with greater throughput and automation, but also a significant leap forward in terms of sequencing performance and application breadth. We continue to believe that Proteus will be the long-term driver of commercial adoption, revenue growth, and our path to profitability. We remain committed to continuing to operate with a high level of fiscal discipline while ensuring the core strategic initiatives are appropriately funded to deliver Proteus on time and with the capabilities customers are asking for. I will now turn the call over to Jeffry R. Keyes to review our financial results. Jeffry R. Keyes: Thanks, Jeff. I will now walk through our operating results for 2026. Revenue in 2026 was $258 thousand, consisting of revenue from our Platinum line of instruments, consumable kits, and related services. Gross profit was $74 thousand, resulting in a gross margin of 29%. Gross margin in the quarter was primarily driven by revenue mix with a higher proportion of consumables relative to hardware. As we have discussed and guided for 2026, we expect revenue in the near term to reflect the anticipated launch of Proteus as some customers time purchasing decisions closer to the availability of our new platform. Turning to expenses, GAAP total operating expenses for 2026 were $24.1 million compared to $25.6 million in 2025. Adjusted operating expenses were $21.4 million compared to $22.9 million in the prior-year quarter. Year over year, we funded R&D at a slightly higher level to support Proteus development while maintaining discipline in total overall adjusted operating expenses. Dividend and interest income was $1.9 million in 2026 compared to $2.5 million in the prior-year quarter. The year-over-year decrease reflects lower interest rates and changes in invested balances. As of 03/31/2026, we had $190.4 million in cash, cash equivalents, and investments in marketable securities. As we presented on our last call, our outlook for 2026 includes total revenue of approximately $1 million, adjusted operating expenses of $98 million or less, and total cash usage of $93 million or less. 2026 is a delivery transition year as we prepare the anticipated launch of Proteus, and we are making intentional choices that prioritize long-term platform adoption over near-term revenue maximization. This includes embedding upgrade paths in certain Platinum Pro unit sales in 2026, which has a near-term revenue impact, as well as expected timing shifts as customers plan for Proteus availability. With our development progress, Proteus roadshow events, and continued education of channel partners worldwide, we are seeing strong interest in Proteus, which is influencing customer purchasing timelines. Our operating expense guidance and cash remain on track and reflect the activities required to complete development and support a successful commercial launch of Proteus. Our expected cash usage also includes modest inventory build and commercial readiness efforts ahead of the launch. With over $190 million in cash and investments at March 31, we continue to believe we have cash to support operations into 2028, approximately a year and a half after our estimated Proteus launch date. After the Proteus launch, we expect meaningful operating expense leverage over time as launch-related development spend rolls off. Because we are utilizing key external partners for certain development-related activities, we anticipate the ability to ratchet down R&D spend post-launch. This gives us flexibility to reduce total operating expenses and extend our cash runway while retaining the option to selectively redeploy resources into high-return commercialization initiatives as we scale. Finally, management and the board remain aligned with shareholders. Insider ownership remains meaningful, and recent Form 4 activity by management continues to reflect routine tax-related mechanics associated with equity compensation vesting, with no management team members selling shares outside of plan-mandated sales to cover required tax withholdings. In addition, it is important to note that two of our board members collectively purchased 600 thousand shares during the quarter in the open market. With that, we are happy to take your questions. Operator: We will now open the call for questions. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while we compile the roster. Our first question comes from Scott Robert Henry with AGP. Scott, go ahead with your question. Scott Robert Henry: Good afternoon. The first kind of bigger-picture question: as customers are starting to use Proteus and they are seeing more amino acids and longer read length, can you talk a little bit about what that means to the customer experience? I know you mentioned more information, but is it also better information, faster information, new applications? I am just trying to get an idea a little bit more about the customer experience with Proteus versus Platinum. Thanks. Jeffrey Alan Hawkins: Yeah. Thanks, Scott, for that question. So maybe we will break it down into three different application buckets. One bucket could be: I have a sample, and I want to identify the proteins that are present in that sample. Another bucket would be post-translational modifications. And a third sort of application area would be, let us say, variants—an engineering approach where I want to see if there are variants of the target protein I am trying to make. If you think about getting more amino acids and getting longer read lengths—so getting more content per protein—if you are in that protein identification area, it means you are going to be able to deal with a more complex mixture of proteins. You will have more unique content, unique information, with which to determine the variety of proteins that are there. Even more importantly, when you look at post-translational modifications or looking for variants in proteins, that is where more amino acid coverage and longer read lengths give you the ability to detect more of those events. You see those events may be spread out along the length of a peptide; they are not always at the beginning of a peptide. So these things give you a much higher level of fidelity and capability when you start thinking about those applications like post-translational modifications or variants. So that is maybe a way to think about what these fundamental sequencing capabilities mean to a customer in terms of the applications they are doing. Scott Robert Henry: Okay, great. Thank you for that color. And somewhat related—and this relies a little bit on your perception and perhaps some of the earlier customer feedback you have gotten—how could you anticipate customers' volume when one switches from Platinum to Proteus, because you have all these added benefits? Could it double volume? Could it 4x volume? I realize this is a bit of guesswork, but I just want to get your thoughts on that. Jeffrey Alan Hawkins: Yeah, I mean, I think it is the right question, Scott, and I think it is a little hard to predict right now. If we maybe take the question up to the 10,000-foot level, within the Platinum customers, Proteus clearly is going to bring a broader set of applications, which we would expect would open up the utilization of our technology in a lot more research studies. So we would expect within that Platinum base that Proteus should see more volume than Platinum sees. Exactly how much that is—is that a factor of two? Is that a bigger number than that?—I think that is the part that, until we get machines in the field and running, is a little hard to predict. The other aspect is all those labs and customers and some of the market segments that we just have not been able to access with Platinum at all. We think the capabilities, focusing in on post-translational modifications and focusing in on those protein variants, are going to open up a whole bunch of new customers. Today, we do not even have a Platinum in there; we are getting no volume. That will be sort of a new addressable set for us and the ability to go farm that account across a lot of different researchers in one institute and really drive volume into our machine. Scott Robert Henry: Okay, great. Thank you for that feedback. Final question: between now and launch—you have about six months—are there any gating factors technologically, or is it mostly production and building of inventory between now and then? Jeffrey Alan Hawkins: Yeah, Scott, so the way I think about it is you have the invention or the big technological breakthrough phase. That has happened; that is behind us. We have achieved that. We know the technology works. We know we are getting the performance from the fundamental components of our technology, whether that is the consumable, the instrument, or sequencing reagents. So really what we view the next six months as is a mix of the manufacturing transfer and bring-up that you mentioned, but also what I would call very standard hardware or instrument engineering and systems integration—driving up the reliability and the success rates, making sure you really get to the target specifications you want, not just in terms of amino acid coverage but the precision you are getting, the reliability you are getting, the mean time between failures. I would put all of those things into what would classically be considered pretty standard systems engineering or systems integration work. So it is technical in nature, but not something where we would expect the need to have some sort of innovation breakthrough. We think the innovation phase of the program and the invention phase are behind us, and it is really now more an operational and execution-related development effort. Scott Robert Henry: Great. Thank you for taking the questions. Jeffrey Alan Hawkins: Thanks, Scott. Operator: Our next question comes from Michael King with Rodman & Renshaw. Michael, go ahead with your question. Michael King: Hi. Good afternoon, guys. Thanks for taking the question. A couple of quick ones. I am trying to understand how you have lower operating expense in the quarter—$24.1 million versus $25.6 million in the same period last year—but you say you funded research and development at a higher run rate year on year. So how does that math work? Jeffry R. Keyes: Hey, Michael. This is Jeff. From an overall R&D standpoint, it can be a little lumpy from quarter to quarter just as we deploy with third-party partners that help on certain aspects of related activities. So that is why I was saying this year compared to last year, we were spending at a slightly higher level in R&D, but we were spending in SG&A at a slightly lower level based on other activities that we have pulled back and streamlined as part of our overall OpEx optimization to ensure that we have good runway going forward. So R&D can be a little lumpy from quarter to quarter, but overall we expect to spend within those guidelines that I mentioned earlier. Michael King: I see. Okay, thanks for clarifying that. The next question is, are you ramping—I know you use a third-party manufacturer—but are you ramping their production in advance of shipments, or will that not happen until later in the year? Or does that just happen as a function of incoming orders? Maybe you can talk a little bit about that. Jeffrey Alan Hawkins: Yeah, Michael, right now the focus is really ramping the delivery of instruments that we are using for R&D purposes. That is really the main focus today—just building out that base of instruments. That said, some of the build that is happening will ultimately support the early access customers in the summer as we work through the continued development. In terms of building inventory for the launch, that is something we will start to look at as we move through the year and really pace that for what we see as the funnel and any preorders that may come in at the back end of the year. So think right now of more of an internal scale-up to continue to expand the development activities and be able to support those early access sites in the summer. Think of inventory build for sales as being something later in the year. Michael King: Okay, thanks for clarifying that. And then I am curious about the roadshow activity. How many cities, how many sites do you expect to hit? And are you thinking about bringing your existing customers or potential customers into your headquarters to train them up so that once the installation is completed, they can immediately start doing their sequencing at scale instead of having to climb the learning curve? Jeffrey Alan Hawkins: Sure. Let us break the question into two parts. In terms of the roadshows, we put out a press release a couple of weeks ago talking about the first few cities that we were targeting with those events. We are continuing to scale that up. We are committed to continuing to provide a press release around the cities. Right now, we have been most heavily focused in the U.S. market, but we have begun locking in the dates for some of the roadshows and events in Europe. Keep your eyes out for press releases in this area; we will continue to update you on the new cities each quarter as we move through. We are seeing this as a very valuable tool in terms of us reaching people and the amount of time you get. If you are a sales professional trying to educate somebody on a new product or technology and you just go as a sales call, you typically get allotted a fairly short period of time—maybe 30 minutes, a really generous customer maybe an hour—and it could take several sales calls to build the level of information awareness that we get when we do these roadshows, where people come and spend about two hours on average at these events. We like the format, we are liking the engagement, and we are getting positive feedback. To your point on training, the roadshow is more educational; it is not really hands-on with the technology. As we get our internal fleet of instruments up to the number we would like to have, with some additional capacity to apply to customer work, we would look to have customers initially send samples to us so we are generating data. They get that data in their hands and are starting to work through that evaluation process and ultimately the budgeting process. When we get to launch, we will have some number of customers who have already done the prework, and what they will be doing more is working through their budgeting process to get the capital to purchase the machine. Once it is in their lab, we are very comfortable with how to train a customer. We have done it to date on the Platinum instrument, and Proteus, having all of the sequencing components automated, should be easier to train a customer on than it even is today. We are not worried about that back-end training component. We think that sample evaluation access early to get data in their hands is the key thing, and that is the next major milestone we are looking to accomplish over the coming quarter. Michael King: Amazing. And then one final quick question. What does the early access site selection process look like, and how many sites do you expect to have active by the end of the summer? Can you give us a range or point estimate? Jeffrey Alan Hawkins: I would say the process looks like we are going to want to have early access sites that span market segments. Clearly, we are going to want some number of academic institutes because those folks will be the type of customer who not only will do the early access but are also going to publish. That said, we are also evaluating the potential to have one or more of the early access sites be in a commercial environment—whether that be biopharma, antibody production, some area like that—because we really want the data and the experience in that market segment. But we know that when you get into a commercial setting, oftentimes customers are not able to publish. So we are thinking about those factors: demonstrating the capabilities, multiple segments, and also thinking about geographies. We have not set out an exact number. The way we are thinking about it is we are going to want to have a reasonable number of these. Do not think you are going to see us do 10 of them, but at least a handful is probably in the neighborhood of what we would be looking to implement over the course of the summer and even into the fall, again spanning geographies and end markets. Michael King: Super. Thanks so much for taking the questions. Jeffrey Alan Hawkins: Thank you, Michael. Operator: Our next question comes from Charles Wallace with H.C. Wainwright. Charles, go ahead with your question. Charles Wallace: Hi. This is Charles on for RK. Thanks for taking my question. You called out that any Platinum Pro unit sold in 2026 is going to have an embedded credit towards Proteus. Have you sold any Platinum Pro units, and do you have some of these credits stacked up at this point? Jeffrey Alan Hawkins: I will start, and if I do not get everything out, I am sure Jeff will jump in here with anything I miss. Not every Platinum Pro has to have that credit. It is a credit that is available to customers if they want to have that ability. Sometimes when you have a new machine coming, people say, “I want to buy it, but I am not really sure what is going to happen when the new machine comes out—how long will you support it?” Those types of things. So they want to have a credit. It is available to customers if they request it. That said, sometimes the machines you are selling now were ones that were budgeted for many months ago, up to a year ago. Those processes and those quotes would have gone out without this credit. So that might not show up in some of the machines that get sold throughout the year if they were budgeted for in the past. At this point, we are not really breaking out which of the capital sales have had the credit or not. As we go through the year and see other metrics of the funnel building, perhaps we will be in a position to provide a little more color on that, because a credit is really a protection for the customer. They still have the option to buy the Proteus or not. At this point, we are not breaking it out; we do not want to overstate the demand for the future machine just based on whether somebody asked for a credit or not. Charles Wallace: Okay, that makes sense. For the early access program, you mentioned maybe a handful of units, and then you also said you are building a fleet of internal units. How large of an internal fleet are you targeting, and how long does it take typically for an instrument to be built and be fully ready? Jeffrey Alan Hawkins: In terms of the internal fleet, I do not know that we have an exact number that we would give out. You can think about the internal fleet as needing to support our instrument engineering team—people working on instruments, integration, software. We have reagent development—the people putting the sequencing reagents into consumables and getting those optimized and ready to go—so they have to have access to machines. Then, of course, as we are bringing up manufacturing, we have to have some number of machines in our quality control testing environment to develop the QC tests, run the specifications that we will hold ourselves to when we are launching, when we are finalizing a kit, and ultimately deciding what can be shipped to a customer. So we have multiple groups who need access. In general, our strategy is to continue to build those and maximize their utilization. If we see that those are all maxed out, we keep building. We do not ever want to be throttled in terms of our ability to push as much testing volume and development volume through those internal machines. In terms of timelines for build, it would be a little early to put a specific timeline on the lead time to build an instrument. There are a small number—as is the case in most instruments—of long-lead parts. We procure those in advance and hold those parts. The assembly process itself is more about applying the labor and optimizing those processes. We are not having issues with a machine showing up at a Quantum-Si incorporated facility and functioning properly. We are not having those types of challenges that sometimes exist in early hardware development programs. Are we operating the line with perfect efficiency and perfect throughput? It is safe to say we are not yet, but we are very comfortable that we know how to do that, and we can optimize that well in advance of any commercial ramp. Since it is very labor-oriented, we have external partners, and one of the reasons we use those partners for instrument manufacturing is they have the capacity and the people. They can flex that up or down as our forecast requires. As long as we maintain those long-lead parts in inventory, the ability to flex up or down is a pretty efficient thing to do when you have external partners who have that kind of capacity. Charles Wallace: Great. Makes sense, and thank you for all the color. Operator: Our next question comes from Kyle Mikson with Canaccord Genuity. Kyle, go ahead with your question. Charlotte Mauer: Hi. This is Charlotte Mauer on for Kyle. Thank you so much for taking our questions. To start, could you elaborate a little bit more on the recent successful sequencing run on Proteus and how the performance compared to your expectations? What were some of the most notable improvements, and were there any specific challenges that need to be addressed before moving forward? Jeffrey Alan Hawkins: Thanks, Charlotte. I will work on that question backwards to forwards. The last part of your question was whether we experienced any challenges testing those samples, and the answer is no. We were able to run those samples successfully. We ran them both on Platinum and on Proteus so we could get a same-time comparison. In this particular situation, these are a series of proteins that the customer has previously worked with and tested in their own lab using a Platinum instrument. What they were focused on for their application was trying to both identify these proteins, and they are also doing some really novel work around developing tools for essentially de novo detection of amino acids. They are really focused on the coverage and the read length. Getting data from Proteus—one is just the amount of output you get. The number of reads is much, much higher with Proteus simply based on the number of features on that chip compared to Platinum. The coverage—as I mentioned in the prepared remarks—not only are we detecting 17 amino acids now, but our detection frequency of the others is considerably higher. And then, when you think about read length, what the customer saw in these particular samples is that the read length on Proteus was about double—about twice as long as what they are used to seeing on Platinum. If we go back to one of my earlier answers to Scott—why would a customer care about more amino acids being detected or longer read lengths? In this case, they are working on samples where they want to identify these proteins and potentially variants or modifications of them. They are thinking about algorithms they are developing for de novo detection. More content, longer reads, more complete information are going to really help them with their exploratory algorithm work in addition to the basic performance in identifying and subtyping those different proteins. Charlotte Mauer: Thanks for that additional color. I also had some questions about the roadshow. It sounds like there has been some strong early interest, but could you dive a little deeper into any relevant feedback or interest that you have received from customers at this point about Proteus, key highlights or takeaways, and any feedback on pricing? Jeffrey Alan Hawkins: Early interest is largely where we anticipated it: customers are really excited to have the ability to analyze PTMs. It is an area of translational research, basic biology research, and mechanisms of action where—outside of phosphorylation—it is a pretty difficult field to tackle even if you have access to some of the highest-end mass spec machines. So PTMs are a big draw. On the two roadshow formats, in the first format where we go to an institution with an existing Platinum and open up the education, we are seeing not just the core lab but many other researchers—translational and basic biology—who have an interest, a study in mind, a potential way to utilize the technology. That has been a really positive learning for us as we think about driving institutional momentum toward funding: helping the core lab see that their internal customers have a desire to get access to the tech. That type of momentum can be really helpful when working through where the funding proposal sits among all the other capital equipment they are looking at. On pricing, we have announced the price. We have not heard any pushback. I would not expect to at this point for two reasons. First, if you are thinking about PTM applications, those folks are often using very high-end mass spec equipment that can cost upwards of $1 million or more. Us sitting at $425 thousand is really attractively priced compared to what they might be spending on one of the high-end mass spec machines. Second, we have not given people enough information today that someone has to really make the decision on the price. The good news is no one is hearing it and running away, so we are not too high. We will get more nuanced feedback as we continue to put out more data or they are able to start getting sample evaluations in hand. Thus far, no one has been concerned. People have thought it is very reasonable for its capabilities, and we will keep driving home the message around the capabilities at $425 thousand versus having to go all the way up over $1 million for a mass spec that can do the same thing. Charlotte Mauer: Great, thank you. And one last question: looking ahead to expectations for 2027 and some of your capital deployment, you mentioned utilizing key external partners for certain development-related activities. Where in the process do you expect to use these partners the most, and how should we think about this reduction in capital deployment relative to your 2026 levels given a full year of spending on commercialization efforts for Proteus? Jeffrey Alan Hawkins: Let me start, and then I will pass it to Jeff for a little additional color. We are using these partners today across some of our consumable development efforts, our optic system that is inside of Proteus, and instrument development. We have partners who are working with us across those various R&D efforts. Some of those partners will flip into our manufacturing partners next year. They will be with us, but it will be more in terms of building inventory and supporting that. Maybe, Jeff, you can give a little feel for how we think about the burn-down after we launch. Jeffry R. Keyes: Regarding total OpEx as we move forward into 2027, we will need some of these partners to help stabilize the program shortly after launch, which is typical for a new development project. But after that, since we are using a significant amount of partners, we are going to be able to ratchet down that R&D spend specifically. As I noted earlier, we would be able to either bank that savings or redeploy it, but we are going to look for opportunities between R&D and other activities to ratchet down our OpEx, and we will gauge that relative to how Proteus uptake goes in 2027. We will be able to manage it going forward. It is definitely on our radar, and external partner R&D spend is the first obvious step, followed by other items we can look at going forward. Jeffrey Alan Hawkins: And, consistent with what we did this year, as we look at our guidance in 2027, we will be able to be more quantitative when we get there in terms of how we think about our adjusted OpEx or cash use. We will continue to provide that guidance. It is just a little early to be providing it right now, but you can gather from Jeff’s and my feedback how we are thinking about rotating those dollars off in R&D, some deployment perhaps into other initiatives, and banking the majority of that savings. Charlotte Mauer: Awesome. Thank you so much for all the time. Jeffrey Alan Hawkins: Thank you. Operator: This concludes the question and answer session. I would now like to turn it back to Jeffrey Alan Hawkins for closing remarks. Jeffrey Alan Hawkins: Thank you for attending our call today. We look forward to providing additional business updates on our next earnings call. