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Operator: Good morning, ladies and gentlemen, and welcome to the Veolia publication of Q1 Financial Information Conference Call with Estelle Brachlianoff, CEO, and Emmanuelle Menning, CFO. [Operator Instructions] Estelle Brachlianoff: Thank you very much, and good morning, everyone. Thank you for joining this conference call to present Veolia, because you know the line is a little bit blurred. So I thought you had finished your introduction. No anyway, I will go on. I'm accompanied by Emmanuelle Menning, our CFO, to present Veolia's Q1 key figures. I will start on Slide 4 by highlighting the key achievements of the first quarter. We delivered a strong Q1, resilient growth and solid EBITDA progression, fully in line with our annual guidance in spite of a difficult environment. Our unique multi-local model has proven its value again, combining resilience with growth potential based on a sustained demand for essential services, which has led to limited impact from the Middle East conflict and even future opportunities. I will come back to that in a minute. We are continuing our strategic transformation towards international markets and technology-driven solutions with new tuck-ins in Q1. I will also come back to innovation after our dedicated day recently held in London as it is core to our strategy, fueling growth and efficiency targets for years to come beyond the GreenUp plan. I, of course, will fully confirm our 2026 guidance as well as our GreenUp trajectory. These results demonstrate that Veolia's business model and strategy is robust, diversified and well positioned to navigate uncertainty while capturing growth opportunities in essential environmental services. Now let's look at the specific numbers for Q1 2026, and I'm on Slide 5. Revenue reached EUR 11,427 million -- so EUR 11.4 billion, up 2.1% at constant scope and ForEx and excluding energy prices. This represents resilient growth in a geopolitical wait-and-see environment and very comparable to the second half of 2025. Our EBITDA came in at EUR 1.766 billion, up 5.1% at constant scope and ForEx and up 5.8% when including tuck-in acquisition. And I recall, without any contribution of Suez synergies that we enjoyed during the previous quarters. This performance is therefore excellent, especially in a complex macro and geopolitical environment. Particularly noteworthy is our EBITDA margin expansion of 73 basis points year-on-year, reaching 15.5%. This margin improvement is fueled by our strategic choices and operational efficiency. Current EBIT reached EUR 971 million, up 7.2% at constant scope and ForEx, demonstrating strong operational leverage. Our net free cash flow improved significantly by EUR 144 million compared to Q1 2025, driven by strict management of both capital expenditure and working cap requirements. Net financial debt stood at EUR 20.8 billion, which is fully under control. And this result gives me strong confidence for the full year 2026. I'm now on Slide 6 and wanted to recall what makes Veolia truly unique, which is our positioning that combines both resilience and growth. We are an international environmental services leader operating in 44 countries across 5 continents, which gives us the firepower to lead in technology and innovation, thanks in particular to our 14 R&D centers and over 5,000 patents. We rank in the top 3 in Europe, the Americas, Asia and the Middle East, which gives us pricing power. But no capital employed in a single country exceed 10% outside the U.S. in order to derisk the group. This is a choice. Our customer base is diversified, roughly 50-50 between municipal and tertiary and industrial clients. Our multi-local delivery model is anchored in local communities. That means we have no impact from tariffs, no impact on margin rates for ForEx volatility, only translation effects and no dependency on subsidies or government contracts. Our long-term contract on an average of 11 years in duration with 70% being inflation indexed. We estimate that 85% of our business is macro immune and commodities are essentially pass-through in our contracts. By the way, and in addition to what I already said, we offer a unique way of integrating solutions combining waste, water and energy services. This combination of growth potential and resilience is rare in today's markets. Slide 7. Given the current headlines, I want to address the Middle East situation directly. I believe it is a perfect illustration of the multiple strengths of our business model. We can see this first with the sustained demand for social services. In the region, we maintain constant and direct daily connection with local authorities and clients to ensure the continuity of critical services. This includes operating desalination units, for instance, which can account for up to 95% of the water supply. These direct contacts confirm that our partners are already preparing for the post-crisis phase and require partners like Veolia to be by their side. Furthermore, our multi-local model ensures our direct financial exposure remains very limited with EUR 1.3 billion revenue in 2025 and capital employed around EUR 300 million in the region, which is less than 1% of the group's total. Consequently, the local impact on Veolia has been largely neutral, only limited operational disruption like a little bit lower hazardous waste volumes and a slowdown or I going to say more a delay in water technology projects being signed. Regarding consequences on other geographies, we are well protected against rising costs. Our long-term index contract covers 70% of our contracts and covers all our cost base with some lag effect. For the remaining 30%, we have proactively already put in place specific fuel surcharge when needed, particularly in the waste business, and we've secured key supply. I'm on Slide 8. In a way, this crisis in the Middle East highlights the power of our unique Veolia offer and explains why it may even lead to a few opportunities. Our proprietary solutions help secure access to water supply, which is as critical as oil, if not more, as we see now. Our solution give access to an untapped reservoir of local energy at fixed price instead of import. You can imagine how important it is and lots of people realize it. In addition to that, our solution can contribute to securing supply chain, thanks to the circular economy. And those solutions can as well depollute industrial sites and protect human health. You will understand, I'm sure, why I'm very confident about our future performance as we have built with Veolia a unique positioning as the environmental security powerhouse, addressing critical needs for our clients. Slide 9. Our international footprint has largely contributed to our good results in Q1. I would like to highlight the continued standout performance in our region outside of Europe, which grew by a strong 3.1% and even 5.3% at constant ForEx. I will insist on the performance of the U.S.A., which grew by 7.5% at constant ForEx in spite of extreme cold weather conditions, which impacted hazardous waste volumes in January and February. The demand for our services is very strong. We also passed the main steps in the Clean Earth acquisition process, which secures the closing at midyear as announced. The Water Technologies segment performed quite well, up 4.3%, excluding the project business line, which was penalized or even more like delayed in signing by the crisis in the Middle East and continued to deliver a remarkable EBITDA growth in this segment. In Europe, we grew by a solid 3%, anchored by strong performance of Central and Eastern Europe, the U.K. as well as Spain, all enjoying strong commercial momentum and positive weather. Finally, France and Hazardous Waste Europe was resilient in spite of adverse weather conditions, which has penalized a bit waste activities. I expect Hazardous Waste Europe to grow faster in the coming quarters without the Q1 disturbances. Looking out at our top performance by business line on Slide 10, we see resilient growth and solid EBITDA progression across all our activities. Our stronghold activities, municipal water, solid waste and district heating generated EUR 8.4 billion in revenue, up 2.5% at constant scope and ForEx and excluding energy price. Our booster activities, Water Tech, Hazardous waste and Bioenergy, generated a little bit more than EUR 3 billion in revenue, up 2.2%, including tuck-ins. You have to remember again that Q1 was quite specific with negative impact from the Iran war on the delay of signing specific projects with Water Tech, added to extreme weather events and timing effect in Hazardous Waste. The demand for our booster activities keeps being very strong. If we were to exclude Water Technology project delay, our boosters would have grown by 4.6%. The combination of Strongholds and Boosters now represents already 30% of our revenue, demonstrating our strategic evolution towards high-growth, higher-margin activities while maintaining the stability of our core business. Emmanuelle will give you all the details by activity in a moment. I'm now on Slide 11. Veolia continues its transformation as set up in GreenUp towards more international, more technology-driven activities, which is our Boosters. We are very active, sorry, in strategic portfolio management with EUR 8.5 billion of assets, which will have rotated over 4 years. You remember that 2025 was a pivotal year as we successfully achieved the Suez integration, but we've also crystallized strategic moves with 2 major acquisitions signed or closed. First, EUR 1.5 billion invested in Water Tech to enhance our combined technology portfolio capabilities. We have already extracted 1/3 of the planned EUR 90 million synergies, which is EUR 30 million, including EUR 10 million in Q1. And of course, $3 billion with the acquisition of Clean Earth in the U.S. We have obtained both the antitrust clearance and our shareholders' approval on Monday, which means we are fully on track to close the deal midyear. Both acquisitions already create value, but also will enhance the group's profile going forward. Lastly, we announced EUR 2 billion of nonstrategic asset divestitures in the 2 years following the Clean Earth closing. Process has started with clear list and various scenarios. We have already achieved several small and medium divestments of mature assets or not in the top 3, which you know are some of our criteria, and we will continue pruning our portfolio. On Slide 12, I would also like to say a few words about our exciting growth ambition related to innovative offers through 2030, which we have explained in a dedicated session last April. I will start with our new offer dedicated to AI industries, covering data centers and chips manufacturing. Those industries are in high demand to secure steady water supply for cooling systems, continuity of supply of untapped water and they use a large amount of high-quality solvent and acids. Data centers are starting to see resistance from local communities to be granted permits given the intensity and resource consumption. Our DATA CENTER Resource 360 new offers help secure local acceptance and license to operate with recycled water technologies and heat recovery as seen in our recent contract with AWS in Mississippi. We already grew very quickly in those AI industries from $150 million in 2019 to $560 million in 2025, and we're now targeting approximately $1 billion by 2030. We have a unique set of assets and technologies to support this growth. Patented technologies such as electrodeionization for ultra-pure water, ZeeWeed membranes for water recovery, without mentioning a new Taiwan-based electronic-grade sulfuric acid recovery, which is really promising, but also a worldwide installed base of hazardous waste treatment facilities. In addition, we'll soon have a presence in all 50 states of the U.S. with the Clean Earth acquisition. I'll remind you that the offer we launched in 2024 on PFAS is already very successful, and I'm very confident we'll reach our ambitious EUR 1 billion revenue by 2030. We had 0 revenue in 2022 to EUR 259 million in 2025, which is up 25%. And our recent acquisition of soil remediation specialists in Australia at a very reasonable multiple will complement nicely our comprehensive solution portfolio and offer duplication opportunities. This innovation-driven growth are testimony of the group transformation towards more value-added offer and services as an environmental security powerhouse. On Slide 13, we will also derive from digital and AI, innovative tools and an increasing contribution to our efficiency plan. In 2025, 23% of our operational efficiencies were already derived from AI and digital, and we aim at 50% by 2030. This is by scaling up AI-based tool we've already tested to maximize plant productivity, to reduce energy or chemical consumption or to help detect leaks. Our Talk to My Plants tool dedicated to plants maintenance operator is particularly very promising. It is a very exciting journey, and we are only on the very beginning here. Slide 14. I just want finally to fully confirm our 2026 guidance, which is reminded fully on this slide, in particular, with EBITDA to grow 5% to 6% organically and current net income by 8% at constant ForEx and before PPA. And this is, of course, excluding Clean Earth. Additionally, assuming a mid-2026 closing, the Clean Earth acquisition will be accretive to current net income from 2027 before PPA, confirm as well our GreenUp trajectory. This reflects our confidence in our business model and strategic execution. Emmanuelle, the floor is yours to elaborate on Q1 results. Emmanuelle Menning: Thank you, Estelle, and good morning, everyone. Revenue in Q1 amounted to EUR 11.4 billion, up 2.1%, excluding energy prices. Organic growth of EBITDA was 5.1%, in line with our annual guidance, which is an excellent performance as we no longer benefit from the synergies. And our EBITDA margin continued to increase by 73 bps to 15.5%. We continue to enjoy a strong operating leverage, leading to a 7.2% progression of current EBIT. Net free cash flow increased by EUR 144 million, thanks to tight CapEx control. And net debt landed at EUR 20.8 billion, including the seasonal reversal of working cap. ForEx impact on EBITDA was EUR 33 million as forecasted due to a lower U.S. dollar, British pound and LatAm currencies. ForEx is moving, notably due to the crisis in the Middle East and the final impact on 2026 EBITDA is hard to predict. It will be lower than initially expected with the current exchange rate. We will see, but remember that as a multiple -- multi-local group with very limited international trade, ForEx does not impact our businesses or margin rate and ForEx has a very limited impact at net income level. Moving to Slide 17, you can see the revenue and EBITDA evolution by geographies. As Estelle mentioned earlier, growth outside Europe was quite satisfactory at plus 3.1% and even plus 5.3%, including tuck-in. Most regions registered mid-single-digit growth. U.S.A. grew by plus 5.2% and 7.5%, including tuck-in in spite of adverse weather conditions, which impacted hazardous waste volumes in January and February and hazardous waste in the U.S. grew by 5.7%. Pacific grew by plus 8.1%, including the successful acquisition in Australia, which strengthens our leadership in hazardous waste and PFAS treatment. Africa/Middle East revenue increased by plus 4.4%. And by the way, Middle East succeeds to be up plus 3% in a complex geopolitical context. Water Technologies was quite resilient, excluding projects and progressed by 4.3% like last year. And as I remember, 70% of our activities are recurring corresponding to products, services and chemicals, while 30% is more volatile by nature, what we call projects. In Q1, projects were impacted by several booking and milestone delays due to the Middle East crisis, and we forecast this to continue in Q2. Above all, Water Technologies continued to deliver a strong EBITDA growth, fueled by our business refocusing and efficiencies and synergies. Europe grew by 3%, excluding energy prices, fueled by favorable weather in urban heating and by good water activities. And finally, France and Hazardous Waste Europe were resilient. Now let's take a look at our performance by business. I will start with water. It represents 40% of our revenues and 50% of the group EBITDA. Water revenue was up by 2%. Water operation benefited from good indexation in Europe and in the U.S., except in France, due to the lower electricity prices. Volumes were on a very good trend, up 1.1% in France, 2.4% in Central Europe, 2.9% in U.S. regulated. And as I just explained, the underlying growth of Water Technologies, excluding the timing of project delivery remained quite strong at 4.3%. Moving to waste, representing 35% of our revenues. Waste activities succeeded to stay flat despite an helpful macro and are very comparable to previous quarters. Indeed, excluding external factors as weather recycled or electricity prices, waste revenue was up plus 1% at constant scope and ForEx. Starting with solid waste, we did not experience in Q1 any significant impact of the higher diesel costs. In terms of diesel price increase, I remind you that it's pass-through. The group diesel purchases for the waste activity amounted last year to EUR 218 million, half for multiple contracts with automatic pass-through in indexation formula with 3 to 6 months lag and half for C&I clients with immediate fuel surcharge. In terms of volumes and commercial developments, performance was mixed in Europe, slight volume decrease impacted by bad weather, icy road and frozen waste. Good incinerators availability rates and activity continued to progress in the rest of the world. Hazardous waste grew by plus 1.7% and plus 6%, including tuck-in. Europe was slow due to the combination of adverse weather and maintenance outage timing with rebound planned in Q2. Growth remained strong in the U.S., plus 5.4% with average price increase of 3.6% and volume up despite unfavorable weather conditions. For Q2, we expect further price increases alongside fuel surcharge and better volumes. The performance of last year's tuck-in in the U.S., Brazil and Japan was very good. Finally, moving on to energy, I'm on Slide 20. Regarding the evolution of gas and fuel prices, I remind you that our energy business model is very strong as we demonstrated in 2022 and 2023, it is regulated and our margins are protected. We can also marginally take advantage of higher electricity prices and volatility of our midterm. For 2026, we are largely hedged in terms of gas, CO2 cost and electricity revenue. Energy prices were down as expected, but to a much lesser extent than last year. Excluding the energy price impact, Q1 growth was quite good, plus 4.1%, thanks to good volumes, helped by a colder winter and with a resilient activity for the booster. The revenue bridge on Slide 21 explains the driver of our resilient growth in Q1. ForEx impact amounted to minus 2.3% due to U.S. dollar, GBP, Argentinian peso and yen. Scope was positive by plus EUR 69 million, including hazardous waste tuck-in. We expect the consolidation of Clean Earth in the second semester 2026, and we are pleased to have now obtained both the antitrust clearance and on very shareholder approval. The impact of energy prices was as expected, more than divided by 2 compared to Q1 last year. Recyclate prices were almost neutral and the weather effect amounted to plus EUR 66 million due to a colder winter in Europe, partially offset by adverse weather impact for waste activities. The contribution of commerce volumes and pricing was plus 1.6%. Pricing in water and waste remains sustained, contributing to plus 1.4%. Let me walk you through the EBITDA bridge, which illustrates our strong operational performance. We experienced ForEx translation impact of EUR 33 million. It's important to remember that ForEx has no impact on our margin rate. It's purely translation effect since our revenues and costs are in the same currency in each of our countries. Scope effect from tuck-ins contribute positively plus 1% EBITDA increase, showing good revenue to EBITDA conversion and fueling future EBITDA growth. Energy and recycled material prices had an impact of minus EUR 16 million. Weather effect contributed positively to 1% EBITDA growth. And the most impressive component is our growth and performance contribution of 5.1%. This breaks down into EUR 62 million from net efficiency gain with a very good retention rate, thanks to action plan implemented across Europe. And we have also EUR 10 million from water technology synergies. The volumes and commerce contribution was limited and in line with revenue. This represents organic growth of 5.1% at constant scope and ForEx, which is quite good. As mentioned, we do not benefit anymore from the 1.5% contribution of the Suez synergies. A few highlights on the efficiency gain. I am on Slide 23. We delivered EUR 96 million of efficiency gain in Q1, in line with our annual target. Two important characteristics you need to consider regarding efficiency. First, efficiency was indeed a permanent lever for value creation. It's embedded into our operation. Efficiency gain at Veolia are not discretionary cost-cutting program, but they come from a very diversified series of initiatives in our thousands of plants. In case of headwinds, we can and we know how to boost efficiency program as we demonstrated in the past by specific plan like the one we have conducted in China, in Spain and in France. Second, digital and AI gain, which already accounted for 23% of our recurring operational efficiency in 2025 will continue to increase, and we have set an objective of 50% of digital gain in 2030. Let's now analyze our performance below EBITDA. I am on Slide 24. Going down to current EBIT, this slide illustrates perfectly the operational leverage of our business model, 2.1% revenue growth, 5.1% EBITDA growth and 7.2% EBIT increase. Current EBIT grew to EUR 971 million at a faster pace than EBITDA. And let me highlight amortization and OFA, which were slightly up at constant scope and ForEx and industrial capital gain provision were stable, showing a continued strong quality of results. Now free cash flow generation, which is key and net financial debt, I am on Slide 25. I am satisfied with the progression of the net free cash flow of EUR 144 million, which we achieved despite the seasonality of working capital. And thanks to a tight CapEx control, you see a strong discipline on industrial investment at minus EUR 860 million compared to more than EUR 1 billion last year. Limited increase of taxes and financial charges linked to Water Technology acquisition. Working cap reversal was close to last year. Net financial debt is, therefore, well under control, reaching EUR 20.8 billion, and this increase of EUR 1.1 billion is due to the seasonality of working cap and financial investment for minus EUR 172 million. Our net debt is 85% fixed. Our net group liquidity is very solid, EUR 6.7 billion, and our balance sheet, therefore, remains very strong. Both rating agency confirmed strong investment-grade rating beginning of 2026. Before concluding this slide reminds you of our 2026 guidance, which Estelle fully confirmed earlier, continued solid organic revenue growth, excluding energy prices, our EBITDA organic growth between 5% and 6% current net income of minimum 8% at constant ForEx, excluding Clean Earth, which we will close mid-'26, leverage ratio equal or slightly above 3x with Clean Earth acquisition. And as usual, our dividend will grow in line with our current year. As you see, we are very confident for 2026. We delivered a strong Q1, resilient growth and solid EBITDA increase. fully in line with our annual guidance. Thank you for your attention. Estelle Brachlianoff: Thank you, Emmanuelle. And now we are ready, Emmanuelle and myself to take the questions you may have. Operator: [Operator Instructions] First question comes from Ajay Patel from Goldman Sachs. Ajay Patel: I have 2 areas I wanted to dig a little deeper. Firstly, on cost cutting and the retention rate over this quarter was quite a bit higher than you normally guide. I just wondered how should we think about that in the context of the full year? And then I guess maybe alongside that, you talk of AI increasingly becoming a proportion of the overall cost-cutting efforts increasing in size. I just wondered, is the retention rate on the cost savings that you make on the AI side higher than that of maybe the non-AI side? Just to understand if there's any dynamic there that we should understand? And then the last one is just referring to the bridge on Slide 22. If you could help us with the volumes and commerce element being a limited contribution. Just what headwinds maybe break out a little bit more of the headwinds that you experienced over Q1? And how should we think about that variable over the course of the year? Estelle Brachlianoff: Thank you for your question. So first on cost cutting, you're right. It's EUR 62 million out of EUR 96 million basically that we've retained, so which is higher than the usual, don't translate it into times 4 for the entirety of the year. Our good target is usually between 30% and 50%. But it's fair to say in the recent quarters, we've been more around the 40% to 50% than the lower part of the range. That's a good proxy for me. With regard to your second half part of the first question on AI. You're not wrong. As in our AI cost cutting is mainly on operational things, like that's why I mentioned the example of AI helps us to reduce energy consumption to help us increase the plant efficiency and so on and so forth. And this type of gains are typically more retained than what would be, say, SG&A type of a cost cutting. So you're right. The more we can retain of the cost-cutting gain or efficiency plan, the happier we will be. There always will be some leakage, let's call it that way, because it's part of our business model with our customer. When we renew contracts, we give some productivity back to the customer, and then we find other ways of gaining productivities in the years following the renewal of the contract. That's why there will always be some type of leakage. And of course, we try to retain the maximum possible. In terms of the second part of your question, I would not highlight anything which would look like -- I mean, there is no slowdown in revenue. When you look at H2 2025 and Q1 2026, we are exactly in the similar type of range of 2-point-something revenue, excluding energy price. In the pluses and minus of this quarter in terms of commerce, so commerce is very good. No question about that, retention of our contract or renewal of our contract is very good. On the plus side, we had a little bit of weather effect in Eastern Europe. On the minus side, we had a little bit of weather effects on the negative side in the U.S. and in Europe on haz and waste. You may have noted that there was 2 times a week or 1.5 weeks of the Eastern parts of the U.S. being totally blocked by minus 15, minus 20 degrees Celsius type of temperature with everything being closed. Of course, that means less volume in the end. The trucks are not even allowed to be driven into any type of road. So that's why pluses and minuses, but nothing which looks like a slowdown. And April is good. The demand of our services is sustained. And again, the same type of pace in revenue as we had enjoyed in the second part of last year. Ajay Patel: May I add one more question? It was just the other thing just on the opening comments, I think then we were talking about that conflict at the moment. Just wondered if -- what -- how does the disruption work in your business model in terms of if a certain component doesn't turn up on time or there are some restrictions on how you operate in terms of some form of rationing. I know that we're not at this level yet, but if these types of impacts happen, are they passed through? Or is there some exposure on that side? I didn't quite necessarily get that from when I was listening to the presentation. Estelle Brachlianoff: So when it comes to the Middle East activity, we have not seen disruption in supply chain. The thing we've seen is like a few days on and off in the refineries, which were nearby our sites. Therefore, a little bit less activity from one day to the next. But we don't depend on very sensitive component with our chemicals, which only go through -- a lot of it goes through the Strait of Hormuz, if it's your question. We are very decentralized in our supply chain. So we have -- we have, of course, some centralized procurement, but we usually are more on a regional basis anyway. So honestly, we have not seen any disruption, and I don't anticipate any disruption in the supply of everything Veolia needs to operate. We cannot hear you. The line is super blurred. We cannot hear you. Emmanuelle Menning: I think, Arthur, please go ahead. Arthur Sitbon: Yes. Can you hear me well? Emmanuelle Menning: Yes, perfectly, please. Estelle Brachlianoff: Apparently, the only line which doesn't work well is that of the operator, which is not exactly helpful, but we'll try to go ahead anyway. Please go ahead. Arthur Sitbon: So the first one would be just on the headwind to waste organic growth that you mentioned related to bad weather in Europe in January, February and plant outage. I was wondering if you could quantify that negative effect on EBITDA in Q1. And I was also wondering, basically, more generally speaking, how should we expect waste volumes to look later in the year, in particular, you're mentioning a bit of a slow start in January, February. How was it looking in March and April? I suspect you already have some indications of trends for those 2 months. And the second question is just on what's happening in the world at the moment, which is higher inflation due to the geopolitical uncertainty. I was wondering about the sequence of events for Veolia. Is it possible that basically you have a slightly weaker end to 2026 because of the slower volumes and higher costs and then a recovery or a more positive effect in 2027 with your inflation clauses that you flagged that have a little bit of a lag? Estelle Brachlianoff: Thank you. So I guess I would like to highlight, by the way, some opportunities, and I will start with that. What we discover, we discover or the general public realizes when it comes to the one in the Middle East is the dependent on imports is never a good idea. We rely on supply of water, otherwise, nothing happens. And everybody is super concerned by their health and that of their kids. That's exactly what Veolia offers solutions to. So in a way, in my opinion, the crisis reveals anything but the strength of the business model of Veolia and its positioning. To answer specifically your question, there is no slow start to the year in terms of volume when it comes to say economy underlying this, even in waste in the first part of the year. We haven't seen that. The only negative, again, was weather related. There's a number of days where we cannot even circulate it. Our customer could not. So they haven't generated waste, and that was it. But don't take it as a start [Audio Gap] as a slowdown in or a slow start to the year in terms of underlying trend because I think that would be a mistake. So the underlying trend is exactly the same as the end of last year. That's exactly what we've seen to answer your second part of your question in March and April, which were exactly good. When you exclude the weather effect elements, which were a few days here and there and even 2 weeks in the U.S. that's the only component. But again, the demand is sustained. So the volumes are there, and they are coming back once you can transport them, if I may. In terms of the impacts beyond the Middle East itself of the Middle East crisis on costs, if I understand your second question. As we've demonstrated through the war in Ukraine in a way, we have the ability to pass on the cost to protect our margin. We've demonstrated it. There is a little bit of lag effect, but we have a little bit of positive as well in terms of commodities and things like that. So that's why I can confirm fully our guidance for the year. So we will maintain our 5% to 6% EBITDA margin growth for the year. Operator: So I think the next question is coming from Philippe Ourpatian from ODDO. So let's move to Olly from Deutsche Bank. Olly Jeffery: Two questions for me, please. One is just on the free cash flow. There's a bit of improvement versus Q1 last year. Does this put you on track, do you think, to see a similar improvement for the full year for net free cash flow versus 2025, so we can see a bit more meaningful growth there? And then just coming back to the inflation point, I mean, presumably with inflation expectations where they are currently, and we could see those continue to increase perhaps. If there's any benefit from that with your tariff indexation, presumably the bulk of that would start to come through in 2027. If you could just confirm the mechanics of that again, that would be very helpful? Estelle Brachlianoff: Emmanuelle, on free cash flow. Emmanuelle Menning: Yes. Olly, so as mentioned, we are very satisfied with the progression of free cash flow beginning of the year. As you have seen, it has increased by plus EUR 144 million. And part of it come from the very strong discipline we had on CapEx. I mentioned it. We spent EUR 860 million when it was more than EUR 1 billion last year. You know that we are very committed to have a strong free cash flow generation to be able to cover our dividend. We are fully committed, and we have a lot of action regarding that, working on the time to invoice, putting control our CapEx, improving the collection. So our target remains for the year to have a strong free cash flow to be able to cover our dividend. And as you may see, we have a very strong liquidity, EUR 6.7 billion and a very strong balance sheet for 2026. Estelle Brachlianoff: So our aim is always to grow free cash flow on a yearly basis. We don't give guidance because there is seasonality in this in Veolia. But of course, we always try to do our best to improve the free cash flow generation of the group, which allow us then to decide where to invest. I remind you that it's free cash flow after growth investments, by the way, which is in our hands. In terms of inflation, maybe I was not clear enough. So Emmanuelle, do you want to get to have a go at that and fuel surcharge maybe? Emmanuelle Menning: Yes. So your question, Olly, was on the impact of inflation and fuel surcharge. So as mentioned by Estelle, you know that we -- our model is well protected against cost increase. We have 70% of our portfolio, which benefits from indexation formula, and we have 30%, which -- where we have strong pricing power and where we can do price surcharge. Coming to the specific element on inflation, we showed in the past that our model was very strong and able to pass the cost to our clients in 2022, 2023. And what we have done since the beginning of the year is to be very agile and very reactive on the 30%, specifically on the fuel surcharge. We start beginning of March. It has been put in place. We can have a small time lag, but it's very efficient. We demonstrate -- you may remember that in 2022, '23, we are able sometimes to do 3 to 4x increase when it was necessary. So it's fully put in place. The element to have in mind is that for our municipal clients, which is 50%, we may have a time lag of 3 to 6 months. But we have put in place all our action plan, as mentioned before, to have really strong discipline on cost to not accept automatically the increase of our supplier to have restricted move or the placement if it's not necessary and of course, to increase our strategic inventory when necessited. Estelle Brachlianoff: So for the 70%, which is indexed, if there is a little bit of lag effect on the revenue, there could be a lag effect on our supplier in a way in our cost base in other terms to protect our margin. And for the fuel surcharge, it's already in place. And if you have to do 2, 3 this year or 1 will be enough, we will see, but it's already in place now as we speak. I would like to highlight again, if I may. I said it in my speech first, the type of discussion we have with customers is not only about cost protection. Actually, it's quite the opposite. And I just wanted to share this with you. It's incoming calls on can you help us with energy efficiency? Of course, energy is higher in price. Therefore, can you help me with that? It's -- can you help me with securing local sources of energy? It looks like you do that, Veolia. Can you help me with that because it helps. Same with circular economy. When you recycle, it avoids importing from far away and be dependent, therefore, from the ups and downs of commodity prices. So all that means we have a lot of incoming calls of customer where for them, the war means I want more of Veolia type of services, starting in the Middle East, by the way, where they already are preparing for the postwar and discussing about how can we be even more resilient going forward and in terms of the infrastructure reconstruction or depollution of sites. Operator: The next question comes from the line of Philippe ODDO. Philippe Ourpatian: Not Philippe ODDO, I will be more rich than I am. But Philippe Ourpatian from ODDO. Just one question. Most of my questions have been already answered. Concerning the divestments, you mentioned in your slide that 3 operations means the top 3 program have been already signed or being closed in the coming months, I would say. Could you just give us, as you have also mentioned that there is your plan and several scenarios are prepared, could you have the idea -- could we have the idea of what's the amount of divestments already under bracket secured versus the EUR 2 billion targeted? Without mentioning any specific operation, but just to give us where you are exactly '26 and '27 because I do suppose that it's already started and you have some discussion and some assets which have been already determined to be divested... Estelle Brachlianoff: Thanks for your question. A few things. We said we will divest EUR 2 billion in the 2 years following the closing. So we're talking about from now until mid-'28. So we have plenty of time and given our balance sheet is compatible with the time scale I just gave. In terms of what we've already done of the criteria, as said, non-top 3, so things which we are #5, #6 on the market, and we don't see any possibility to be up very, very quickly. Mature as in we don't see how we can grow the EBITDA or the EBIT even with our best efforts going forward or nonstrategic like we've done with SADE, which was an activity in construction, we didn't want to go on with. So that's the typical criteria. That's typically in the criteria of what we've already like signed and closed, secured. We're talking about smaller and medium objects, which are listed there, plastic in Korea, industrial cleaning in Belgium. So altogether, it will be a bit in excess of EUR 100 million, EUR 200 million, this type of order of magnitude, if I remember well. In terms of the larger objects, I will consider them secured when they are signed and when they will be signed, they will be announced. And you will have to wait until that date to have them secured. But I'm very confident I'm very confident because we've done a few market testing. And we have alternatives in case for whatever reason, one doesn't go ahead in the type of price range we were expecting. So we have plan A and plan B, if you want. So we will secure this EUR 2 billion in good condition in the 2 years following the closing. Philippe Ourpatian: May I have an additional comment because it's very interesting what you said concerning your capacity to choose some assets. In order to do EUR 2 billion, what's going to be your, let's say, global potential of divestment? Are we discussing about EUR 3 billion, EUR 4 billion, EUR 5 billion means the bucket of -- or the basket of potential disposal regarding the size of your group and the numbers of subsidiary you have around the world? Just to have an idea about where we are exactly when you mentioned 2, you can pace your calculation on how much more than that? Estelle Brachlianoff: We have enough headroom to be able to be very confident. That's the only thing I can say. But those businesses, it always is a choice. The businesses which are plan B are businesses we like. They are on the money. They are a little bit less interesting than others. So we have no problem in selling them, but they still are good businesses. So we don't have any problematic one in the list. Therefore, like I guess, like we have sufficient security on the achievement of this program, I can tell you. Emmanuelle Menning: Just one element I wanted to share with you. So we told you already a very clear plan. We know what we want to do. We have different scenarios, allowing us to be agile. There is no pressure on timing because our balance sheet is very strong. We don't need to do the divestments to be able to finance Clean Earth. That's not the issue. And you may have seen that in terms of transactions delivery and execution, we have been showing an amazing track record. So not under pressure of time. We also shared with you before that we will divest part of the EUR 2 billion will be a business which will be divested. The other one will be and 1/4 and 1/3 will be linked to the portfolio cleaning that we have also launched before and that we will continue. So we don't need to do everything everywhere. We have a very clear picture on where we want to do, on where we want to go and a very good track record in terms of execution. Estelle Brachlianoff: Just to illustrate what we said by portfolio pruning, we said plastic in Korea. It doesn't mean that we don't like plastic or we don't like Korea, but it looks like plastic in Korea, we were not in the top 3 and not being able to get in the top 3. That's why we sold it. In terms of our industrial cleaning activities in Belgium, it was more of the nonstrategic criteria here. Industrial cleaning is not a priority for the group. And therefore, have no ability to be duplicated anytime soon in nearby geography. So we decided to sell it each time with value-added sales. So it was a good sale for us. So that's -- I think it gives you an idea of what Emmanuelle said by the smaller ones, which are more portfolio pruning type of activities of disposal. Operator: So I think next question is coming from [indiscernible]. Unknown Analyst: Yes. May I ask what is the impact of the delays in terms of projects in the Middle East in terms of EBITDA impact or the order of magnitude? Estelle Brachlianoff: So basically, Water Tech EBITDA has progressed very, very, very well in the first quarter, like it had been in the quarters before. So the answer -- the short answer to your question is none. As we always said, projects are lower margin type of activities within Water Tech. It's only 25% of the business. We like it because it fuels potential buy of membranes and stuff like that in the end, positive margin still, but lower than the average. So the answer is none, roughly. Very nice improving of the EBITDA in the first quarter in Water Tech. So again, Water Tech, excluding project was plus 4.2% revenue increase, which is very nice. EBITDA increased by even more than that. Thanks to, again, the usual cost efficiency and so on and so forth, added to the EUR 10 million synergies we've delivered in the first quarter in addition to the EUR 20 million we already had delivered for the second part of last year. So no impact is the answer. And I'm very confident again that it's only delays in signing, and we still have discussion with the customers about not only signing whenever they will be able because the world will be like a bit more under control. And we even have specific orders like of mobile units and stuff like that in emergency type of situation in the Middle East in Water Tech. So it has created even some opportunities. Operator: Next question is Alex from Bank of America. Alexandre Roncier: Two follow-ups and one question on guidance, please. The first follow-up on the weather headwinds for waste. I don't think that was a specific item that was disclosed in the revenue bridge before and maybe because the impact was just always much smaller than this quarter. But is that something we need to consider on a more recurring basis given climate change around the world? And similarly, on phasing, just to expands on some of the earlier question, should we not see good volumes in Q2 to catch up on the missed rounds you've had in Q1, which would then normalize in Q3? Second follow-up on disposals. Why not perhaps rotate capital more rapidly? I think you mentioned that you had a lot of headroom beyond the EUR 2 billion of asset disposal target. But if these assets are not # 3 -- well, I'm sorry, top 3 mature and nonstrategic, why not also increase the pace of disposals and perhaps get money back to shareholders or even create plenty of headroom for yourself to do some more strategic acquisition? Question and last question on guidance. Given the operating leverage of the business, revenue up 2%, EBITDA plus 5%, EBIT plus 7% is the plus 8% net income guidance not too conservative for the year? Or are there any below-the-line items we need to be mindful of? Estelle Brachlianoff: Okay. So weather on the bridge, Emmanuelle? Emmanuelle Menning: Yes. Alex, so regarding the bridge on the column weather, we have always -- we have the same methodology than before. It's just that in the past, we are not facing this type of weather conditions. So you had in the past, mainly in the weather column, the energy impact almost all time. And you had one or twice some effect from waste when it was the case, but it was more an exception than the rules. You were mentioning the impact of volume. So you're right, we benefit in Q1 in terms of -- of weather from good impact on energy. So we'll not have that in Q2. We will not have this positive effect, but we will benefit from a form of rebound as we will not have, as we had in Q1, the weather impacting -- having impact on icy road, icy waste, no project on some remediation. So we'll have a formal rebound in Q2. That's for sure. And we are starting to see that in April, which is positive. And as we are speaking a bit on the month of April, what we could see is that we have plus and minus. On the waste, as mentioned, there will be -- so yes, we had more outage in Q1, and we'll not have that in Q2, Q3, Q4. We'll not have the negative impact of the [indiscernible]. We'll have a slight -- we may have a slight fuel surcharge or delay, but between 3 and the 6 months like we have mentioned. On the energy side, we had the positive effect of weather that we had in Q1 are not going to be in Q2. And we may have a small impact on energy prices, as I mentioned, linked to fuel surcharge. But we have opportunities for the non-top which has been hedged that we are -- we have full visibility of the energy margin. On the waste business, we have part of the electricity, we are hedging 85%. So for the 15%, we can have a positive impact. Also positive impact, as mentioned before by Estelle potentially on the recyclate, notably on the plastic side. It's marginal because you know that we have put in place back-to-back to contract. And on water, we spoke already about the Water Technology timing effect on project top line. And we see the good trend we have seen on water, especially in terms of pricing and in terms of volumes, we don't see any change of trend in April. Estelle Brachlianoff: So altogether, April will be -- has been good. And we haven't seen any change in underlying trends. You have the ups and downs of weather, but apart from that, nothing specific. And no, there is no -- it was really exceptional in waste. It never happens. It happens every -- I don't know, like 5 to 10 years, this type of circumstances, it was really, really exceptional. So I don't anticipate that it will come again very much. In terms of the capital allocation, yes, we have headroom. That's a question you always ask, what about we sell this and that and then we give money back to the shareholders. I'm really keen on, one, we still create value with those assets by increasing, thanks to our operational efficiency, thanks to everything we are doing. We are creating value. Shall I remind that we've increased the dividend quite a lot in the last few years and the net result by basically 12% year-on-year in the last 2 years and double the net result in the last 5 years. So this creates value. So we already are giving to the shareholders like some element via dividends. We have topped up that starting last year by first in the history of the group, which was the share buyback to avoid the dilution program. So I guess I'm very focusing on delivering shareholder value, but I think we do create shareholder value with the business model we have. In terms of the -- will we stop there irrespective of the -- I mean, irrespective of the buying opportunity, we are doing the pruning of portfolio anyway. The non-top 3 is a strategy which was in the GreenUp plan. You may remember that. So we've tried in typically in the plastic in Korea, I just mentioned, we've tried for 2 years to try to see if we could be in the top 3. We didn't manage to be successful. Therefore, we decided to sell it. That's more the way to see it. There is an up or out strategy here, which we are implemented. And yes, I can confirm that we are very confident about the 8% net income. But Emmanuelle, do you want to elaborate on that? Emmanuelle Menning: Yes, with pleasure. So you know that when you look at our performance this year, very strong performance with the increase of EBITDA of 5.1%, as mentioned before, without the synergies, meaning that we are cruising at the same pace, showing that our strategic decision to go for faster growing and higher-margin activity is delivering results. Down the line, we will, of course, continue to benefit from our operating leverage. We have shown that before, plus 2.1% revenue increase, plus 5.1% EBITDA increase and plus 7.2% EBIT increase. So as you see, we keep a tight cap -- tight control on CapEx so that our DNA will not increase significantly. Our total cost of financing, which decreased slightly in 2025 will only grow in 2026 a bit linked to the financing, for instance, of Water Tech acquisition we did last year in June. And we believe we can sustain a tax rate between 25% and 26%, meaning that we are fully confident to confirm our target in terms of current net income for the year. Operator: I think the next question is coming from [indiscernible]. Unknown Analyst: It's just a follow-up as most of the questions have been already answered. I want to have more clarity on the net income guidance because you signaled that the closing for Clean Earth is expected on June after the 2 major steps in the AGM and the antitrust clearance. So can you help us quantify the expected net income effect from the integration for 2026 as you signaled the 8% growth is ex Clean Earth with a positive contribution from 2027. So what is the expected net income effect that you expect to have from the integration of Clean Earth for '26? Estelle Brachlianoff: So I will refresh what we've said in a way, which we can confirm on when we've announced the acquisition of Clean Earth, which will be assuming it's midyear. Therefore, since we publish, so we can have -- if we were to do accounts at midyear with everything and dividend and so on and so forth, which is not the case, it would be a different story. But basically, given the fact that it's likely to be midyear, it means it will be accretive before PPA, the Clean Earth acquisition from 2027 and accretive even after PPA by from 2028. The PPA, we don't know yet what it's going to be. So we have a few uncertainties on dates on things like PPA. So we cannot give you numbers, but it will be accretive very soon in a way before PPA from year 1 and even after PPA from year 2. That's what we've announced, and we're confident we will deliver. In terms of integration, you remember, we plan over 4 years of synergies. So we have not included any synergies in 2026. It will start in 2027. But again, all that depends on the date and the detail of it. Of course, if we are able to manage some synergies this year, we will be very happy with it. But it is not what we've included in our business plan or what we've announced so far. [Technical Difficulty] We talk about access to local sources of energy, when we talk about securing supply chains, this is exactly what Veolia offers to its customer. And if anything, the crisis in the Middle East is reinforcing the importance of our services and the demand for our services. So I'm very confident not only in confirming the guidance for this year, but in the years to come. And the last point is, of course, we'll have various opportunities, myself, Emmanuelle and the Investor Relations team to see some of you in the roadshows to come. So I'm sure you will have plenty of opportunities to ask a detailed question. And see you otherwise in July for H1 results. Thank you very much. Emmanuelle Menning: Thank you.