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Gita Jain: Good afternoon. I am Gita Jain, Head of Investor Relations, and thank you for joining us today for Mind Medicine (MindMed) Inc.’s first quarter 2026 financial results and recent highlights conference call. Currently, all participants are in listen-only mode. This webcast is live on the Investors section of Mind Medicine (MindMed) Inc.’s website at definiumtx.com, and a replay will be available after the webcast. Leading the call today will be Robert Barrow, our Chief Executive Officer, who is joined by Daniel Karlin, our Chief Medical Officer, Brandi L. Roberts, our Chief Financial Officer, and Matthew Wiley, our Chief Commercial Officer. During today’s call, we will be making certain forward-looking statements including, without limitation, statements about the potential safety, efficacy, and regulatory and clinical progress of our product candidates, our anticipated cash runway, and our future expectations, plans, partnerships, and prospects. These statements are subject to various risks such as changes in market conditions, and difficulties associated with research and development and regulatory approval processes. These and other risk factors are described in the filings made with the SEC and the applicable Canadian securities regulators including our Annual Report on Form 10-K and our Form 10-Q filed today. Forward-looking statements are based on assumptions, opinions, and estimates of management at the date the statements are made, including the nonoccurrence of the risks and uncertainties that are described in the filings made with the SEC and the applicable Canadian securities regulators or other significant events occurring outside of Mind Medicine (MindMed) Inc.’s normal course of business. You are cautioned not to place undue reliance on these forward-looking statements which are made as of today, 05/07/2026. Mind Medicine (MindMed) Inc. disclaims any obligation to update such statements even if management’s views change, except as required by law. With that, let me turn the call over to Robert Barrow. Thank you, and thank you all for joining us today. Robert Barrow: 2026 marked a strong start to what we believe will be a pivotal year for Mind Medicine (MindMed) Inc. We remain highly focused on disciplined execution as we have advanced our late-stage clinical programs, prepared for multiple near-term data readouts, and continued to build an incredible team to lead our potential commercialization efforts. As we discussed at our Investor and Analyst Day a few weeks ago, Mind Medicine (MindMed) Inc. is entering a period of meaningful clinical inflection. Our lead program, DT120 ODT, is advancing with four ongoing Phase III studies across major depressive disorder (MDD) and generalized anxiety disorder (GAD), with topline data from EMERGE expected later this quarter, followed by VOYAGE and PANORAMA in the third quarter. Our Phase III programs are designed to evaluate outcomes that we believe represent a meaningful advance for patients, physicians, and the field of psychiatry. These include not only the magnitude of symptom improvement, but also safety, tolerability, and durability of response following a single administration—dimensions we believe will be critical in differentiating DT120 ODT in today’s treatment landscape. We are also encouraged by the increasing recognition of the significant unmet need in these indications. With three Phase III readouts anticipated across two of the largest indications in psychiatry, Mind Medicine (MindMed) Inc. is approaching an important moment for the company and for the patients we aim to help. With Breakthrough Therapy designation for DT120 in GAD, we have established a constructive working relationship with FDA and will move as efficiently as possible towards an NDA submission, subject to positive pivotal data. Beyond our ongoing Phase III programs, we plan to expand development of DT120 ODT into additional indications including post-traumatic stress disorder (PTSD), with the planned initiation of our HAVEN study in 2027. We believe this represents an important opportunity to further leverage the potential of DT120 across areas of high unmet need. Overall, we continue to believe in DT120 ODT as a potential best-in-class product candidate—one that could help redefine what is possible for the millions of people living with depression, anxiety, and PTSD who remain underserved by existing treatments. I will now turn the call over to Daniel Karlin to go into more detail on our clinical programs. Daniel? Daniel Karlin: Thanks, Robert. I will provide an update on the status of our clinical programs with a focus on where each of our late-stage studies stands today and how those studies were designed to assess what we believe would constitute a clinically meaningful outcome. Starting with DT120 ODT, our lead program continues to advance across Phase III studies in MDD, GAD, and now PTSD. In EMERGE, our first Phase III study in MDD, enrollment is complete with 149 participants. We are now in the final stages of trial execution and data preparation and we remain on track to report topline results later this quarter. In GAD, we are rapidly approaching topline data readouts for our two pivotal studies, VOYAGE and PANORAMA. Enrollment in VOYAGE is complete with 214 participants. We have exceeded our updated enrollment target of 200 in PANORAMA and expect to complete enrollment this month. We continue to expect topline data from VOYAGE early in the third quarter and PANORAMA late in the third quarter. Across our pivotal program, our focus has been on rigorous execution, data quality, and consistency across studies and sites. These are large, well-controlled trials designed to evaluate the magnitude of improvement alongside safety and durability of response following a single administration of DT120 ODT. Given our confidence in the clinical profile of DT120 and the strong evidence we have generated to date, our approach is uniquely designed to establish the durability of a single treatment for at least 12 weeks. Our Phase III studies in MDD and GAD were initially powered to detect a placebo-adjusted difference of five points. As part of the protocol-specified design, we conducted sample size re-estimations in VOYAGE and PANORAMA. These analyses were performed without unblinding treatment assignments and were intended to assess key nuisance parameters—standard deviation and dropout rates—to support the maintenance of the intended statistical power. Based on these blinded analyses, which were conducted when half of participants reached the 12-week time point, VOYAGE and PANORAMA are now powered at 99% or greater to detect a five-point placebo-adjusted difference, assuming these nuisance parameters remain consistent in the final study analysis. For EMERGE, the study was powered at 80% to detect a five-point placebo-adjusted change, with statistical significance expected at a little over a three-point difference based on certain nuisance parameter assumptions. We selected this level of power intentionally, as we believe a three-point or more difference represents an appropriate threshold for clinical meaningfulness in MDD. It is also worth noting that EMERGE has a six-week primary endpoint compared to 12 weeks for VOYAGE and PANORAMA, mitigating the risk of an elevated dropout rate in the primary analysis. Additionally, while the studies were powered to detect a five-point difference, we believe that a placebo-adjusted improvement of four points or greater at six to 12 weeks after treatment would compare favorably to currently available treatments for GAD and MDD and other product candidates in the psychedelic category. Durability remains a particularly important dimension for psychedelics. In our Phase II program in GAD, DT120 demonstrated durability through 12 weeks following a single administration of 100 micrograms. Our Phase III trials are designed to further evaluate consistency and duration of response over time. Through Part B of these studies, patients are followed for up to one year, which we believe will provide important information to inform potential labeling, including how frequently treatment may be needed. Beyond DT120, we are excited to also be advancing our Phase II study of DT402 in autism spectrum disorder (ASD). DT402, the R-enantiomer of MDMA, has shown promising prosocial effects with a potentially favorable tolerability profile. We are developing DT402 to target the core characteristics of ASD, specifically addressing social communication that is central to the experience of the disorder. We see this program as a significant opportunity given the high unmet need, the increasing prevalence of ASD, and no FDA-approved therapies that specifically address these core characteristics. As we look ahead, the next five months represent a significant culmination of thoughtful trial design, disciplined execution, and years of work focused on addressing some of the most pressing unmet needs in psychiatry. With multiple Phase III readouts approaching, we believe we are well positioned to deliver decisive data on DT120. I will now turn the call over to Matthew Wiley to discuss our commercial strategy and the broader treatment landscape. Matthew? Matthew Wiley: Thanks, Daniel. I will spend a few minutes discussing the commercial opportunity for DT120, building on what we shared at our Investor and Analyst Day in April. As we discussed, GAD and MDD represent very large and persistently underserved markets. Many existing medicines are constrained by delayed onset, partial or inconsistent efficacy, and tolerability issues that drive high discontinuation rates. Across this landscape, roughly 4.2 million U.S. adults have cycled through two or more treatments without the same benefit—a population that sits at the center of our initial launch focus. We believe that these patients and the physicians treating them are actively looking for a next-generation option that works differently and can deliver durable improvement without the need for chronic daily dosing. To put the scale of this opportunity in perspective, and using Spravato’s average annual price as a surrogate, capturing just 1% of the total addressable market in these indications represents potential for roughly a $2 billion annual revenue opportunity. Our targeting model is built directly around the substantial unmet need. We have identified high-volume health care practitioners—primarily psychiatrists and psychiatric nurse practitioners—who manage concentrated populations of these specific patients. These high-volume prescribers are located within psychiatric behavioral health networks and select integrated health systems where these patients most often receive care. We have mapped these priority targets in detail and plan to focus our launch efforts on engaging these clinicians, particularly those who have experience with or have expressed interest in novel in-office interventions and are supported by care teams capable of monitoring patients during the dosing day. We believe this approach will enable us to reach a meaningful number of appropriate patients from the outset, while establishing a strong foundation for scalable adoption. One of the points we highlighted at our Investor and Analyst Day is the growing awareness of DT120 among clinicians. Through ongoing engagement, we have seen increasing familiarity with its clinical profile and strong interest as a potential new treatment option that could help patients move beyond therapies that are no longer providing adequate or lasting relief. We also shared data showing that patients discontinue current treatments at a high rate, often due to lack of efficacy or tolerability. These challenges are especially pronounced among patients who have been failed by two or more prior therapies, reinforcing the substantial need for differentiated innovations like DT120. Our commercial strategy is shaped by these realities. We are focused on how this therapy can be introduced in a way that is scalable, accessible, and practical within real-world care settings without the necessity of chronic interventions. A key element of our planning includes a centralized hub support model and additional field support to enable a frictionless process of adoption and delivery. In parallel, we continue to engage with physicians, payers, and other stakeholders to better understand decision drivers around adoption, patient identification, and reimbursement frameworks. By pairing a well-articulated unmet need in a receptive market with our disciplined, patient-centric commercial strategy, Mind Medicine (MindMed) Inc. is very well positioned as we near pivotal data readouts and advance DT120 toward potential commercial launch. With that, I will turn it over to Brandi to discuss our financial results. Brandi L. Roberts: Thanks, Matt. Before walking through our financial results, I want to briefly set the context for how we are thinking about capital deployment as we move through an important phase for Mind Medicine (MindMed) Inc. As we entered 2026, we were pleased to have the financial flexibility to accelerate several key initiatives in parallel, including ongoing Phase III execution, NDA preparation activities, market access priorities, and continued engagement with key opinion leaders and leading practitioners. These investments are intended to support our path forward and, if DT120 is approved, position the company to be well prepared for a robust, thoughtful commercial launch. We have also been encouraged by the continued evolution of our investor base in 2026, with strong engagement from existing shareholders and growing interest from new investors as we made progress across our program. We believe this reflects increasing recognition of the opportunity ahead as well as confidence in our disciplined approach to execution and capital allocation. I will now turn to our financial results for Q1 2026, which are detailed in the earnings release we issued this afternoon. Research and development expenses were $41.5 million compared to $23.4 million for Q1 2025. The net increase of $18.1 million was primarily driven by an increase of $15.2 million in DT120 program expenses, $3.2 million in internal personnel costs as a result of expanding our R&D capabilities, and $300,000 in DT402 program expenses, partially offset by a $600,000 reduction in preclinical and other program expenses. For Q1 2026, general and administrative expenses were $17.7 million compared to $8.8 million for Q1 2025. The net increase of $8.9 million was primarily due to $3.9 million in stock-based compensation expenses, $1.4 million in personnel-related expenses, $1.4 million in commercial preparedness-related expenses, $1.4 million in corporate and government affairs expenses, and $1.2 million in legal and patent expenses, partially offset by a $400,000 reduction in other miscellaneous administrative expenses. The year-over-year increase in G&A expenses reflects deliberate investment to support a more mature organization as we prepare for our anticipated Phase III topline data readouts and potential commercialization. Overall, our R&D and G&A expenses for the first quarter were in line with our internal expectations as we continue to make meaningful progress across the DT120 and DT402 programs. Net loss for Q1 2026 was $77.1 million compared to $23.3 million for Q1 2025. As a reminder, our net loss can be significantly impacted by changes in the fair value of our 2022 USD financing warrant, which are marked to market each quarter. For Q1 2026, the impact on net loss from the change in fair value was $20.0 million, reflecting an increase in our share price from $13.39 at 12/31/2025 to $18.90 at 03/31/2026. Turning to the balance sheet, we ended Q1 2026 with $373.4 million in cash, cash equivalents, and investments. We believe our capital position provides sufficient runway to fund planned operations through multiple anticipated clinical readouts and into 2028. 2026 is shaping up to be a data-rich and strategically important year for Mind Medicine (MindMed) Inc. Our financial position allows us to remain focused on disciplined execution while maintaining the flexibility needed to support our priorities and continue building long-term value for shareholders. With that, I will turn the call back to Robert. Robert Barrow: Thanks, Brandi. After years of thoughtful trial design and focused execution, we are entering a period of numerous pivotal milestones that we expect will define the next chapter for Mind Medicine (MindMed) Inc. and our broader field. As we mark Mental Health Awareness Month, the urgency of advancing new treatment options and the responsibility we carry for patients feels especially pronounced. Before we close, I want to say thank you to our incredible team, the investigators and their teams, and to the hundreds of patients who have made this work possible. We will now open the call for questions. Operator: At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question will come from the line now open. Brandi L. Roberts: I am sorry, you cut out for a second. This is for Paul. Operator: Yes, your line is now open, Paul. Analyst: Hi. This is Emily on for Paul Matisse at Stifel. We just had a quick question assuming you have success in MDD and anxiety this year. Could you speak more to your thoughts around how much long-term safety and retreatment data you would need for approval? And in these long-term data, would patients need to retreat a certain amount of time to count as a long-term exposure for safety? Thank you. Robert Barrow: Great, thanks so much, Emily. I will speak briefly to this and then turn it over to Daniel to elaborate. We have had a great dialogue with FDA over the past several years, obviously building towards an eventual plan for an NDA submission subject to positive data and all that has to happen to get ready for an NDA, which we are very well positioned for. In terms of safety data and what is required, we feel really comfortable with the completion of Part A and the data that we will have available at the time of filing and at various milestones between here and there. We have sufficient safety exposure, both single-dose and over longer periods of time. Of course, the interesting dynamic with drugs that you do not have to take continuously or daily is that treatment patterns can diverge across different patient populations, which can mean that six months of treatment can look like one dose or multiple doses. That is something we are really interested in characterizing in our Phase III program. Regardless, we feel very well positioned with the studies we are conducting and that we will be in a great position to move forward, subject to positive Phase III data. Daniel, do you want to add any color? Daniel Karlin: Yes. I will elaborate a bit on the value of the Part Bs of these studies where we are able to deliver triggered treatment based on people having moderate symptoms of GAD or MDD or worse—moderate or severe. The value is multifold. First, it helps keep people in Part A of the study; as you saw from our announced sample size re-estimation outputs, our dropout rates are remarkably low in part because people know that they have this opportunity, if they are still symptomatic, to get open-label treatment in Part B. The ability to follow folks long term for up to a year after their initial blinded dose is another advantage. For folks who get to mild illness or better, we just get to keep watching them in that initial controlled, blinded state unless and until they get sick again, if they in fact do. Then, as Robert said, in those Part Bs we can give up to four additional open-label treatments contingent on people developing moderate illness or worse. That will give us the ability to carefully characterize across these studies the patterns of treatment that emerge when treating people with moderate or worse symptoms, which is pretty well aligned to what we think would likely happen in the real world if approved. With all of those data in hand, we are confident that we will have everything we need to inform FDA and, of course, to inform the clinical and patient community if we do get approved. Analyst: Great. That is super helpful, and congrats on the quarter. Operator: Thank you. One moment for our next question. Our next question comes from the line of David Amsellem of Piper Sandler. Your line is now open. Analyst: Thanks. Just a couple from me. One, in terms of the patient experience—patient monitoring—how confident are you that in practice only one dosing session monitor will be needed to monitor the patient? Sort of a REMS-related question on that front. And then I have a question on the PTSD HAVEN study. A little bit of color on the thought process behind running HAVEN as straight active versus placebo as opposed to including a low 50 microgram dose arm. Thanks. Robert Barrow: Thanks so much, David. Daniel, I will turn it over to you. Daniel Karlin: Great questions. In the clinical trials, per FDA direction, we have an in-person lead monitor and then a secondary monitor who can watch remotely via video. That has been the condition for conduct of clinical trials based on FDA direction. Throughout the trials, we have made every effort to collect regulatory-grade data on what those monitors are doing to provide assistance and comfort for the patients, up to and including what the role of that second monitor actually ends up being. All of this is in service of making the case that a single monitor is absolutely something that should be enabled in the real world. That is our position. In the longer term, if you look at other therapies that have acute consciousness-altering effects, things like monitoring ratios have not been explicitly specified; at the end of the day, it is left to clinical discretion and clinical judgment to ensure that patients are safely monitored. Of course, there is some content in existing REMS, and we will expect to have content in our REMS that relates to monitoring, but it will adhere to the evidence we have established for what constitutes safety and efficacy. On PTSD: across the Phase III program, we have combined studies. We have studies with two arms, and in two cases we have added this lower-enrolling 50 microgram confounding arm. That is not an analytical arm; it exists to confound the understanding of people in the other arms as to what they got. In each case for GAD and MDD, our first study in the condition used a two-arm design with an inert placebo, which we continue to believe is the appropriate control condition for testing psychiatric medications, including DT120 and any other psychedelic for that matter. That is what we did in PTSD. We think head-to-head is the best way to establish evidence of efficacy. As we gather the accumulated evidence and as we are able to read out the evidence from these other three studies that we are conducting and ultimately from ASCEND, which we have guided is starting imminently, all of that will accumulate to help us understand what, if any, effect that 50 microgram dose arm has on the understanding of people in the other arms as to what dose of drug they got and whether they got a treatment dose or not, and also whether that has any effect on the measured outcomes. As we gain more knowledge about the performance of these different studies with the different control and confounding conditions, that will allow us to think about future studies and their design. But for primary evidence of efficacy, we continue to believe head-to-head is the right control condition. Operator: Thank you. One moment for our next question. Our next question comes from the line of Andrew Tsai of Jefferies. Your line is now open. Analyst: Hi. It is Brian Bolton here on for Andrew Tsai. Two questions. First, on patient journey: you mentioned Phase III with your five to eight hour patient journey versus 10 to 12 hours in Phase II. Can you talk about what gets you closer to five hours as opposed to eight? What do you need to establish with the FDA and sensors to make it happen? And secondly, your placebo responses in the GAD study were higher compared to other GAD studies. How are you thinking placebo might trend in the Phase IIIs, and then same for the Phase III MDD study as well? Thank you. Robert Barrow: Thanks so much, Brian. On the first question, some of the changes we highlighted a few weeks ago at our event include formulation—using an orally dissolving tablet in our Phase III program where we see faster absorption that we think could translate into a better profile in terms of resolution of symptoms. Our approach has been intentional from day one. Going into our Phase II program, we included a higher dose, 200 micrograms, and therefore, appropriately conservatively, extended the monitoring period in Phase II up to 12 hours and had an extremely lengthy set of criteria measured to assess when patients could end the monitoring session. Based on learnings and data from the Phase II study, we made revisions to the formulation and to that end-of-session checklist. In Phase III, we feel confident we are moving in a shorter direction, and that is what we are seeing so far. In addition, the change from a 12-hour monitoring period to an eight-hour monitoring period being required for all participants was driven by discussions with FDA and those data. We feel confident we are heading in the right direction there and that, regardless, within that window we see a very attractive clinical profile—one that means patients are not rushed and one that enables providers to have a low-turnover, high-efficiency delivery to patients. On placebo response, we had a remarkably high placebo response in the Phase II GAD study. An 80% likelihood for patients to be receiving some dose of drug tends to drive up placebo response. We also saw that around a third of patients who received placebo guessed they were on drug, and the presence of several lower doses likely enhanced that placebo response. There were also dynamics with dropout—Phase II had nothing to offer patients beyond the initial dose—whereas in Phase III we have Part B and patients are guaranteed access to open-label drug if they continue through the 12 weeks. As we look to Phase III, having a lower allocation ratio and having a reason for patients to stay in the study should reduce placebo, perhaps even below historical averages. That would be true in both GAD and MDD. We also see in other programs, including the pivotal studies for Spravato, lower placebo responses than historically seen for daily antidepressant studies. It would not be surprising if we saw lower-than-average placebo responses across the Phase III programs here. Given that we exceeded a high placebo by a wide margin in Phase II, we feel confident we will be in a great position heading into the Phase III data. Operator: Thank you. One moment for our next question. Next question comes from the line of Mark Goodman of Leerink Partners. Your line is now open. Analyst: Hi, good afternoon. This is Basma on for Mark. Thank you for taking our questions. First, about the PTSD program: can you remind us of your convictions regarding the dose you are using in PTSD? Why do you think it is going to be efficacious? And what are the study powering assumptions? Second, for submission in MDD or GAD—whatever comes next—can you leverage the safety data from GAD, or will you have to collect another set of exposure data in the relevant patient population? Thank you. Robert Barrow: I will take the second one first and then turn it over to Daniel. We certainly expect to have exposure from pivotal studies and efficacy studies in any population we are conducting research in. ICH guidelines for patient exposures are not disease- or disorder-specific, so there is not a requirement to meet some huge population requirement by indication. Daniel? Daniel Karlin: Great question about PTSD. Having done our dose-range finding study in Phase II and gaining great confidence in our Phase III dose—and dose in this formulation—through transitional PK work, we had the confidence to go forward in GAD and MDD and also in PTSD with that dose. From a symptomatic perspective, disease definition overlap, and scale overlap, all of those come into alignment, and there is no reason to think that the variations that make up these differently defined diseases—but that fundamentally have such tremendous overlap—would call for any additional dose adjustment moving forward. So we go into PTSD with the same confidence we went into MDD, with the dose we selected initially for patients with primary GAD. From a powering perspective, we continue to look at a five-point change on the condition-relevant scale as a good sweet spot—HAM-A for GAD, MADRS for MDD, and CAPS for PTSD. Operator: Thank you. One moment for our next question. Our next question comes from the line of François Brisebois of LifeSci Capital. Your line is now open. Analyst: Hi. Thanks for taking the question. You talked about the overlap here. It seems like MDD is more episodic than GAD. In terms of probability of success, is there more confidence in one versus the other? And is there anything about the disease itself with GAD that could trigger a higher placebo response, or is this more from the trial design? Robert Barrow: Thanks so much, François. I will turn that back over to Daniel. Daniel Karlin: Great question. We have introduced new slides to look at the GAD–MDD overlap. In the vast majority of patients, it is something of a temporal distinction. If they have MDD, it is because they have had or are currently in a major depressive episode. Major depressive episodes by definition end—they have start and end points—whereas GAD is more of a constitutive background state of anxiety. The longer someone has high anxiety, the more likely they are to have a major depressive episode, and the more frequent and severe the episodes, the more likely they are to have high background anxiety. Historically, MDD has been an easier target for many classes of antidepressants than GAD. In part, in MDD we are helping folks return to a state they have been in more recently, whereas with GAD we are pushing toward a state someone may not have experienced in a long time. That, in part, gives us great confidence in MDD. We also saw in Phase II that we were able to move the MADRS pretty dramatically in GAD patients despite them starting lower than typical MDD baselines—less room to move—and we still saw meaningful change. On placebo in GAD, it is more the design than the disease. The five-arm design with an 80% likelihood of getting drug, together with lower-dose arms that may feel like something to someone, likely drove a higher actual placebo response and also a higher measured placebo response due to dropout and data replacement strategies. Analyst: Thank you for that. And a quick one for Matt. You mentioned 1% penetration of the TAM equals about $2 billion. How do you handle the overlap of MDD and GAD to get to that number? And on the commercial side, any learnings from the J-code implications for Spravato and how that might have triggered sales? Matthew Wiley: Sure. The 4.2 million patient number I cite includes those with both diagnoses—these are unique patients we have identified, all 18 and over—so the TAM accounts for overlap; dual-diagnosis patients are deduplicated. Regarding the J-code for Spravato, it gives us confidence that there is a path forward to submit for a J-code for DT120 as well. That is in our plans and an operating assumption to submit once we get into the market, if DT120 is approved. Operator: Thank you. One moment for our next question. Our next question comes from the line of Pete Stavropoulos of Cantor. Your line is now open. Analyst: Hi. This is Samantha on the line for Pete. Thanks for taking our questions and congrats on the quarter. For the MDD OLE, you set the trigger for redosing at a MADRS score of 20 or greater. Could you help us understand why 20 was chosen and, through your market research, is that level of severity a threshold where health care practitioners would likely recommend another dosing session? Robert Barrow: Thanks so much. I will turn it over to Daniel. Daniel Karlin: Great question, Samantha. Across our studies, in Part B we set the threshold on the scale at the line between mild and moderate. While scale thresholds are psychometrically validated, they are still somewhat arbitrary choices. We chose the mild-to-moderate boundary because, in talking to a wide community of prescribers, that level is where clinicians would consider initiating or re-initiating medication at all, let alone a more intensive and likely expensive medication. That threshold also corresponds to where people start to accumulate functional deficits—symptoms become severe enough to interfere with activities of daily living such as school, work, and family. That seemed a reasonable place to draw the line in studies and a likely threshold used clinically, though clinical judgment will rule in practice and these scales are not often used routinely due to administration burden. We expect that if clinicians assess functional deficits, that will push them toward using therapies like ours. Robert Barrow: I will add one point, Samantha. While there is discussion about subgroups of MDD and TRD populations, the real driver of personal and economic benefit is improving severity. Finding patients with severe symptoms and improving them to a state with meaningfully improved function is why we set thresholds where we did, and why we are focused on severity rather than siloing into a small subset who failed two SSRIs. Analyst: Very clear. Thank you. If I can sneak in one more: with interventional psychiatry increasingly integrated into practices and health systems, what preparations are underway at clinics to pivot and deliver DT120 operationally? What are you hearing in your commercial prep work? Robert Barrow: Matt, over to you. Matthew Wiley: Thanks, Samantha. Clinicians doing high volumes of interventions today have been preparing for psychedelics coming to market and are allocating space accordingly. We feel encouraged by the anticipation and receptivity of the market for these interventions as they make their way into practice. There is high anticipation for DT120, and the data we shared a couple of weeks ago highlight momentum and receptivity. Our targeting model prioritizes physicians who are receptive to the concept and who have the capability and capacity to accommodate patients for treatment. Operator: Thank you. One moment for our next question. Our next question comes from the line of Matthew Hirschenhorn of Oppenheimer. Your line is now open. Analyst: Hey, guys. Congrats on all the progress, and thanks again for hosting us two weeks ago. As you talk to clinics, what are some of the economic incentives they have to modify capacity for DT120, especially considering moving away from Spravato? Do you see time-based reimbursement and less friction arising from patient turnover compared to Spravato as potential advantages? And perhaps if you have any estimate on how many clinics it would take to eventually treat 100,000 patients per year, considering likely capacity? Matthew Wiley: Thanks for the question. Regarding practice economics, we recognize it is top of mind for physicians. We are building out clear direction on what will be available at launch and which codes we will secure post-launch to ensure physicians are adequately reimbursed for administration. Clinics have been allocating some space initially and anticipate judging market volumes to determine whether to allocate additional space. This will be determined as we get into the market. As we get closer, we will have more market research to share on expected volume and capacity both at launch and in subsequent years. Analyst: Thank you. And one additional question on PTSD: any differentiated advantages for DT120 compared to other psychedelics—psilocybin and DMT specifically—for this indication? Any input or discussions with the VA, considering prevalence among veterans, informing enrollment criteria or data collection? Daniel Karlin: One of the things we hear from sites about the characteristics of DT120 and the patient experience is that it is very well tolerated, particularly emotionally. People find the onset, plateau, and gentle return to normal consciousness to be well tolerated and pleasant in ways other drugs may not be. For folks with high levels of anxious arousal and hypervigilance in PTSD, that predictable and gentle experience—predictable onset and offset with adequate plateau time—may be advantageous. Regarding the VA, we have been working with VA researchers on our research to date. As we move into PTSD, we will continue to deepen and strengthen those relationships. The VA’s expertise in PTSD will be important to the design and execution of those studies as it has been in our studies to date. Operator: Thank you. One moment for our next question. Our next question comes from the line of Sumant Kulkarni of Canaccord Genuity. Your line is now open. Analyst: Good afternoon. Thanks for taking our questions. I have three. First, what are your latest thoughts on filing strategy? Would you file both GAD and MDD at the same time, or do you think GAD, which