Operator: Good afternoon, everyone, and thank you for participating in today's conference call to discuss Dave's financial results for the first quarter ended March 31, 2026. Joining us today are Dave's CEO, Mr. Jason Wilk; and the company's CFO and COO, Mr. Kyle Bauman. By now, everyone should have access to the first quarter 2026 earnings press release, which was issued today after the market closed. The release is available in the Investor Relations section of Dave's website at investors.dave.com. This call will also be available for webcast replay on the company's website. Please be advised that today's conference is being recorded. [Operator Instructions]. Certain comments made during this conference call and webcast are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements. These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. The company undertakes no obligation to revise or update any forward-looking statements, except as required by law. The company's presentation also includes certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, non-GAAP gross profit, non-GAAP gross margin, adjusted earnings per share and compensation expense, excluding stock-based compensation as supplemental measures of performance of our business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You will find reconciliation tables and other important information in the earnings press release and Form 8-K furnished with the SEC. I would now like to turn the call over to Dave's CEO, Mr. Jason Wilk. Please go ahead. Jason Wilk: Good afternoon, and thank you all for joining us. 2026 is off to a strong start at Dave. Revenue grew 47% year-over-year to $158.4 million and adjusted EBITDA grew 57% to $69.3 million at a 44% margin. On the strength of this trend and what we're seeing thus far in Q2, we are raising full year guidance across all 3 dimensions. There are 3 key takeaways I want every investor to take away from this call. The first is credit performance resulting from Cash AIV 5.5 drove our lowest Q1 loss rate on record. Our 28 days past due metric, which we believe investors should use to assess true credit performance at Dave is down to 1.69%, marking a 1 basis point improvement year-on-year and down 85 basis points from 3 years ago. This result underscores how much control we have over our credit outcomes as a result of years of significant investment in training in our models. T he second is we once again demonstrated the durability of our growth algorithm to sustain mid-teens member growth and low double-digit ARPU growth. Despite the usual Q1 seasonal tax refund season and expanded refunds compared to years past, we were still able to grow ARPU 24% year-over-year and monthly transacting members by 18%. We now have a total of 2.99 million MPMs, which is still a small fraction of the overall $185 million customer TAM, and we believe we're still early in our journey to drive incremental ARPU. Lastly, we launched our new Pay in 4 credit product. We officially put our newest product in the hands of a small group of members to trial. I want to congratulate the team on their hard work for reaching this milestone. Turning to our growth pillars, starting with member acquisition. We added 695,000 new members in Q1, up 22% year-over-year at a customer acquisition cost of $18. That CAC is flat year-over-year and improved 11% sequentially, which is better than expected given Q1 is typically our most challenging quarter for marketing efficiency due to tax refund dynamics reducing credit demand. Our gross profit payback period improved to nearly 3 months in Q1, which gives us increasing confidence to continue scaling member acquisition throughout 2026. Moving to our second pillar, engagement through ExtraCash. Originations reached $2.1 billion, up 37% year-over-year, driven by growth in MTMs and average origination size. MTMs grew 18% as a result of improving conversion and reactivation alongside strong retention rates. Average ExtraCash size increased 10% due largely to the impact from Cash AI V5.5, which was deployed in late Q3 of last year. Sequentially, origination size was modestly lower at 212, reflecting the impact of higher tax refunds late in the quarter. That dynamic has already begun to reverse. Average size rebounded to 214 in April. We expect origination sizes to improve with continued V5.5 model optimizations and the forthcoming V6 model that we expect to begin testing within the next couple of months. Moving to our third pillar, deepening engagement. Dave debit card spend was $534 million in Q1, up 9%. Growth here continues to be attributed to the natural synergy of ExtraCash and Dave Card as there have been no new initiatives aim at debit volume growth while we focus our efforts on new credit products to drive deeper engagement. Before turning it over to Kyle, I want to provide a few strategic updates. Starting off with our new Pay in 4 card product, which we're officially calling Dave Flex. Dave Flex is designed as a responsible alternative to traditional credit cards with balances paid back in up to 4 simple installments aligned with your paycheck date. No compound interest, no late fees and no credit check. We believe this product is competitively positioned against the predatory fees of subprime credit cards and the heavy friction associated with BNPL since Dave Flex can be used at any online or offline merchant without the need to reapply with each use. Dave Flex supports each element of our growth pillars as we expect it to be a driver of customer acquisition, expand our credit capabilities and deepen engagement of existing members. Importantly, Dave Flex uses cash AI to power 100% of the underwriting, giving us a meaningful edge over incumbent credit card products that rely on FICO, which we believe will lead to greater customer access and superior credit performance. As promised, we began testing Dave Flex with existing members last month. Early engagement has been encouraging, and we plan to share more once we have more data on performance. We do not expect Dave Flex to contribute meaningful revenue in 2026, and it is not embedded in our guidance. Our focus this year is to test and learn and optimize member lifetime value before scaling in 2027. We believe products like ExtraCash and Dave Flex, which levers short duration credit to drive share of wallet is what really differentiates Dave from our scaled neobank competitors. The bulk of our road map is staffed on our responsible short duration credit initiatives, which we believe will further enable us to achieve our medium-term growth algorithm. As such, we have updated our strategic statement to better capture our focus, which is that Dave is a U.S. neobank pioneering innovative credit products for everyday Americans. Next, regarding our partnership with Coastal Community Bank, which remain on track to begin transitioning ExtraCash receivables to the new off-balance sheet funding structure this summer, which will begin unlocking meaningful liquidity and reduce our cost of capital. Lastly, on the DOJ matter, we have no material update and continue to vigorously defend our position. In closing, 2026 is off to a tremendous start. We are executing well against our stated growth algorithm and credit performance is excelling. I want to thank our team who make all of this possible. With that, I will turn the call to Kyle. Kyle Beilman: Thanks, Jason, and good afternoon, everyone. Q1 was a strong start to the year, marked by durable revenue growth, disciplined marketing investment and continued strong credit performance. Together, those factors drove another quarter of outsized adjusted EBITDA and EPS growth and support the guidance raise we are announcing today, our eighth consecutive quarter of increasing guidance on all metrics. Today, I will cover the key drivers underlying the quarter, credit and provision mechanics, an update on capital allocation and our revised outlook. For a more detailed review of our KPIs, please refer to the earnings supplement on our IR website. Revenue was $158.4 million, representing 47% growth year-over-year. Growth was driven by 18% MTM growth and 24% ARPU expansion, both ahead of our medium-term growth algorithm. Underneath those headline numbers, new member conversion, dormant member reactivation and retention all contributed and repeat originations from members with an average tenure of close to 2 years continue to anchor the book. For those newer to the Dave story, Q1 is seasonally our softest quarter, driven by tax refunds, which temporarily reduced demand for ExtraCash. As a result, the number of ExtraCash disbursements declined 5% sequentially, consistent with the range we have observed in every Q1 since 2021. This was the primary driver of the 3% sequential decline in revenue. Average ExtraCash size was down modestly from $214 to $212 sequentially, reflecting higher-than-normal tax refunds per member. It's worth noting that Q1 of last year benefited from the step-up in ExtraCash approval limits we implemented as part of our fee model transition. Both average origination size and disbursement volume have rebounded in April, and we expect continued expansion in Q2 and beyond. In terms of forward-looking color on top line drivers, in addition to the optimism we have about the potential impact of Cash AI V 6.0, we also have a series of initiatives aimed at improving average origination sizes, monetization rates and therefore, ARPU in the near term. The first is removing our $15 fee cap for new members, which enables more members to achieve higher limits now that the risk is appropriately monetized. Second, we addressed a common member pain point, where if you hadn't utilized your entire ExtraCash limit, the additional amount wasn't accessible within that pay period. This new feature, which we are calling second draw, solves that problem and enables members more flexibility, which we believe should help with overall credit utilization and therefore, average origination size. Second draw is now available to all eligible members as of last month. Now turning to credit and provision. As Jason noted, the underlying credit picture continued to improve meaningfully in the first quarter. Our 28-day past due rate of 1.69% was a Q1 record, improving both sequentially and year-over-year, even with originations up 37%. This was the first quarter we have seen EPD improve year-over-year since transitioning to the new fee model. When we moved to that structure, we deliberately expanded the credit box while Cash AI iterated. 3 quarters of optimization later, loss rates are back below where we started. That momentum has continued into Q2 and should expand upon rolling out CashAIV6.0 over the coming months. On provision for credit losses, the sequential increase was mechanical and calendar driven. The underlying book performed 10% better than Q4 on a 28 DPD rate basis. The metrics that incorporate credit performance, DPD rate, net monetization rate and revenue per origination net of losses, all improved sequentially and year-over-year, which we believe is a more meaningful signal. Consistent with the expectation we set last quarter, Q1 ended on a Tuesday, typically the intra-week peak in outstanding receivables. Higher ExtraCash balances at the measurement date mechanically drive a higher loss reserve even when the underlying loss content on those receivables is trending lower. Had Q1 ended on the prior Friday, the provision would have been approximately $5 million lower and non-GAAP gross margin would have been approximately 75% Importantly, because Q1 already absorbed the elevated reserve with that Tuesday watermark, we do not expect Q2 ending on a Tuesday to adversely impact provision in the same way it did in Q1. Furthermore, Q3 and Q4 ending on a Wednesday and Thursday, respectively, should provide a tailwind for loss provision as a percentage of originations and gross margin in those periods. Non-GAAP gross profit was $114.4 million, up 37% year-over-year. Non-GAAP gross margin was 72%, which is consistent with the low 70s framework we guided to in March, and we expect Q1 to represent the low point for the year. Given the improving DPD trend and more favorable calendar dynamics ahead, we now expect non-GAAP gross margin to expand into the mid-70s for the balance of the year. In terms of marketing, Q1 was our seasonal low by design. We moderated investment given the typical softness in ExtraCash demand during tax refund season. For the balance of 2026, we plan to expand marketing spend above fourth quarter 2025 levels while maintaining our discipline on investment returns. On fixed costs, compensation expense grew 1% year-over-year and 11% sequentially. We typically see a modest bump in Q1 related to seasonally elevated payroll taxes. Additionally, we began making targeted investments in product development headcount as previously communicated. To size that investment, we expect to move from under 300 employees as of the end of last year to around 325 by the end of this year, representing an annualized incremental expense of approximately $10 million. We continue to run a highly efficient platform with what we believe is one of the strongest revenue per employee businesses in the industry. As revenue scales throughout the balance of the year, we expect operating leverage to continue to build thereafter. Pulling it all together, adjusted EBITDA was $69.3 million, up 57% year-over-year at a 44% margin. That is approximately 300 basis points of year-over-year margin expansion and consistent with our commitment to deliver ongoing annual EBITDA margin improvement. GAAP net income was $57.9 million, up 101%. Adjusted net income was $52.3 million, up 61% and adjusted diluted EPS was $3.64, up 64%, reflecting the combined benefit of operating performance and the reduction in share count from Q1 repurchases. Given that our share repurchases in Q1 occurred entirely in March, Q2 will begin to experience a full quarter's benefit of their impact. In terms of capital allocation, Q1 was a meaningful quarter for per share value accretion. We deployed $194.9 million into share repurchases and restricted stock unit net settlements, reducing our basic share count from 13.6 million at year-end 2025 to 12.7 million at the end of Q1, a reduction of approximately 6% sequentially. In early March, we completed $200 million zero coupon convertible notes offering, generating $175.7 million of net proceeds. We simultaneously repurchased $70 million of common stock in a privately negotiated transaction with the convertible note holders and continued buying shares in the open market for the remainder of the quarter. We have approximately $113.3 million in remaining capacity under our share repurchase authorization, which we expect to continue to utilize opportunistically. Our capital priorities remain the same. First, invest in organic growth where we are generating returns that are multiples of our cost of capital; second, operationalize the coastal funding structure; third, return capital through share repurchases using our excess cash when risk-adjusted returns exceed those alternatives. Our objective is simple. We intend to allocate capital to maximize value for shareholders, and Q1 was a strong proof point of us doing it at scale. We remain on track to transition ExtraCash receivables to the coastal off-balance sheet funding structure this summer. At full implementation, we expect to unlock over $200 million in incremental liquidity, reduce our cost of capital and repay our existing credit facility. As a reminder, the fees paid to Coastal under this arrangement will be recognized as an operating expense that will burden non-GAAP gross profit and gross margin but will be added back for adjusted EBITDA purposes. Now turning to guidance. Based on Q1 results and the trajectory we see in the business, we are raising 2026 guidance across all 3 metrics. We now expect full year revenue of $710 million to $720 million, representing growth of approximately 28% to 30%. Additionally, we are raising adjusted EBITDA guidance to $305 million to $315 million. Lastly, we are raising adjusted diluted EPS to a range of $16.25 to $16.75, up from $14 to $15. This represents year-over-year growth of approximately 43% to 47% on a tax rate adjusted basis, reflecting both strong operating performance and a meaningful reduction in share count from Q1 repurchases. All figures assume a 23% effective tax rate. The execution we have demonstrated over the last several years, consistently raising guidance while improving credit and scaling originations has carried into 2026. Cash AI continues to sharpen. Our competitive position continues to strengthen, and we believe we have a clear and executable path to deliver on our medium-term growth algorithm while creating outsized shareholder value. With that, we will conclude our prepared remarks. Operator, please open the line for questions. Operator: [Operator Instructions] And our first question comes from Andrew Jeffrey with William Blair. Andrew Jeffrey: I wanted to ask about, Jason, maybe your comments around focusing on engagement, particularly in the context of Dave Card volume, which -- the growth of which deceled a little bit this quarter. It sounds like that's less at least of a near-term focus for you in terms of engagement as you turn your eyes to Flex and Cash AI 6.0. I wonder if you could just kind of unpack that a little bit for us. Jason Wilk: Yes, sure. Thanks for the question. So look, when I think about deepening engagement, specifically through card, we believe have a much differentiated offering through the Dave Flex product, just given our advantages in underwriting, but also the fact there's just far less friction associated with winning card spend when we're provisioning credit versus asking someone to switch their direct deposit. We found there's very little differentiation amongst all the scaled neobanks on debit card offerings. And therefore, we're going to maintain the natural synergy between ExtraCash and the debit card to drive natural volume there, but we do think there's a massive opportunity with Dave Flex to make that a scaled product and be a real differentiator amongst our peers. Andrew Jeffrey: Okay. Yes, I look forward to that product rolling out. And one follow-up, if I may. Just where do you think over time, engagement goes? You got about a 20% MTM to MAU attached this quarter, somewhere in that neighborhood. Where can that go and over what period of time? And I assume that could be a pretty important ARPU driver along with some of the other initiatives you called out on the call today. Jason Wilk: Look, as stated on the call, I think we're doing really well against our stated growth algorithm, which is to grow MTMs mid-double digits and ARPU low double digits, and we're doing very well there, exceeded both those targets within the quarter. And as I mentioned, a lot of room to run given we're 2.99 million MTMs against the total 10 million member TAM. And we just know that from a sort of credit share of wallet, there's a tremendous opportunity for us to continue to do more for this customer and ExtraCash is largely used for nondiscretionary expenses. And while we think there's still a ton of room to run with that product to drive more MTMs and optimize that product for more ARPU, just think the opportunity with things like Dave Flex to drive more of that discretionary spending to win more of the daily engagement and expand into that credit wallet, just a huge opportunity. Operator: Our next question comes from Ryan Tomasello with KBW. Ryan Tomasello: Following up on the Flex Pay in 4 product, maybe if you could just give us an update on how you're thinking about monetization rates relative to ExtraCash as well as the credit component, how that might compare given the higher advance rates, higher advanced limits and longer duration? And then as a follow-up on that, I think the intention you've mentioned is to focus initially on existing customers for the Pay in 4 product. But as you lean into more external growth eventually, do you think that you can maintain that sub-$25 or so CAC level? Or might higher LTVs on that product justify a step-up in CAC for the Flex product? Jason Wilk: Sure. Well, answering the last question, I mean, we've said pretty repeatedly, we're not focused on the lowest dollar CAC. We look at the best and most attractive returns. And so we would expect to spend against Flex acquisition where we see positive returns that we like. It's too early to tell on that given we're not actually testing in market for new users at this point, but we do anticipate testing this year to understand how it does with paid advertising and what kind of growth algorithm we can have for that product in 2027. As far as the economics, we are in market testing a higher monthly fee than ExtraCash. And then we plan to have -- we are in market testing a per spike transaction fee with that product as well. No late fees, no compound interest on the product. You can apply with no credit check using Cash AI. I think one thing we are willing to share right now is that everything so far on the adoption points to incrementality with regard to total originations per customer, meaning we are seeing natural synergy between this product and with ExtraCash. And so there should be some -- definitely ARPU lift is what we're seeing. It's what we expected with the product, given how we've seen people interact with BNPL within our customer cash flow data. But nonetheless, still positive to see the initial signs are there, and our hypothesis is turning out to be true there. Ryan Tomasello: Great. And then one of your large neobank peers has signaled a renewed push into the cash advance space I believe with a modestly lower cost