will have two Phase III readouts earlier, will be your first targeted indication? Robert Barrow: Thanks, Sumant. We are having ongoing discussions with FDA around the appropriate strategy. We have also seen communication from FDA about thinking for filing on studies where there is a high degree of overlap. There is a long regulatory and legal precedent that, when there are highly overlapping indications, a single study may be supportive of expansion into that indication. Some of this will be contingent on how compelling the data are across the studies, particularly in MDD. If we see a smaller effect, we would have less compelling evidence than if there is an extraordinarily large effect that implies small studies might suffice to replicate. Ultimately it will be informed by the data and subsequent discussions with FDA. We feel confident in the position for filing DT120, and regardless of concurrent or sequential filings, we think we will be in a great position to go after both markets, hopefully, and to get into the patient population if we are fortunate to get a drug approved. Analyst: Thanks. Second, for Matt, on commercialization: both GAD and MDD present very large opportunities. Which one could prove more challenging to crack for DT120, and why? Matthew Wiley: Thanks, Sumant. The unmet needs in both indications are high, and there is strong receptivity in our market research for both. Our targeting model and value proposition are aimed at both indications; we do not have a favorite. We believe many patients need help and need this treatment, and if approved with a dual indication, we will go after both with equal measure. Also, the diagnosis of GAD is not as reflective in claims data as MDD, simply because there have not been novel treatments in a couple of decades. We believe there is a lot of GAD that is underdiagnosed in ICD-10 data, and that could change with a therapeutic intervention that meets that need. Analyst: Last one is almost a philosophical question. What are the real-world advantages and disadvantages of receiving a Commissioner’s National Priority Voucher? Robert Barrow: It is a good question. Anything we can do to accelerate and be more efficient in development we are interested in. We have been moving at a lightning speed; we opened this IND less than about four years ago. We focus on what we can control: doing research the right way to move the program forward to pivotal data, which we have coming up very soon. What comes after that—with novel programs at FDA—there can be advantages and also potential risks. One important consideration for our program is the opportunity to potentially go after both indications. If we are in that position, there is a lot to navigate regarding which indication might benefit from a voucher like a CNPV. We have seen positives and risks associated with such mechanisms. We will keep our dialogue with FDA and continue to look for opportunities to accelerate anywhere we can. Right now, getting the data and moving efficiently toward an NDA is where we are focused. Operator: Thank you. One moment for our next question. Our next question comes from the line of Christopher W. Chen of Baird. Your line is now open. Analyst: Hey, everyone. Thanks for taking my question and congrats on the progress. Regarding the EMERGE readout, how granular will your patient time-to-discharge data be? And if you go slightly over the eight-hour window, is it still possible to secure a label with an eight-hour treatment window? Robert Barrow: Thanks, Chris. We are extremely detail-oriented in everything we do and aim for precise definitions of important study characteristics. We have been doing that in analyzing the end-of-session checklist and when patients can be cleared from monitoring. We will look at means, side effects, individual patient data—anything useful. It is something we are very interested in and we look forward to presenting data. Operator: Thank you. One moment for our next question. Our next question comes from the line of Patrick Trucchio of H.C. Wainwright & Co. Your line is now open. Analyst: Hi. It is Arabella on for Patrick. Thank you for taking the question. Now that DEA rescheduling can be done after a successful Phase III, how much time is that realistically going to save? How are you thinking about initiating those conversations once you get the data? Also, could you comment on DT402 in ASD and what metrics or signals you are looking for to move the program forward? Thank you. Robert Barrow: Thanks, Arabella. I believe you are referring to the executive action indicating the DEA should look at scheduling assessment after Phase III data, not after FDA approval. If implemented and DEA could as a result make a decision on scheduling at the same time as an NDA approval, that could save roughly 90 days, which is the current timeline to an interim final rule and issuance of the schedule for an approved product. We have been engaged for a while in exploring opportunities to streamline the process and enhance collaboration across federal agencies to make the timeline from FDA approval to patient access as short as possible. With such a huge need, we should not be waiting any days we do not have to. We continue to have great dialogue with FDA, with CDER, and when able, with DEA. On DT402, I will turn it to Daniel. Daniel Karlin: Thanks for asking about DT402. We are conducting a signal-of-efficacy study in ASD. To do that across the course of a day, we have combined a set of measures we can do repeatedly through the day—pre-dose, early in the dosing experience, late in the dosing experience, and again as the drug wears off. We constructed what might be skinnier instruments than you would ordinarily use for a regulatory approach but that include the construct components of those instruments and can be asked quickly and repeatedly. We have patient-reported outcomes, clinician observations, caregiver observations, and digital behavioral markers (voice, facial expression, eye tracking), all rolled into a dense dosing day with as many measures as we could comfortably include for the patient experience. Operator: Thank you. One moment for our next question. Our next question comes from the line of Amit Daryanani of Needham & Company. Your line is now open. Analyst: Hi, good afternoon. Thanks for taking my question. How much data do you need from Part B—where you examine how long it takes for patients to take a second, third, or fourth dose—before you submit for approval and to inform circumstances of treatment and the label? How much data do you need to have conversations with payers around coverage and pricing? Second, regarding market capacity: to achieve peak potential, how much expansion is needed in the number of clinics equipped to treat with psychedelics in the U.S., and what is the time frame or bottlenecks to see that expansion? Robert Barrow: Thanks so much, Amit. As we approach topline data and Part A readouts, it is worth noting precedent antidepressant approvals are largely based on acute studies with post-marketing commitments for longer-term studies. We are pushing the bounds of what an acute study can do: a single dose with patients followed for 12 weeks, and in GAD a primary endpoint at 12 weeks—patients with GAD do not spontaneously have 12 weeks of significant improvement. That approach is an important component of why we are confident we will be in a great position with Part A data. Part B data will be useful to inform intervals for retreatment, retreatment patterns over time, and outcomes upon subsequent treatment. We already have quite a bit of Part B data and will continue to aggregate across programs throughout the remainder of this year as we progress toward filing. On capacity, we think this is significantly underappreciated. Capacity that exists today is far in excess of what many models project for adoption. We do not see a capacity constraint. As we showed in New York a few weeks ago, setting up a treatment room is straightforward: have a room and someone who can be present for an extended period in a current facility. That is enough. There is not a substantial financial or logistical bottleneck—“infrastructure” is too heavy a word. We expect capacity growth over time and will support patients and providers so they can adopt and deliver treatment if they wish. We believe there will be strong incentive and desire to adopt among treatment centers and patients. Operator: Thank you. This concludes the question-and-answer session. I will now turn it back to CEO Robert Barrow for closing remarks. Robert Barrow: Thank you, everyone, for joining us today. We are very excited about the quarters ahead with three pivotal readouts anticipated across the second and third quarters, and we look forward to sharing those data in due course. Thank you all. Operator: Thank you for your participation in today’s conference. This concludes the program. You may now disconnect.
Operator: Good afternoon. I will be your conference operator. At this time, I would like to welcome everyone to Applied Optoelectronics, Inc. First Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Please note that this call is being recorded. I will now turn the call over to Lindsay Savarese, Investor Relations for Applied Optoelectronics, Inc. Ms. Savarese, you may begin. Lindsay Savarese: Thank you. I am Lindsay Savarese, Investor Relations for Applied Optoelectronics, Inc. I am pleased to welcome you to Applied Optoelectronics, Inc.’s first quarter 2026 Financial Results Conference Call. After the market closed today, Applied Optoelectronics, Inc. issued a press release announcing its first quarter 2026 financial results and provided its outlook for 2026. The release is also available on the company's website at aoinc.com. This call is being recorded and webcast live. A link to the recording can be found on the Investor Relations section of the Applied Optoelectronics, Inc. website and will be archived for one year. Joining us on today's call is Dr. Thompson Lin, Applied Optoelectronics, Inc.’s founder, chairman, and CEO, and Dr. Stefan Murry, Applied Optoelectronics, Inc.’s chief financial officer and chief strategy officer. Thompson will give an overview of Applied Optoelectronics, Inc.’s Q1 results, and Stefan will provide financial details and the outlook for 2026. A question and answer session will follow our prepared remarks. Before we begin, I would like to remind you to review Applied Optoelectronics, Inc.’s Safe Harbor statement. On today's call, management will make forward-looking statements. These forward-looking statements involve risks and uncertainties, as well as assumptions and current expectations, which could cause the company's actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied in such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as believes, forecasts, anticipates, estimates, suggests, intends, predicts, expects, plans, may, should, could, would, will, potential, or thinks, or by the negative of those terms or other similar expressions that convey uncertainty of future events or outcomes. The company has based these forward-looking statements on its current expectations, assumptions, estimates, and projections. While the company believes these expectations, assumptions, estimates, and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the company's control. Forward-looking statements also include statements regarding and expectations related to the expansion of the reach of its products into new markets and customer responses to its innovation, as well as statements regarding the company's outlook for 2026 and for the full year 2026. Except as required by law, Applied Optoelectronics, Inc. assumes no obligation to update these forward-looking statements for any reason after the date of this earnings call to conform these statements to actual results or to changes in the company's expectations. More information about other risks that may impact the company's business are set forth in the Risk Factors section of Applied Optoelectronics, Inc.’s reports on file with the SEC, including the company's annual report on Form 10 and quarterly reports on Form 10 Q. Also, all financial results and other financial measures discussed today are on a non-GAAP basis unless specifically noted otherwise. Non-GAAP financial measures are not intended to be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation between our GAAP and non-GAAP measures, as well as a discussion of why we present non-GAAP financial measures, are included in the company's earnings press release that is available on Applied Optoelectronics, Inc.’s website. Before moving to the financial results, I would like to note that Applied Optoelectronics, Inc. management is attending the 21st Annual Needham Technology, Media, and Consumer Conference on Wednesday, May 13. This discussion will be webcast live, and a link to the webcast will be available on the Investor Relations section of the Applied Optoelectronics, Inc. website. Lastly, I would like to note that the date of Applied Optoelectronics, Inc.’s second quarter 2026 earnings call is currently scheduled for 08/06/2026. Now I would like to turn the call over to Dr. Thompson Lin, Applied Optoelectronics, Inc.’s founder, chairman, and CEO. Thompson. Thompson Lin: Thank you, Lindsay, and thank you for joining our call today. We are pleased to deliver solid first quarter results that were in line with our expectations, driven by robust demand in both our data center and CATV businesses. We generated our fourth consecutive quarter of record revenue as we executed well to expand our manufacturing capacity. We continue to see accelerating customer demand needed to support the next wave of AI infrastructure deployment, and we anticipate solid sequential revenue growth throughout this year, with a significantly larger ramp expected starting in Q3 as additional capacity comes online. During the first quarter, we delivered revenue of $151.1 million, non-GAAP gross margin of 29.2%, and non-GAAP loss per share of $0.07, all in line with our expected guidance range. Importantly, during the quarter, we saw and continue to see strong customer engagement around our 800G and 1.6T products, particularly as AI-driven data center investment accelerates. We completed our first volume shipment of our 800G single‑mode transceiver to one of our large hyperscale customers in Q1, and we continue to anticipate a strong volume ramp starting in Q2. During the first quarter, we announced that we received our first volume order for our 1.6T transceiver from another long-term major hyperscale customer, along with two new volume orders from this customer for our 800G single‑mode transceivers. Looking ahead, forecast demand continues to outpace our production capacity through mid-2027. We are working hard to add additional capacity to meet this demand. Based on new demand and our anticipated capacity ramp, we now believe our 2026 revenue will exceed $1.1 billion, and we now expect to generate more than $140 million in non‑GAAP operating income this year. With that, I will turn the call over to Stefan to review the details of our Q1 performance and outlook for Q2. Stefan? Stefan Murry: Thank you, Thompson. As Thompson mentioned, we are pleased to deliver solid first quarter results that were in line with our expectations, driven by robust demand in both our data center and CATV businesses. We generated our fourth consecutive quarter of record revenue as we executed well to expand our manufacturing capacity. We continue to see accelerating customer demand needed to support the next wave of AI infrastructure deployment, and we anticipate solid sequential revenue growth throughout this year, with a significantly larger ramp expected starting in Q3 as additional capacity comes online. In Q1, we delivered revenue of $151.1 million, which was in line with our guidance range of $150 million to $165 million. We recorded non‑GAAP gross margin of 29.2%, which was in line with our guidance range of 29% to 31%. Our non‑GAAP loss per share of $0.07 was in line with our guidance range of a loss of $0.09 to breakeven. Notably, we continued to make progress on our key priorities in the first quarter, which included: one, scaling our next‑generation data center products, including both our 400G and 800G solutions; two, expanding our production capacity in a disciplined manner to support anticipated demand, particularly in our Texas facility; three, diversifying our revenue base; and four, strengthening operational execution to improve our margins and long‑term profitability. Importantly, during the quarter, we saw and continue to see strong customer engagement around our 800G and 1.6T products, particularly as AI‑driven data center investments accelerate. We completed our first volume shipment of our 800G single‑mode transceivers to one of our large hyperscale customers. Notably, 800G revenue in the first quarter was $4.6 million, or 5.6% of our total data center revenue. Looking ahead, we continue to anticipate a strong volume ramp of our 800G products starting in Q2. During the quarter, in line with our expectations, along with the increasing demand for our 800G products, we also saw particular strength for our 400G products. Looking ahead, we expect continued strength in our 400G business, and we expect to ship nearly four times the quantity of 800G compared to our Q1 shipments. In Q1, we announced that we received our first volume order for our 1.6T transceivers from another one of our long‑term major hyperscale customers. We also announced that we had received two new volume orders from this customer for our 800G single‑mode transceivers. Following product qualification, we expect to begin delivering these 800G orders in Q2, the 1.6T order as early as Q3, and to complete all of the deliveries by the end of this year. This hyperscale customer has been a key and valued customer of ours for many years, and we are excited by the increased engagement and meaningful discussions we have had as this customer boosts its network bandwidth for AI workloads. We expect these orders to return this customer as a 10%‑plus customer for us. Forecast demand for 800G and 1.6T modules is projected to continue to exceed our production capacity through mid‑2027. We are working to add additional capacity to meet this demand. At OFC in March, we provided more color on our ambitious plans to increase our manufacturing capacity. During the first quarter, we made solid progress on this production capacity ramp, particularly for our 800G and 1.6T products. As a reminder, our U.S. manufacturing footprint is anchored in Sugar Land, just outside Houston. Through a combination of real estate acquisitions and leases, we have expanded our Texas manufacturing footprint to about 900 thousand square feet. This includes 135 thousand square feet of existing capacity at our headquarters; two new buildings of 388 thousand square feet in Pearland, Texas; a 210 thousand square foot facility which is under development; and a 154 thousand square foot building in Houston, Texas. For those of you who are not familiar with the Houston area, all of these facilities are located within a 15‑mile radius of our current headquarters facility in Sugar Land. During the quarter, we made progress building out our recently leased 210 thousand square foot facility. We expect to begin initial production in this facility in the third quarter. Notably, this facility is located just a few hundred yards from our headquarters, and it will be entirely dedicated to manufacturing of 800G and 1.6T transceivers. While this will not directly increase our indium phosphide wafer capacity, we plan to move the existing transceiver production from our current headquarters facility to this new building, which will allow expansion of our indium phosphide capacity. The facilities in Pearland and Houston will be built out to expand our production capacity for 800G and 1.6T transceivers. We expect these facilities to come online in early 2027. As a reminder, internationally, we have 795 thousand square feet across three facilities in Taiwan focused on optical transceivers, as well as a larger 1.2 million square foot facility in Ningbo, China primarily dedicated to transceiver and cable TV manufacturing. Exiting Q1, our total manufacturing capacity approached 100 thousand units per month of 800G and 1.6T capacity. Looking ahead, we expect to continue to rapidly expand our production to approach 150 thousand per month of 800G and 1.6T this quarter. As a reminder, we expect by the end of this year we will be capable of producing over 650 thousand pieces of 800G and 1.6T products per month, with about 30% of that output coming from Texas, as we expand into additional facility space and bring new production online. By the end of next year, 2027, we expect to grow our production capacity to be able to produce over 930 thousand pieces of 800G and 1.6T products per month, with over half of that output coming from Texas. These investments reflect measured scaling of our footprint while aligning with our strong and growing customer demand and qualification progress across both 800G and 1.6T products. As a reminder, our 800G and 1.6T products can be manufactured on the same production line with the same process. While our 1.6T products will require different final testing, our 800G automated manufacturing lines have been developed with an architecture that will allow us to support future high‑speed products as customer demand materializes and evolves over time. While we continue to be encouraged by the conversations we are having with our customers pertaining to our 1.6T product, we continue to believe that our 800G products will drive the near‑term data center ramp. Our 1.6T products are on track to begin to contribute to our overall revenue later this year, with a bigger ramp beginning in 2027. At OFC, we also discussed our plans to increase our manufacturing capacity for our external light source, or ELSFP, for co‑packaged optics, or CPO. This utilizes the ultra‑narrow linewidth high‑power laser that we announced late last year. We have very limited production of these modules now, but anticipate ramping production later this year and into 2027, culminating in about 400 thousand pieces per month by 2027. As a reminder, we will be making the high‑power lasers for these modules for the in‑house production of the ELSFP. We believe our in‑house laser capabilities continue to be an advantage for the company. As we have mentioned before, we have been manufacturing lasers internally for many years. This has allowed us to avoid some of the shortages that affected others in the industry. As we continue to expand our footprint in Texas, our in‑house laser manufacturing positions us well to support both near‑term customer needs and longer‑term growth. We believe that in the future, CPO will continue to drive increased demand for high‑power lasers, and we plan to continue to expand our laser manufacturing capacity in Texas in order to accommodate these future growth drivers. We expect to further expand our laser fabrication capacity by around 350% by 2027. A central element of our strategy is a high‑automation process for transceivers, which allows us to deploy production capacity where it makes the most sense economically and geopolitically while scaling output quickly, reliably, and efficiently. As I mentioned, this automation platform is also highly flexible, enabling us to produce across multiple generations—from 400G to 800G to 1.6T—using many of the same techniques and equipment. In a fast‑moving AI environment, that flexibility is critical, as it allows us to rapidly ramp specific products and shift production in response to changing customer demand. This capability is the result of over a decade of investment in proprietary, in‑house‑designed equipment and tightly integrated product and process engineering. The plans that we have unveiled have been evolving for some time. So while some of the required equipment does have long lead times, we have already ordered many of the key pieces of equipment and are working closely with our vendors to ensure on‑time delivery. Notably, equipment availability has not been a problem for us to date, which we believe is largely due to the fact that most of this equipment is developed in house, which means that we are not generally in direct competition with other similar companies for supply of the necessary machinery and equipment to build our factories. There are exceptions to this, of course, but overall, we feel that our in‑house developed technologies give us an edge in ensuring reliable supply of production equipment. During the first quarter, direct tariffs had a $1.4 million impact on our income statement. With the overturn of the AIPA tariff, we have applied for a refund, which we currently anticipate will be at least $5.7 million. Our application for the refund has been approved, but as the process is still very new, we currently cannot estimate the time frame for recovery of these tariffs. Turning to our first quarter results, our total revenue was a record $151.1 million, which increased 51% year over year and increased 13% sequentially off a strong Q4, and was in line with our guidance range of $150 million to $165 million. During the first quarter, 54% of revenue was from our data products, 44% was from cable TV products, and the remaining 2% was from FTTH, telecom, and other. In our data center business, Q1 revenue came in at $81.4 million, which was up 154% year over year and 9% sequentially. Sales of our 100G products increased 36% year over year, while sales for our 400G products increased tenfold year over year. In the first quarter, 41% of data center revenue was from 100G products, 46.7% was from 200G and 400G products, 5.6% was from 800G transceiver products, and 5.6% was from 10G and 40G transceivers. In our CATV business, CATV revenue was $66.8 million, which was up 4% year over year and 24% sequentially, and was at the high end of our expectations of $61 million to $67 million. Similar to the last couple of quarters, we shipped a significant quantity of 1.8 gigahertz amplifiers to our largest CATV customer in Q1, and based on recent conversations with customers, we believe demand will be somewhat higher than our initial projections for 2026. We continued to see momentum with the newer set of MSO customers that we have talked about on our prior few earnings calls. Looking ahead to Q2, we expect our CATV revenue will be between $75 million and $80 million. Looking further ahead, we now currently expect to generate over $325 million annually in CATV. While the vast majority of our CATV revenue expectations for this year are related to our amplifiers, we do anticipate that we will generate some revenue from our software solutions this year. Now turning to our telecom segment. First quarter revenue from our telecom products of $2.6 million was down 13% year over year and 50% sequentially. As we have said before, we expect telecom sales to fluctuate from quarter to quarter. For the first quarter, our top 10 customers represented 98% of revenue compared to 97% of revenue in Q1 of last year. We had three greater‑than‑10% customers: one in the CATV market, which contributed 44% of total revenue, and two in the data center market, which contributed 26% and 25% of total revenue, respectively. In Q1, we generated non‑GAAP gross margin of 29.2%, which was in line with our guidance range of 29% to 31%, and compared to 31.4% in Q4 2025 and 30.7% in Q1 2025. As we discussed on our last quarterly earnings call, we do expect continued gradual improvement in gross margins; we continue to expect that the revenue mix in data center in the short term will be a slight headwind. We remain committed to our long‑term objective of returning non‑GAAP gross margins to around 40% and believe that this goal is achievable as our mix shifts towards higher margin products and as we capture additional efficiencies across our operation. That margin expansion, combined with increased scale, positions us to move towards sustainable profitability, which we continue to expect to approach on a non‑GAAP basis beginning this quarter. The revenue figures presented above are net of contra‑revenue amounts due to the accounting for warrants provided to customers. As a reminder, this amounts to approximately 2.5% of revenue derived from certain customers to whom Applied Optoelectronics, Inc. has provided warrants in exchange for future revenue. In Q1, the amount of this contra‑revenue was $1 million. Total non‑GAAP operating expenses in the first quarter were $51.4 million, or 34% of revenue, which compared to $35.5 million, or 36% of revenue, in Q1 of the prior year, and were in line with our expectations of $50 million to $57 million. Non‑GAAP operating loss in the first quarter was $7.3 million compared to an operating loss of $4.8 million in Q1 of the prior year. GAAP net loss for Q1 was $14.3 million, or a loss of $0.19 per basic share, compared with a GAAP net loss of $9.2 million, or a loss of $0.18 per basic share, in Q1 of the prior year. On a non‑GAAP basis, net loss for Q1 was $4.9 million, or $0.07 per share, which was in line with our guidance range of a loss of $7 million to a loss of $300,000 and non‑GAAP earnings per share in the range of a loss of $0.09 to breakeven. This compares to a non‑GAAP net loss of $900,000, or $0.02 per share, in Q1 of the prior year. The basic shares outstanding used for computing earnings per share in Q1 were 76 million. Turning now to the balance sheet. We ended the first quarter with $449.4 million in total cash, cash equivalents, short‑term investments, and restricted cash. This compares with $216 million at the end of 2025. We ended the first quarter with total debt, excluding convertible debt, of $77 million, which compared to $67.3 million at the end of last quarter. As of March 31, we had $206.2 million in inventory, which compared to $183.1 million at the end of Q4. The increase in inventory is primarily due to raw material and work in progress needed for production, partially offset by a decrease in finished goods inventory as purchase orders to customers were fulfilled in the quarter. We made a total of $68.7 million in capital investments in the first quarter, which was mainly used for manufacturing capacity expansion for our 400G, 800G, and 1.6T transceiver products. We expect to continue to make sizable CapEx investments this year as we prepare for increased 400G, 800G, and 1.6T data center production. On a quarterly basis, we expect our capital expenditures to be above the total that we spent in Q1. We expect to finance these investments through a combination of cash on hand, cash generated from operations, and some equity sales along with additional debt. Notably, in Q1, we increased availability under existing and new loans by $13.4 million and added another $14.5 million in April. Going forward, we believe we are well positioned for sustained growth across both our data center and CATV businesses, and the capital investments underway are expected to fundamentally strengthen the company as we execute on these opportunities. Given the rising demand, we now believe that by mid‑2027, 100G and 400G revenue will be approximately $90 million monthly, 800G revenue will be approximately $217 million monthly, and 1.6T revenue will be approximately $164 million monthly. In total, this is about $471 million per month of data center transceiver revenue, with about 40% of this capacity in the U.S. Moving now to our Q2 outlook. We expect Q2 revenue to be between $180 million and $198 million, accounting for a sequential increase in CATV revenue as well as a sequential increase in our data center revenue. We expect non‑GAAP gross margin to be in the range of 29% to 30%. Non‑GAAP net income is expected to be in the range of a loss of $2.5 million to income of $2.8 million and non‑GAAP earnings per share between a loss of $0.03 per share and earnings of $0.03 per share using a weighted average basic share count of approximately 80.7 million shares. Looking more broadly at 2026, we now expect to generate over $1.1 billion in revenue this year, with a non‑GAAP operating profit of over $140 million. As we have discussed previously, this revenue level is limited by our production capacity and supply chain, not market demand, which we believe is much larger. Based on our planned capacity additions, we expect to see an acceleration in the second half of the year as new production capacity comes online and additional customer qualifications are completed and orders begin to ship. We believe that this is an ambitious yet achievable target based upon our customers' forecasts and what we know about the unprecedented investments that are being made in AI infrastructure. With that, I will turn it back over to the operator for the Q&A session. Operator? Operator: We will now open the call for questions. Please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please do so now. At this time, we will pause momentarily to assemble our roster. Our first question comes from Simon Matthew Leopold with Raymond James. Please go ahead. Simon Matthew Leopold: I wanted to dig in a little bit to understand the risk profile ramping the capacity. I appreciate the nuance that you do a lot of your own tooling and machinery, and so that should put it in your control. But I wonder if you could reflect on sort of the prior capacity expansions—what led to any kind of timing or disruption—and help us understand how to prioritize the risks for meeting your schedule. And then I have a quick follow‑up. Stefan Murry: Sure, Simon. I think it is important to understand that the expansion that we are undergoing, while it is large in scope, is not something that is brand new to us. We have built significant capacity, especially in our Asian factories, over the last couple of years, and now we are basically adding additional increments to that capacity—the same type of equipment, the same manufacturing process—mainly here in the U.S., here in Texas, as we talked about during the call. So from a risk standpoint, the risk of doing something that you have already done is a lot lower than doing something that is brand new. As we mentioned in the prepared remarks, a lot of this equipment is developed in house, so the risk of supply chain disruptions for the equipment—it is not eliminated, of course—but it is a lot lower than if we were relying on the same equipment that was being bid up by other suppliers and it had limited supply to begin with. I think those two risks are minimized because of the nature of the manufacturing process that we have. It is worth noting too that because our process is very highly automated, we are not hiring a lot of people. So the labor risk associated with quality control issues or being able to scale labor does not really exist to any great extent for us as well. It is really just a matter of: can we get the equipment in, and can we put it into production on time? So far, we are executing very well to that, which is not surprising because we have done a good job of it over the last couple of years already. Thompson Lin: Great. Simon Matthew Leopold: Just a quick follow‑up. I want to make sure I understand and clarify the metric you shared with us towards the end of the call—the $471 million monthly production by 2027. I want to make sure I understand: Is that a capacity number, or is that a number that assumes a certain percent utilization of the total capacity available? How should we take that $471 million value? Is that a revenue forecast, or is that a capacity capability, and we should assume some haircut to that for lower utilization? Thank you. Thompson Lin: Simon, this is Thompson. That is based on revenue. Actually, the actual capacity is higher. But you understand, when you get equipment, you need to save a month to hire people and do qualification. So that means, based on the orders in hand or minimum commitments from customers, plus the equipment fully qualified, we believe we can deliver that level in June, July next year. For sure, another risk is material. This is why we are working with all the material suppliers. That is the number we feel comfortable committing to at this moment. The actual demand could be even higher than this number, but that is the best we can do. The actual number from the customer is bigger, and actually what they expect is April, not June, July. So that is why everything is being pulled in. And, Simon, just to make it really clear, if you go back to our remarks in the last earnings call, that number was $378 million monthly. So that $471 million is directly comparable to that, and it represents almost $100 million a month of additional revenue starting in the middle part of next year. Simon Matthew Leopold: Appreciate it. Thank you. Thompson Lin: You are welcome. Operator: Up next, we have George Notter with Wolfe Research. Please go ahead. Analyst: Hey, guys. It is Terren Cott on for George Notter. On the ELSFP business, can you talk a little bit more about the customer engagements you are seeing there? How many customers are you working with? Any details would be appreciated. Stefan Murry: We have a couple of large customers that we are working with. We have not said who they are. Thompson Lin: Let me say that right now, we are working on three‑year long‑term agreements with several customers—around three—including lasers and the ELSFP. That is the number we are talking about. That is why, not only for transceivers, we are expanding very fast in our laser capacity. Right now, we have been doing a four‑inch growth process. Our target is to go to six‑inch by end of next year. So, yes, I think we need to do more investment to meet the demand for the CPO market. As you know, the CPO laser is about 300 to 400 milliwatts, compared to 70 milliwatts for 800G transceivers and 100 milliwatts for 1.6T transceivers. The die size is much bigger—minimum maybe five or six times bigger. That is why we already went from two‑inch to three‑inch to four‑inch in the past 18 months, and we still plan to go to six‑inch by end of next year. That will increase our capacity a lot. At the same time, we are adding a lot of capacity, like MOCVD, e‑beam, and everything. Stefan Murry: Yes, Terren. We see a shortage of indium phosphide laser manufacturing capacity across the industry right now, and we think that is going to persist and even get more acute with the advent of ELSFP, as Thompson mentioned. That is why we see this need to really expand our indium phosphide fabrication capability pretty dramatically over the next 12 to 18 months. Analyst: Great. And then just to follow up on that, how do you see the ability to secure substrate capacity for the indium phosphide? Thompson Lin: Right now, we have four to five suppliers. We are in some discussions—sorry, I do not know how much we can say—but four of them are outside of China. I would say right now, we should have enough inventory minimum for almost one year. But since the volume will increase so fast, we are making calls with all the suppliers. Stefan Murry: I would say we have good line of sight into how we think we can not see a shortage there. But we cannot say too much about it specifically at this point because a lot of it is under discussion. Analyst: Got it. Thank you. Thompson Lin: Welcome. Operator: Our next question comes from Michael Edward Genovese with Rosenblatt Securities. Please go ahead. Michael Edward Genovese: Great. Thank you. Can you give us more granularity on when you expect qualification for 800G with this hyperscaler that sounds like it will be your third hyperscale 10% customer? When in the quarter exactly do you think you will have this qualification? And then does your guidance derisk it—meaning that if you got it sooner or if things went to plan, would there be upside in the quarter? Stefan Murry: Well, as we mentioned in our prepared remarks, we have already started shipping. So I am not sure what the qualification question really is referring to. Michael Edward Genovese: Okay. So— Thompson Lin: We have two big customers. One is qualified. Another one is almost qualified. The one that gave us a large order for—I do not remember—$140 million, I think, because it was AI with some kind of three‑year long‑term agreement with a very big volume. The qualification is pretty smooth. I think we start shipping volume next month. Another customer we have been working with for a long time is qualified. We will increase the capacity in this month and this quarter too. So we start shipping volume to two big customers, not including smaller ones. Michael Edward Genovese: Got it. Okay. And then your guidance for the year—you are doing about a third of the revenue for the year in the first half, and then obviously expect big sequential growth in the third quarter. Would we then have more big sequential growth in the fourth quarter, or is 3Q and 4Q more linear? How should we think about the shape of the second half? Stefan Murry: Not linear. That is a great question. Right now— Thompson Lin: Let me explain. From the day when you order equipment—qualification, installation, everything—and some reliability, even in Asia it usually takes five to seven months. In the U.S., it adds another two months because of shipping. That is why the ramp is from Q3, not Q2. Even if we got some equipment in already, it still needs to go through a lot of process, which still takes several months. So right now in Q3 compared to Q2, we see 60% to 80% increase. Q4 should be similar. And you can figure out the number. Let me say that the actual demand is not $1.1 billion. The actual demand is $1.4 to $1.5 billion. Right now, our target is still to go to $1.2 billion, but we still need to work very hard with the supply chain, adding manpower, everything. Right now, $1.1 billion is the number we feel very confident in, and it has increased from the $1.0 billion we committed in the last quarter. But our internal number is higher. Stefan Murry: To summarize what Thompson said, the limiting factor for deliveries is our manufacturing capacity. Once that capacity that we have been building—we talked in detail about the real estate that we have, the number of square feet that we have added, and the equipment—once that starts to come online, it is not going to be a linear type of thing. It is going to be another large increment, and then another large increment in Q4, as Thompson outlined. You cannot extrapolate from the first half and assume only a certain growth rate. When you have new factories coming online, that adds capacity very quickly. Thompson Lin: And even when you get equipment, it still takes, including the manufacturing cycle time, at least more than three months—or even longer—to deliver revenue. Sometimes customers need to do another on‑site audit and qualification. So we got a lot of equipment in, but the count of when we are ready is more like Q3. That is why I said Q2 we may have maybe 30% growth—that is limited by capacity—but Q3 and Q4 we are talking about 60%, 70%, or even 80% growth in each quarter. Actually even in Q1 next year too. The next few quarters will be very fast because this plan lets us start delivering to the customer. Michael Edward Genovese: Perfect. Great. Thank you so much. Appreciate the color. Operator: Our next question comes from Ryan Boyer Koontz with Needham. Please go ahead. Ryan Boyer Koontz: Great, thanks. I want to get back to the indium phosphide topic and where you are in terms of that capacity relative to your demand and the different fab equipment you need to support that growth. Can you maybe walk us through some of the major milestones we should think about for the laser supply internal here over the next couple of quarters? Stefan Murry: Great question. As I said earlier, indium phosphide capacity is critical right now. The fact that we have our own in‑house laser manufacturing capability is one of our key advantages. Certainly when you talk to customers, that is one of the big things that they like about us, especially now that we are seeing shortages across the industry. Our fab expansion is well underway. As Thompson mentioned, we have a number of critical pieces of equipment—MOCVDs, coating machines, and others—that are in various stages of either being delivered or being qualified. It does take a pretty extended period of time to qualify a new piece of laser manufacturing equipment, as you can imagine. You do not want to take a risk of having an unknown quality issue there. A lot of that equipment is already here and already undergoing qualification, or it is very close to being here. That is why we can be pretty confident that our capacity is going to be where we need it to be. It is just a matter of going through that qualification process internally, which is, by the way, different from the transceiver qualification—here I am talking about our internal qualification of new equipment as it comes in. Thompson Lin: Let me say it is very different from transceivers. For lasers, from the day you place the order to the equipment supply, it takes a minimum of 18 months or even longer. Right now we saw equipment delivery could take 21 to 24 months for you to start to deliver lasers to the customer. Sometimes the customer requests 2 thousand hours or even 5 thousand hours of reliability data. So we placed a lot of orders to more than 50 suppliers. We got commitments from the suppliers, and we are getting some equipment in house already every month. Let me say that by end of next year, we should be, I would say, minimum top three in laser production worldwide. I cannot tell you how many pieces of equipment we have—it is cumbersome. That is why we are working with customers for long‑term needs for lasers, not only for transceivers, including lasers for ELSFP. As I said, ELSFP is very challenging. There is very high spec and very high power, especially with wavelength control. I would say the challenge is more than 10 times that of a 70 or 100 milliwatt laser for transceivers. It is a totally different ballgame. That is our focus. And, you know, Applied Optoelectronics, Inc. has been doing lasers since day one, including my PhD—our team has been doing lasers since 1990. So we know how to do a good job. Ryan Boyer Koontz: That is impressive, Thompson. Thank you. If I could have a quick follow‑up in terms of your margins and how we think about that and the mix. As your production mix of 800G moves up here, should we think about that as a tailwind for margins? Maybe unpack that for us a little bit—how to think about the mix? Thank you. Stefan Murry: The margins get a lot better as we expand the capacity. Right now, what is going on is we are in this shifting mix between 400G and 800G and between predominantly cable TV and predominantly data center. As we see that continue to shift and as 800G takes precedence, you will start to see growth in gross margin primarily in the second half of the year. Thompson Lin: I would say we go to 35% gross margin by end of this year. At the same time, in Q1 and Q2, since we start ramping up, we need time to fine‑tune the process. So the efficiency is not as good as what we expect, but I think within two to three months, with a fully automatic manufacturing line, we can tune the efficiency very fast. That is the major advantage of automation. For sure, by Q4, the gross margin—by Q3, the whole company—should be, I would say, more than 40%, especially with the laser business. That will kick in in Q3, Q4 next year. Ryan Boyer Koontz: That is helpful. Thank you both. Thompson Lin: Alright. Yep. Operator: Please press star then 1. Our next question comes from Timothy Savageaux with Northland Capital Markets. Please go ahead. Timothy Savageaux: Hey, good afternoon. First question is trying to understand where you are capacity‑wise versus what you are forecasting. In the release, you talked about 100 thousand units a month in 800G exiting Q1, and that puts your capacity revenue‑wise over $100 million a quarter. You have orders in hand for $124 million of 800G. You have the capacity, theoretically, to ship those orders. And yet you are guiding to, what, $18 million to $20 million in 800G revenue. What I am trying to understand is that delta and what is driving that apparent disconnect. I have a follow‑up. Stefan Murry: It is just timing on how long it takes to do the manufacturing process, really. Not all of that 100 thousand was online in the middle of the quarter, and then you add the cycle time to it. It puts the real production output for that closer to the middle to even two‑thirds of the way through the quarter. It is just the timing of the manufacturing lead time. Thompson Lin: That is why when we talk about $471 million for June, July next year, that is revenue, not capacity. The capacity is much higher because, as I say, when you have capacity, you need to add more than one month and my phase—cycle time of six weeks—plus maybe the customer needs to do on‑site auditing and qualification. There are all kinds of requirements. So the day you even install, download the trial run—everything—you still would take another two, three, or four months to realize the revenue. Some customers even have different processes. That is why I made clear: when we are talking about $471 million, it is revenue, not capacity, and we are talking about equal to about 780 thousand transceivers per month by middle of next year. Actually, it could be higher. Timothy Savageaux: Got it. Speaking of competition, earlier this week we had a prominent contract manufacturer in the space announce two deals whereby they would be making transceivers for hyperscale customers directly. How would you assess the competitive and margin impact of that development on Applied Optoelectronics, Inc.? Thompson Lin: We do not really know. But right now I think the most important part is delivery, and there are LTAs we are negotiating with these three customers. The three‑year numbers are crazy high. For multimode, it is easier—maybe you can use VCSELs or even do it for DR. It is easier to manufacture. But it would be very tough for 800G or 1.6T 2xFR4, because you need four lasers. The same thing: can you get lasers or not? Even for many transceiver suppliers, how quickly can they get lasers? Right now, MOCVD is on complete backlog—even program. Without lasers, how can you make any transceivers? Timothy Savageaux: And last one for me. This goes back to the 1.6T comments where, Stefan, I think you talked about some revenue contribution later in the year and a bigger ramp in ’27. And yet my understanding was that the big order would be shipped and completed in ’26. Has there been some change there, or what is the schedule for that particular order? Thompson Lin: It means that order is just a small order compared to what we are going to see in 2027. The 2027 one is much, much bigger. I think the volume is like— Stefan Murry: Alright, so we have to define our terms—$200 million is not a big ramp. Thompson Lin: Exactly. Next year, we are talking about more than $2 billion for 1.6T transceivers—much more than $1.6 billion we need to deliver next year. Timothy Savageaux: Thanks very much. Operator: This concludes our question and answer session. I would like to turn the conference back over to Dr. Thompson Lin, founder, president, and CEO, for any closing remarks. Thompson Lin: Again, thank you for joining us today. As always, we want to extend a thank you to our investors, customers, and employees for your continuous support. It is an exciting time for our industry and for Applied Optoelectronics, Inc. We continue to believe the fundamental drivers of long‑term demand for our business remain robust, and we are in a unique position to drive value from this opportunity. We look forward to seeing you at upcoming investor conferences. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Trex Company, Inc. First Quarter 2026 Earnings Conference Call. Participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Note, this event is being recorded. I would now like to turn the conference over to our host. Please go ahead. Unknown Speaker: Thank you for joining us today, and good morning, everyone. With us on the call are Adam Zambanini, President and Chief Executive Officer, and Prithvi Gandhi, Senior Vice President and Chief Financial Officer. Trex Company, Inc. issued a press release earlier this morning containing financial results for the first quarter of 2026. This release is available on the company's website. This conference call is also being webcast and will be available on the Investor Relations page of the company's website for 30 days. Before we begin, let me remind everyone that statements on this call regarding the company's expected future performance and conditions constitute forward-looking statements within the meaning of federal securities laws. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. For a discussion of such risks and uncertainties, please see our most recent Form 10-Ks and Form 10-Q, as well as our 1933 and other 1934 Act filings with the SEC. Unknown Speaker: Additionally, non-GAAP financial measures will be referenced in this call. A reconciliation of these measures to the comparable GAAP financial measures can be found in our earnings press release at trex.com. The company expressly disclaims any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. With that introduction, I will turn the call over to Adam. Adam Zambanini: Thank you, and good morning, everyone. Turning to the quarter, I want to acknowledge my first earnings call as CEO of Trex Company, Inc. Having been with the company for over 20 years, most recently as COO, I approach this role focused on continuity, execution, and accelerating the strategy already in place. Our five-year plan is clear. Our priorities are set, and our focus remains on disciplined growth, operational excellence, and delivering long-term value for shareholders. As part of that work, our leadership team has sharpened Trex Company, Inc.’s vision, mission, and values to ensure that we remain aligned as we scale. This is an evolution, not a reset, and it reflects both where Trex Company, Inc. is today and where we are going. Trex Company, Inc.’s vision is to shape the future of outdoor living through purposeful innovation that enriches people's lives. To support our ambitious growth and galvanize the organization, we recently codified five long-term strategic priorities. These priorities are designed to sharpen our focus and better leverage our strengths across marketing, innovation, and execution. Given their importance to our future growth, profitability, and long-term shareholder value creation, I would like to touch on each priority in detail. Our five long-term strategic priorities are as follows. First, to create an unbreakable bond with our end users—homeowners and pro contractors. Our goal is to deepen the Trex Company, Inc. brand preference and loyalty through superior marketing, product experience, and service. Trex Company, Inc. remains the undisputed brand leader in the wood-alternative market; we are committed to further strengthening that position through continued investment. We have already increased our investment in branding and marketing, highlighted by the launch of the next phase of our consumer- and pro-focused campaign centered around the “performance engineered for your life outdoors” brand platform. This multichannel media campaign will sharpen the focus on wood-to-composite conversion while also emphasizing many of our key differentiators, including technical innovations like our heat-mitigating technology as well as our marine and fire-rated solutions. I am excited about the momentum this campaign has produced and expect Trex Company, Inc. to become increasingly visible with both homeowners and pro contractors moving forward. Meanwhile, we are investing in technology to improve proactive lead generation among our programs to better support our valued pro contractors. This last quarter, we experienced a significant double-digit increase in lead generation, pointing to the early success of this investment. We are confident that these actions will help drive Trex Company, Inc.’s future growth. Next is our continued focus on high-performance innovation. As I mentioned on last quarter's call, driving high-performance innovation remains a central pillar of my leadership mandate. Shortly after joining the company, I led the development and launch of the game-changing technology that redefined the standards in the decking category, Trex Transcend decking. It was the first cap composite decking product that set a new standard of performance and aesthetics while serving as a catalyst to drive market share expansion over the following decade. At its heart, Trex Company, Inc. is the world leader in material science. We intend to sharpen our focus and leverage our tremendous development capabilities to invent and deliver a continuous stream of next-generation outdoor living solutions designed with what we believe is separator technology that makes the hardest innovation in the building products category imaginable. Our goal is to move beyond simply competing with our industry by introducing products with highly differentiated performance that effectively place us in a category of one. Building on the legacy of Transcend, our current pipeline focuses on category-defining performance. We are currently on track for a potential game-changing regional launch in 2027, followed by a more impactful national launch in 2028 through 2030. We are excited about our best-in-class products and our innovation pipeline and look forward to sharing more in the future. Our third priority is to optimize the channels for growth. Distribution remains a key component of the Trex Company, Inc. business model, ensuring that our products are readily available for pro contractors and homeowners. As a reminder, Trex Company, Inc. already has the most comprehensive distribution network with national coverage by two-step distributors and one of the very few brands in the world with a meaningful presence at both national home centers. The distribution channel has seen changes over the last five years with significant consolidation among both distributors and dealers in the two-step channel. We have seen rapid expansion of the home center retailers into the pro channel segment as they move beyond a purely on-shelf DIY focus. We expect the distribution landscape to continue evolving. Our goal remains clear: to maintain strong channel relationships at both the two-step channel and the home center retailers so that our products reach both homeowners and pro contractors across geographies. Our recent additional shelf-space wins at the home center, along with expanded territories with two key distributors, are proof of Trex Company, Inc.’s strong distribution network and demand for our comprehensive portfolio of products. And our recently redefined incentive and marketing programs have been well received by our two-step partners as we convert business away from the competition, further strengthening these valued relationships. Our fourth priority is more of a specific target—namely, lowering the cost of railing. Railing represents a material and rapidly growing part of our revenue mix, and with a large target of doubling our railing business in five years, its importance will only increase. Due to greater manufacturing complexity and a broader range of raw material components, the railing portfolio currently operates at a lower margin than decking, presenting opportunities for operational and cost optimization. We are applying the same continuous improvement initiatives and vertical integration strategies that successfully elevated our decking margins to our rapidly growing railing portfolio. And of course, as the product line continues to grow, we expect natural margin expansion due to economies of scale and greater utilization. Over time, we believe railing margins can approach those of the core decking products, contributing to an overall lift in the corporate margin. Our fifth and final priority, growth enablement, underpins all the others. This priority defines our approach in investing in our culture, technology, and talent to enable long-term profitable growth. We are strengthening our organization by building capabilities in digital and commercial excellence and fostering an innovation-driven culture that empowers teams to move with speed and discipline. We have already enhanced our leadership team, particularly in finance, adding significant capabilities in data analytics and forecasting, creating a new internal pricing group to implement a more nuanced portfolio-level pricing strategy that balances share and margin while improving responsiveness. Over the remainder of the year, I plan to add key senior roles, including a newly created Chief Commercial Officer who will integrate sales, marketing, and IT—which will enable technology, data and analytics, and customer insights—by providing sales and marketing the tools for commercial visibility that create revenue generation. Finally, we are aligning innovation and advanced manufacturing under a newly appointed Chief Operations Officer, Zach Lauer, to enable better coordination on commercializing initiatives in parallel. Our digital transformation is directly linking consumer inspiration to contractor execution, providing the TrexPro network with highly qualified leads and accelerating the wood-to-composite conversion cycle while optimizing our pricing analytics. As you can see, we are not waiting for repair and remodel demand to recover. Instead, we are taking proactive, disciplined action to accelerate growth, strengthen margins, and position Trex Company, Inc. for sustained outperformance. We are confident that these strategic priorities provide a clear roadmap for Trex Company, Inc.’s long-term success. Our team is laser focused on execution, and I look forward to updating you on the tangible progress we are making in these priorities. Turning to the quarter, we started the year with solid results, especially in light of adverse weather conditions and a continued uncertain economic environment leading many consumers to defer large-scale discretionary repair and remodeling projects. However, we are actively taking advantage of the current market environment to aggressively invest, ensuring that we capture a disproportionate share when demand normalizes. The trends underpinning our industry's long-term growth runway—the ongoing conversion from wood to composite materials, demand for low-maintenance outdoor living, and significant long-term repair and remodel tailwinds—have not changed. With that context, I will turn it over to Prithvi, who will walk you through the quarter in greater detail. Prithvi Gandhi: Thank you, Adam, and good morning, everyone. Unless otherwise noted, all comparisons are on a year-over-year basis. As Adam mentioned, we had a solid start to the year with net sales of $343 million, an increase of 1%. First-quarter volume is driven by both consumer sales and channel stocking to support the second- and third-quarter peak buying season. With our level-load production strategy implemented in 2025, we elected to reduce channel inventories for the early part of 2026 and rely on our own inventory to support peak channel requirements later in the year, resulting in lower first-quarter volume. From a channel perspective, we saw strong home-center-driven DIY demand early in the quarter, which shifted over the course of the quarter towards greater strength in higher-end pro-contractor-driven products. Gross profit was $139 million with gross margin of 40.5%, about 100 basis points better than we expected. A favorable mix of higher-margin premium decking products and lower sales of railing and margin improvements from continued operational excellence helped to offset an increase in depreciation expenses related to decking lines coming into production readiness at our Arkansas facility. Importantly, we did not experience any noticeable cost pressures related to the increase in oil prices related to the conflict in the Middle East. I would like to spend a few minutes diving a bit deeper into our raw material exposure, as it is the majority of our COGS—especially recycled LDPE. While recycled LDPE is a petrochemical, its pricing dynamic is quite distinct from virgin polyethylene, which is tied directly to the price of oil. Historically, recycled LDPE prices tend to lag virgin polyethylene by several quarters and generally exhibit less volatility. This reflects the substitution dynamic—users of virgin polyethylene typically need to see sustained higher prices before adjusting their production to incorporate even modest levels of recycled content, which in turn increases demand and prices for recycled LDPE. And supply of this material is not an issue, as we are entirely domestically sourced. As a leader in the use of recycled content, this is a significant competitive advantage, particularly during periods of raw material inflation when competitors relying on virgin inputs are more exposed to volatility. And while we are seeing increases in certain other input costs, such as diesel fuel and aluminum, we have a range of mitigating levers available, including cost-out initiatives, operational efficiencies, and product-specific pricing actions. Importantly, the same inflationary pressures also affect our competitors. Moving on to selling, general, and administrative expenses, which were $56 million in Q1, representing 16.2% of net sales. Excluding digital transformation costs of $1 million and Arkansas facility startup expenses of $200 thousand, SG&A was $54 million. SG&A came in below our expectations despite continued investments in branding and marketing programs to drive future growth. Lower self-insured medical costs and the timing of expenses more than offset higher investments in the quarter. Because we are in the final stages of the Arkansas facility build-out and did not finish as expected in Q1, interest expenses were capitalized on the balance sheet, resulting in no P&L impact. Our full-year guidance for interest expense now reflects completion beginning in Q2. Putting it all together, adjusted EBITDA of $103 million grew 2% in the quarter due to positive pricing and mix, cost control, and the timing of expenses. Free cash flow was negative $143 million as we built inventory and accounts receivable ahead of our peak selling season. This was an almost 40% improvement versus the prior year. As our capital investment needs declined significantly now that we are finishing the Arkansas facility, our balance sheet remains strong with our net debt leverage of 1x EBITDA at the low end of our target range of 1x to 2x. We are confident in our long-term free cash flow generation and continue to have balance sheet capacity to pursue our capital allocation agenda, which prioritizes an unwavering commitment to first drive growth, then return cash to shareholders through share repurchases, and lastly, to pursue disciplined M&A. In the quarter, the company took advantage of an opportunity in the stock price by executing continued aggressive share repurchases. For the first time in the company's history, we implemented an accelerated share repurchase, or ASR, to quickly buy back a large amount of stock. This $100 million ASR was part of our larger $150 million share repurchase announcement. We will be completing the full $150 million repurchase during the second quarter, and I am pleased to announce that the board has authorized a 10 million share increase to the company's existing share repurchase program, reflecting their confidence in the long-term intrinsic value of Trex Company, Inc. Turning to outlook. We are maintaining our full-year guidance based on our solid start to the year and our continued expectation for the broader repair and remodel market to be flat to down this year. We remain minimally exposed to input cost inflation. Our vertically integrated domestic recycling infrastructure and approximately 95% recycled content drive a highly stable cost profile, which helps protect margins during periods of petrochemical volatility. We continue to expect fiscal year net sales of $1.185 billion to $1.230 billion, adjusted gross margin of approximately 37.5%, and adjusted EBITDA of $340 million to $350 million. For the second quarter, we expect net sales in the range of $388 million to $403 million, and we expect to see a reversal of the gross margin benefit from product mix that we saw in Q1. Before turning the call back to Adam, I want to touch on two key metrics. The first is sell-in/sell-out. Sell-in represents Trex Company, Inc.’s sales to its distributors and home centers. Sell-out represents the sales from our distributors and home centers to dealers and end consumers. As we discussed in the past, quarterly sell-in and sell-out results can be influenced by timing, seasonality, and channel dynamics and, as a result, may not always reflect the underlying long-term trends of the business. To provide a clearer view of performance and how we manage the business, we are introducing a rolling 12-month sell-in and sell-out metric, which we will report each quarter going forward. This metric smooths short-term volatility and better captures fundamental demand trends by accounting for seasonality and other factors that are not fully reflected in quarterly movements. For Q1, growth for our trailing 12-month sell-in was 7% and growth for our trailing 12-month sell-out was 6%. The second metric is one which we believe will experience meaningful improvement not only this year, but for many years to come: free cash flow. As many of you are aware, we plan on ramping up production at our new Arkansas facility beginning next year. More importantly, the CapEx associated with the plant build-out will end this year, with the majority of our Arkansas-related spend finishing in the first half. We anticipate a total of $100 million to $120 million, down from $224 million in 2025—a more than $100 million improvement. And with construction substantially completed by the end of this year, we expect another meaningful decline in CapEx in 2027 to maintenance levels of approximately 5% to 6% of revenue, driving further improvements in free cash flow. We have built Arkansas to effectively more than double our revenue potential with just the purchase of additional lines. So this upfront investment will provide us with years of capacity expansion ability with minimal additional CapEx. This gives us a strong line of sight to continuous robust free cash flow generation regardless of the exact timing of a significant rebound in consumer demand. With our organic expansion needs met through our Arkansas campus, our capital allocation priorities will next focus on additional share repurchases and then on accretive bolt-on acquisitions. Trex Company, Inc. will return to the free cash flow generating machine that it had been before the recent necessary investment in capacity expansion, which started during COVID and will end this year. I will now turn the call back to Adam for his closing remarks. Adam Zambanini: Thank you, Prithvi. Hopefully, you can feel the excitement of the Trex Company, Inc. team about the great opportunities we see in front of us. While the current market environment remains challenging, we are investing in our business and aggressively innovating to capture a greater share of the growing addressable market. We remain the undeniable leader in our market, and we are infusing our team with a more focused, nimble, entrepreneurial culture that we had in the early days of my career at Trex Company, Inc. We are confident this is the right time to evolve our approach, leveraging our great history and brand. Before we close, I want to recognize our people. Their commitment, discipline, and focus on the customer continue to be the foundation of our performance. The progress we discussed today is a direct result of their work, and they remain committed to our long-term success. We believe when our people succeed, our shareholders succeed. Operator, we would like to open the call to questions. Operator: We will now open the call for questions. The first question comes from an analyst with Jefferies. Analyst: Hey, guys. Congrats on a really strong quarter—really good execution. And Adam, congrats on the new role. It was very noticeable in terms of the energy you laid out in longer-term strategic plans. Give us a little perspective on some of the things you are looking to impact. We have noticed leadership changes. You called out the new COO role and certainly a new head of marketing. There appears to be a bigger focus on innovation and streamlining efforts so you can put out product quicker. Help us think through how you are approaching things perhaps a little differently and how that potentially unlocks the growth engine and gets products to market a little quicker. Adam Zambanini: Good morning. Thank you for the kind words; we really appreciate it. When I look at the marketplace today, it is a very dynamic and challenging market. You start to look at the consolidation of national accounts and inflation, and you have to ask: do we have the right strategy in place—which I believe we do, and we laid it out on the call. Do we have the right people? Absolutely. Do we have the right structure? And that is really what I am focusing on—making sure that we have the right structure to execute the strategy. Now on top of that, once we have that structure in place, we innovate, and I think that is where I add the most value to Trex Company, Inc., because when I talk about separator technology, it is about what is going to make Trex Company, Inc. a category of one. And so that focus right now is to take what Trex Company, Inc. used to have—let us say 100 initiatives—and boil that down to 20 underneath five imperatives. So we are working on fewer things that are more impactful to the organization. We want $100 million programs on everything that we work on. That has been our focus as an executive team, and I think it has provided the organization with a tremendous amount of clarity moving forward. Analyst: In an uncertain macro backdrop, how did sell-out trends shape up in the quarter? I appreciate the LTM number, but any more color on how that progressed intra-quarter? And perhaps how things are looking in peak decking season—April and May—and how the channel responded to programs you have rolled out and any marketing efforts? Prithvi Gandhi: Okay, a lot to unpack there. Overall, in terms of the quarter itself, as we said in my remarks, we managed sell-in to the channel based on our level-loading strategy, and essentially overall demand is progressing as we expected in our assumptions for the year. As we go through the busy season, the channel is on the lighter end in terms of the inventory they are carrying—closer to 30 to 40 days of inventory. Assuming a normal busy season, we expect more impetus for sell-in as we progress through the second and third quarters. Adam Zambanini: The lower inventory on the channel side is a function of our decision to take out volatility. For some high-level context as we look at Q1, January and February were fairly challenging. I think most people came out of those two months wondering how this year was going to pan out, but we saw a nice rebound in March as we moved into April. Everybody is still projecting flat to slightly down in the market, but we are expecting to outperform. One trend we have seen over the last year or two is more national accounts acquiring independent lumber yards and carrying less inventory. In many cases, they would carry 90 or even up to 120 days of inventory, and now we see some of them carrying around 30 days. That means probably fewer trucks in Q1, but when in-season demand hits in Q2, you must make sure you have inventory on the ground to execute because there is going to be quick pull-through. Analyst: Thank you. The next question comes from an analyst with William Blair. First topic is gross margin. You beat your internal expectation nicely. Can you unpack what happened? It sounds like mix might have been favorable. Prithvi Gandhi: Yes. Thanks for the question. In Q1, relative to our forecast, we were ahead by about 100 basis points, largely driven by favorable mix from decking. If you recall, we announced a price increase around our aluminum railing in January, and we did see some pull-forward in Q4 and, as a result, a lower mix of railing in Q1. That was the primary driver of why gross margin performed better in Q1. Analyst: Got it. And then SG&A also beat a little bit. I guess the guide still assumes that it is up year over year the rest of the way. Was there some timing issue in Q1? Prithvi Gandhi: In Q1, SG&A came in about $5 million lower than we had planned, driven by two things. One is favorability in medical claims, and that is a hard one to forecast. We feel good about the full year, but in any quarter, things can move around, and that is what we think happened here. Second, there was timing around certain expenses related to our investments in growth and brand awareness. We expect those to come through in the second quarter. To level set, we still expect full-year SG&A to be around 18% of sales. In Q2, we expect a significant sequential dollar lift in SG&A, based on certain expenses that should have been incurred in Q1 moving into Q2 and our continued investment in marketing and innovation that drive growth and brand awareness. With those things, you should see a dollar step-up from Q1 to Q2. Adam Zambanini: We also were trying to be responsible. The war in the Middle East broke out in Q1, and we managed the manageable. That was one area we looked at from an SG&A perspective. As things have calmed down, we are going to continue with the execution of our plan. Analyst: Thank you. The next question is from an analyst with UBS. Good morning. The revenue outlook seems to imply a decent deceleration in the second half. It does seem to imply roughly 5% year-over-year growth in the second half despite a fairly easy comp in the fourth quarter. Is this really just conservatism given the conflict in the Middle East and macro uncertainty, or is there anything else you are trying to message? Prithvi Gandhi: You nailed it. In terms of growth, it is around 5%—our number is about 4%. When we look at this year, there are still some things we want to see in terms of how the war is going to pan out. If it keeps going on over the next several months, then yes, there is some conservatism. If we think this will settle down, there are opportunities for us in terms of execution. One wildcard is the lower-end consumer, who is still struggling. We still see the high end doing really well on the decking side, and we are definitely focused on converting more of the wood market—about 75% of the market is still wood—and we are getting more creative as to how we will convert that opportunity. A couple other things around the second half. We introduced a refuge PVC product; most of those sales will occur in Q2 to Q4. That should help revenue growth. Second, in line with the industry, we announced a mid-quarter price increase again around aluminum railings; that was not in our prior forecast. Third, our continued investments in marketing and innovation are showing green shoots—lead generation, sample orders—all progressing really well, and we expect to drive some conversion from that. Analyst: That is helpful. On the quarterly cadence of adjusted EBITDA margin, second-quarter revenue is expected to be up sequentially, but is it possible EBITDA margin is actually down quarter over quarter given factors like the step-up in SG&A? Prithvi Gandhi: From Q2 2025 to Q2 2026, you should expect EBITDA margin to be lower this year. We expect a little more than half of the Q1 gross margin favorability to reverse in Q2, and SG&A will see a significant dollar step-up between Q1 and Q2. Those two together create a different EBITDA profile versus Q2 of last year. Analyst: But sequentially, Q1 to Q2, EBITDA margin could be down as well? Prithvi Gandhi: Yes, Q1 to Q2 as well—you should see some decline in EBITDA margin. Analyst: Thank you. The next question comes from an analyst with J.P. Morgan. Analyst: Hi, this is [inaudible] in for Michael. First, on cadence throughout the year and the back half, can we get an update on how you are looking at the R&R backdrop and how that connects to the full-year guidance range? Prithvi Gandhi: Looking at the home center business, there has been a lot of forecasts from negative 1% to 1% growth. We have seen many forecasts at flat to slightly down. We are doing low- to mid-single-digit growth. For the full year, it is about 3% right now in terms of our year-over-year growth. Our overall macro assumption on repair and remodel is unchanged—still flat to down with the back half better than the first half, in line with indicators like LIRA. Analyst: You mentioned the relative strength between DIY and pro and how it shifted through the quarter. Could you provide more detail and how you are thinking about that going forward? Adam Zambanini: We are a marketing powerhouse, so we had to get back to our roots. That is the territory I have come from. We reinvested in that platform, made structural changes in marketing, and filled out that department. I feel like we are in a great spot. That really helps drive the high end of the marketplace. Once again, products like Trex Transcend and even our Select decking are doing really well, along with higher-end lines of railing. Those are the consumers buying right now. The focus is also on converting the low end—converting more wood users over to Trex Company, Inc. On the high end, there has been focus on the PVC area—not just with the introduction of Trex Refuge; we have other products that compete in the fire segment. There is plenty of opportunity, and a lot of the mid-to-premium end is doing well because our marketing is working. Analyst: Thank you. The next question comes from an analyst with D.A. Davidson. I was hoping to talk more about the shelf-space commentary. Can you help frame the magnitude of that expansion and how you expect that business to ramp over the next couple of quarters? Maybe some sense on price point? Prithvi Gandhi: Good morning. We would characterize it as meaningful. We have picked up both decking and railing slots in the recent line reviews. Trex Company, Inc. was one of what we believe are two winners at retail, and some peers did not do as well. We will not give a specific number, but it is meaningful for growth. In terms of timing, shelf resets are always challenging to time exactly. We will start to see some of those reset and some products in place now as we move into Q2, with momentum building from Q2 into Q3 and Q4. Analyst: A two-parter on railing. Can you talk about the pace at which you can drive improvements in controllable costs and how M&A may factor? Second, does lowering cost act as a catalyst for market share objectives and the pace of volume growth? Adam Zambanini: Great question. Railings are about material science. We have seen things this year that we are going to unlock on the material science side of the portfolio that will lower raw material cost of railing. In many cases, this will drive margin expansion. Trex Company, Inc. is aggressively priced in every segment—from the opening price point at home centers that can be $20 to $25 a foot, all the way up to systems at $250 a foot. Most of the material science benefits will drop to the bottom line. On vertical integration and acquisitions, these are very small companies we are looking at, but with meaningful impact in lowering raw material streams. In some cases, we can be more aggressive to convert, but we are satisfied with where railing sits today. The focus is on expanding margins. Prithvi Gandhi: Just to add, back in 2023 we said we would double our business by 2028. We are on track to do that. Analyst: Thank you. The next question comes from an analyst with Goldman Sachs. Analyst: Good morning. This is [inaudible] in for Susan. On the high priorities you mentioned earlier, where do you see the biggest opportunity to drive above-market growth in the near term relative to those more helpful in the long run? Analyst: Could you repeat which priorities? Analyst: Yes—within the five you mentioned, which provides the biggest near-term upside to drive above-market growth versus those that are longer-term? Adam Zambanini: Near term, it is creating an unbreakable bond with end users—getting back to basics on marketing and having the right people in the right spots to convert more downstream with contractors and consumers. Not far behind that is launching high-performance innovation. We will start regional launches in 2027 and see a much more meaningful impact from 2028 to 2030 with national launches. But near term, it is the unbreakable bond with end users. Analyst: You talked about optimizing channels for growth. Does that mean expanding presence in retail versus making changes to wholesale? We are seeing consolidation at the wholesale level—how does that provide more opportunities, and where do you see the biggest ones? Adam Zambanini: We created a pricing department to price our products by channel. You want to avoid channel conflict between home centers and the pro channel, and sometimes products cross-pollinate. Our perspective is to have the right products in the right channels at the right price. The market is very dynamic with a lot of consolidation at the dealer and distributor levels. As there is consolidation, there will be channel changes long term. We need the right pricing strategy for each channel with the right products. We have been creating that structure to allow us to take market share while maximizing margins over time. Analyst: Thank you. The next question comes from an analyst with BMO Capital. Analyst: Good morning. Looking at your full-year guidance, what is embedded within that in terms of sell-out—both decking and railing? Prithvi Gandhi: In total, our sell-in growth is about 3%. In terms of sell-out, we are assuming something close to that in the overall market. Analyst: That would imply a meaningful slowdown from the trailing 12 months, which was about 6%. But you are not seeing anything today that suggests that slowdown is happening—is that fair? Prithvi Gandhi: As Adam said, the year started slow, some of it driven by weather. Since March we have seen good order intake, and that continues through April. Overall, we do not see anything that would cause us to think otherwise. Analyst: Switching to capital allocation. You talked about CapEx coming down. As we sit here today and you have been active with share repurchases, can you talk about the M&A pipeline and how you rank priorities between repurchases and M&A? Prithvi Gandhi: Good question. Lee just joined us a couple of months ago, and we are actively doing the work. Adam has talked about areas of interest: number one, vertical integration and margin expansion; two, the whole outdoor living space from the fence back to the deck and house; and third, more distant, the exterior building envelope. That is the playfield. We are doing the strategy work now to identify targets and areas that would be very synergistic. We should have a point of view shortly, and then we will build out the pipeline. It is still early days around M&A. In terms of capital allocation, I always look at M&A against share buybacks—where is our share price, how much cash flow do we have, what is the intrinsic value, and the return of buying back shares versus using that capital for an M&A transaction. The big difference is M&A gives you future growth options; buybacks do not. That is the analysis we go through. Analyst: Thanks. The next question comes from an analyst with Wolfe Research. On your goal to lower the cost of railing and drive margin improvement, are there any numbers you can put around the opportunity in terms of cost reduction or margin improvement? You talked about eventually pushing margins closer to decking—can that happen in a five-year time frame? Adam Zambanini: In our strategic plan, that can happen in a five-year time frame. We have it broken out by year, but we are not sharing that detail at this time. Analyst: Expectations for inflation in 2026. You mentioned reasons why you should be shielded from inflation on LDPE. Can you put numbers around potential inflationary impact and what you are expecting in terms of price/cost relative to that inflation? Prithvi Gandhi: As we said at the start of the year, price/cost for the full year is relatively neutral, and we continue to have that expectation. Three areas have some exposure, but we have taken steps to mitigate it. One is around virgin resins—on that front, we essentially have a fixed cost for the rest of the year, and that is baked into the forecast. Second is diesel prices—we pay for inbound freight and transfers between plants. We have pushed back against vendors on the cost of raw materials to offset some diesel inflation and are managing internal transfers to mitigate impact. Third is PVC—the new product we have introduced. Our costs are fixed through the balance of 2026 with our third-party sourcing. On all these fronts, we are well positioned in managing any inflationary impact. Analyst: Thank you. The next question comes from an analyst with Loop Capital. You mentioned the cold start to the year in January and February. Did you see delays with the start of the spring selling season in seasonal markets such as the Northeast that could benefit Q2 sell-through? Adam Zambanini: Looking at the northern markets—New England across to Minnesota and that upper northern belt—we were down double digits in Q1. In the Mid-Atlantic—draw a line across the U.S.—about flat. In the southern U.S., we started to see double-digit growth again. We could see the weather influence, and we are just now starting to see some northern territories wake up. The promising part is where the weather has been good, we have seen nice numbers across the board. Analyst: Very helpful. And on the mid-quarter railing price increase, any impact from the new Section 232 valuation on your railing products, and will the increase fully offset inflation pressure you are seeing? Prithvi Gandhi: In terms of tariffs, in our overall cost position it is less than a 5% impact, and through our pricing initiatives we are able to cover most of that cost increase. Analyst: Thank you. The next question comes from an analyst with Benchmark Company. Most of my questions have been asked. Follow-up about inventory in the channel and your own inventory. Your inventory looks a little higher than usual in Q1. Is that just an extension of level-loading? Was it in part because of the slow start to the year? Or being prepared for a bounce-back? Adam Zambanini: We have our level-loading strategy in place. We want to be there to serve the market when demand is ready. Channel inventory is about flat to prior year, but with pricing in there, on a lineal-foot basis external to Trex Company, Inc., inventory is slightly down. As discussed earlier, larger customers like national accounts did not take as much inventory. We believe demand will be there in Q2; therefore, we have a little higher inventory now in Q1 because those customers are going to need it right away as we move into Q2. That is the key change. Analyst: Thanks, and congrats again. The next question comes from an analyst with Stephens. I want to dig into the railing impact on margin a bit more. You mentioned that lower railing sales helped margins in Q1. I think the expectation was for a higher mix of railing sales through this year to have roughly an 80-basis-point impact to gross margin. Is that expected to normalize in Q2 fully? With movements in raws and pricing and initiatives to grow margins—which I understand you are not ready to fully quantify—is that still the best way to think about the margin impact for this year, and then improvement from there more in 2027? Prithvi Gandhi: Let me start by reminding everyone of what we said back in November when we reported Q3 2025 results. At that time, we stated we expected about 250 basis points of headwind to adjusted gross margin in 2026 on a full-year basis. We continue to have this expectation for 2026, and we finished 2025 with adjusted gross margin of 40% for the full year. Also in November, we said 170 to 180 basis points of that 250 was entirely from the depreciation associated with bringing Arkansas to production readiness. The balance—70 to 80 basis points—is from railing growth, and we continue to expect that for the full year. In Q1, we saw about 100 basis points of gross margin favorability from railing being smaller in the mix. In Q2, we expect a little more than half of that to reverse, and the rest will reverse through the balance of the year. That is how to think about it. Analyst: Thanks. And Adam, you mentioned Trex Company, Inc. has historically been a marketing powerhouse and you are getting back to your roots. Is the thought that branding and marketing spend will continue at a similar level as a percentage of sales and grow with sales, or will there be a need to ramp that up more with new product rollouts? Adam Zambanini: As long as I am here, we are going to be investing in marketing. The 18% is a really good number. During COVID, you saw SG&A plummet—we were out of capacity—and we delivered strong numbers. If I go back in time, I would have invested more then to create more awareness around the Trex Company, Inc. brand. Will there be some leverage over time on SG&A? Sure, but it will not be 100 or 200 basis points. It might be 10, 20, 30 basis points as we expand and grow, because I want to make sure we are still investing in that platform to get more contractors and more consumers to buy Trex Company, Inc. We will continue to invest; when we can leverage, we will, but investing in marketing will remain very important. Analyst: Last one—on M&A appetite. Is there potential or appetite for larger deals, or more tuck-in, complementary stuff? Adam Zambanini: Our five-year strategic plan is tuck-in M&A, and we have been very consistent. Number one, vertical integration—this is about margin expansion. Number two, we have the license to own the backyard—from the threshold of your sliding glass door all the way out to the fence, Trex Company, Inc. could be anywhere in that backyard. That is where we would go next. Lastly, the envelope of the house. We view this as smaller tuck-in acquisitions that can add value. Our brand is our number one asset; there are a lot of smaller companies where the Trex Company, Inc. brand makes a lot of sense and helps us potentially grow our TAM. We reside in a $75 billion outdoor living market. Our TAM is around $14 billion, and if we can expand that over four to five years to $20 billion to $25 billion, that benefits Trex Company, Inc. in terms of opportunities to grow market share. Analyst: Thank you, and congrats on the quarter and new role. The next question is from an analyst with Barclays. First, on capacity dynamics: given demand trends and contractor sentiment, how does this support your strategy around incremental capacity, and how would you adjust the capacity network as the Arkansas facility ramps? Is Arkansas displacing any production elsewhere? Adam Zambanini: At the contractor level, we still see books out six to eight weeks on the low end, and in some areas eight to ten weeks. In some cases, contractors feel slightly better this year than last year. Part of that is our marketing investment—we are seeing significant double-digit growth in leads we are giving to our contractors, which may be extending backlogs. On capacity, we have been consistent: as we look at Little Rock and our growth, we would be looking at opening that in 2027 from where we sit today. Even if we did not see as much growth, Little Rock provides leverage—it is going to be our lowest-cost facility. We have one facility in the Winchester footprint that is over 30 years old. We will maximize our manufacturing footprint over the longer term. Our expectations are for good growth in 2027 through 2030, and we are going to need all that capacity—from Little Rock to Winchester to Nevada. Analyst: With the introduction of your PVC product, how is it faring regionally—Northeast, West Coast? And more broadly, on pro versus DIY, is higher-end luxury still outperforming the opening price point? Adam Zambanini: We still see outperformance from the middle to higher-end consumer, which has been consistent over the last several years. Trex Company, Inc. is putting more marketing effort into conversion from wood. We have a new campaign called “No Regrets.” If you have seen it on TV, it shows a dock owner maintaining wood versus a dock owner with a Trex deck who can go enjoy the boat for the day—No Regrets. It is a strong visual. Targeting wood is a huge focus. On PVC, we had a great rollout on the West Coast and are ahead of expectations on manufacturing. We are getting increased supply from our supplier. The largest market for PVC is in New England and the Mid-Atlantic, and we have quickly opened those two regions as we rolled into Q2. It is a roughly $0.5 billion market, and Trex Company, Inc. had not played in it. We plan to expand that over time as a great growth opportunity. Analyst: Thank you. The next question is from an analyst with Bank of America. Can you talk about the right level of leverage for the business longer term, and would you be open to buying back more stock as free cash flow frees up next? Prithvi Gandhi: Thanks for the question. We want to manage company leverage between 1x and 2x. This year, free cash flow will increase by about $100 million versus last year. We expect to complete $150 million in buybacks by the end of this quarter. Then we will look at the rest of the year—where free cash flow is and how the business is doing. With the board's new authorization, we have capacity to do more buybacks. Based on where the stock price is relative to intrinsic value, it is still a compelling opportunity. Going forward into 2027, we will have even more free cash flow because we will essentially be done with capacity expansion. Share buybacks will continue to be a significant part of capital allocation. Analyst: And on reinvestments you are making, can you give more color on allocation and priorities between hiring more sales versus marketing? Adam Zambanini: A bigger portion will be marketing-related and the investments we are making to create awareness—linear TV, streaming, podcasts, and all forms you can think of to get the Trex Company, Inc. name out. Then drive to trex.com—there are investments in the website—and investments in innovation. If you want game-changing innovation, you have to invest in R&D. The major buckets are marketing and innovation, with some in sales to support and execute the strategy longer term. Operator: That concludes the question-and-answer session. I would like to turn the floor to management for any closing remarks. Adam Zambanini: Thank you, everyone. Prithvi and I look forward to speaking to you and seeing you at upcoming conferences in the coming weeks. Operator: This concludes today's teleconference. Thank you for attending today's presentation. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Cerence Inc. Second Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Kate Hickman, Vice President, Corporate Communications and Investor Relations. Please go ahead. Kate Hickman: Hello, everyone, and welcome to Cerence Inc.’s Second Quarter 2026 Conference Call. Before we begin, I would like to remind you that this call may involve certain forward-looking statements. Any statements that are not statements of historical fact, including statements related to our expectations, anticipations, intentions, estimates, assumptions, beliefs, outlook, strategies, goals, priorities, objectives, targets, and plans are forward-looking statements. Cerence Inc. makes no representations to update those statements after today. These statements are subject to risks and uncertainties which may cause actual results to differ materially from such statements and expectations, as described in our SEC filings including the Form 8-Ks with the press release preceding today’s call, our most recent Form 10-Q, and our Form 10-K filed on 11/20/2025. In addition, the company may refer to certain non-GAAP measures, key performance indicators, and pro forma financial information during this call. Please refer to today’s press release for further details of the definitions, limitations, and uses of those measures, and reconciliations of non-GAAP measures to the closest GAAP equivalent. The press release is available in the Investors section of our website. Joining me on today’s call are Brian Krzanich, CEO, and Tony Rodriguez, CFO. In order to provide expanded access to our leadership team, we will also be joined by Christian Mentz, our Chief Revenue Officer, for the Q&A portion of the call. Please note that slides with further context are available in the Investors section of our website. Before handing the call over to Brian, I would like to mention that we will be participating in the TD Cowen 54th Annual Technology, Media, and Telecom Conference on 05/27/2026. Now onto the call. Brian? Brian Krzanich: Thank you, Kate, and good afternoon, everyone. Starting with the key results for our fiscal second quarter, we delivered another strong quarter with revenue of $64.2 million and adjusted EBITDA of $7.2 million, both above the high end of our guidance. Free cash flow came in at $13.6 million. These results reflect both disciplined execution and continued stability in our core automotive business. As usual, Tony will provide more detail shortly. Before we dig into the quarter, I would like to discuss some of the recent market moves in the AI and software space, why Cerence Inc. is in a unique position, and why our customers continue to choose us. Our technology excels in the automotive environment, where reliability, safety, and deep integration matter. Cerence Inc.’s AI solutions are fully customizable, flexible, and deeply integrated with one of the most complex technical environments on the planet: the car. The environment requires a thoughtful, optimized orchestration of LLMs, SLMs, and edge/cloud inference, giving drivers seamless access to whatever they need regardless of connectivity. Cerence Inc. is differentiated in our ability to deliver this and our unique domain expertise and experience integrating into vehicles. Our broad AI-native tech portfolio of both embedded and cloud solutions, backed by our proprietary automotive-specific data set and our skilled team, also differentiates us from competitors. Plus, we have a flexible architecture that gives our customers the freedom to leverage the latest AI innovation, including from partners like NVIDIA and Microsoft, while helping future-proof their products by not locking them into one ecosystem or model. We know that three years from now, today’s best general-purpose LLM or parking agent is likely not the one that will lead then. With Cerence Inc. AI, our customers can easily evolve their offering to best serve their end users. This is what sets us apart from general-purpose AI models. That is why we continue to secure major wins across our portfolio against technology and platform providers, big tech, and hyperscalers. As I mentioned last quarter, we have three key priorities for 2026: first, advancing our business through leading technology; second, maintaining our cost diligence; and third, driving profitable top-line growth. We continue to see strong momentum for Cerence Inc. XUI. In addition to JLR, a VW Group brand, and Geely, I can now also name BYD, a major Chinese automaker, as a new customer leveraging XUI for its overseas programs. BYD is also the first to start production, with cars rolling off the lines as we speak—a very exciting milestone for our team. I can also provide more detail on the major global automaker we mentioned on last week’s orders call. This is a multiyear, multiplatform contract with a Japanese automaker with significant volume and, importantly, a win-back from a hyperscaler. These wins speak volumes about our technology and team. We are encouraged by the strong economics—programs signed to date carry PPUs that exceed our current run rate, reinforcing both the value of our platform and OEMs’ desire to invest in next-generation in-vehicle experiences. We also have additional opportunities in late-stage discussions and a strong pipeline of RFQs and POCs. With the strong win rate we have seen thus far for XUI deals, we believe we will continue to see success in these pending opportunities. From an XUI revenue standpoint, billings are already ramping up, with more revenue to flow in fiscal year 2027 and beyond. Importantly, this timing is consistent with our expectation that the transition to XUI will be a multiyear rollout. As Tony will explain, some recent wins are not yet reflected in backlog as contracting and implementation need to be finalized. Outside of XUI, we have a broad, sticky technology portfolio that keeps us deeply embedded with OEMs and integrated with their platforms, even if they split their sourcing and go in a different direction for their voice stack. A good example is our Audio AI suite. We signed Audio AI deals with several OEMs in Q1, including GM, Mercedes-Benz, and Toyota. Our progress continued in Q2 with several significant wins, including BMW, Ferrari, and Suzuki India—maintaining our position in these programs, keeping our seat at the table, and securing recurring business even when coexisting with competitors, giving us the opportunity to expand over time. We also signed a new program with Toyota Europe that includes adding generative AI capabilities to their existing Cerence Inc. Assistant-based platform, demonstrating that our GenAI solutions like ChatPro continue to serve as a strong option for OEMs to bring LLM-based capabilities into the car. In addition to the BYD XUI program starting production, several learnable programs leveraging tech across our portfolio also started production this quarter. JLR went live with ChatPro via an over-the-air update, bringing GenAI to cars already on the road as they continue developing their future platform based on Next UI. We also expanded our presence in smart brand vehicles with the addition of our GenAI-powered car knowledge solution to their existing Cerence Inc.-based platform. Other key starts of production include Toyota, Renault, Changan Mazda, Audi, HKMC, Great Wall Motor, Mercedes-Benz, Subaru, and Geely. Outside of automotive, consistent with what we have said in the past, we are concentrating our efforts on high-value verticals where our strength in edge solutions, quality, reliability, privacy, and a domain-focused approach matter most, and where we believe we have a clear right to win. Specifically, we are prioritizing dealership AI, commercial and industrial operations, and select IoT and robotics applications. Rather than selling voice as a standalone component, our approach is to deliver full vertical solutions combining voice, LLMs and SLMs, orchestration, and workflow integration into purpose-built vertical packs. In terms of go-to-market, we are scaling responsibly through a mix of direct engagement with our core verticals and distributor-led expansion in areas like kiosks, logistics, and defense, where we leverage existing partners for broader domain reach and co-sell leverage. We are encouraged by early customer traction and continue to believe the initial financial contribution from non-automotive markets will begin as we exit fiscal year 2026, consistent with our prior guidance. To update our intellectual property strategy and ongoing enforcement efforts, earlier this week we filed a patent infringement action against Amazon, reflecting our conviction in the strength and breadth of our patent portfolio. We have invested for years to develop this foundational IP embedded in and underpinning our core voice and conversational AI technologies deployed across our products and customer programs. We actively protect and commercialize this technology as part of the ordinary course of business. When we identify unauthorized use, we will pursue appropriate remedies to enforce our rights, protect our platform, and safeguard the value of our innovation. While the timing of IP-related outcomes can be difficult to project on a quarterly basis, we view these efforts as an integral part of sustaining and enhancing our operational business over the long term. Turning to our outlook: for Q3, we expect revenue between $68 and $72 million and adjusted EBITDA between $8 and $12 million. For the full year, we are raising the midpoint for both revenue and adjusted EBITDA guidance. We now expect revenue to be in the range of $305 to $320 million and adjusted EBITDA to be in the range of $60 to $70 million, and we are raising our free cash flow guidance by $10 million, a 16% increase at the midpoint. Tony will provide further details. We are pleased with our results this quarter. As we reach the midpoint of fiscal year 2026, I want to close my section by anchoring on four strong value drivers we continue to see for Cerence Inc. AI. First, Cerence Inc. plays a key role in the automotive AI stack and across the global automotive ecosystem, creating durable recurring revenue. Our long-term relationships with global automakers enable us to drive growth in our core business by expanding within existing platforms and transitioning OEMs to XUI over time. Second, our XUI wins will drive PPU growth as they scale, which will drive increased total company growth over time. Third, we continue to deliver strong free cash flow while maintaining our focus on disciplined capital allocation; our business model supports debt reduction, balance sheet strength, and strategic and operational flexibility. And lastly, we are driving new income streams. As discussed previously, our expansion outside automotive and our IP enforcement efforts are expected to be long-term sources of potential incremental value creation. With that, I will turn it over to Tony. Tony Rodriguez: Thank you, Brian. Good afternoon, everyone, and thank you for joining us today. We appreciate your continued interest in Cerence Inc. I will walk through our second quarter fiscal 2026 results, highlight key drivers for the quarter, and then share our outlook for the remainder of the year. For the quarter, total revenue was $64.2 million, exceeding the high end of our guidance range of $58 to $62 million. The variance from $78 million reported in the prior year period was primarily attributable to the timing of fixed license contract execution rather than any change in underlying demand. Notably, our core technology business remains resilient, highlighted by steady variable license revenue and continued growth in our recurring connected services revenue, reinforcing the strength and durability of our business model. Variable license revenue for the quarter was $31.8 million, a 6% year-over-year increase, reflecting steady customer utilization and consistent program performance. Connected services revenue was $15.3 million, up 21% year-over-year, driven by continued expansion of our connected installed base through a higher attach rate. This growth underscores the increasing importance of recurring revenue within our business model and provides improved visibility into future performance. Professional services revenue was $11.3 million, down 19% year-over-year, reflecting our continued focus on standardization and higher-margin implementations, as well as the impact of revenue deferrals when services are bundled with license arrangements. Fixed license revenue was $5.8 million this quarter, compared to $21.5 million in the prior year period. As discussed, fixed license revenue can vary quarter to quarter based on timing of contract execution. The prior year quarter included a higher level of fixed license agreements, creating a difficult year-over-year comparison. Taking into account year-to-date performance and our current expectations for the remainder of the year, we continue to expect full-year fixed license revenue to be comparable to the prior year, and we view this quarterly variance as timing-related rather than structural. Gross margin for the quarter was 74%, compared to 77% in the prior year period. The decline was primarily driven by lower fixed license revenue mix, partially offset by continued discipline across cost of revenue. Total non-GAAP operating expenses were $43.3 million, compared to $34.1 million in the prior year period. R&D expense increased to $27.5 million, reflecting lower capitalization of internally developed software and lower technology cost of goods sold rather than an increase in overall investment. Additionally, the prior year quarter benefited from a $2.1 million R&D tax credit catch-up, creating a difficult comparison. Importantly, overall, total technology spending remains stable. Sales and marketing expense was $5.1 million, driven by higher employee-related costs and marketing activities consistent with continued investment to support our customer base and long-term growth initiatives. G&A expense was $10.7 million, reflecting normalized general operating costs as well as additional legal expenses associated with our ongoing efforts to protect, enforce, and license our IP portfolio. As discussed previously, the prior quarter included elevated legal costs related to the execution of the Samsung patent license agreement, and as Brian noted, we continue to view IP licensing and enforcement as a long-term value driver rather than a near-term factor. Despite increased expenses, adjusted EBITDA for Q2 was $7.2 million, exceeding the upper end of our guidance range of $2 to $6 million. From a GAAP profitability perspective, net income and EPS were both within our guidance ranges. Q2 net income was $1.7 million and diluted EPS was $0.04, compared to $21.7 million and $0.46, respectively, in the prior period. On tax, recall that withholding taxes associated with the Samsung license provide an unusually high effective tax rate this year. We continue to model full-year income tax expense of approximately $18 to $22 million, unchanged from our projection last quarter. Q1 represented the peak quarterly tax expense, and we expect meaningfully lower tax expense for the full year through the income tax benefit recorded in Q2 and expected in the second half. Importantly, Q2 profitability exceeded expectations driven by operating performance, despite the absence of IP license revenue compared to last quarter and lower fixed license revenue compared to the prior year. During Q2, we generated $14.1 million of cash from operations and $13.6 million of free cash flow, further demonstrating strong cash conversion and the benefit of connected billings outpacing GAAP revenue over time. We ended the quarter with $108.3 million of cash and cash equivalents and believe the company remains well positioned to fund strategic initiatives while continuing to strengthen the balance sheet. Our strong cash generation from operations provides meaningful capital allocation flexibility. From a metric standpoint, approximately 11.3 million cars were produced that included Cerence Inc. technology in the quarter, compared to 11.6 million in the prior year period. Connected cars shipped increased 12% on a trailing twelve-month basis. Fifty percent of worldwide auto production included Cerence Inc. technology, in line with historical penetration. Adjusted total billings were $239 million, an increase of 7% year-over-year. Our pro forma royalties were $40.3 million, up from $39.7 million in the prior year period. Fixed license consumption totaled $8.8 million and benefited the current quarter, as more pro forma royalties converted to revenue in the current period compared with last year. As discussed, we expect the quarterly year-over-year comparisons to flatten out as we exit fiscal 2026 and continue to keep annual fixed license revenue consistent. Our five-year backlog is approximately $971 million, up from $960 million a year ago and down slightly from year end, as not all recent wins we have highlighted are yet reflected in our reported backlog. As a reminder, backlog may not be indicative of future revenue. Our PPU metric increased to $5.09 on a trailing twelve-month basis, up 5% year-over-year, reflecting continued pricing discipline and increased adoption of connected solutions. Looking ahead to Q3 and the remainder of 2026, we expect continued stability in our variable license revenue, ongoing growth in connected services, and potentially favorable variability in fixed license timing during the second half. For Q3, we expect revenue between $68 and $72 million, including $10 million of expected fixed license deals; gross margin between 75% and 76%; adjusted EBITDA between $8 and $12 million; net income between negative $1 million and $3 million; and EPS between negative $0.02 and positive $0.07. Our full-year outlook has improved. For the full year, we are narrowing the range of revenue to $305 to $320 million, increasing the midpoint to $312.5 million. We are reaffirming gross margin range of 79% to 80%. We are narrowing the ranges for net income to negative $3 to positive $7 million and EPS to negative $0.07 to positive $0.15 while maintaining the midpoints. We are narrowing the range of adjusted EBITDA to $60 to $70 million, increasing the midpoint by 8%. In addition, we are raising full-year free cash flow guidance $10 million, or 16% at the midpoint, to a range of $66 to $76 million. In closing, we delivered strong execution in the quarter with stable performance in our core business. We continue to benefit from strong visibility driven by our backlog and long-term OEM relationships while we further improve the quality of our revenue through continued growth in recurring connected services. As we look ahead to 2026, we remain focused on disciplined execution, strong cash flow generation, and maintaining the financial flexibility needed to support long-term profitable growth. With that, I will turn it back to Brian. Brian Krzanich: Looking at the quarter and through 2026, we are proud of our performance. Our results reflect strong execution, solid cash generation, and continued customer momentum alongside a disciplined approach to capital allocation. Our priorities remain clear: driving profitable top-line growth, advancing our technology, and maintaining cost discipline. We remain confident in our strategy and execution through the second half of this year, and we are excited about the path ahead. We will now open the call for questions. Our first question— Operator: Thank you. To withdraw your question, please press star 11 again. Operator: From the line of Mark Delaney with Goldman Sachs. Your line is now open. Mark Delaney: Yes, good afternoon. Thank you for taking the questions. Brian, you mentioned vehicles using XUI are now coming off the production line. Can you provide context on how the product is being received at the auto OEMs, and any early feedback you can share from consumers who now have XUI in their cars? Brian Krzanich: Sure, Mark. First, if my voice sounds a little slurred, I had my tonsils removed a couple of weeks ago and I am still recovering, so please ask again if anything is unclear. BYD is the OEM currently shipping. Other OEMs will start to ship in the June–July timeframe through the end of the year. BYD just started shipping two to three weeks ago, so we do not yet have consumer feedback. We will be collecting that over this quarter, and by the end of Q3 we should be able to provide an update. As far as how it is being received at other OEMs, I have brought our CRO, who is directly in front of customers, to give you on-the-ground feedback. I will hand it to him now. Christian Mentz: Thanks, Brian. The BYD launch happened in April, two weeks ago. Feedback from OEMs we are working closely with leading up to SOP is that they appreciate the technology’s performance, the rich feature set, and the automotive-grade integration. Our LLMs have been fine-tuned specifically for automotive use cases. Fast latency and our collaboration model—where we sometimes have agile teams working directly with OEMs to integrate the tech and then support them post-SOP—are also resonating. As we receive consumer feedback, we will continue to work with customers to improve the technology over time. Mark Delaney: That is helpful. As a follow-up, can you provide perspective on medium- to longer-term revenue growth? The five-year backlog fell from six months ago, but you mentioned it does not have all the wins. Fifty percent of vehicles shipped had Cerence Inc. technology, down from about 52% at year-end, but PPU is growing, you have XUI engagements, and some non-auto opportunities. What does all this mean for the medium- to longer-term revenue potential of the company? Brian Krzanich: You cannot look at this business on a quarterly basis. Our backlog dropped slightly, but that is on roughly a $1 billion base, and as we said it did not include several deals due to cutoff timing. We do not expect that number to change much over the year and think we will exit around $1 billion. Looking five years out, even if we did not sell anything more, that backlog still provides strong visibility. As for growth, until we get more insight into outside-automotive and IP enforcement, the core business can grow in the high-single- to low-double-digit range year over year. Near-term growth will be fueled by more connected cars, and then XUI, where deals we are signing are generally multiples of our current PPU. We will start adding in IP and outside-automotive as we get more insight by the end of this year. Tony? Tony Rodriguez: Agreed. We have not given guidance for fiscal 2027, but our core technology business feels strong. Remember, the piece growing is connected; we get those billings and then recognize revenue over the subscription period. So even as XUI ramps at the end of this year and into 2027, that will first help billings and cash flow, with revenue following over time. For midterm growth beyond a year or so, traction outside automotive will contribute. Operator: Thank you. Our next question comes from the line of Jeff Van Rhee with Craig-Hallum Capital Group. Your line is now open. Jeff Van Rhee: Hey, this is Daniel on for Jeff Van Rhee. Brian, on connected traction, is it fair to say the outperformance this quarter was driven by connected versus fixed license and professional services? And on connected in particular, that acceleration is not XUI flowing through yet, as Tony said—so where is that connected strength coming from outside of XUI? Brian Krzanich: The outperformance was driven by a couple of things. First, connected continues to be our leading growth engine. You are right—it is not XUI yet. Even for BYD cars shipping today, revenue will be amortized over the life of the contract, so you will not really see the compounding impact of XUI until next year. Today’s connected strength is from our current technologies, like ChatPro, which bring LLM capabilities into the vehicle via a connected experience. That has strong usage and interest. Second, we have been bringing down the fixed revenue stream, and with that we are doing far fewer discounts. Historically, there were often double-digit discounts for extended early-pay licenses; we have reduced that, guiding to about $23 million of fixed this year, bringing discounts into single digits—closer to WACC—so net price realization is higher, which increases real-time revenue. Those are the two big drivers, along with our teams continuing to sell Audio AI and platform enhancements. Tony? Tony Rodriguez: Those are the two largest areas. From an outperform standpoint, there is strength in the visibility of the license business and our OEM penetration. We also saw some volume-related outperformance with certain customers this quarter. Jeff Van Rhee: Thanks. And Tony, on modeling R&D non-GAAP OpEx: it looks up sequentially from about $22.5 million to $27.5 million. Is that a new baseline? If so, what were the investments and how should we think about the roadmap? Tony Rodriguez: That is effectively the baseline you should model for the remainder of the year. One driver is less capitalization—we had more CapEx in Q1 as certain programs rolled off internally developed software capitalization, so those costs flowed into OpEx in Q2. There was also some delayed timing of R&D that came on in Q2. So yes, this is effectively the run rate for the rest of the year. Brian Krzanich: To add, this is mostly headcount moving from CapEx to OpEx, which is a good thing—it indicates projects moving into production. You may see some headcount move back into CapEx next year as we develop next-generation XUI and work outside automotive that qualifies for capitalization. Overall headcount is flat—we are disciplined—so cash spend should be stable. Operator: Thank you. As a reminder, to ask a question at this time, please press star 11. Our next question comes from the line of Thomas Blakey with Cantor Fitzgerald. Your line is now open. Thomas Blakey: Hi, thanks for taking my questions, and congratulations on the strong quarter. In prior conversations, you mentioned XUI orders coming in a little stronger than expected. Can you talk about the pipeline to sustain momentum for XUI? Brian Krzanich: There are a couple of other POCs. We were at a large OEM earlier in April presenting XUI for their next-generation vehicles, and at least one other is active. We are on OEM timelines: they put out a bid, we present, and one strength is we bring multiple vehicles running XUI—like BYD and Geely—so they can experience it in-vehicle. I hope to have at least one resolved by the end of Q3. We are not losing to others; we are awaiting decisions. Christian? Christian Mentz: I am confident that in Q3 we will close at least one more. We are in active bidding and POC work with several global OEMs. Timing is not always precise, but the pipeline and demand are solid. Brian Krzanich: That would bring us to very strong momentum in a short period, showing demand. We have said there have been six bids and we have five wins so far. If we close another this quarter, that would be six out of seven. Thomas Blakey: Thanks. As a second question on non-auto: can you expand on expected timing and scope, and how hard you plan to step on the accelerator on the IP business from an expense perspective? Brian Krzanich: Non-auto will contribute small numbers—at most a couple of million dollars this year—mostly NRE for POCs. We will not focus on broad consumer electronics. We target domains similar to automotive where machinery and integration are complex and general-purpose LLMs need unique tuning and training—industrial robotics, aerospace, and extending into dealership and post-purchase end-user experiences for OEMs, such as an OEM-branded app that helps owners with vehicle features and usage. Christian? Christian Mentz: We are disciplined and focused on areas that can scale into meaningful recurring businesses, not one-offs, leveraging competencies built over years in automotive. Tony Rodriguez: Regarding legal costs, we have anticipated a bit more legal expense in the second half, and it is included in our profitability expectations. Brian Krzanich: On IP, the current pace is about right. We closed Samsung, and we have active matters with Apple, Sony, TCL, and now Amazon—enough to cover most of this year. We shifted to paying legal fees as we go rather than profit-sharing as we did with Samsung. We have projected no revenue from any of these, though several have court dates toward the end of calendar 2026. We will keep you updated; timing is hard to predict by quarter. Operator: Thank you. I am currently showing no further questions at this time. I would like to hand the call back over to Brian Krzanich for closing remarks. Brian Krzanich: Thank you, everyone. We are very excited about the potential of Cerence Inc. and where we are headed. The strong cash flow and disciplined performance across the organization—from our engineers launching XUI programs and upgrading existing programs to our finance, legal, and HR teams—show we are firing on all cylinders. We are positive about our future and appreciate you attending the call today. Thank you very much. Operator: This concludes today’s conference. Thank you for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by, everyone, and welcome to the Amtech Systems, Inc. fiscal 2026 second quarter earnings conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch-tone phone. To withdraw your question, please press star then 2. I would now like to turn the conference over to Jordan Darrow of Darrow Associates Investor Relations. Please go ahead. Jordan Darrow: Thank you, and good afternoon, everyone. We appreciate you joining us for the Amtech Systems, Inc. fiscal 2026 second quarter conference call and webcast. With me today on the call are Bob Daigle, Chairman and Chief Executive Officer, and Mark Weaver, Interim Chief Financial Officer. After the close of market today, Amtech Systems, Inc. released its financial results for the fiscal 2026 second quarter. The earnings release is posted on the company's website at amtechsystems.com in the Investors section. To begin, I would like to remind everyone the Safe Harbor disclaimer in our public filings covers this call and the webcast. Some of the comments to be made during today's call will contain forward-looking statements and assumptions that are subject to risks and uncertainties, including but not limited to those contained in our SEC filings, all of which are posted in the Investors section of our corporate website. The company assumes no obligation to update any such forward-looking statements and cautions you not to place undue reliance on forward-looking statements, which speak only as of today. These statements are not a guarantee of future performance, and actual results could differ materially from current expectations. Among the important factors which could cause actual results to differ materially from those in forward-looking statements are changes in technology used by customers and competitors, changes in volatility and the demand for products, the effect of changing worldwide political and economic conditions including trade sanctions, and the effect of overall market conditions, including equity and credit markets and market acceptance risks, ongoing logistics, supply chain and labor matters, and capital allocation plans. Other risk factors are detailed in our SEC filings, including our Form 10-Ks and Form 10-Qs. Additionally, in today's conference call, we will be referencing non-GAAP financial measures as we discuss the financial results for the fiscal second quarter. You will find a reconciliation of those non-GAAP measures to our actual GAAP results included in the press release issued today. I will now turn the call over to Amtech Systems, Inc.'s Chief Executive Officer, Bob Daigle. Bob Daigle: Thank you, Jordan. Revenue for the quarter was $20.5 million, which was up over 30% from the same quarter last year and up 8% sequentially. Our