product, they're also expanding into the enterprise earned wage access category. Curious if you've seen any measurable impact there from those competitive dynamics? And if you can just give us your thoughts on whether the enterprise EWA category competes with the direct-to-consumer cash advance product and generally how you view that strategy as a potential tack on today's product pipeline at some point? Jason Wilk: Well, look, we still view our ability to underwrite external primary accounts via Plaid to be a differentiator amongst our scaled neobank competitors, which require a direct deposit into their account to access credit. We've said before that we believe the TAM of people willing to connect a bank account to get access to credit is far wider than those willing to switch their bank account. And therefore, we think that it's hard to compare the product on apples-to-apples because even if that product may be slightly cheaper, there's a massive tax on the user in the sense that they have to switch their direct deposit, which has a lot of friction. When I think about the enterprise opportunity, I mean it's certainly an interesting differentiated way to acquire customers, but it's a very different value prop and that this is customers being able to access their earned wages every single day. We look at Dave as the ability to capture a much larger paycheck before at the beginning of your pay period to go cover things like rent or gas or groceries. And so the use case is different, and we do view those to be pretty complementary products. those enterprise businesses have been around for a decade plus, and we just haven't seen anyone really crack significant scale there, and it certainly has had no bearing or impact on our business. Operator: Our next question comes from Joseph Vafi with Canaccord. Joseph Vafi: Terrific results once again here in the quarter. Congrats. I thought maybe we'd look at -- maybe look at customer acquisition through a little bit of a different lens here. Obviously, there's sales and marketing spend for customer acquisition. Just wanted to kind of also drill down into your credit algo and how much of a factor that is, is in driving -- as that continues to improve and you're on Cash AI V6, how much that is a driver in customer acquisition because obviously, if someone applies, they may or may not get approved and how that really kind of is part of growth in MTM. And I have a quick follow-up. Jason Wilk: Yes. Thanks. As mentioned, the quarter was better than expected from a marketing perspective. I mean CAC was -- came in less than we thought it was going to, which we thought was impressive given the elevated tax refunds that we did see. And that just gives us more confidence given the shrinking payback period that we have a lot of confidence going into the rest of the year to continue to deploy marketing dollars efficiently and at scale. With regard to Cash AI V6, I wouldn't think about it in the terms of this is going to approve more customers that otherwise would be rejected. It's more so the people that we do approve we are able to get incremental credit from there. And we do see that benefit conversion, which helps with CAC from a first-time credit active perspective. And so one of the things we mentioned or that Kyle mentioned on the call was removing that fee cap for new customers. We're already seeing the benefits there of it resulting in more customers getting approved for higher amounts, and that has compounding effects on first-time conversion, retention, et cetera, and just incremental to LTV and marketing spend all around. Joseph Vafi: Sure. And then just a follow-up... Kyle Beilman: Let me just jump in and add something real quick there. I mean everything that Jason said is true, but it also applies to the overall book. And so the better that we can get with underwriting and improvements that we expect from Cash AI V6 that all those benefits and higher limits and therefore, a better value prop increases customer retention and reactivation as well and supports overall customer growth. And so it's both new users and existing user benefits that we expect to see as we continue to make improvements on Cash AI. Joseph Vafi: Sure. That makes sense. And then maybe just on removing that fee cap, how much price sensitivity was there? And maybe kind of drill down a little bit more on your thoughts there on removing that would be helpful. Jason Wilk: I'll pass to Kyle on that one. Kyle Beilman: Yes. I mean, Joe, I think we've seen over the last couple of years as we've made pricing optimizations that as we move on price and therefore, increase spreads, we're able to open up the credit box and that sort of increase in limit and value prop is much more valuable than the customer than the incremental cost associated with it. And so that's the same dynamic that we're seeing play out here with eliminating the fee cap as we can generate the incremental spread there with the removal of that cap and therefore, increase the limits, we're seeing benefits to conversion, as Jason mentioned. So all facts and kind of data points over the last couple of years kind of speak to that dynamic where limit matters more than price, and we're trying to find the sweet spot there at all times to maximize the customer experience while ensuring that we are compensated well enough for the incremental risk that we're taking on. Operator: Our next question comes from Devin Ryan with Citizens Bank. Devin Ryan: Jason and Kyle, congrats on the strong quarter here. Just want to touch on capital. Obviously, the offering this quarter bought back a lot of stock with the coastal transition coming, that's $200 million of liquidity. When we think about kind of the uses of liquidity and kind of excess cash, you obviously can pay down the existing facility. Beyond that, should we just think about kind of free cash generation as just being pegged towards buybacks? Or is there anything else we should be thinking about with that because obviously, beyond the $200 million, you're generating another couple of hundred million dollars or more a year as well. So a lot of capacity there. Jason Wilk: Thanks, Kevin. I'll pass to Kyle on that one. Kyle Beilman: Devin, look, I think you keyed in on the point there. I mean the company at this point is substantially free cash flow generative. We're unlocking a significant amount of capital with the migration to the coastal funding arrangement, and that gives us a lot of dry powder from a capital allocation perspective. And as I mentioned in my remarks, we continue to see share repurchases as a very attractive way for us to continue to deploy capital. That's at the sort of top of the list from a capital allocation prioritization perspective. And we have looked at various M&A opportunities over time, and we'll continue to evaluate that landscape if there's anything that's overall additive to our strategy. But I would say, by and large, very much oriented towards share repurchases for use of excess cash. Devin Ryan: Got it. And then just another follow-up here on ExtraCash. Obviously, strong demand against what's typically kind of a seasonally softer quarter, and it seemed like this year was actually even a heavier tax refund season than prior year. So I think kind of the results are even more notable against that backdrop. So can you just talk about some of the trends that you saw with your customers? Were there any new factors driving demand? Was it just all kind of cash AI 55 expanding the credit box and kind of doing what it does? Or were there other factors? And then also, what does that imply for kind of the snapback into the second quarter once we move beyond some of these seasonal dynamics? I heard, obviously, what you guys said in the prepared remarks, but any other color there would be helpful as well. Jason Wilk: Yes. Thanks, Devin. For your point, we mentioned that there has been a snapback in April with respect to average origination size. As far as Q1, obviously, we have a massive data set with over 7 million customer connected accounts we can peer into to understand what's happening with the economy with respect to our consumer. And we're just seeing everything pretty consistent. Income is holding up. If anything, income is up a little bit year-over-year. Spending is pretty flat year-over-year, no evidence of trade down behavior. to call out, restaurant has been gaining some share of food and drink spend at the expense of groceries, but no signs of increasing credit or leverage. And as we saw, we had record Q1 performance and investors really take that away as a big positive for the business and shows the strength of Cash and having control of our credit box. Kyle Beilman: Maybe I'll jump in with just one more sort of anecdote there, Devin. I mean if you look back to the sort of sequential trend, whether that's on ARPU or the amount of ExtraCash originations per MTM, the Q1 '26 versus our Q4 '25 trend was very similar to what we saw in years past. Last year was a little different given that we had introduced the new fee model and the higher thresholds in Q1, so that obfuscated some of that impact, but this Q1 largely mirrored the last several years before last year. And so it was pretty much business as usual for us and very much in line with expectations from tax refunds. Operator: Our next question comes from Jeff Cantwell with Seaport Research. Jeffrey Cantwell: Can you tell us what provision expense would have been in the quarter if not for the timing impact? How much was that impact this quarter? Can you maybe size that? And then assuming the macro remains fairly steady, should we expect to see that normalize from here? Or is there anything else to flag as you look out to the remainder of this year? Jason Wilk: Thanks, Jeff. I'll let Kyle take this one. Kyle Beilman: Jeff, thanks for the question. So as I mentioned in the remarks, the provision dynamic from, say, the quarter closing on a Wednesday versus the prior Friday was about a $5 million swing to gross profit. So that's, I think, a pretty strong indicator of what it would have looked like as the provision as a percent of originations and it would have brought the gross margins back into the mid-70s. Look, I think we tried to do our best to signal this impact coming in Q1. We know about the sort of calendar dynamic swings, obviously, well ahead of time and gross margin performance was still well within our expectations of the low 70s -- we do expect Q1 to represent the low watermark for the year and expect gross margins to be in the mid-70s for the rest of the year. And then in terms of overall credit performance, we would expect that to -- on a DPD rate basis to be at least as good as where we were last year, if not better. So I think all signs point to improving gross margins and all else equal, timing dynamics aside, provision as a percentage of originations coming down. Jeffrey Cantwell: Got it. Got it. And then looking at CAC this quarter, it was $18. That's down a couple of dollars versus the previous quarter and flat versus last year. I guess my question is that when you think about the pay in the card, -- just given the competitive dynamics of that space, the BNPL space, is there any reason to suspect that you're contemplating changes in CAC in order to drive new customer growth from that channel? Or how should we be thinking about CAC in the context of the new product launch? Jason Wilk: Thanks. As I mentioned, to put the other questions here, we're going to invest in growth in Flex Card where we see positive economics and returns. So if that comes at a higher CAC than $18, it doesn't really matter to us because we're solving for returns, not for lowest dollar CAC. And so we're very interested to see what the returns look like. From a competitive landscape, while BNPL is quite competitive as a merchant checkout, a direct-to-consumer offering where you can actually buy now, pay later or whatever you want without the need to reapply is not that competitive. And so we are excited to start to penetrate that TAM and be one of the first to have scaled advertising against that message. A lot of the pay in for card type competitor products are largely cross-sold products and people that were already acquired through BNPL channels. And given our advantages within Cash AI to underwrite new customers based on cash flow data as well as our advantages in having a strong brand with very scaled marketing channels and messages, we feel confident that there's a lot of opportunity there. And I think I mentioned this on previous calls, but we really think that target here to disruptive subprime credit cards, which is monetizing customers on being late with late fees, compound interest and those products is the exact opposite with responsible credit offering, payments tied back to your future paycheck dates with no late fees. And so excited to get this out there and think there's a lot of opportunity to make this a marketing machine. Operator: Our next question comes from Hal Goetsch with B. Riley Securities. Harold Goetsch: Can you just give us maybe a hint on where you think share count will be for maybe the next couple of quarters with all the buyback activity and the timing of it? Jason Wilk: I'll let Kyle get on this one. Kyle Beilman: Thanks, Hal. We're not providing any specific guidance on the buybacks at this point. Of note, I would say our revised guidance on adjusted EPS does not contemplate buybacks for the duration of the year. But as I alluded to earlier, I would expect us to continue to be forward leaning on the buyback with the excess cash that we're generating. So yes, no specific numbers there for you, but I would expect some impact from future repurchases if things continue to sort of play out the way that we expect them to. Harold Goetsch: And perhaps maybe you could remind us maybe how much you -- given your cash flow underwriting, what percentage of your customers are using BNPL maybe the other prominent 6 to 7 logos that are out there in the United States. Do you have kind of a rough number of what percentage of your active customers are using BNPL? Jason Wilk: We see around 50% of people will engage with it at some point during a quarter. And so we know the demand is there and early signs that we -- as I mentioned earlier in the questions here that we are seeing this as an incremental credit opportunity with respect to origination sizes given that's how we already see people use DNPL today. And so we like the ability to see the opportunity to displace that DNPL activity. But importantly, our customers are either not approved for subprime credit cards or they are having a terrible experience because they're massively overpaying in fees. credit card interest rates in the U.S. are being collected over $100 billion a year, credit card late fees over $20 billion. And just like Dave was invented to disrupt traditional overdraft fees, we see the opportunity here to really change the industry. And so just a lot of excitement. We don't really think about it being directly competitive with the existing BNPL given the merchant checkout, heavy friction, et cetera, if that makes sense. Harold Goetsch: That's terrific. And would you say the key takeaway on Flex is that you're probably the only BNPL company that has payments triggered on pay days because the other BNPLs, they don't know when they get paid. Is that right? Jason Wilk: That's correct. Harold Goetsch: Yes. Terrific. Jason Wilk: And Hal, same goes for subprime credit card companies, too. They're just leveraging antiquated FICO models for underwriting. They're all collecting on the exact same day, and we can be highly customized here knowing what your paycheck date is given the income visibility and prediction algorithms with C AI gives us a huge advantage when you are underwriting a customer like we are, the everyday American consumer collecting on their right paycheck data is a huge advantage for settlement efficiency. Operator: Our next question comes from Jacob Stephan with Lake Street Capital Markets. Jacob Stephan: I want to ask a little bit on dormant reactivation. You guys kind of talked about that being one of the drivers of the MTM growth this quarter. But can you help us kind of piece out what's driving the reactivation, C AI or reengagement marketing? And as kind of a follow-up to that, is there a way to frame maybe how large the reactivation cohort was as a percentage of Q1 MTM adds? Jason Wilk: I'll pass to Kyle on that one. Kyle Beilman: Jacob, so in terms of the size of that opportunity, it's about 11.5 million dormant customers that we have to sort of continue the opportunity to drive reengagement and reactivation with. And the interesting data point there is we grew total members by about 17% and are growing MTMs faster than that. So I think that just kind of speaks to the activation of the base that we've been able to kind of chip away at over time through these reactivation initiatives. It's life cycle marketing, it's improvements to cash AI and the value prop of our limits relative to other alternatives out there to increase consideration when people are coming back into the category. That's really big for us. It's promotions. I mean it's a whole sort of slew of different initiatives that the team has been driving to increase that reactivation number, and it continues to be a really important part of the MTM mix. We don't quantify that portion of the overall MTMs in a given period. But again, it's a very valuable customer pool that we have to fish in on a regular basis and an important part of the MTM growth story that we're super focused on. Okay. Jacob Stephan: And maybe as a second follow-up, as it relates to the removal of the $15 fee cap, can you just remind us the MTMs, those are essentially grandfathered into the old fee cap, the $15 fee cap and any reactivated members essentially, would they be subject to removal of the cap? Or how does that work? Kyle Beilman: The fee cap would only -- or the removal of the fee cap would only apply to new customers who are onboarding on to Dave for the first time. So that's where the focus of this fee change is. Again, we don't quantify how big that portion is of the MTM base, but we would expect it to be supportive of incremental ARPU throughout the year as more and more of Dave's new customers become a bigger portion of the overall MTM base over time. Jacob Stephan: Okay. So just to clarify, anything over and above the 14.5 million total members essentially would be on the new fee cap or the no fee cap model? Kyle Beilman: Correct. Jacob Stephan: Thank you. Jason Wilk: Thank you. Operator: This concludes the conference. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Twin Disc, Incorporated fiscal third quarter 2026 conference call. I am Frans, and I will be the operator assisting you today. 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 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the call over to Jeffrey S. Knutson, Chief Financial Officer. Please go ahead. Jeffrey S. Knutson: Good morning, and thank you for joining us today to discuss our fiscal 2026 third quarter results. On the call with me today is John H. Batten, Twin Disc, Incorporated’s CEO. I would like to remind everyone that certain statements made during this conference call, especially statements expressing hopes, beliefs, expectations, or predictions for the future, are forward-looking statements. It is important to remember that the company’s actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company’s annual report on Form 10-K, copies of which may be obtained by contacting either the company or the SEC. Any forward-looking statements that are made during this call are based on assumptions as of today, and the company undertakes no obligation to publicly update or revise these statements to reflect subsequent events or new information. During today’s call, management will also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. I will now turn the call over to John. John H. Batten: Good morning, everyone, and welcome to our fiscal 2026 third quarter conference call. Let me start with a few highlights from the third quarter. As we noted during our previous earnings call, we expected a stronger second half, and our third quarter results marked the beginning of that. We delivered meaningful sales growth, margin expansion, and improved free cash flow generation through solid execution and healthy demand across our end markets. Sales increased 19% year-over-year to $96.7 million, supported by strength in Marine and Propulsion Systems with continued demand for our Veth products, along with contributions from acquisitions and favorable foreign exchange. On an organic basis, sales grew 7%, reflecting healthy demand across Marine and Propulsion, defense, and select industrial applications. Profitability also improved meaningfully in the quarter. Gross margin expanded to 28.1%, driven by higher volumes and operational improvements. EBITDA increased to $9.4 million, and EBITDA margin expanded by approximately 480 basis points versus the prior-year period, reflecting higher volumes as well as the benefit of our margin improvement initiatives. From an operating and cash flow standpoint, we made solid progress as well. Inventory improved again as a percentage of backlog, and together with higher profitability that supported free cash flow generation of $1.8 million in the quarter. Looking ahead, our six-month backlog increased sequentially to approximately $179.5 million, supported by healthy order momentum across core markets, including demand for our land-based transmission products and continued strength in defense-related activity, which continues to serve as an important long-term growth driver for Twin Disc, Incorporated. At the same time, our third quarter results demonstrated improved execution on that backlog, as reflected in meaningful sales growth and margin expansion. Overall, this growing backlog, together with improved execution, gives us solid visibility into near-term demand and supports our confidence in the path ahead. Turning to our defense-related business, we continue to see robust demand across multiple programs and geographies, supported by elevated defense spending both in the United States and across NATO markets. As a result, defense continues to become an increasingly meaningful and durable component of our overall backlog, and we view this as a secular trend given the increased geopolitical environment we are currently navigating. Today, defense represents approximately 15% of our backlog, and we continue to see encouraging momentum in both backlog and pipeline activity. Defense backlog increased year-over-year by roughly 20%, and the opportunity moving forward remains sizable with a pipeline of roughly $50 million to $75 million. That continued momentum reinforces our confidence in the durability of demand we are seeing across this part of our business and supports our outlook for future growth. From a product perspective, we are well positioned across a broad range of defense applications, including marine transmissions, controls and steering systems, propulsion systems, transmissions, gearboxes, and transfer cases. These offerings support a diverse set of end users and programs across North America, Europe, and Asia Pacific, and we believe that breadth continues to differentiate Twin Disc, Incorporated as customers prioritize modernization across marine, land-based, and autonomous platforms. The opportunity continues to be driven by the same two core buckets we discussed last quarter: activity tied to unmanned and autonomous U.S. Navy vessel programs as well as growing demand in Europe through CASA supporting NATO-related vehicle platforms. Importantly, we have a substantial portion of the acquired capacity in place today in North America. However, in Europe, we are advancing targeted facility expansion efforts in Finland to add test stand and assembly capacity, which will better position us to support expected growth in European defense demand over the long term. Overall, with our current structure and targeted investments to support growth, we believe Twin Disc, Incorporated is well positioned to continue capturing this demand and further expand our presence in the defense market. Now let me walk you through product group performance. Marine and Propulsion Systems remained a key driver of performance in the quarter, with sales up 20% from the prior-year period. We continue to see healthy demand across workboat, government, and specialty marine applications, along with sustained higher-content propulsion solutions and integrated systems supported by continued demand for our Veth products. Improved aftermarket execution also drove positive results in the quarter, which is encouraging in light of the short-term softness we discussed last quarter that was largely timing-related and not indicative of any change in underlying demand. Overall, we remain encouraged by the demand environment and by how the business is performing. Land-based