adjusted EBITDA was $2.5 million, or about 12% of sales, an increase of $1.1 million from the prior quarter and $3.9 million from a year ago. While reported revenues were at the high end of our guidance range, our adjusted EBITDA margin was a significant beat, as we had guided to high-single-digit EBITDA margins. Higher gross margins contributed to our improved profitability and cash generation. Gross margin approached 48% in the second quarter, up from 45% in the first quarter. Cash on hand at the end of the quarter was $24.4 million, an increase of $2.3 million from the prior quarter and $11 million from a year ago. AI-related sales accounted for over 30% of our Thermal Processing Solutions segment revenue in the second quarter and bookings were very strong. Momentum for AI-related demand continued to build in the second quarter. Advanced packaging has emerged as a critical bridge between silicon innovation and the escalating demands of artificial intelligence infrastructure. As traditional Moore's law scaling slows, the ability to pack more computing power into a single footprint now relies less on shrinking individual transistors and more on how those chips are interconnected. By enabling high bandwidth memory integration, reducing data latency through 2.5D and 3D stacking, and allowing for massive system-on-package architectures, advanced packaging provides the physical foundation necessary for generative AI and large language models to thrive. In short, packaging is no longer just a protective housing for chips; it is a primary driver of the performance, power efficiency, and scale required to fuel the next generation of AI processors. Capital equipment which can deliver high yields and throughput is vital to support this AI revolution. As broadly reported, semiconductor OEMs and OSATs continue to increase investments to expand capacity to support the massive AI infrastructure buildouts. Demand has been very strong for our advanced packaging equipment and AI server board assembly equipment due to our differentiated capabilities that include TruFlat technology and market-leading temperature uniformity, which enables high yields when producing these very complex and expensive products. Although we have limited visibility due to our short lead times, our channel checks support our belief that demand will remain very strong for the foreseeable future. Based on bookings and quoting activity, we expect the percentage of revenue from AI applications in our Thermal Processing Solutions segment to exceed 40% in the third quarter. We are also seeing increased quoting activity and bookings for panel-level packaging. These more demanding packaging technologies are serving more mainstream semiconductor applications, but their process requirements align very well with our differentiated capabilities. To accelerate growth, we are continuing to invest in next-generation equipment to support higher-density packaging to address emerging customer requirements. We plan to launch the first products for higher-density packaging at the SEMICON trade show in Taiwan in early September. We believe the capabilities provided by our next-generation equipment will significantly increase our addressable market and help drive growth beyond 2026. Growth of our Thermal Processing Solutions parts and service business was also a highlight in the quarter. Customer outreach initiatives have helped drive growth, with revenue up 10% sequentially and 56% year over year. I should note that while we are benefiting from demand for our products to support the AI buildout, we are also beginning to use AI software integrated with our ERP and CRM sales tools to help support customers and streamline our sales process. For our Semiconductor Fabrication Solutions segment, we continue to leverage our foundry service and technical capabilities to pursue applications and customers not well supported in the industry. We have built a strong opportunity pipeline and are expanding efforts to replicate successes and grow sales of legacy products. Overall, our IDI Chemicals business revenue was up 15% year over year. We have also made significant improvements in the service levels we provide and have driven outreach initiatives to grow our parts and services business at Intrepix. Revenue for parts and service at Intrepix was up about 40% year over year. I am very encouraged by the early results from our customer-centric growth initiatives. Unfortunately, much of the success from these initiatives in our Semi Fab Solutions segment has been masked by weak sales of our PR Hoffman products due to weakness in demand from our major silicon carbide customers. As I have stated before, 2026 will be an investment year for our SFS business as we execute on our strategy to over-serve the underserved, but we believe that our customer-centric growth initiatives will deliver recurring revenue streams with meaningful profits beyond 2026. The operating leverage and working capital efficiency across the company resulting from our product line rationalization efforts and a migration to a semi-fabless manufacturing model over the past two years helped deliver improved results for the quarter and should result in continued strong cash flow and further increases in gross margins and EBITDA margins as revenues increase. Our semi-fabless model, which includes the consolidation of our manufacturing footprint from seven facilities to four, should also allow us to significantly increase revenue with minimal capital expenditures. We ended the quarter producing nine reflow systems per week and have the capacity and supply chains to accommodate the growth we expect with little or no CapEx. In summary, growth opportunities driven by AI infrastructure investments and our customer-centric strategy, combined with strong operating leverage that results from our asset-light semi-fabless business model, position us very well to deliver meaningful shareholder value. Before I hand the call over to Mark, I have two organization announcements to share. First, as we announced last week, Tom Sabol has been appointed as CFO and will be joining Amtech Systems, Inc. on May 14. Tom brings more than 20 years of CFO experience across publicly traded and private equity-backed organizations, with deep expertise in developing and leading finance teams, driving financial performance, investor relations, and SEC reporting. His background spans several industries, including financial services, software, and advanced manufacturing. I look forward to working closely with Tom as we continue to drive growth and profitability. I would like to take a moment to recognize and thank Mark Weaver for stepping in as Interim CFO. Mark came out of retirement to help us with this transition, and I greatly appreciate his support and his leadership. I am also pleased to announce that Guy Shechter will be joining Amtech Systems, Inc. on May 19 in a newly created President and Chief Operating Officer role. Guy has held various commercial and general management positions with equipment and advanced packaging equipment companies. The extensive experience, customer relationships, and leadership skills that he brings to Amtech Systems, Inc. will be critical as we expand our portfolio solutions for AI applications to accelerate growth. I am looking forward to having Guy join the Amtech Systems, Inc. team. Now I will turn the call over to Mark for more details concerning our Q2 results. Mark Weaver: Thank you, Bob, once again, and it has been a pleasure working with you and the folks at Amtech Systems, Inc. I have truly enjoyed my time here. Now I will review the financials for the fiscal 2026 second quarter. Following the two-year-plus transformation led by Bob, the company is finally at a place where year-over-year revenue comparisons are meaningful. The one consistent characteristic of our revenue comparisons over the past two years has been the positive impact of AI product demand within the TPS segment. In the 2026 second quarter, AI revenues accounted for more than 30% of TPS segment revenue. Bookings for AI applications remain strong, and we are experiencing both book-and-ship in the same quarter as well as book-now-and-ship-later. This has led to the second consecutive quarter of company-wide bookings exceeding sales for the period. Other areas of TPS and SFS sales are also contributing growth on a consolidated basis, which is being partially offset by weakness in select product lines as Bob discussed in his remarks. Total SFS revenues were $5.7 million in the second quarter, up 15% from approximately $5 million in both the prior sequential quarter and the prior-year quarter. Moving on to gross margins, the company's product line rationalization and our focus on growing higher-margin product lines, including AI advanced packaging solutions as well as our recurring parts and services business, are delivering their intended results, particularly as we are benefiting from greater scale. Gross margin as a percentage of sales increased to 47.7% in the 2026 second quarter, up nearly 300 basis points from 44.8% in the 2026 first quarter. Comparison to the prior-year period is not meaningful since that quarter included a $6 million non-cash inventory write-down as part of our broader turnaround and transition, which took margins into negative territory in the 2025 second quarter. Selling, general and administrative expenses increased $0.3 million sequentially from the prior quarter and were relatively flat as compared to the 2025 second quarter. The increase is primarily due to expanding business activities, tax and IT consulting fees. Research, development, and engineering expenses were relatively flat compared to prior periods. The company continues to invest with a measured yet opportunistic approach to R&D, including next-generation products targeting the AI supply chain and our specialty chemicals business. GAAP net income for the 2026 second quarter was $1.2 million, or $0.08 per share. This compares to GAAP net income of $0.1 million, or $0.01 per share, for the preceding quarter and a GAAP net loss of $31.8 million, or $2.23 per share, for the 2025 second quarter. During the 2025 second quarter, the company recorded significant non-cash inventory write-downs and impairment charges, which make the year-over-year comparisons for profitability not really meaningful. The company's 2026 second quarter GAAP net income includes $0.3 million of foreign currency exchange losses versus $0.2 million in the prior quarter, primarily driven by a weakening United States dollar against the Chinese renminbi. Unrestricted cash and cash equivalents at 03/31/2026 were $24.4 million, compared to $22.1 million at December 31, $17.9 million at September 30, and $13.4 million a year ago. The increased cash balances are due primarily to the company's focus on operational cash generation, working capital optimization, strong accounts receivable collections, and accounts payable management. The increase in cash from the first quarter of this year is even more meaningful since we are carrying an additional $0.9 million in inventory to accommodate higher order flow. The company continues to have no debt. As for the $5 million stock repurchase program, the company did not use any cash for this, as no shares were repurchased since the plan was put in place on December 9. Now turning to our outlook. For the third fiscal quarter ending 06/30/2026, the company expects revenue in the range of $20.5 million to $22.5 million. At the midpoint of this range, our guidance is a meaningful year-over-year and sequential quarter increase. AI-related equipment sales for the Thermal Processing Solutions segment are anticipated to drive the majority of our revenue growth and account for as much as 40% of the segment sales in the 2026 third quarter. With the benefit of continued top-line growth and the sustainable improvements in structural and operational cost reductions, Amtech Systems, Inc. expects to benefit from its operating leverage to deliver adjusted EBITDA margins in the low double-digits range. The outlook provided during our call today and in our earnings press release is based on an assumed exchange rate between the United States dollar and foreign currencies. Changes in the value of foreign currencies in relation to the United States dollar could cause the actual results to differ from expectations. And now I will turn the call over to the operator for questions. Operator: Thank you. We will now begin the question-and-answer session. As a reminder, to ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble our roster. And today's first question comes from Scott Buck with Titan Partners. Please proceed. Analyst: Hi, good afternoon, guys. Thanks for taking my questions. Bob, I was hoping to get a little more granularity on gross margins in SFS. Looks like it was up about 800 basis points sequentially. So any kind of added color on what is going on there would be great. Bob Daigle: Yes. Again, I think the additional revenue contributed a bit to that, and I think the balance would really be mix-related. There was not anything really structurally different quarter to quarter in that segment. It is more reflective of the mix of products through that business and the incremental revenue. We have a lot of operating leverage, as you might imagine, with the structural changes we have made over the past couple of years. We have positioned ourselves where we do get very solid flow-through of any incremental revenue to our overall results. Analyst: Great. That is very helpful. And then I want to ask about kind of geographic mix and how you are seeing demand trends across regions? Bob Daigle: Yes. So as you might imagine, Asia is really the hotbed for AI infrastructure buildouts. Traditionally in the packaging area, it has been almost exclusively Taiwan, but what we are seeing is a significant buildout of packaging infrastructure in other parts of Southeast Asia—Thailand, Malaysia, Indonesia, India, for example. So we are seeing a broadening of geographic footprint in terms of major investments in the packaging area, almost all driven by AI infrastructure. And I would say more recently, we are seeing quite a bit more activity in North America as well. It was pretty quiet, but we are starting to see some investments being made. I would say more so on the enterprise-level board assembly at this stage than chip packaging, but it is nice to see some increased AI activity in North America as well. Analyst: That is helpful. In terms of Asia, should we be keeping an eye out on any kind of trade policy, tariff, or supply chain dynamics? Bob Daigle: Yes. Specific to the tariffs, we positioned ourselves pretty well there. If you go back a year ago, any equipment coming into the U.S. was basically being manufactured in China, and obviously there were very meaningful tariff impacts as a result of that. But we did establish a partner where we now manufacture equipment for the U.S. in the Singapore/Malaysia area. So we have kind of insulated ourselves quite a bit from the U.S.–China stress levels. And beyond that, there really have not been a lot of cross-Asia issues. Back to your supply chain question, everyone is talking about memory being more expensive and obviously that is the same for us, and we have to adjust our cost and pricing accordingly if memory becomes more expensive. We really have not seen any shortages; I would say it is more that there is a little bit of price pressure that we need to deal with and pass along on the memory side. Analyst: Okay, great. And then last one for me. Cash continues to improve. How should we be thinking about capital allocation? Or I should say, how are you thinking about capital allocation? You have the $5 million repurchase authorization out there. Is that a priority? Or is it more R&D in new products or even potentially M&A? Bob Daigle: Yes. I would say growth is number one, because back to the operating leverage discussion, as we grow with the strong margin leverage we have in our portfolio—and I should mention with all the product lines that we cut from the portfolio rationalization efforts, I would say across the board we have very healthy margins across the entire portfolio right now—so any of the product lines that grow are very meaningful in terms of improving cash generation, gross margins, and EBITDA. From an investment standpoint, we are making those investments. We have been increasing our R&D efforts around next-generation equipment. There could be a little bit of incremental investment needed to drive that home. We are investing in resources to develop the pipeline for SFS in terms of trying to build out our IDI portfolio and the recurring revenue streams. We will continue to incrementally invest in that and do not see that having a meaningful impact on cash needs. And then the other factor I think we want to point out is with our semi-fabless model, we have the ability to scale without meaningful CapEx. As I mentioned in my comments, even looking out a year in terms of high growth and demand for the equipment used for AI packaging, we do not really see the need for deploying meaningful cash for CapEx. The semi-fabless model and our supply chain can handle that growth. So having said all that, long story short is if we find inorganic opportunities, we would deploy cash accordingly. But as I have said to many people, I spent over a decade doing corporate development in a prior life, and I would say we need to be prudent, cautious, and make sure that what we do is generating real meaningful value. So when people ask me, are you going to acquire, I always answer the question with “maybe,” because if we find acquisitions that can create real value, we are going to do those to accelerate growth. But we do have a great pipeline of organic growth that I think can push us forward. And then back to your question about capital allocation, obviously, the priority is growth. If we did not have better uses for that, then of course we would look at providing the cash back to shareholders in some form. Analyst: Perfect. Well, I appreciate all the added color, guys. Thank you very much, and congrats on the strong results. Bob Daigle: All right. Thank you, Scott. Operator: And as a reminder, if you do have a question, please press star then 1 on your touch-tone phone. The next question comes from Craig Irwin with ROTH Capital Partners. Please proceed. Analyst: Good evening. Thanks for taking my questions, Bob. Last quarter, the small delay in one of your AI customers in taking some packaging equipment had a big impact in your stock. Did we maybe see the delivery of that equipment in this current period, or is it expected over the next couple of months? And do you expect the linearity or the overall business to have sort of a smoother trajectory given the size and scale that you are gathering over the next couple of quarters? Bob Daigle: Yes, we did ship that particular equipment during the quarter. And I would say that the visibility—I would not say it is great—but it is getting better because there is a lot more activity in terms of new facilities being put in. And so we are seeing more bookings with deliveries out a quarter, and in a couple of cases, actually a couple of quarters now, which is very unusual for our business because, as I have mentioned before, we have very short lead times, we have a very efficient supply chain, and we turn equipment around very quickly. So we have typically been a book-and-ship, even in this large-scale capital equipment space. But having said that, because people are actually building new facilities now and do not necessarily need all the equipment immediately, we are seeing better visibility, which I think will translate to smoothing things out a bit, frankly, as we get better visibility and bookings that are not just current quarter, but out a ways. Analyst: That definitely makes sense. The next question is one that I get asked fairly often, right? It is more of a big-picture question, Bob. So can you talk a little bit about Amtech Systems, Inc.'s moat in advanced packaging and AI? What has allowed you to dominate this space? There are others that would like to do business in here, but you have maintained a really strong reputation on technology that has allowed you to have those long-term customer relationships and supplier relationships too. What is different about what you are doing that gives you this moat? Bob Daigle: Generally, we win when it is a demanding application, and there are actually three components that usually come into play. In advanced packaging, that TruFlat technology—and unfortunately we do not have graphics in front of you—but these are large conveyorized pieces of equipment, almost half the length of a tractor-trailer bed, that are doing the reflow operations for these packages. You are raising things to very high temperatures; most materials, most substrates, tend to bow and twist and deform as you are heating them up. We have technology which allows us to pull a vacuum and hold the substrates down flat against the belt so things do not basically shift during the assembly process. What does that mean? That means high yield. So in applications where you are trying to process something that is very expensive, you are not going to sacrifice yield; you have to have equipment that is going to be robust. The other thing I would say is temperature uniformity. I think we have a significant advantage in being able to provide uniformity across our reflow—across the belt, within zones. Our latest equipment actually has reconfigurable zones that can be customized by customers. So we have provided capabilities that really are enabling for high-yield, high-throughput processing of these things. And I would say the last thing—which I think I have mentioned before—like our AccuScrub technology, for example, where we can remove the contaminants from the processing fluxes out of the gas stream so that it reduces downtime in the ovens and reduces the risk of contaminating the product. So it is not just one thing; we have a portfolio of capabilities and IP around some of these capabilities that put us in a position where if you are trying to process an AI package, an AI enterprise board, it is expensive. We are worth it, which is why we have captured the strong market position that we enjoy today. Analyst: Definitely makes sense. Well, congratulations on the strong quarter and the strong long-term positioning there. We will hop back in the queue. Bob Daigle: Alright. Thank you, Craig. Operator: And this concludes today's question and answer session. I would now like to turn the conference back over to management for any closing remarks. Bob Daigle: All right. Thank you, operator. In closing, I want to thank you for joining our earnings call today. We look forward to seeing some of you later this month at the B. Riley Annual Investor Conference and then in June at the Planet MicroCap Conference. We hope you can join us at either of these events. Thanks again for your continued support of Amtech Systems, Inc., and have a good evening. Operator: The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Thank you for standing by. My name is Jaylen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cloudflare, Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press star one again. And now let us turn the conference over to Phil Winslow. You may begin. Phil Winslow: Thank you for joining us today to discuss Cloudflare, Inc.’s financial results for the first quarter of 2026. With me on the call, we have Matthew Prince, cofounder and CEO; Michelle Zatlin, cofounder and president; and Thomas Seifert, CFO. By now, everyone should have access to our earnings announcement. This announcement as well as our supplemental financial information may be found on our Investor Relations website. As a reminder, we will be making forward-looking statements during today's discussion, including, but not limited to, our customers, vendors, and partners; operations and future financial performance; our anticipated product launches and the timing and market potential of those products; our anticipated future financial and operating performance; and our expectations regarding future macroeconomic conditions. These statements and other comments are not guarantees of future performance and are subject to risks and uncertainty, much of which is beyond our control. Our actual results may differ significantly from those projected or suggested by any of our forward-looking statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We take no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings with the SEC as well as today's earnings press release. Unless otherwise noted, all financial numbers we talk about today, other than revenue, will be on an adjusted non-GAAP basis. You may find a reconciliation of GAAP to non-GAAP financial measures included in our earnings release on our Investor Relations website. For historical periods, a GAAP to non-GAAP reconciliation can be found in the supplemental financial information referenced a few moments ago. We would also like to inform you that we will be hosting our annual investor day on Tuesday, June 9, 2026. I will now turn the call over to Matthew. Matthew Prince: Thank you, Phil. We had a very strong start to 2026. We achieved revenue of $639.8 million, up 34% year-over-year. We now have 4,416 customers paying us more than $100,000 per year, a 25% increase year-over-year. Revenue contribution from these large customers grew 38% year-over-year, contributing 72% of revenue during the quarter, up from 69% in the first quarter last year. Our dollar-based net retention was 118%, down 2% quarter-over-quarter and up 7% year-over-year. Our gross profit margin was 72.8%. We delivered an operating profit of $73.1 million, representing an operating margin of 11.4%. And we generated strong free cash flow of $84.1 million during the quarter, again exceeding expectations. The strong momentum we have seen in our business continued to build through the first quarter. Some highlights: sales productivity increased year-over-year for the ninth consecutive quarter. Growth in hiring sales force capacity also accelerated in the first quarter, increasing at the fastest pace since 2023. Deals over $1 million were up 73% year-over-year, the fastest growth rate since 2024. We added a record number of our largest customers in the quarter—those spending more than $5 million with us annually. In fact, we added as many $5 million-plus customers in Q1 as we did in all of last year. Bookings from new customers increased at the highest rate since 2023. New pipeline generation grew sequentially at the fastest pace in five years, and we exceeded our planned target by more than any other first quarter since 2021. Our quarterly gross retention reached its highest level in four years, reinforcing that customers understand Cloudflare, Inc. is a must-have rather than a nice-to-have. We are a significant beneficiary of many of the most powerful trends across the economy. To give you some sense, we added 1 million new developers in just the last quarter. Our products were made for this moment, and we are helping our customers build the future on our platform. That is a good segue to talk about some of our customer wins in the quarter. A leading technology platform expanded their relationship with Cloudflare, Inc., signing a two-year $10 million pool of funds contract with initial use cases for application services and our Workers developer platform. With our full portfolio now unlocked under a single rate card, we won workloads from both a hyperscaler as well as point solution competitors. Looking ahead, we are also in discussions on AI pay-per-crawl to control and help monetize AI bot traffic. A rapidly growing technology company in APAC expanded their relationship with Cloudflare, Inc., signing a two-year $8.7 million contract for application services and our Workers developer platform. Driven by the boom in AI-powered vibe coding, this company has seen explosive growth, and Cloudflare, Inc. has become core to their infrastructure, intelligently routing billions of daily requests across the globe. This customer chose Cloudflare, Inc. over a competitive bid from a hyperscaler due to the strength of our unified platform and our seamless low-latency security. A Fortune 100 technology company expanded their relationship with Cloudflare, Inc., signing a two-year $8 million contract for our privacy proxy solution, the fifth privacy engagement with this customer, solidifying Cloudflare, Inc. as their go-to privacy partner. They approached us with an urgent need to handle massive scale with precise geolocation accuracy for user-initiated agentic traffic. We delivered a fully operational solution within one week, demonstrating the speed, trust, and engineering depth that continues to set us apart. A leading insurance company in EMEA expanded their relationship with Cloudflare, Inc., signing a five-year $5.1 million contract for application services and our full SASE portfolio. Driven by years of acquisitions, this customer's IT environment had bloated to over 600 vendors, with some employees literally juggling up to four laptops to access essential applications. By standardizing on Cloudflare, Inc., they displaced six legacy vendors at signing, with 10 more displacements already underway, targeting over $1.3 million in annual savings. Their CTO put it simply: he wanted a high-performance “formula one”-level architecture with Cloudflare, Inc. as the engine. A Fortune 500 aerospace and defense company expanded their relationship with Cloudflare, Inc., signing a three-year $5 million contract for our Zero Trust products, including browser isolation, Access, and Gateway. After a major security breach forced this customer to move from on-premise hardware to the cloud, they discovered that their first-generation Zero Trust vendor’s browser isolation solution could not meet critical government compliance requirements, putting $5.5 billion in government revenue at risk. Cloudflare, Inc. delivered a fully compliant solution in a matter of weeks where the incumbent could not. A leading AI company expanded their relationship with Cloudflare, Inc., signing a one-year $4.1 million contract for application services. As one of the most visible targets for cyber attacks globally, this customer needed a security layer to protect their massive infrastructure buildout. Despite a strong build-over-buy mentality, they chose Cloudflare, Inc., trusting a battle-tested network that has proven its resilience against the largest attacks. This is a customer that moves fast and pushes boundaries, and they are already testing our AI Gateway for their AI workloads. Another leading AI company expanded their relationship with Cloudflare, Inc., signing a 10-month $2 million contract for Argo Smart Routing, coming just one quarter after signing a Workers developer platform deal. This customer wants to be the fastest and most reliable AI provider in the market, and Cloudflare, Inc. is delivering. After deploying Argo, they immediately reduced their average global latency by 30%. In the AI space, that kind of speed is a real advantage that our hyperscaler competitors simply cannot match. In nearly every customer conversation, it is clear: the emergence of generative and agentic AI is not just redefining the economics of the Internet and software companies; it is redefining the business models of all companies, fundamentally reshaping how organizations are structured, operate, and create value. At Cloudflare, Inc., we do not just build and sell AI tools and platforms. We are our own most demanding customer. AI and agents are no longer pilot projects at Cloudflare, Inc.; they are now core parts of our workforce. It has been an interesting journey. We have been selling picks and shovels in the AI gold rush for the last four years, but we ourselves were cautious users, wanting to ensure there was real ROI before making significant investments. We avoided a lot of the performative AI some companies engaged in. Internally, the tipping point was last November. At that point, across our teams, we began to see massive productivity gains—team members that were 2, 10, even 100 times more productive than they had been before. It was like going from a manual to an electric screwdriver. Cloudflare, Inc.’s usage of AI has increased by more than 600% in the last three months alone. For team members in engineering, 97% use AI coding tools powered by the same Workers developer platform we ship to our customers, and 100% of their contributions to our production code bases are now reviewed by autonomous AI agents. Across the industry, you are about to see a massive uptick in reliability as every code or configuration change can now have a tireless and uncorrelated set