transmissions delivered strong year-over-year growth in the quarter, with sales increasing 22.2% compared with the prior-year period, driven primarily by improved shipment volumes and favorable mix. Importantly, shipment trends improved from the delays we discussed last quarter. Although a subset of deliveries, including certain oil and gas transmission shipments to China, shifted into the fourth quarter based on customer timing preferences around complete system deliveries, we view those remaining delays as timing-related and not reflective of any broader change in underlying demand. From a market standpoint, conditions remain mixed, and North America oil and gas customer behavior continues to be cautious, with rebuilds and refurbishments still outpacing new equipment purchases, although we are beginning to see signs that cycle is maturing. Internationally, order trends have shown improvement, particularly in oil and gas, where activity in China and customer engagement continue to support the outlook for the business. We also continue to see healthy demand in ARF applications and are advancing next-generation electrified and hybrid solutions that support longer-term growth. Industrial sales increased 15.2% year-over-year, largely due to the contribution from Cobalt, as well as steady underlying demand. We continue to focus on higher-content solutions and on leveraging engineering and manufacturing capabilities across the platform, which we believe will help improve mix and support better margins over time. Our six-month backlog increased to approximately $179.5 million in the third quarter, up both sequentially and year-over-year. Growth was driven by broad-based demand across our core markets, such as land-based transmissions, and by continued defense-related order activity. Backlog also included approximately $2.5 million of negative foreign exchange impact relative to the prior quarter. We also continued to make progress on working capital management, as inventory declined by roughly $3 million from the second quarter and inventory as a percentage of backlog improved to approximately 89%. Overall, that improving backlog profile continues to support solid visibility into near-term demand, and our improved working capital management demonstrates our focus on converting backlog effectively into cash. Looking forward, our long-term strategy remains unchanged. We are focused on driving profitable growth through operational excellence, footprint optimization, and disciplined capital allocation. As discussed earlier, we continue to execute targeted initiatives across our manufacturing footprint, including the planned relocation of ARF assembly to our Lufkin facility and targeted expansion efforts in Finland to support expected growth in European defense demand. Together, these actions are intended to improve operational flexibility, mitigate tariff exposure, and better align capacity with demand. With continued momentum across our core markets, a growing backlog, and improving profitability, we believe Twin Disc, Incorporated is well positioned to build on this progress through the balance of the fiscal year. With that, I will now turn the call over to Jeffrey S. Knutson to discuss our financial results in greater detail. Jeffrey S. Knutson: Thanks, John. Good morning, everyone. During the third quarter, we delivered sales of $96.7 million, an increase of 19% compared to the prior-year period. This growth was driven primarily by strength in Marine and Propulsion Systems and contributions from our recent acquisition of Cobalt. Gross profit increased 25% to $27.1 million, and gross margin expanded to approximately 28.1%, reflecting higher volumes and operational improvements. SG&A expenses were $21.3 million in the quarter compared to $19.8 million in the prior year. As a percentage of sales, SG&A decreased by approximately 230 basis points, reflecting strong operating leverage on higher revenue. Net income attributable to Twin Disc, Incorporated was $3.3 million, or $0.23 per diluted share, compared to a net loss of $1.5 million, or $0.11 per diluted share, in the prior-year period. This improvement was driven by higher operating income and lower expenses. EBITDA was $9.4 million in the quarter, representing an increase of approximately 135% year-over-year and an EBITDA margin improvement of roughly 480 basis points when compared to the prior-year period, reflecting higher volumes and the successful implementation of our margin improvement initiatives. Geographically, sales growth was led by North America and Europe, supported by sustained demand for Veth products and incremental contributions from recent acquisitions. As a result, North America represented a higher share of quarterly revenue, while Asia Pacific and Latin America made up a smaller portion, reflecting regional market dynamics—a trend that we expect to continue and which should soften tariff impact moving forward. Turning to cash flow, we generated approximately $1.8 million of free cash flow in the quarter, reflecting improved operating performance and continued signs of working capital normalization. We ended the quarter with cash of approximately $16.1 million. Total debt increased to $45.1 million, and net debt increased to approximately $29 million, an increase of 10.5%, primarily reflecting higher long-term debt associated with the Cobalt acquisition. Margin performance was a key highlight of the quarter, with significant expansion both sequentially and year-over-year. This improvement was driven by increased volume and the impact of margin improvement initiatives. Sequentially, growth was supported by increased aftermarket execution as we effectively delivered against strong demand. Regarding tariffs, we continue to monitor the evolving landscape closely and are actively executing mitigation initiatives, including adjustments to our manufacturing strategy where appropriate. Based on the current environment and our favorable regional mix, we expect tariff-related impact in the upcoming quarter to be approximately 1% to 3% of cost of goods sold. Looking ahead, we expect continued progress supported by backlog conversion, improving mix, and ongoing operational initiatives. From a capital allocation perspective, our priorities remain unchanged. We continue to focus first on investing in the business to support growth, including capacity, operational efficiency, and product development, while maintaining a strong and flexible balance sheet. At the same time, we remain disciplined in our approach to capital deployment, with an emphasis on preserving liquidity, managing leverage, and improving working capital efficiency as we convert backlog into revenue and cash. I will now turn the call back to John for his closing remarks. John H. Batten: Thanks, Jeff. In closing, the third quarter represented a strong step forward for Twin Disc, Incorporated as we delivered meaningful improvement in revenue, margins, and cash flow. Underlying demand across our core markets remains healthy, supported by a growing record backlog and continued momentum in key areas such as Marine and Propulsion Systems and land-based transmissions, along with increasing defense-related activity. At the same time, working capital continues to improve along with enhanced profitability, positioning us for stronger cash generation in the fourth quarter. As we look ahead, we remain focused on executing our operational initiatives, optimizing our footprint, and supporting long-term growth. With improving profitability, healthy demand visibility, and continued execution, we believe Twin Disc, Incorporated is well positioned to build on this progress through the balance of the fiscal year. We will now open the call for 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 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your 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. There are no further questions at this time. Ladies and gentlemen, thank you all for joining. This concludes today’s conference call. All participants may now disconnect. Thank you.
Operator: Good day, everyone, and welcome to the Littelfuse, Inc. First Quarter 2026 Earnings Conference Call. Today’s call is being recorded. At this time, I will turn the call over to the Vice President of Investor Relations, David Kelley. Please proceed. David Kelley: Good morning, and welcome to the Littelfuse, Inc. First Quarter 2026 Earnings Conference Call. With me today are Greg Henderson, President and CEO, and Abhishek Khandelwal, Executive Vice President and CFO. This morning, we reported results for our first quarter, and a copy of our earnings release and slide presentation is available in the Investor section of our website. A webcast of today’s conference call will also be available on our website. Please advance to Slide 2 for our disclaimers. Our discussions today will include forward-looking statements. These forward-looking statements may involve significant risks and uncertainties. Please review today’s press release and our Forms 10-K and 10-Q for more details about important risks that could cause actual results to differ materially from our expectations. We assume no obligation to update any of this forward-looking information. Also, our remarks today refer to non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures is provided in our earnings release available in the Investor Relations section of our website. I will now turn the call over to Greg. Greg Henderson: Thank you, David. Thank you to everyone for joining us today. This morning, I will start with highlights from our first quarter, then provide an update on the progress we are making on our strategic priorities. We delivered a strong start to the year, with first quarter results exceeding our expectations. Net sales were $657 million, up 19% year over year, 9% organically, and we delivered meaningful margin expansion across our segments. Our teams executed well as we capitalized on broad-based demand strength across several key markets. We continue to benefit from our leadership position in safe and efficient electrical energy transfer as our markets and applications transition toward higher power and higher energy density architectures. Our strategic focus and customer-centric go-to-market model are enabling us to engage earlier and more deeply with our customers. Importantly, we are seeing early tangible benefits from our salesforce realignment as we solve our customers’ increasingly complex challenges with our full technology portfolio. Taking a closer look at our performance by end market in the quarter, we delivered strong double-digit growth in data centers and grid utility infrastructure, where demand continues to be fueled by the broader electrification megatrend. Across our diversified industrial market, we drove meaningful revenue growth supported by broad-based demand and strong channel execution. In construction and industrial equipment markets, we are seeing mixed demand trends as strength in construction and industrial automation was partially offset by continued soft residential HVAC demand. Finally, passenger vehicles sales were up high single digits, reflecting content expansion and share gains amid a soft global production environment, while commercial vehicle sales expanded mid single digits driven by solid execution. We exited the first quarter with a book-to-bill well above 1.0, while bookings were again up more than 20% versus the prior year. We expect continued growth momentum and focused execution in the second quarter. I want to recognize our global teams for delivering a strong start to the year and for positioning the company well going forward. Now let us shift to our strategic priorities, starting with our sharpened growth focus. A key pillar of this strategy is our expansion within the grid and utility infrastructure market. Having closed the Basler acquisition this past December, we have already begun to see the transformative impact of this integration. Basler significantly strengthens our position in high power applications, and I am pleased to report that Basler outpaced our initial expectations during its first full quarter as part of the Littelfuse, Inc. portfolio. We are seeing an acceleration in demand for high power protection and excitation systems driven by the critical need for grid modernization to support the global build-out of data center infrastructure. As an example of our momentum in the quarter, we secured a strategic design win with a market leader for data center power system solutions. This customer chose our protection, automation, and control capabilities for a new 800-volt system deployment due to our advanced feature set and differentiated high-voltage DC solution. Our integrated system ensures comprehensive high power protection while enhancing system reliability and reducing architectural complexity for the customer. We also secured a significant design win with a leading U.S. grid infrastructure utility for our high power excitation systems in the quarter. Shipments are slated to begin in 2027; this win provides meaningful long-term visibility into Basler’s growth trajectory. We are in the early stages, and the potential for Basler and Littelfuse, Inc. revenue synergies is increasingly clear. The complementary nature of Basler’s technologies and our protection capabilities allows us to move up the value chain, offering more comprehensive and higher power solutions to our customers. Now turning to our second strategic priority, which is to partner more closely with our customers to help better understand and solve their technology challenges. We mentioned in our 4Q call we went live with a new go-to-market model at the start of 2026, where our sales teams are realigned to our customers and enabled to sell our complete portfolio. Today, I wanted to update you on recent progress we are making in our transportation market. In transportation, we are a market leader for low-, medium-, and high-voltage overcurrent and overvoltage solutions. Even though the end market is growing slowly, the rising complexity of electronic architectures is driving unique requirements for our advanced protection solutions. By partnering closely with our lead global OEM customers and demonstrating very high reliability solutions and predictable delivery, we have been able to increase our share in a number of key overcurrent and overvoltage protection platforms. In the first quarter, share gains led to our high single-digit growth. In addition to our collaboration on next-generation platforms, we have been meaningfully expanding our pipeline and are on track for double-digit design win growth in the transportation market in 2026. Now turning to our third strategic priority, enhancing operational excellence. As we continue to scale best practices across the organization and take a more programmatic approach to measuring execution, we are seeing clear evidence that these efforts are delivering tangible results. By applying consistent operational and financial discipline across the company, we are driving meaningful margin expansion across the portfolio. Transportation is a good example of how this discipline is translating into results. With targeted productivity initiatives and improved execution across our footprint, we are driving solid profitability expansion despite mixed underlying market conditions. The results are reflected in a strong 200-basis-point increase in transportation margins for the quarter. Turning to our semiconductor products business, we see meaningful long-term profitability enhancement opportunities. This starts with Protection, a model franchise within Littelfuse, Inc., with a demonstrated track record of execution and operating discipline. Once again in the quarter, Protection delivered significant revenue growth and attractive profitability as we capitalized on accelerating customer demand. In power semiconductors, we are applying the same disciplined approach. As we outlined last quarter, we are increasing our focus on higher growth, higher value applications while rationalizing lower value products and optimizing our footprint. We are seeing signs of improving power semiconductor demand, but we are balancing that momentum with continued portfolio actions as we work toward long-term structural profitability improvement. We remain early in this process, and as we finalize our path forward, we will continue to update you on our regular progress. Across Littelfuse, Inc., operational excellence remains a key pillar of our long-term strategy. As we execute on this framework, we believe we are positioning Littelfuse, Inc. for sustainable and scalable long-term margin expansion. We look forward to detailing our full financial playbook at our Investor Day next week. Taking a step back, we are encouraged by our momentum as we move into the second quarter supported by strong backlog, high customer engagement, and disciplined execution. We are looking forward to sharing additional details on our strategy, long-term growth drivers, and financial objectives at our Investor Day on May 14 in New York. With that, I will turn the call over to Abhishek to walk through the financials in more detail. Abhishek Khandelwal: Thank you, Greg, and good morning, everyone. Today, I will walk you through our first quarter results followed by a second quarter outlook. Please turn to Slide 8 for details on our first quarter performance. All comparisons are versus the prior year, unless noted otherwise. Net sales in the first quarter were $657 million, up 19% year over year, 9% organically. The Basler acquisition contributed 6% to sales growth, while foreign exchange was a 3% tailwind. Adjusted EBITDA margin finished at 22.9%, up 180 basis points, reflecting strong volume leverage, favorable mix, and operational execution. Adjusted diluted earnings per share were $3.31, up 51% versus the prior year. We generated solid cash flow in the quarter. Operating cash flow was $80 million, and free cash flow was $66 million, up 55% year over year. We ended the quarter with strong liquidity, a net leverage ratio of approximately 1.0x, and returned $90 million to shareholders through our dividend. Please turn to Slide 10 for our segment highlights. Starting with the Electronics Product segment, sales for the quarter increased 18% year over year, with organic growth of 15%. Passive products again delivered strong growth, up 22% organically. Semiconductor products grew 8% organically, driven by strong demand for protection semiconductors. Across the Electronics Product segment, we benefited from increased data center and diversified industrial demand. Adjusted EBITDA margin for the Electronics segment was 25.1%, up 300 basis points, reflecting strong volume leverage and execution. Into the second quarter, we expect to deliver on broad-based demand strength and continued execution as we balance power semiconductor product rationalization. Moving to our Transportation Product segment, on Slide 11, sales increased 5% year over year. Organic growth was 1%, driven by strength in passenger vehicle content expansion, share gains, and pricing that drove passenger vehicle organic sales of +4%. This was partially offset by lower commercial vehicle volumes due to the impact of the marine business exit. Excluding the marine exit, commercial [inaudible] sales were flat versus the prior year. Adjusted EBITDA margin increased 200 basis points to 19.1%, reflecting disciplined execution and productivity initiatives. Our teams remain focused on driving operational excellence, and we expect continued progress on our transportation profitability initiatives through 2026. Turning to Slide 12, Industrial segment sales increased 45% year over year. Organic growth was up 5%, supported by strong grid and utility infrastructure and data center demand, which was partially offset by soft residential HVAC volumes. The Basler acquisition contributed 39% of growth, outpacing our expectations. Adjusted EBITDA margin increased 340 basis points to 21.9%, driven by volume leverage and mix. We will continue to execute on our favorable industrial positioning in evolving markets to drive growth and profitability expansion. Turning to our outlook for the second quarter on Slide 13, we expect continued solid demand across several of our key markets supported by strong backlog and customer traction. Based on current market conditions, we expect second quarter net sales in the range of $690 million to $710 million, which represents 14% growth versus the prior year. We expect 8% organic growth and a contribution of 6% to growth from the Basler acquisition. We also expect second quarter adjusted diluted EPS to be in the range of $3.65 to $3.85, with an adjusted effective tax rate of 21% to 22%. We look forward to sharing our full strategy with you next week at our Investor Day in New York. With that, operator, please open the call for Q&A. Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. We will go first to Christopher Glynn at Oppenheimer. Christopher Glynn: Congrats on the really strong results across the board. I did want to drill into the Electronics growth a little bit. Data center side is a continuing, transparent story. I just want to double click on the comment about increasing diversified industrial demand. If we could go in a couple layers there in terms of new design wins flowing in, specific end markets driving traction? Greg Henderson: Thanks, Chris. I will start just by saying yes, we had very strong performance across our Electronics segment. If you drill down to our market-based view, as we said, we had very good performance in the quarter in data center. Pipeline was up meaningfully again as well, so we had strong performance in data center, and we have strong growth in the pipeline. In the industrial market, we have significant momentum as well. We mentioned on the call that last quarter we were starting to see broadening. If you go back to last year, it was largely about data center. We are seeing broadening across the industrial segment, and actually all of our industrial segments, with the exception of HVAC, are doing well. We did see very strong performance in diversified industrial. Just as a reminder, our diversified industrial segment includes things like aerospace and defense and medical, so we have good, strong strength across the portfolio. Abhishek Khandelwal: And, Chris, just to add, book-to-bill in the quarter was well above 1.0 as well. So again, this supports what Greg is talking about, which is broad-based demand and broad-based momentum supported by a strong book-to-bill. Christopher Glynn: Thanks for that, Abhishek and Greg. I did want to ask a little further on book-to-bill. I know you are not quantifying them discreetly each quarter, but curious if the book-to-bill or the absolute orders expanded sequentially—if that kind of trend through the back half is continuing—or if there is a characterization of the overall orders growth. Any metrics there, directional or quantitative, would be great. Abhishek Khandelwal: Absolutely, Chris. Good question. As I think about the order momentum and Q4 to Q1, we saw sequential improvement. Even within Q1, as I look at the progression of the quarter, we saw sequential improvement as we went through the quarter. Book-to-bill was north of 1.0, and bookings were higher than 20% on a year-over-year basis. So continued momentum across the board, and sequentially we saw improvement as well. Christopher Glynn: Okay. That covers a lot of ground. And then just curious—I think I heard in the prepared comments, Greg, you spoke quickly—did I hear you expect for commercial vehicle double-digit design wins this year? Greg Henderson: I will let Abhishek speak to the exact number, but across the Transportation business we have good momentum. As you know, production is kind of soft, but we had good performance. We are seeing content and share gains across Transportation—both passenger and commercial vehicles—and we also see good momentum in our pipeline. So I think we see strong growth. I will let Abhishek speak to the exact numbers we quoted. Abhishek Khandelwal: Yes, Chris, your statement is absolutely correct. Greg did state that in his prepared remarks. Operator: We will move next to Luke Junk at Baird. Luke Junk: Greg, maybe we could start with data center but go a bit off where we usually talk about this. The growth has been quite visible in your Passives business, but hoping we could double click on the Protection portfolio where it seems like we are seeing some pretty material benefits this quarter and in the data center piece of Industrial from a segment standpoint as well. Thank you. Greg Henderson: Yes. One of the good things about our position in data center is that all of our segments participate in the data center market, and we are seeing good strength across them. That includes our passive electronics portfolio; our semiconductor portfolio—both protection semiconductors and power semiconductors; and our Industrial portfolio, including high power fuses. In our