of eyes trained on every incident from the last ten years checking to avoid problems. At the same time, the impact on developer velocity is clear. We have never seen a quarter-to-quarter increase in new code generated, bugs squashed, and technical backlog burned down like we did last quarter. It has been wild. Beyond product and engineering, employees across functions from HR to marketing run thousands of agentic AI sessions each day to get their work done. Those agentic workflows rely on dozens of MCP servers to reach data in systems of record and use hundreds of centrally managed skill files, as well as many more that have been created and shared within individual teams. The harness that we have built, which we call Cloudflare OS, allows teams across the company to quickly get up and running. We have asked our team to think what the fundamental job to be done is and then reimagine how we can make the work to achieve it more efficient, reliable, and joyous. At Cloudflare, Inc., the way work is done has fundamentally changed. That means being intentional in how we architect our company for the agentic AI era in order to supercharge the value we deliver to our customers and honor our mission to help build a better Internet for everyone, everywhere. As a result, we announced significant actions this afternoon to further accelerate our evolution to an agentic AI-first operating model. That unfortunately means saying goodbye to teammates who have contributed to building Cloudflare, Inc. to where we are today, resulting in a reduction of the size of our team by more than 1,100 people. This decision is not a reflection of the individual work or talent of those leaving us. They were critical in getting us to where we are today. Instead, we are reimagining every internal process—from engineering to finance to sales—to run on an agentic AI backbone on our Workers platform. This is not a cost-cutting exercise or an assessment of the individuals’ performance. It is about defining how a world-class, high-growth company operates and creates value in the agentic AI era. Deciding to part ways with teammates is the hardest part of this decision, and it is a responsibility the entire senior leadership team at Cloudflare, Inc. takes personally. We believe that acting with empathy is not about avoiding hard decisions but rather about how you treat people when those decisions are made. If we are asking our team to be world-class, we have a reciprocal obligation to be world-class in how we treat them. By taking decisive action now, we provide immediate clarity to those departing and protect the stability of the team that remains. We are also pairing the directness of these measures with severance packages that lead the industry because we want to ensure that those who have invested their time and talents in Cloudflare, Inc.’s mission are taken care of as we move into the next phase. It is the right thing to do, it is the honest thing to do, and it reflects the values of the company we are continuing to build. On a personal note, this has been a hard day. A number of friends will no longer be colleagues. But I am confident they will land at other great places and bring with them a set of skills they learned building Cloudflare, Inc. to where we are today. The group leaving us will build many future great companies. And I am confident that our reshaped organization will be even more nimble and innovative as we continue to build the future. Not an easy day, but the right decision. With that, I will turn it over to Thomas to walk through the numbers. Thomas, take it away. Thomas Seifert: Thank you, Matthew, and thank you to everyone for joining us. Before I begin my customary remarks on our results for the first quarter, I would like to provide additional details on the actions we announced this afternoon to accelerate Cloudflare, Inc.’s evolution to an agentic AI-first operating model. Cloudflare, Inc.’s history proves our business model innovation is as important as our technical innovation. These two forces do not sit side by side at Cloudflare, Inc.; rather, they compound on each other in ways that provide us with meaningful competitive advantages and create significant value for both our customers and Cloudflare, Inc. AI is driving a fundamental replatforming of the Internet as well as a paradigm shift in how software is created and consumed, and it is shaping up to be the biggest tailwind for both our network and our Workers developer platform that we have ever seen in Cloudflare, Inc.’s history. From this position of strength, we are again applying the same winning formula of compounding technology innovation with business model innovation. By fully embracing an agentic AI-first organizational structure and operating model, as Cloudflare, Inc.’s revenue scales, our efficiency and productivity will scale even faster. Unfortunately, this decision means parting ways with colleagues who have helped build the strong foundation Cloudflare, Inc. stands on today, resulting in a reduction of the size of our team by approximately 20%. These reductions are across all functions and geographies and reflect how broadly AI is accelerating our operational velocity. Importantly, however, we continue to expect growth in the net capacity of our quota-carrying sales force to accelerate in 2026, with today’s actions compounding productivity to fuel our growth. These actions will result in severance and other restructuring charges of $140 million to $150 million for full-year 2026, approximately $40 million of which is noncash, with the majority concentrated in the second quarter. Our expectations for free cash flow for 2026, however, remain unchanged, with approximately 25% to 30% of full-year cash generation in the second and third quarters. By decoupling our ability to scale from the traditional dependencies of the past, Cloudflare, Inc. will be structurally faster, more innovative, more productive, and more efficient. Now turning to our results, the first quarter was a strong start to 2026, with momentum building across multiple areas of our business. We continue to see rapid growth from AI and agentic workloads across our network, strength in our largest customer cohorts, continuing returns from our go-to-market transformation, and rapid adoption of our Workers developer platform. Total revenue for the first quarter increased 34% year-over-year to $639.8 million. From a geographic perspective, the U.S. represented 49% of revenue and increased 34% year-over-year. EMEA represented 28% of revenue and increased 31% year-over-year. APAC represented 15% of revenue and increased 34% year-over-year. Turning to our customer metrics, we ended the quarter with roughly 4,400 large customers, representing an increase of 25% year-over-year. Revenue contribution from our largest customers was 72% of revenue during the quarter, up from 69% in the first quarter last year. We again saw significant strength in our largest customer cohorts, including those that spend over $5 million with Cloudflare, Inc. annually, which grew 50% year-over-year and added a record number of additions both quarter-over-quarter and year-over-year. Our dollar-based net retention was 118% during the first quarter, down 2% sequentially and up 7% year-over-year. As we have noted previously, there can be some variability in this metric quarter to quarter, with growth this quarter driven by a meaningful acceleration in business from new customers, which grew at the highest rate since 2023. Moving to gross margin, first-quarter gross margin was 72.8%, representing a decrease of 210 basis points sequentially and a decrease of 130 basis points year-over-year. Paid versus free traffic on our network continued to grow both year-over-year and quarter to quarter, again driving additional allocation of network costs from sales and marketing into cost of revenue. Our Workers developer platform products, which currently carry a lower gross margin than our corporate average, delivered another quarter of significant growth. In fact, developers on our platform increased to more than 5.5 million at the end of the first quarter—an increase of 1 million developers in a single quarter, as compared to an increase of 1.5 million in all of 2025. While our developer products are not yet as optimized on gross margin, they also have a lower cost to book, and we will continue to focus on driving further efficiency improvements as our developer products scale. While gross margin may continue to trend down in the near term from these dynamics, the scalability and efficiency of our network remain intact, and we expect our unit economic margin will continue to increase. Network CapEx represented 9% of revenue in the first quarter. As a reminder, there can be some variability in this metric quarter to quarter, and we expect network CapEx to be 14% to 15% of revenue for full-year 2026. Turning to operating expenses, first-quarter operating expenses as a percentage of revenue decreased 3 percentage points year-over-year to 62%. Our total headcount ended the quarter at approximately 5,500. The majority of new hires during the first quarter were in sales, with a particular focus on continuing to add quota-carrying account executives. Sales and marketing expenses were $227.5 million for the quarter. Sales and marketing as a percentage of revenue decreased to 36% from 38% in the same quarter last year. Research and development expenses were $101.5 million in the quarter. R&D as a percentage of revenue remained consistent at 16% compared to the same quarter last year. General and administrative expenses were $63.6 million for the quarter. G&A as a percentage of revenue decreased to 10% from 11% in the same quarter last year. Operating income was $73.1 million, an increase of 31% year-over-year compared to $56 million in the same period last year. First-quarter operating margin was 11.4%, a decrease of 30 basis points year-over-year. Turning to net income and the balance sheet, our net income in the quarter was $94 million, or diluted net income per share of $0.25. Free cash flow was $84.1 million in the quarter, or 13% of revenue, compared to $52.9 million, or 11% of revenue, in the same period last year. We ended the first quarter with $4.2 billion in cash, cash equivalents, and available-for-sale securities. Remaining performance obligations, or RPO, came in at $2.543 billion, representing an increase of 2% sequentially and 36% year-over-year. Current RPO was 64% of total RPO, increasing 34% year-over-year. Moving to guidance for the second quarter and full year 2026: for the second quarter, we expect revenue in the range of $664 million to $665 million, representing an increase of 30% year-over-year. We expect operating income in the range of $90 million to $91 million. We expect an effective tax rate of 21.5%. We expect diluted net income per share of $0.27, assuming approximately 377 million shares outstanding. For the full year 2026, we expect revenue in the range of $2.805 billion to $2.813 billion, representing an increase of 30% year-over-year at the midpoint. We expect operating income for the full year in the range of $418 million to $421 million. We expect an effective tax rate of 20.5%. We expect diluted net income per share over the period to be in the range of $1.19 to $1.20. We expect approximately 375 million shares outstanding. In closing, the first quarter set a strong tone for the year. Our strategic position heading into this paradigm shift of the agentic Internet has never been stronger, and the opportunity ahead of us is larger and more defined than at any point in our history. We remain committed to capturing it with disciplined execution, durable growth, and long-term focus. Before opening the floor for questions, I want to again acknowledge our colleagues who will be departing Cloudflare, Inc. as we move into our next chapter. They will always be part of the Cloudflare, Inc. story, and we are sincerely grateful for their service to our customers and their commitment to our mission. With that, operator, please poll for questions. Operator: Thank you. We will now open the call for questions. If you have dialed in and would like to ask a question, please press star then one on your telephone keypad. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. And we do request for today's session that you please limit yourself to one question and one follow-up. One moment please for your first question. Your first question comes from the line of Matthew Hedberg of RBC Capital Markets. Your line is open. Matthew George Hedberg: Great, thanks for taking my questions, guys. Matthew, first, on your strong Q1 results, I find it interesting that some of your Act 1 competitors do not seem to be benefiting from monetizing agentic traffic the same way you are. Why are you seeing such strong tailwinds there? And then as a follow-up, regarding the announced restructuring, really in light of these strong Q1 results, it seems to be coming from a position of strength. Why now? How is it going to make Cloudflare, Inc. stronger? And, Thomas, have you embedded any conservatism in the guide for this action? Matthew Prince: Thanks, Matt. I will start with the second part. This was not an easy decision, but it is the right decision. We have seen that there are roles at Cloudflare, Inc. that are not the roles we need for the future. Just because you are fit does not mean you cannot get fitter. What we have seen, especially over the last six months, is incredible productivity gains from the people who are directly talking to customers and the people who are directly creating code. A lot of the support roles behind them are not going to be the roles that drive companies going forward. We have always lived a little bit in the future, and I think you are going to see companies across every industry start to realize the gains they can get from these tools, and in the process it will change companies pretty dramatically. We believe in people, and we will continue to hire and invest in them, because the people embracing these tools are so much more productive than we had ever seen before. I would guess that in 2027 we will have more employees than we did at any point in 2026, but the roles are changing dramatically, and you have to do something dramatic to make that shift. That is why this is the right time. We are the fittest we have ever been, but we are going to get even fitter to win the next chapter. On your first question about traffic, the key is something we have always understood: not all traffic is created equal. Traditional CDNs chased bandwidth-heavy use cases like video streaming. That was an okay but largely commodity business. We never saw ourselves that way. We wanted to get in front of the most essential traffic: APIs and applications. In this new world of agentic commerce and agentic transactions, our approach is showing its wisdom and durability. Today, we are seeing hundreds of billions of agentic requests per month, and that number is growing exponentially. They are interacting with us, and we are setting the rails and guardrails for that. That is driving our Act 1 business. On the other side, with our Workers platform, we have built a platform that allows you to build agents that are significantly more efficient than anyone has before. Across all parts of our business, including Zero Trust and SASE, it turns out that having more fine-grained controls about data is exactly what you need for these new agents. You want to make sure they only have access to what they should. We happened to build exactly the right set of tools for this moment, and that is what is separating us from some of the people we get compared to. Thomas Seifert: On guidance and how this action is reflected, we have been thoughtful. While this action affects all teams at Cloudflare, Inc., the only real exception is our AE and quota-carrying capacity sitting in front of customers—we hardly touched that. We have been careful to reflect whatever residual risk remains in the guidance for the remainder of the year. As usual, we have tried to be thoughtful and prudent in how we think about what is in front of us. Operator: Your next question comes from the line of Adam Borg of Stifel. Your line is open. Adam Charles Borg: Awesome, and thanks so much for taking the question. Matthew, one of the things we keep hearing about is how AI costs internally are really expensive, especially around R&D coding agents. How do you think about balancing AI coding adoption with the cost? What AI efficiencies are you looking to see across the organization, and how much of that is to offset some of those costs? And as my follow-up, Fortinet talked about the opportunity they are seeing in SOFRAN and SASE. Given Cloudflare, Inc.’s global network and data residency requirements globally, how do you think about data localization and sovereign opportunities not just in Act 2, but across the Acts? Matthew Prince: As usage has gone up—600% in the last quarter—we have seen costs go up, but not nearly as much as some others. The least important reason is that most of the big AI labs are our customers, so we have good relationships and access to the best pricing and models. More importantly, we can often run those models on our own infrastructure. We have a fleet of GPUs, and with Cloudflare Workers and Workers AI we can build and use those tools ourselves. Most of the use of AI coding tools is not even leaving our network; it is running on our infrastructure. We are very good at routing to wherever there is capacity, and we get high utilization across our GPU resources—significantly higher than hyperscalers and even AI labs. We paired Cloudflare OS with our AI Gateway product, which routes different requests based on the right model for the task. If a task is relatively simple, we route to a model running on our own infrastructure and deliver it at essentially no marginal cost. If it is more important, we may send it to a frontier model and pay more. I think you will see many companies doing this. As we demo Cloudflare OS to CIOs, the reaction is consistently, “We want that too.” We already have a stripped-down version with AI Gateway, and you might see us increasingly take internal tools and make them available to others. That is very normal for Cloudflare, Inc.—almost every successful product started as something we needed ourselves. On data localization and sovereign opportunities, we are uniquely positioned for increasing regulatory or practical requirements to keep data in particular jurisdictions. We are present in more than 120 countries worldwide and more than 350 cities. We are designing Cloudflare, Inc.’s systems so data can stay wherever your permissions require. If you are a customer that needs all data to stay in Germany, we can set that up so your data stays resident in Berlin, Frankfurt, Munich, and other data centers we have in Germany. We can do that with a level of granularity that no hyperscaler can match. Layer Zero Trust and SASE tooling on top, and we can ensure agents can only access the data they have permission for. That will be a bigger tailwind in that space. With people experimenting with things like OpenClaw, they need fine-grained data control, and we are basically the only game in town to deliver it. Operator: Your next question comes from the line of Saket Kalia of Barclays. Your line is open. Saket Kalia: Hey guys, thanks for taking my questions and nice start to the year. Thomas, growth in different Acts has different impacts on gross margin, and you spoke about proactive optimization. As we get through those changes by the end of Q3, how should we think about the net impact to OpEx, and how should we think about gross margins as those other Acts continue to grow? And Matthew, for my follow-up, on Act 4 and Cloudflare, Inc.’s ability to manage the relationship between AI tools and content owners, what milestones do you need to see for that business to inflect? Lighthouse accounts? Industry consortiums? It is uncharted territory. Thomas Seifert: The margin structure is different across the various Acts, with developer products being the weakest on gross margin. Despite that, all products are equal when we look beyond gross margin to unit economic value. We will get you ready on Investor Day for thinking about operating margin as a better measure of product competitiveness than gross margin. The biggest move in gross margin this last quarter was free traffic moving to paid traffic and costs moving into cost of revenue. While that decreases gross margin, it is literally a wash from an overall P&L perspective. You will see more movements like that, and it is up to us to give you the right insight. Across all products, with the opportunity in front of us, unit economic margin and value will increase over time. With the guidance in place, we are getting north of 46% from a Rule of 40 perspective, and we think we have visibility to reaching north of 50% next year. That shows the potential; we just need to provide better insight into how the parts come together. Matthew Prince: To put a finer point on one part Thomas mentioned: since our founding, Cloudflare, Inc. has had a free version of our service, which provided benefits like data to build security models. We have not historically worked that hard to convert free customers into paying customers, so traffic associated with free customers went into marketing costs. What is fascinating is that a large pool of free customers turned out to be developers. As we have built compelling developer tools—most of which are not free—you are seeing a lot of that free traffic turn into paid traffic. Customer acquisition costs for those high-growth developer platform products are really fueled by what we built over the years in Act 1. While this shows up oddly in gross margin, it signals more adoption of paid products, including developer platform products, which is a part of our business I am very excited about. On Act 4, we think the business model of the Internet—historically advertising—is about to change dramatically over the next five years. It may not change to one thing but several. Because of how much of the Internet sits behind Cloudflare, Inc., we have a seat at the table in defining that. One thing we are watching is microtransactions for requests that agents make—fractions of pennies. Cloudflare, Inc. handles roughly hundreds of billions of requests, and with nonhuman traffic projected to surpass human traffic around 2027, we need something else to build. The challenge is that nobody can handle the transaction volumes we anticipate, so we are looking for partners. Another point: not everyone wants to block AI or to get paid. For example, Cloudflare, Inc. wants our developer documents in every LLM, so we make it easy to crawl those. On the other hand, ad-supported businesses see crawling as a threat. We are providing tools on both sides. For those who want to block or control, the first milestone is we went from relatively low penetration in media to dominating that space. Media execs tell us they are signing better deals with AI companies because we give them tools to control their content. The lighthouse signal is there. The next question is how we take that to the long tail—so that not only the Condé Nasts or Dotdash Merediths of the world can strike deals, but everyone on the Internet. That likely involves lighthouse deals with foundational model companies. When we listed our top six priorities for 2026, one was to make real progress and see the first revenue that we can pass back to the long tail to help create a healthy ecosystem for content creators. I am confident we will make that goal. Operator: Your next question comes from the line of James Fish of Piper Sandler. Your line is open. James Edward Fish: Hey guys. Thomas, you mentioned Rule of 50 there potentially. Given demand behind inferencing, what is the team’s willingness to go after more of this opportunity and drive more megawatts behind the network to host more of those inference use cases, like what you are seeing from some edge peers? And a follow-up on security: you have been aggressive about displacing legacy hardware across firewall, VPN, and so forth. Are you seeing any compression in enterprise sales cycles for large-scale Zero Trust deployments, or are approvals still elongated? Are supply chain and component issues causing more enterprises to evaluate more of the cloud for protection? Thomas Seifert: You see us leaning into this opportunity with all the force we have. That is why developer count went up by 1 million in the first quarter alone. We continue to optimize margin for these products, but we are not restricting growth—just the opposite. There is no restriction on leaning into this opportunity. Matthew Prince: At the risk of sounding critical, people often do not understand the difference in our business model versus hyperscalers. The hyperscalers’ business is to buy a server and lease it back multiple times. If they do not have servers to lease, they cannot grow revenue, so their CapEx must invest ahead of demand. We focus on different things. For us, when you see a blog post about getting more utilization across our GPU fleet or faster model loading, that is real IP we are inventing. Think back to the evolution from physical servers to VMs to containers for CPUs. With GPUs, most of the industry is still at the physical-server stage. Across hyperscalers, GPU utilization is often in the single digits. We are getting our GPU utilization to approach our CPU utilization—up in the 70% to 80% range. As we do that, we can keep servicing requests with the fleet we have and invest behind demand, rather than ahead of demand. Our model lets us keep up with inference demand while capturing developer mindshare—very different from a model built on leasing physical servers. On security cycles and hardware displacement, the hardware companies seem to have nine lives. As you see vulnerabilities in hardware and supply chain shortages—especially around memory—I do think more people are evaluating having the cloud as part of their infrastructure. I have been impressed by how long hardware players have continued to operate and hold out, so I am not calling a complete change now. But these are tailwinds behind our business and other cloud-native businesses. Operator: Your next question comes from the line of Gabriela Borges of Goldman Sachs. Your line is open. Gabriela Borges: Good afternoon. Matthew and Thomas, I wanted to get your thoughts on how the fleet mix may be changing between GPUs and CPUs. Specifically, Matthew, you talked about GPU utilization approaching CPU utilization. Are you also finding there are AI inference workloads you can route to CPUs? And, Thomas, I imagine that has implications on unit economics as you serve the AI inference market. Also, there was a datapoint this quarter on Anthropic announcing managed agents. How do you think that type of infrastructure intersecting with LLMs creates opportunity and/or risk for the Cloudflare, Inc. business model? Matthew Prince: For customers, we want to abstract the underlying silicon and deliver the most optimal resource behind the scenes. For some models, CPUs work great; for others, GPUs are necessary. When we deploy a server now, it has a CPU, a GPU, memory, storage, and network capacity—these are all pooled resources we constantly balance. We are not renting “an H100.” We will have H100s across our network, but we match workloads to the silicon that makes the most sense and to what the customer is paying for. If you pay more, you get a faster, better experience. Cloudflare, Inc. at some level has always been a giant scheduler—dispatching jobs across the network and prioritizing based on importance. That also keeps our internal AI costs lower because we can route tasks to wherever we have excess capacity. Regarding Anthropic’s managed agents and similar moves from AI labs, we see that as positive for our infrastructure opportunity. The major AI labs partner with us and see our infrastructure as critical. We launched Dynamic Workers, which allow you to stand up execution environments that are significantly more efficient than containers—containers are too slow and heavy for ultra-fast agentic workloads. One large AI studio, in just the last 15 days, went from essentially zero Dynamic Workers to over 1 million Dynamic Workers running across our platform. We see strong excitement for the underlying tools and technologies we build, and we believe we can deliver significantly better performance and lower cost than others playing in this space. As agents do more, they generate significantly more traffic—if a human might visit five sites, an agent might visit 5,000. That drives usage, the biggest driver of our Act 1 revenue. Unlike pure-play CDNs, agents are not going to watch reruns of the Super Bowl; they are going to drive real traffic to real e-commerce sites, where Cloudflare, Inc. is especially valuable. In Act 2, being able to narrowly define what data an agent can access is increasingly important, especially in self-service, where there is not another SASE/Zero Trust self-serve competitor at scale. As hobbyists adopt technology, they bring it to work, and we are seeing that as we win more enterprise accounts. Gabriela Borges: Thomas, on the pool of funds and your serving year three in earnest of having this motion mature, any comments or observations as early pool-of-funds adopters come up for renewal? What trends are you seeing on renewal and expansion? Thomas Seifert: We are now in our sixth quarter of pool of funds, and it has become a standard tool in our go-to-market motion. Teams are familiar with how and when to deploy it. From a renewal perspective, we had our highest-ever renewal rate last quarter, and that includes all pool-of-funds deals up for renewal. Our hypothesis—that it allows us to work expansion well and is a sticky customer engagement tool—has proven true. Operator: Your last question comes from the line of Shaul Eyal of TD Cowen. Your line is open. Shaul Eyal: Thank you, good afternoon, and thank you for squeezing me in. Thomas, you mentioned quota-carrying sales capacity continues to accelerate. Could you provide more color on expectations to continue to grow capacity relative to productivity? And for my follow-up, partners increased to 30% of revenue this quarter. What is driving this increase, and how much more channel mix would you expect going forward? Thomas Seifert: When I said we are not touching quota-carrying AE sales capacity, what goes along with that is we see significant productivity gains in the support ratios for these AEs. The ratios are going to change significantly, which frees up dollars. Within the same spend envelope, you can deploy more quota-carrying AE capacity toward our market opportunity. This allows us to continue to drive productivity from a go-to-market perspective. Matthew Prince: This really started with Mark Anderson laying out two years ago that we were going to have a motion that fully includes partners and enables them to deliver. It has been an incredibly successful way for us to sell, especially our Act 2 products, which require more consultative selling and careful integration. That will continue. The big question is which partners can leverage the new world of agentic AI to drive additional value, scale, and velocity. We expect a lot of change in that space, but partners will remain an extremely important part of our strategy. The partners delivering the most value—those best at selling and driving success with our tools—are embracing new ways of selling, servicing, and ensuring customer success. Operator: Thank you. That concludes our Q&A session. I will now turn the conference back over to Matthew Prince for closing remarks. Matthew Prince: This has been a hard day. We have never done something like this in Cloudflare, Inc.’s history, and we take it extremely seriously. We know how much it has affected people who have been friends and colleagues. I am confident those leaving us will take what they learned at Cloudflare, Inc. and help build many more great companies. We are going to make sure we take care of those people, and we also want to make sure we are hiring for the right roles. This is not about downsizing or saving costs. It is about having the right people in the right roles to build the future. Our mission is to help build a better Internet. That mission has never been more important as the Internet goes through transitions with AI and agents, and Cloudflare, Inc. is going to lead the way. I am proud of everything we are doing. I am sorry we had to take the action we did today, but I believe it is going to make Cloudflare, Inc. better for the future. Thank you. We will see you back here next quarter. Operator: This concludes today’s conference call. You may now disconnect.