Transportation segment, we also have circuit breakers that participate in data center applications. We have strong growth in on-rack solutions, which tend to be more onboard solutions with electronics content in both semiconductors and passives, and we also have strong growth in the infrastructure. I mentioned the design win we had in the quarter from Basler—that is part of their control and protection-related solution which goes into data center infrastructure. We also have power semiconductor design wins in the infrastructure that go into transfer switches and UPS solutions. So we are really seeing broad-based strength in data center from all of our segments and across the ecosystem—we talk about solutions that go from grid to chip. Abhishek Khandelwal: And, Luke, just to build on what Greg said, we grew strong double digits in data center within the quarter, and it was one of the leading contributors to Littelfuse, Inc. growth in the quarter. You should expect similar performance again from a data center end-market standpoint in the second quarter as well. Luke Junk: That is helpful. In terms of the design award activity so far this year, especially in data center, hoping we could get some color there as well. I think in total in 2025, those design awards more than doubled year over year. What is the early momentum vector here in the beginning of 2026, and maybe the mix of those opportunities? Some are fast-moving things you could maybe turn on later this year as well as longer-dated things tied to future architectures. Greg Henderson: Thanks, Luke. First, to reiterate what you said, in 2025 our design wins were up more than double year over year, and we were pleased with that. We attribute some of that to our new go-to-market model, which we put in place for data center last year and are now scaling across the company. Our pipeline is up meaningfully in Q1. This continues to be the fastest growth market for us; Q1 was also the fastest growth market. We continue to see momentum broadly, from solutions that go on rack all the way through the infrastructure. Luke Junk: Maybe switching gears, Abhishek, hoping you could walk us through some of the margin dynamics this quarter. There was pretty strong breadth across each of the segments from a margin percentage, despite higher commodity costs coming into the quarter—copper, precious metals, those sorts of things. Can we talk about some of the offsets—operational or price recoveries into the channel—and really building to an incremental margin that was quite a bit better than the 25% that you had guided to underlying? Thank you. Abhishek Khandelwal: Absolutely. At the highest level, our flow-through in the quarter was about 38%. Long term, we have said you should expect a 30% to 35% flow-through for the enterprise. For the quarter, we came in at 38%. If you look at the guide for Q2, it is at 31%, so again, in the range of 30% to 35%. On commodities—silver, copper—we are seeing pressure, similar to last year. Our teams are working diligently to offset those inflationary pressures through supply chain savings, incremental productivity, pricing, or surcharges. Our goal is to be price-cost neutral, just like we were in 2025. Operator: We will take our next question from David Williams at Needham. David Williams: Good morning. Thanks for taking the question, and congratulations on a really strong performance here. Abhishek, on the margin pass-through you just talked about—given where your guidance is, it looks like about 25% to 26% of the top line falling directly through to the bottom line. Is that a pace we can continue as we move through this cycle, or could it get better from a top-line-to-bottom-line pass-through? Abhishek Khandelwal: At a high level on flow-through, it is hard to call quarter by quarter because things happen and we make investments. Long term, as we continue to grow and put organic growth in the books, a 30% to 35% flow-through on an annual basis is how I would think about it. Quarter to quarter you could have noise. Q1 was 38%. Q2, our guide contemplates 31%. But long term, think of it as a 30% to 35% flow-through business. David Williams: Appreciate the color. On data center—not to beat this horse—but across the different areas you play in, how should we think about the magnitude? Is there a way to size that TAM or Littelfuse, Inc. exposure across the entire data center footprint? Greg Henderson: We participate broadly across data center. We will provide a lot more color at our Investor Day next week on all of our markets, specifically focused on the high-growth markets like data center. We will share more on the SAM and our opportunities in data center at that event. David Williams: Great. One last one. On the Electronics margin, do you think you could ultimately get back to where you were maybe in 2022 in the lower 30% range? What would it take—volume, mix from portfolio rationalization, and the self-help you are putting in? Abhishek Khandelwal: On the Electronics margin profile, I will not commit to a specific prior number, but there are a few things going on. The segment really has two pieces. Passives is a big part—we love the business and its margin profile; it is all about growth for us. The other part is the Semiconductor business unit, which has two pieces. The Protection franchise is one of the most profitable, growing double digits with a great margin profile. The area we are working through is power semiconductors—product rationalization and footprint optimization. That work takes time given factory consolidation and whatnot. You should expect margin improvement in the Electronics segment over the mid to long term as that work comes through. Operator: As a reminder, if you would like to ask a question, please press star 1. We will pause just a moment. We will go to Christopher Glynn at Oppenheimer. Christopher Glynn: Thanks. You have your hands full—Investor Day coming up, working on the power semis portfolio, go-to-market strategies, and integrating Basler. How is the acquisition pipeline? Is it better to think about another day to continue pursuing attractive deals, or how do you think about bandwidth? Greg Henderson: On the one hand, it looks like we have a lot going on; on the other hand, we have a very clear strategy with three priorities, and a strong team. We are focused on what matters and it is going well. On acquisitions, our growth strategy will continue to be both organic and inorganic. We will talk more about our model and how we are thinking about acquisitions at Investor Day. We continue to have an active pipeline and remain disciplined, focusing on acquisitions that align to our strategy. You should expect to continue to see us doing acquisitions. The integration of Basler is going extremely well—we are very pleased and are building a playbook around acquisition integration. We see momentum and are pleased with our ability to support Basler and others as they come. Abhishek Khandelwal: And we have ample capacity for acquisitions given our balance sheet. Our net leverage is about 1.0x. It is a big part of our strategic imperative and focus area. We will lay out clear targets next week in terms of what we expect to do over the next five years. Our balance sheet supports it. Christopher Glynn: Thanks. One more housekeeping item, then I will hold my horses until Investor Day. The residential HVAC market—anything interesting sequentially in terms of stocking or regulatory transitions? And should we assume the second half comparison there is pretty accommodating? Greg Henderson: This market tends to have cycles. We have reasonable exposure in our Industrial segment, which is why we see some impact. There is regular seasonality and some timing effects. Medium to long term, we expect to continue to see good performance and growth, but there can be short-term noise. Operator: That concludes our Q&A session. I will now turn the conference back over to Greg Henderson for closing remarks. Greg Henderson: Thank you. I want to close by thanking our team. We had a very strong start to 2026. We see continued momentum across the markets and the breadth of that momentum. We feel good about our start to the year and our momentum into the second quarter, and we look forward to seeing many of you next week in New York for our Investor Day. Thank you very much. Operator: This concludes today’s conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, everyone, and welcome to Amwell's conference call to discuss their first fiscal quarter of 2026. [Operator Instructions] Joining us on the call today are Amwell's Chairman and CEO, Dr. Ido Schoenberg; and Mark Hirschhorn, Amwell's CFO and Chief Operating Officer. Earlier today, a press release was distributed detailing their announcement. The earnings report is posted on the Amwell website at investors.amwell.com and is also available through the normal news sources. This conference call is being webcast live on the IR page of the website, where a replay will be archived. Before we begin prepared remarks, I'd like to take this opportunity to remind you that during the call, we will make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in the filings with the SEC. Actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise those forward-looking statements. On this call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in the earnings release. With that, I would like to turn the call over to Ido. Ido Schoenberg: Thank you, operator. Good evening, everyone. Over the past 12 months, we focus on what matters most, solving clear urgent customer needs. We deliver dependable, unified platform, and the market is responding. Elevance renewed for 3 years. DHA deployed globally. Our pipeline is growing. CMS is increasingly making telehealth flexibilities permanent. And in 2025, we reduced losses by $100 million. We also significantly grew our subscription revenue mix. We have ample cash, no debt and a clear path to cash flow breakeven in Q4 with real confidence in multiyear growth beyond it. Amwell entered 2026 with one focus, consolidate our platform and deliver what payer and provider customers need most today and in the future. The market opportunity is real and urgent. Payers are under serious margin pressure. Premiums are not keeping pace with the total cost of care. Technology-enabled care and AI-powered clinical programs, in particular, are now one of the most critical levers payers have. They help control costs. They help improve outcomes. They help payers compete for members and sponsors. This is no longer speculative. It is a survival imperative, but adoption remains hard. Despite strong demand, customers are struggling. Vendor sprawl is a real burden. Legacy tech stacks and internal silos make it expensive to integrate point solutions. The result, fragmented member experiences and very limited visibility into what actually works. Customers cannot easily measure performance across their programs. Switching between them or optimizing member attribution is slow, expensive and painful. That is exactly where we step in. Amwell solves this. We offer a trusted, proven technology-enabled care infrastructure, a unified digital stack that lets health care sponsors act as their own system integrators. Customers white label and embed the clinical programs their members need directly within their own digital front door. They control navigation, they monitor results. And those results go to the heart of their business, lower costs, better outcomes and stronger market share. With Amwell, customers get one unified engagement and navigation platform. It reduces acquisition and retention costs. It matches each patient with the most effective program based on client-defined rules. And it aims to deliver unified analytics across every program, so clients can see what works, document outcomes and adjust quickly. Clients can adjust service attribution by member, group or cohort. They can add Amwell native clinical programs, third-party programs or their own preferred programs. That level of control and agility is highly valued and desired. The Amwell platform is built for where AI is going next. The industry is moving fast from generative AI to agentic AI. These are systems that don't just create content. They execute tasks autonomously across complex workflows. Our customers are preparing for this shift. The Amwell platform is positioned to be the governed environment where these agents operate safely, effectively and at scale. We are not positioning Amwell as an AI feature. We are the infrastructure layer where AI-powered care becomes operational and measurable. A critical enabler of effective AI is data. Because our platform serves as a common infrastructure across all programs, we aim to maintain a unified data structure that is unique in our industry. Before care begins, we look to share relevant member information with clinical programs, which the patient has selected so they can engage effectively from the first interaction. After care is delivered, we aim to collect and consolidate outcomes data across all programs. That data improves attribution, drives personalization and makes every AI-driven program more effective over time. This unified data foundation may create a significant and durable competitive advantage for us. We also have powerful validation at scale. Elevance Health, one of the largest payers in the country, has renewed with Amwell for 3 more years. That is a strong vote of confidence in our platform and the value we deliver in one of the most sophisticated operating environments in the market. We also have powerful validation on the government side. The military health system contract extension in August 2025 put our platform in front of 9.6 million military beneficiaries across the globe, connecting deployed units in and outside combat zones with military hospitals. That level of security, scale and mission-critical reliability is exactly what other government entities, payer and health system clients are looking for. The regulatory environment is now working in our favor. CMS has made telehealth permanently accessible. Rural geographic restrictions are gone. Home-based telehealth is extended through at least 2027. Virtual behavioral health is now a permanent part of Medicare. New reimbursement code for advanced primary care management and behavioral health integration are creating further incentives to shift care into virtual and community-based settings. This is a direct tailwind for our platform. We have also transformed how we operate. Alongside strengthening our platform, we made meaningful operational improvements, sharper focus, significant organizational changes and more efficient ways of working. In 2025, we reduced net loss and adjusted EBITDA losses by approximately $100 million. Subscription revenue grew to 53% of total revenue, a recurring stable income stream. And the market is responding. Renewals are strong, pipeline growth is significant. Our offering is resonating with existing customers and new ones alike. We enter this next phase with $182 million in cash, no debt, a clear path to cash flow breakeven in Q4 of this year and a view towards multiyear growth beyond that milestone. We have a clear strategy, a mature and highly relevant platform, an efficient operation and financial stability that gives us the runway to execute. We are excited about what is ahead. And now I would like to turn to Mark for a closer review of our performance. Mark? Mark Hirschhorn: Thanks, Ido, and good afternoon, everyone. On today's call, I'll start with a few highlights from the first quarter, walk through our financial results in detail and close with an update on our second quarter and full year 2026 outlook. In the first quarter, we delivered strong results across revenue, gross margin and adjusted EBITDA. The outperformance was driven by strong visit volumes in urgent care and clinical programs with continued cost discipline. These results demonstrate continued progress on our path toward profitability and reinforce our confidence in the trajectory of our business. Total revenue for the first quarter was $54.9 million, down approximately 18% year-over-year. Subscription revenue was $24.9 million, down approximately 23% year-over-year, driven primarily by previously disclosed churn. Encouragingly, renewals and retention were higher than budgeted in the first quarter, providing greater confidence in the stability of our subscription base going forward. Amwell Medical Group, or AMG visit revenue was $28.9 million, up approximately 9% year-over-year. AMG paid visits totaled approximately 382,000 visits, up slightly year-over-year with revenue per visit of approximately $76 up approximately $5 per visit year-over-year, reflecting the growing contribution of our clinical programs and the broader shift in our visit mix toward higher acuity, higher-value care. Virtual primary care continued its strong growth trajectory with visits up approximately 57% year-over-year, underscoring the increasing adoption of our VPC offering across our client base. Total platform visits were 1 million visits, down approximately 19% year-over-year, which is in line with the portfolio changes we have previously discussed. Gross profit was $28 million with a gross margin of 51%, down approximately 180 basis points year-over-year from 52.8% in the first quarter of 2025. Near term, our existing revenue mix will likely generate a margin profile similar to what we just generated. We continue to see our projected revenue mix shifting toward higher-margin SaaS offerings, which we believe will support margin expansion over the next several years as our scale improves. Total operating expenses were $45.4 million, down approximately 31% year-over-year. As a percentage of revenue, operating expenses improved to 82.6% from 98.3% in Q1 of 2025, reflecting the benefits of our transformation actions and continued cost discipline. Adjusted EBITDA for the first quarter was a loss of $3.1 million compared to a loss of $12.2 million in Q1 of 2025, representing a $9.1 million improvement. Operating loss was $17.4 million compared to $30.4 million in Q1 of 2025, an improvement of approximately 43% year-over-year. Now turning to the balance sheet. We reported cash burn of approximately $3.1 million, down from $19 million last quarter. We ended the quarter with $179 million in cash and investments with 0 debt. Now turning to guidance. For the second quarter of 2026, we expect revenue in the range of $48 million to $52 million and an adjusted EBITDA loss in the range of negative $4 million to negative $2 million. This Q2 outlook reflects normal seasonality in visit volumes and the continued step down in subscription revenue impacted by previously discussed churn. Additionally, for the full year, we are reiterating our revenue outlook and updating our expectations for adjusted EBITDA. The revised adjusted EBITDA range reflects the progress we've made in the first quarter and that which we expect to continue throughout 2026. We now expect full year 2026 to generate revenue in the range of $195 million to $205 million and adjusted EBITDA loss of $16 million to $12 million compared to our previous range of a loss of $24 million to $18 million. The strength of Q1 gives us increased confidence in our goal of achieving positive cash flow from operations in the fourth quarter of this year. In summary, Q1 was a promising start to the year. Visit volume momentum, stable subscription revenue and a leaner cost structure give us confidence that we are on the right path. I want to thank the entire Amwell team for their hard work and dedication. These results reflect their efforts. With that, I'll turn it back to Ido. Ido Schoenberg: Thank you, Mark. We are encouraged by our progress. It was made possible by the amazing team at Amwell. We feel privileged to help improve care for millions of patients and especially for the men and women in our military and their families around the globe. Amwell is playing an important role in transforming health care. What we do matters, and we believe it will only become more valuable going forward. We are proud of what we've accomplished, and we are truly excited about the road ahead. With that, I'd like to open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] Our first question comes from the line of John Park of Morgan Stanley. John Park: On the DHA relationships, could you remind us or help us understand if there's any dependencies on the broader DHA's GENESIS or partners like Leidos and if that ecosystem dynamic would influence any renewal decision in the near future? Mark Hirschhorn: I believe, Ido, may be having some tech problems. Ido Schoenberg: I'm sorry, I'm back, I apologize for this. Can you hear me now? John Park: Loud and clear. Ido Schoenberg: Okay. So essentially, when we take this incredibly important customer, the DHA, we really focused on delivering on their very specific and high expectations. We are privileged to have many other players involved, but our focus remains on making sure that first and fore, we put the customer first. There are many changes happening in different areas, but the service that we are providing and the integration into the backbone of the DHA remains constant. From where we sit and we strongly believe that based on our performance and relationship, we would likely hope and believe we are going to renew and continue to serve this customer for many years, recognizing that not all the players -- other players may or may not continue in the same format, but we are fairly confident and hopeful that we will, although we can never take it for granted and we work every day to continue and justify their trust. John Park: Got it. My just follow-up would be, you talked about perhaps the broader pipeline. I remember perhaps the broader government pipeline you talked in the past. When you think about the rural health transformation initiative, I was wondering if you see any opportunities that this program could serve as a diversification lever relative to the broader government portfolio? Ido Schoenberg: You're absolutely correct, John. In general, as we focus our efforts on our single platform and related products, I mentioned in my prepared remarks that people have great clarity. about the value that we bring and see the urgency in fulfilling that value that we believe we provide fairly uniquely. That's true for health system. It's certainly very true for commercial payers. And now that we have demonstrated in very large scale in a very unique and challenging environment of the GovCloud, our ability to operate there, that's not lost on government entities. From where we see it, we certainly believe that we are going to continue to grow in the commercial space, but also in the government space going forward. We are trying to submit RFPs to many of the opportunities that you mentioned in rural health. This is a long process. We believe we are well positioned, but the jury is still out as to the results, and we'll just have to wait patiently with everybody else. That's not the only opportunity in government that we are pursuing. We're pursuing other opportunities as well. And that's certainly part of the pipeline I talked about and Mark mentioned as well. Operator: Our next question comes from the line of Corey DeVito of Wells Fargo. Corey DeVito: This is Corey on for Stan Berenshteyn. Two questions on my end. One, any update on upselling the scope of the current DHA contract? And then the second one, what's the driver of the sequential increase in deferred revenue? I believe it's up $7 million quarter-over-quarter. Ido Schoenberg: I'll take the first, and Mark will answer the second part of your question, Corey. Thank you. As it relates to the DHA, we are laser focused, as I mentioned earlier, on renewing our agreement for the current scope, and we are hopeful that, that's going to be the case. As it relates to further expansion, especially behavioral health, what we know is that we did deploy that successfully in the past, quite significantly in different demonstrative regions. And we know that it delivered on the value. The decision, of course, lies with the customer, and we hope they will expand at some point, but we don't have any specific information as to if and when at this point. And with that, I'll turn to Mark for the second part of your question. Mark Hirschhorn: Yes. The deferred revenue is purely a result of timing based on the renewals of some of our largest clients, those which took place in the first quarter as compared to prior year, which took place at the end of the calendar year. Operator: Our next question comes from the line of Charles Rhyee of TD Cowen. Charles Rhyee: Congrats on all the progress that you've made so far. Ido, you made the comment earlier that the pipeline is growing and obviously, where subs and renewal and retention better than expected. So kind of giving you confidence in sort of the model as it goes forward. But maybe to dive into the pipeline a little bit more. Can you give us a sense on the mix of what that pipeline is maybe from a -- maybe a dollar standpoint to think through how much is health plans, health systems, government? Because when we look at 2025 revenues, Elevance obviously, is your largest customer, a fairly significant mix. DHA is not too far behind. And then there's a decent concentration in the top 10 as well. So just trying to understand, as we think forward, as we get through this period and we think about where growth is coming from, if you could help us understand where the opportunities you think are sort of the easiest to go after and sort of what that -- and how does that pipeline kind of reflect that? Ido Schoenberg: Absolutely, Charles, and thank you for joining. Good to hear your voice. As it relates to the pipeline, as we mentioned earlier, it is significant and very different from the past years. I'll talk about it a little bit qualitatively. Essentially, the exciting news is that our new platform, the Amwell platform resonates really, really well across the market. And that's a tool that allows us not only to have subscription revenues, but also to grow the related clinical services, Amwell and non-Amwell services that we also generate revenue from when we do that. I mentioned earlier that while this technology and these services are relevant to health systems, to payers and to government entities across the board, we really believe that the most pressing need, obviously, is with large payers. They clearly need an infrastructure like that. And when that happens, 2 things happen. One, we have some new logos, but much more importantly, as they deploy our platform, it contributes to same-store growth, as it becomes more and more efficient in creating engagement with more members, and it is built to increase same user utilization of the clinical programs I discussed, encouraging the sponsors to continue and finance both engagement and coverage as we are able to demonstrate and prove outcomes, financial and clinical outcomes that also drive success in open enrollment and market expansion. So I believe that it's very refreshing for us to see a product mix that used to be many, many products across vast markets narrowed down to essentially one platform and related services and still generates a very healthy growth in pipeline and a healthy level of enthusiasm by existing in a new potential customers. Charles Rhyee: Is there any way -- can you share maybe sort of what that kind of growth looks like? Are we talking double-digit growth in the pipeline maybe since last year? Or anything you can share in terms of sort of the growth outlook? Mark Hirschhorn: Charles, I would just jump in and suggest that the pipeline is a multiple of what it had been last year. So it would be closer to triple digit as a result of those opportunities that Ido addressed. And again, primarily, it falls in line with what we believe will be principally components of government opportunities. Charles Rhyee: Okay. And maybe just one more, if I may. I think to a previous question, getting an update on DHA. Can you remind us the time lines of when you would expect to get a decision on, a, the renewal? And remind us in the off chance that there isn't a renewal, what is the fallback for the government? Because the DoD because my understanding is they don't really have one. And then lastly, can you kind of remind us what the opportunities are for expansion with this renewal? Would they come together? Or would those be 2 separate decisions? Mark Hirschhorn: Yes, Charles. So the renewal, we think, is going to be very straightforward. We believe that will be completed at the end of the quarter, start of the third quarter, perhaps July. We also believe that the opportunity to expand that will take place after the initial renewal. And as Ido alluded to earlier, whether that's a direct contract, whether we continue to work with our Leidos partners, irrespective of who ends up being the contracting party, we feel very confident that, that renewal is going to commence within that time frame I just spoke to. Operator: Our next question comes from the line of Jailendra Singh of Truist Securities. Jailendra Singh: My first question is around the visit volume in the quarter, around 1.1 million. How did that track compared to your internal expectations? And what's driving the full year guidance of $1.3 million to $1.37 million? Some providers have talked about soft volume trend. They saw soft flu season, some weather disruption, which might have been a tailwind for you. Just curious like puts and takes you saw in Q1 and how we think about the trends for the rest of the year? Mark Hirschhorn: Hi, Jailendra, it's Mark. The trends were positive in both regards to premium-priced visits. So those that represented more higher-priced care specifically those clinical programs and virtual primary care as opposed to what had been the vast majority of our revenue-producing visits coming from urgent care in prior periods. We've also seen a nice high single-digit growth in volume. So we did not experience what some others may have told you was soft. We actually saw a nice seasonal boost that brought us through to the end of the quarter. And now we're obviously seeing the expected seasonality set in. So it was a nice surprise. It was one that I think was supported by the fact that we've got some additional ASO clients participating in the offerings that we've introduced. So the trend is positive, and we expect it to continue throughout the year. Jailendra Singh: Great. And then my follow-up, your comments around a number of meaningful renewals and strong pipeline. How often do AI capabilities come up in your client discussions now? And is the behavior different when you're talking to a health plan versus health system? And related to that, when clients evaluate your AI capabilities, are they willing to pay explicitly for those? Or they're saying like they should be bundled in your current platform and pricing? Just how are those conversations evolving? Ido Schoenberg: Hi, Jailendra, that's a great question. So essentially, the answer is a little bit complex in this -- when people buy the platform, some of the AI capabilities that we use directly relate to things like consumer experience, streamlining navigation, providing sophisticated analytics and things of -- such things. Interestingly enough, not all our customers are ready to accept those modules. Some of them actually are very cautious about those models and really focus on the reoccurring, stable, proven parts of our platform as their main interest. However, all our customers, without exceptions, are eager and ready to test AI-driven clinical programs on our platform. And the reason is that we built the platform such that integration is very fast and the integration and replacement is even faster without changing many things like the consumer experience or the analytics. So there is a general recognition that AI clinical programs are necessary in order to achieve improved clinical and financial outcomes and they prove them. But that does not necessarily need to be expressed in the risks related to the actual platform, but rather more to the different programs that people test. So while we have a healthy bit of AI in our own offering, which we deploy to customers who are ready to benefit from it, the most important value that we bring is the safe, reproducible, scalable way for our customers to test different options. Most of them are AI-driven, not necessarily for a full cohort, but rather to certain ASOs versus others and so on and so forth and then really manage risk while having access to all the opportunities that all those innovations bring to them. Operator: Our next question comes from the line of David Larsen of BTIG. David Larsen: Can you talk a little bit more about the Defense Health Agency contract? I think there was a component in there. I think it was mental health that didn't renew, that might renew in the future and expand. What is the annual dollar value amount of that, please? Mark Hirschhorn: David, we can't speak to the exact dollar value of that, but we would expect it to represent in excess of 15% to 20% of the total value of the platform today. That's based on the experience that we had at the beginning of 2025 when the DHA was actively using those services. We are fully engaged in the discussion around reintroducing those services. However, we believe that will likely take place after the effective renewal of the base services earlier this summer. David Larsen: And can you please talk about the nature of those services? Is it mental health? Is that correct? And I would think there's no greater need that the military has the mental health services given sort of the nature of their roles and their jobs. And I would think that the federal government would be very sympathetic towards supplying whatever support they can to serve our men and women in uniform. Ido Schoenberg: David, this is Ido. Obviously, I totally agree with you, and we are very hopeful that's going to happen. The sequence is as follows: we are very grateful to be in a position to be the backbone and the infrastructure for technology-enabled care for the U.S. military. That relates to the core connection between any member of this wonderful family and their doctors, wherever they are. So that's Amwell. In addition to that, one of the clinical programs that fits, obviously, as a native solution, totally integrated in our solution is our behavioral -- automated behavioral health program that one of its main benefits is that it allows for a handful of therapies to reach dramatically more patients. So -- and that's a giant problem. There is a giant supply and demand in behavioral health in general, and that also includes an environment like this environment. And this is not theoretical. I mean we've tried it in this environment. We integrated it and it works and it's needed. The customer decided because of their own reasons to defer that deployment after we've proven that it works well and fully integrated, and that's perfectly fine. Should the client decide to add that again, the speed is going to be very, very quick. We believe it's going to be very helpful, and it does make sense. But these are totally the decisions of the customer, not our decisions. We know that it worked really well, not only in places like the DHA, but for example, in the National Health Service, the NHS in the U.K. where studies proven that we could dramatically change the ratio between therapists and patients. And that's obviously a wonderful thing, both in way of cost, but more importantly, in way of accelerating access that is such a pain point for everybody. David Larsen: And then for 2027, would you expect revenue to grow on a year-over-year basis? And I understand there's been some churn. I guess, any more color around the churn that has already occurred? Why has it occurred? Is it maybe 1 or 2 clients? And then would you expect revenue to grow in '27 relative to '26? Mark Hirschhorn: Sure. 2026 churn has been immaterial. We would always expect low single-digit churn as we would in any business in a competitive market. We do have significant expectations for revenue growth. I had alluded to that even at the end of last year that even if a part of our pipeline converts this year, we expect to have meaningful revenue improvement in 2027 coming from these new government contracts. David Larsen: And one more quick one. Mark, fantastic job getting a lot of these costs under control. Just are you sort of there? Or how much more in incremental annualized cost can you pull out of the business and nice work, by the way. Mark Hirschhorn: I appreciate that. Of course, I speak on behalf of all my colleagues as well because, as you know, it takes teams, essentially a village to get there. People have done much more with far less in this company over the past 18 months. We are all very pleased with where we are. However, everybody understands that the job is not finished yet. We have the next couple of quarters to ensure that we complete some of the initiatives that we've invested in over the past several quarters, but we do have a step down of costs, which means a lower operating cost basis coming out of the third quarter. So we are well on our way. You could probably tell that we're very optimistic and excited about achieving that milestone, but we're also very excited about what we believe is going to be meaningful growth next year. Operator: [Operator Instructions] I'm showing no further questions at this time. So I would like to return it to Ido for closing remarks. Ido Schoenberg: Thank you, Ari, and thank you, everyone, for joining. We truly appreciate your many years of support in Amwell and look forward to talking with you all soon. Take care. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Navitas Semiconductor Q1 2026 Earnings Call. [Operator Instructions]. It is now my pleasure to turn the call over to Leanne Sievers. You may begin. Leanne Sievers: Good afternoon, and welcome to Navitas Semiconductor's First Quarter 2026 Financial Results Conference Call. Joining us today are Navitas President and CEO, Chris Allexandre; and CFO, Tonya Stevens. I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its quarter ended March 31, 2026. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, May 5, 2026. Navitas assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Navitas website at www.navitassemi.com. Now it's my pleasure to turn over the call to Navitas President and CEO. Chris, please go ahead. Chris Allexandre: Good afternoon, and welcome to everyone on the call and webcast. We appreciate you joining us on today's call. I'm pleased to report that Q1 is reflecting another quarter of solid progress and growing momentum on our transformation to Navitas 2.0, highlighted by the company's return to top line sequential growth. For those of you that may be new or still coming up to speed on our story, I want to begin with a brief high-level summary of our ongoing strategic transformation and Navitas 2.0 vision. Over the past 2 quarters, we have meaningfully reaccelerated our pivot away from the company's historical mobile and low-end consumer business to focus the entire organization on high-power markets, where Navitas GaN and high-voltage SiC products can deliver long-term differentiation and value. Today, we are singularly focused on 4 high-growth, high-value market segments, AI data center, energy and grid infrastructure, performance computing and industrial electrification. Our go-forward objectives are to rapidly achieve scale in these higher-value markets in support of driving sustainable and profitable growth. Turning to an overview of the quarter. Our Q1 financial results demonstrated solid quarter-over-quarter improvement, and we observed growing momentum across our high-power markets and expanded customer engagement. Highlighting the quarter, we achieved the expected return to growth in Q1 with revenue increasing 18% sequentially. The renewed growth was driven by our high-power markets, which also represented a growing and larger majority of total revenue as we continue to reduce reliance on the company's historical mobile and consumer business. Although far too early to declare victory, we effectively completed our realignment of the entire organization, and Navitas is back to growth, driven by our high-power markets. In fact, revenue from our high-power business grew 25% year-over-year with all 4 of our high-power end markets increasing sequentially in Q1. The increased contribution from high-power market also drove a favorable mix in our overall revenue mix, resulting in improved Q1 gross margin. Consistent with our previously communicated expectation, we anticipate continued sequential top line growth and gradual gross margin expansion throughout '26. The ultimate success of our strategic transformation continues to be grounded in 4 pillars: market focus, technology leadership, operational efficiency and financial discipline. With respect to market focus, we continue to see new technology adoption accelerating across multiple end markets and customers, both of which are increasingly driving towards GaN and high-voltage SiC solutions. Without question, AI is the primary catalyst driving this momentum and leading to the broadening adoption of high-power solutions across all 4 of our target end markets. Collectively, this market represents a serviceable addressable market of $3.5 billion by 2030, split roughly 50-50 between GaN and high-voltage SiC with combined CAGR exceeding 60%. We are definitely focused on the largest portion of the TAM, which I'd like to refer as the AI infrastructure comprised of unique but related growth opportunity across the AI data center and the grid and energy infrastructure, each of which are fundamental to enabling the AI evolution. Today, the aggressive increase in compute power density is accelerating GaN and SiC adoption in data centers, while the required modernization of the energy green infrastructure to support these data centers is driving increased need for high-voltage SiC. It is uniquely positioned as one of the very few companies that can claim deep long-term experience in both GaN and high-voltage SiC technologies. We're also agnostic and readily offer customers the ability to choose the optimal solution for their application architecture. As a result of our proven capability in both SiC and GaN, we believe it allows us to address more of the power chain and ultimately capture with content per system. Briefly providing the trends and opportunities specific to each of our 4 targeted end markets, starting with AI data centers. As a technology leader in both GaN and SiC power delivery, we support all major AI data center architectures with industry-leading power density and efficiency. Again, having both technology is a strategic differentiator and our ability to fully support a given customers' chosen approach translate into more opportunities across more applications and greater potential lower content for Navitas. As conveyed at the recent NVIDIA GTC event in March, AI data center is rapidly evolving towards a HVDC architectures, leading to expanding content opportunity driven by the need for exponential power levels, increased density and top-tier efficiency. Our immediate focus remains on expanding sampling of our newest GaN and SiC product, enabling qualifications, preparing for scale ramp and supporting hyperscalers and OEM customers in their ongoing design and development efforts, spanning from AC-DC PSUs and DC-DC PSUs and affordable HVDC brick designs at higher power level capacity. In grid infrastructure, we continue to advance active engagement across a series of new and existing customers with notable acceleration in design activity in the United States. AI remains a prominent underlying catalyst as all industry participants increasingly acknowledge the existing energy grid is not capable of supporting the projected future rollout of AI deployment. This market where technology and scale are equally important, represent a large and long-term secular growth opportunity for our current and future high-voltage SiC products. Navitas GeneSiC technology position us as a leading enabler of the grid and energy infrastructure modernization efforts, providing customers with more reliable and higher density power through our recently introduced 2.3 kV and 3.3 kV modules and a road map to even higher voltage. In performance computing, we are seeing sustained healthy adoption of GaN in higher power chargers solution for high-end laptops and mobile workstations used for gaming and AI development. Our opportunity in this market continues to be driven by the dramatic increase in power requirements with CPU moving from 15 to 30 watt to 45 to 80 watts in ultra-end AI notebooks with the integration of GPU requiring up to 120, 175 watts. As a result, we expect to benefit from growing demand and momentum in performance computing market application throughout '26 and beyond. Finally, in industrial electrification, we are continuing to see customer traction in both GaN and ultra-high voltage SiC in high-performance applications such as DC-DC converter and megawatt chargers, industrial pump, motor control and heavy equipment electrification. With respect to our second pillar, technology leadership, we remain fully committed to ongoing innovation in GaN and high-voltage SiC driven by focused R&D investments and demonstrated by expanding customer engagement and co-development projects. On GaN, we have continued to accelerate sampling of our 100-volt and 650-volt devices to more OEMs and ODMs. Customers pursuing the 80-volt HVDC architect today are testing GaN, and we believe most are doing testing with magnetized devices. We are focused on enabling and supporting customers in this transition from silicon to GaN like we have always successfully done in our past. More recently, we have seen some customer internal reality, system-level testing on our newest GaN devices. During the first quarter, we continue to deepen our collaboration with OEM, ODM and hyperscalers, including demonstration of enabling new GaN architecture that feature high power efficiency and reability, which is leveraging Navitas's more than 10 years of GaN experience and expertise. One of those highlights was our recent release of a 20-kilowatt 800-volt to 6-volt DC-DC platform using our latest 8x8 60-volt GaNFast test aiming at 97.5% efficiency. This platform solution was formally unveiled in March at GDC and showcased at NVIDIA MGX. As a reminder, we also previously released an industry-leading 800-volt to 50-volt AI DC-DC power fully GaN, 60 Volt and 100 Volt, delivering best-in-class efficiency and density. This respective platform are generating strong interest and prospective customer engagement due to their demonstrated ability to deliver the highest power density, efficiency and performance for next-generation AI data center architecture. Today, our team remain focused on execution, including product delivery, qualification and preparation of targeting growth for GaN-based 800-volt HVDC architecture in 2027. On high-voltage stitch, we continue to strengthen our technology with a focus on high power density and ability, which represent both the primary market drivers and our key differentiators in terms of silicon and packaging. Following the introduction earlier this year of our new industry-leading Gen 5 GeneSiC technology based on our patented French-assisted planer architecture. In March, we released our 1.2 kV Gen 5 SiC product tailored in packages to address the higher power density DCDC and ACDC unit in PSU application. We have since delivered samples to OEM and ODF, and they are currently being evaluated by most PSU vendors. Initial customer feedback has been excellent with report up to 50% increase in power density and greater than 98% system efficiency and improved cool. Turning to operational efficiency. The prior restructuring action initiated late last year, which I discussed in detail last quarter, have been substantially complete. As previously mentioned, today, the entire organization and its resource are fully aligned to focus on the high-power market. This represents a substantial strategic repositioning from where the company was just 9 months ago. Our team is moving fast and working very hard and their collective mitigation is impressive. Recognizing the tremendous opportunities ahead, we plan to continue adding selective engineering skills and competencies to accelerate customer support over the coming quarters. Also during the quarter, we completed our leadership transformation with the appointment of our new CFO, Tonya Stevens, who formally joined the team in late March. We now have the full leadership team in place, including new leaders in operations, engineering execution, sales and marketing, business units and finance, all of whom joined the company in recent weeks and months from larger companies with strong track record in execution and scale. Importantly, this new appointed team and our employees have demonstrated strong buying and excitement for Navitas 2.0, and it's a privilege to lead this transformation alongside each other. We also continue to make progress on our strategic technology and foundry partnership with GlobalFoundries non-GaN. We are confident this will enable our planned 8-inch pivot in 2027 for GaN manufacturing in the United States. At the same time, we are starting to build appropriate buffers with TSMC to ensure a smooth transition for all existing customers. Additionally, we have begun actively scaling our supply chain to support upcoming growth and demand, and we are leveraging AI internally across design and most of the functions to allow us to scale even faster. Our fourth pillar is financial discipline, which we are committed to as we execute our scale-up plan and transformation to Navitas 2.0, a consistently growing and profitable high-power company. This includes remaining diligent with respect to prioritizing our investment in high-power program, maintaining leverage OpEx and focusing on high-margin, long-term engagement that build multinational customer relationships. We made significant progress in Q1 with our previous restructuring effort and full mine towards high power market now substantially complete. Going forward, we'll continue to drive efficiency across the organization and are committed to disciplined investments in the business, even as we target a much larger market opportunity. Our focus remains on top line growth and margin expansion, driven by improving scale and mix of our high-power business in support of achieving long-term profitability. In summary, I am very pleased with the continuous progress and great momentum we have achieved in such a short period of time. We're taking further steps towards positioning Navitas as a high-power company. We anticipate continued sequential revenue growth in the second quarter and throughout the rest of '26. Q1 was the first clear proof point and the growth in high-power market demonstrate the momentum of our Navitas 2.0 strategy. We also anticipate gross margin to steadily improve as volume growth drive better fixed cost absorption and our revenue mix increasingly favors the high-power business. Mobile contribution will continue to diminish this quarter and become insignificant by year-end. At that time, we expect our business and revenue will be defined almost entirely by high-power market, a transformation that positions us well for sustainable long-term growth and profitability. Before I turn the call over to review our financials, I'd like to take this moment to welcome Tonya Stevens, our newly appointed CFO. I'm thrilled to have her join our executive team. She brings over 30 years of exceptional track record of financial leadership in the semiconductor industry, most recently at Lattice Semiconductor. I look forward to her valuable contribution as we grow the business and scale our operations to a larger, financially disciplined and profitable company. With that, I'll pass the call to Tonya to introduce herself and review our first quarter financials and second quarter outlook. Tonya Stevens: Thank you, Chris. Before reviewing the financials, I would like to take a moment to introduce myself and share my motivations for joining Navitas. My corporate finance career spans more than 30 years and began with 7 years in public accounting. I've since spent the majority of my career in the semiconductor industry, including 17 years at Intel in Corporate Finance and the last 7 years at Lattice Semiconductor as Chief Accounting Officer and previously Interim CFO. I'm incredibly excited to join Navitas for several reasons. The team is comprised of extremely talented and capable leaders and individuals who are laser-focused on executing the company's strategic objectives in a rapidly advancing and high-velocity environment. Together with its compelling technology portfolio, the company represents a pure-play GaN and SiC opportunity to scale up and capitalize on the substantial AI-driven secular growth in high-power markets. It's a privilege to be part of the Navitas leadership team, and I look forward to meeting many of you that I haven't met already over the coming weeks and months. With that said, I will now review the financial results for the first quarter of 2026 and then discuss our outlook for the second quarter. Please note, unless otherwise indicated, I will focus my comments on non-GAAP results. A detailed reconciliation of all non-GAAP to GAAP financial measures can be found in our press release published earlier today. Revenue in the first quarter of 2026 exceeded the high end of guidance, increasing 18% sequentially to $8.6 million on a GAAP basis. This compares to revenue of $7.3 million in the fourth quarter and $14.0 million in the first quarter of 2025. As Chris highlighted, the return to sequential growth was driven by high-power markets, which grew approximately 35% from the first quarter 2025 and now represents a large majority of total revenue as the company continues to reduce its reliance on historical revenue contribution from mobile and low-end consumer business. Notably, we expect high-power markets to continue driving sequential growth throughout 2026. The higher quarterly revenue and improved revenue mix drove a 30 basis point expansion in gross margin, which improved to 39.0% from 38.7% in the prior quarter and 38.1% in the first quarter of 2025. The shifting mix of total revenue toward higher value, high-power markets and away from mobile and low-end consumer is key to our gross margin expansion strategy. We expect sustained gradual improvements in gross margin throughout the coming year. Operating expenses for the first quarter were $15.0 million compared to $14.9 million in the prior quarter and $17.2 million in the same quarter a year ago. Operating expenses for the quarter reflect our commitment to focused and disciplined spending, particularly in SG&A, which created the opportunity to invest more in R&D projects quarter-over-quarter in support of our strategic pivot to Navitas 2.0 while keeping total operating expenses flat. Loss from operations for the first quarter was $11.7 million compared to a loss of $12.1 million in the prior quarter and $11.8 million in the first quarter of 2025. In Q1, diluted shares outstanding was approximately $230 million, resulting in Q1 loss per share of $0.04 compared to $0.05 loss in the prior quarter. Turning to the balance sheet. Cash and cash equivalents at the end of the first quarter 2026 were $221 million compared to $237 million at the end of the fourth quarter, and the company continues to have no outstanding debt. With respect to inventory, we ended the first quarter with $14.9 million compared to $13.3 million at year-end. The sequential increase in inventory primarily reflects our measured investment to support future anticipated revenue growth. With respect to channel and distributor inventory, as a result of previous streamlining actions taken during the latter part of last year, we now have a significantly healthier channel inventory profile. Going forward, we are committed to disciplined monitoring and management of these inventories to ensure we are well positioned to respond quickly to end market demand. Overall, the balance sheet remains very strong and provides the company with an extensive amount of liquidity as well as ample flexibility in terms of working capital to execute our strategic objectives and anticipated growth. Moving to guidance for the second quarter of 2026. Consistent with the company's previous communications, we expect continued sequential growth with revenue increasing to $10.0 million, plus or minus $0.5 million. At the midpoint, this represents over 16% sequential growth compared to the first quarter of 2026. Non-GAAP gross margin is expected to be 39.25%, plus or minus 75 basis points, which at the midpoint represents a 25 basis point increase, primarily reflecting the ongoing shift in revenue mix toward higher power markets. Non-GAAP operating expenses are expected to remain approximately flat sequentially between $14.5 million to $15.5 million as we continue to emphasize disciplined cost management. Moving forward, we may choose to selectively invest in OpEx to accelerate growth at a fraction of the rate of revenue growth. That concludes our formal remarks. Operator, please open the call for questions. Operator: [Operator Instructions]. Our first question comes from the line of Tristan Gerra with Baird. Tristan Gerra: I know it's still probably a bit early, but would you be able to talk about the dollar content that we could expect per rack for silicon carbide on the first-generation 800-volt architecture? Then what type of ramp in content should we expect with Kyber for both silicon carbide and GaN? Chris Allexandre: Tristan, this is Chris. Thanks for the question. If you refer to our prior communication, right, we gave guidance in terms of content per megawatt because that's how the best way to kind of define the content we talked about for GaN in the range of $10,000 to $15,000 per megawatt, really driven by the massive 800-volt HVDC when the DCDC gets inside the rack, as we discussed primarily. In the ACDC PSU, there is about $5,000 to $8,000 per megawatt, which is coming from both the higher power of those PSUs. If you refer to GTC, right, NVIDIA announced that at the end of the year, the PSUs, the ACDC are going to get to 18.5 kilowatts, which is much higher factor is if we look at the power level from today's PSUs, the ACDCs, which are in the range of 5 to 10 kilowatts to 18.5 kilowatt for NVIDIA, but even 25 to 30 for other hyperscalers, there's a ratio of -- when power goes up by 2, the SiC content goes up by 5. There is a non-linear increase, right? I'm not going to get specific in terms of content because it really depends on the architecture, 1 phase, 3 phase to 3 phase, but refer to the $5,000 to $8,000 of content for the SiC inside the center, which is mostly AC/DC PSUs and the mental model, which I just mentioned, which is when the ADCDC from, let's say, 5 to 10 kilowatts to 18 to 25 to 30 kilowatts, there's about 2.5x content acceleration compared to per rack. Tristan Gerra: Then for my follow-up, specific to silicon carbide, clearly, pricing has been coming down drastically in '24, '25. Given the ramp that you see, do you expect pricing to stabilize? I know you're going to be in the very high voltage. How different is that pricing dynamic there than in the lower voltage, but also do you expect at some point supply-demand balance in silicon carbide? Chris Allexandre: We don't participate, as you know, to the low-voltage SiC business in mostly industrial and EV, right? What we see is for inside data center, the ACDC mostly use 1.2 kV and above 65 sometimes and 1.2 kV and above, right? Where the driver today is more speed, reliability and density. Of course, this is a competitive market, and as the hyperscalers are driving more power and more PSUs and more PSUs per rack, there is quite competitive. Today, what we see is what the customers are pushing us on is how we execute and how we help them to get to the best scalability and the best density of power, which I think save a lot more money at the system level than a cheaper device. Operator: Your next question comes from the line of Madison DePaola with Rosenblatt Securities. Madison DePaola: This is Maddie calling on behalf of Kevin Cassidy. You highlighted that GaN and SiC are both playing vital roles in AI power and that you guys are uniquely positioned to win both technologies. I know you mentioned this, but can you provide any more color on how having both capabilities is helping in customer discussions or design win activity in data center over your larger competitors? Chris Allexandre: Maddie, this is Chris. First of all, I think we focus on the high-power markets, right? We have 4 markets. Each of them have a different flavor of architecture and technology. If I refer to AI data center, it's mostly a GaN and SiC play. If I look at grid infrastructure, it's mostly a SiC play. Of course, high-performance computing is more GaN play and industrial is actually both a SiC and GaN play, right? If you look at the first 2, which is what your question is, right, if you look at the evolution of the architecture, so let's zoom out a little bit, right? Today, in the current architecture, the traditional architecture is 50-volt bus bar where the voltage from the grid, which is 480, 400-volt ACs convert to 50-volt DC, right? That's mostly use SiC, okay? That's been going forward, right? The first step, and I think I referred to what has been announced at GTC, right? The first step is to the 800 volt is the introduction of 3-phase much higher power, which I referred to in my answer to Tristan. The first phase is most higher power 3-phase AC/DC, right, where you convert the 400-volt, 480-volt AC into 800-volt DC, okay? That's the first phase that's going to start at the end of the year, early next year, right? That on the AC/DC we use mostly SiC. Now there is a DC-DC conversion to that. If you refer to what NVIDIA announced at GTC, there is a DC-DC top of rack converter, right, at 15 kilowatt for instance, both use either GaN or SiC. I think both is already right there, enabling customers to have a choice depending on the preference. What is very interesting is when you move to the next step, which is the second phase of the 800-volt DC architecture, where you get to, let's call it, high-density rack, megawatt rack will be Kyber for NVIDIA or more other high-density racks for the Googles of this world and the others, right? That's where you move the DC-DC conversion inside the trade inside the rack. When you do that, you have no choice than to use GaN. Because the level of density, the level of power requirements make it impossible to use silicon, but also silicon carbide doesn't have the switching frequency. That's where you're moving to GaN. The fourth step is when you replace -- that's more on the grid side, when you replace the AC-DC PSU on the side rack basically by SST. If you think about this is a continuum of architecture change and evolution and having more offset to see the [inaudible] should it to be current generation, next generation, next, next generation and how the guys are evolving from current architecture to next phase of into high-voltage, high density, even down the road with the reorganization and the restructuring of the grid. Operator: Our next question comes from the line of Quinn Bolton with Needham & Company. Shadi Mitwalli: This is Shadi Mitwalli on for Quinn. My first question is for Chris, but do you have any big picture takeaways from GTC in APAC in March, especially in regard to the direction of GaN versus SiC in 800-volt data centers? Chris Allexandre: My takeaway was kind of what I just mentioned to Maggie. First of all, we've talked about 800-volt architecture now for more than a year. It's happening. I think NVIDIA was very clear that they see at the end of the year, early next year, this what I call the first phase of the 800-volt HVDC architecture where you basically do the ACDC at a much higher level of power with SiC and then you do a DCDC where you can use Gan and SiC, but also outlining that as you move to next step, the move to much higher density rack is kind of enabling GaN content to move next. That's my takeaway from the GTC is 800 volt is happening. Now keep in mind that there is -- we talk about NVIDIA here, but there are other hyperscalers. They might have a different path, they might actually go even faster to the next phase where you get the power, the DCDC part enabling directly on the train and in the rack, which will accelerate the GaN adoption. I would say I come out of GTC with a stronger conviction having both makes a huge difference. I think we talked about this before where I said Navitas is uniquely positioned because we have both SiC and GaN. I think it's actually very hard for a supplier to sit at the big table if you either have GaN or if you have a SiC. There's only a handful to not say a very few number of suppliers who have both. That's the key differentiation. That's my takeaway on top of the fact that [inaudible]. Shadi Mitwalli: Then my follow-up is just on the product landscape for GaN. As you're sampling with hyperscalers, what are some of the key specs that matter most of them when evaluating GaN products? How does your portfolio measure up against those requirements? Chris Allexandre: What we said before is we've sampled both high voltage, so 650-volt GaN as well as mid-voltage GaN 100 volt. We've done that in different flavors of package, depending on the level of integration and density that the customers are looking. In the last quarter, we mentioned we've done the initial samples, since then, we've now delivered the final samples, which is basically the samples that will go to production. We are working with customers on -- they move from, I'd say, device level testing to board system level testing. The feedback we get is our technology as well as packaging offering is actually adequate to what they're trying to do. Operator: Your next question comes from the line of Richard Shannon with Craig-Hallum Capital Group. Tyler Anderson: This is Tyler Anderson on for Richard. I was just wondering, could you talk about why customers would want to upgrade transformers that aren't connecting to data centers? Have you heard of any talks within the government to force the upgrade of transformers? Chris Allexandre: I'll start by the last part of your question. We have no knowledge of any forcing function or requirement for the government to move from traditional transformers to SST. What I would tell you is if you look at -- and I think we've made some slide in the past in our investor package, if you look at the transformers today are very kind of old school, so to speak. They are operating at a low frequency, which is in the 60 Hz. They have limited efficiency, which is less than 95%. They are heavy metal. They are very large and very weak. As you move to an explosion because that's what we're talking about explosion of rollout of AI data center, which basically pull on the grid a lot more energy, you have to install a lot more transformers. That's going to be, at some point, impossible if we keep the convention transformer. The move to SST is a bit of a necessity as we scale up and deploy the hundreds of gigawatts, in the next few years. The other thing I would refer to is we keep referring to SST, but when we talk about grid and energy, this is going beyond the SST. SST is going to be the last step of evolution. Today, you have much higher level of power of transformers, megawatt converters. You have grid-type solar farms that are being deployed. There's a lot of grid type applications that are being deployed, which we see as a growing driver even in '26 and '27 ahead of the big acceleration of the SST, which will come really in late '27, early '28. Tyler Anderson: I'm also wondering if there's anything around the switching. I'm seeing something about -- and please, I understand I may be wrong on this or going down the wrong path, correct me if I am. Aluminum conductor steel transformers, I'm seeing things about them wanting to focus on the switching. Would you be able to benefit from that upgrade in the switching? Chris Allexandre: I mean, yes, you will. I think the grid companies have realized that the only way to make the grid, as I say, compatible with the acceleration of power is really to get to this new form of conversion, less conversion, less steps moving from super high voltage great DC to a form of electronification of the grid for lack of better. I think this will require and isolation transformers basically. Tyler Anderson: Then have you heard of any conversations around the lack of supply of transformers accelerating anything with your customers? Chris Allexandre: I have not, but I will not be surprised that the requirement for volume in terms of classic transformers and the dependency on metal and a few other things might actually play also in the expiration of the modernization of the grid. Operator: [Operator Instructions]. Your next question comes from the line of John Tanwanteng with CJS Securities. Jeremy: This is actually Jeremy on for John. Can you just talk a little bit more about the sequential improvement you're seeing heading into Q2, if that's mostly data center driven and if you're meaningfully ahead of where you thought you were going to be a quarter or 2 ago? Tonya Stevens: Yes. This is Tonya. Jeremy, so I'll start and let Chris add. Relative to your point in high markets, if you remember in Q4, we talked about high power being the majority for the first time in the company's history, and we talked about it being greater than 50%, mobile being less than 25% and the vast majority of the company last year. Now in Q1, high power continued to grow. It was a large majority of the company, like you heard us say. Throughout the year, to your point, we expect it to continue to grow as a percent of the company. We exit the year almost an entirely high-power company and that being driven by what you said, the data center and the grid and infra, the AI infrastructure component of that. You saw in our press release and our discussions, high-power grew 35% year-over-year from Q1 of '25 to Q1 of '26, and we expect that growth to accelerate in the second half of '26. Again, driven by both components, but the key catalyst is that AI component. The momentum is driven by all of the high-power markets, but particularly the AI infrastructure, and that's data center and energy grid. Chris Allexandre: I add something, Jeremy, thank you for the question. First of all, if you look at Q4 to Q1, when we grew 18%, we said, as Tonya said, that the high-power markets, grew as a percentage of the company, mobile went down. That means that the growth of high power was actually much higher, than 18%, the top line of the company and grew 35% year-over-year. Now we don't break down by markets. We don't -- we referred to kind of high power, but we also said in our script that all markets grew sequentially. As we see, this will continue throughout the year. Now I'll give you one data point. Tonyia referred to and I referred that also in my script about AI infrastructure. What this means is we are combining within the high power, we're combining data center and grid. The reason why we do that is what I've noticed is the driver of the grid is data center. At the end of the day, you cannot look at AI data center and grid energy as 2 independent markets like computing would be. This is really kind of intertwined. That business grew 50% quarter-over-quarter from Q4 to Q1. That's the only color I'm going to give you. As the company grew 16% -- sorry, 18% quarter-over-quarter, the combination of data center and grid infrastructure grew 50%. That's stronger than expected. You asked me where I think we were -- we are versus where I thought we're going to be. That's stronger than expected. The reason why it's stronger is that we all see it, it's an acceleration of rollout. We have not seen yet the content going up. I talked about the fact that content is going to go up. The content is going to go up because when you move from a 10-kilowatt PSUs to 18.5 kilowatt PSUs or even a 25 to 30 kilowatt PSUs, the ratio is 2x power leads to 5x content. The stick content and growth is going to accelerate. Today, what we are seeing is just the growth of AI. Then next year, we're going to see even an acceleration of GaN as power gets -- the DCDC gets inside the rack. I think what we are seeing here with the 50% is that the AI data center is accelerating. I will also tell you, even though we don't guide by market that what we see today for Q2 and as a reminder, we are confident in our guide for Q2. We're seeing that AI infrastructure that grew 50% quarter-over-quarter, Q4 to Q1 is actually going to grow faster. That growth is going to accelerate throughout the year. That's before even the step-up in content. Yes, I would say we are a bit ahead of where I think we're going to be. I look at Q2 guide with confidence, the benefit of being high power is we have longer visibility. We used to be in mobile where you get -- you're still chasing orders within the quarter. I think the high power market, in particularly data center and grid infrastructure are giving us a much longer visibility. I look at Q2 with confidence. We think, as we said before, that this growth will continue throughout '26. Jeremy: One last follow-up. Any update on the use of cash this year and next in support of the growth ramp? What are your thoughts on when cash flow breakeven is likely to occur? Tonya Stevens: Yes. I'll take that one. Coming into Navitas and being new, when you look at the strength of our balance sheet, and I even referenced that in my script, a very strong balance sheet. We have over $221 million in cash and no debt at the company. That gives us a pretty long runway to support our working capital needs and CapEx flexibility. I'm confident we can execute the objectives and the organic plan consistent with what I said in the script. Again, we remain focused on profitability. Like Chris said, we remain on track and maybe a little ahead of where we thought we would be to profitability. We're very focused on that. Nothing's changed in our thoughts around profitability and in fact, potentially accelerated a bit. Chris Allexandre: Jeremy, you can make the math. I mean, at today's gross margin, and today's OpEx, it will take us to be in the high 30s from a revenue standpoint to be profitable. Now we're guiding 10% for Q2. We said that we expect that growth to continue throughout the year. There is no reason to believe based on what we just discussed that the momentum that we are seeing in data center, grid infrastructure as well as the other hypermarket will slow down. You can extrapolate that to when we're going to be profitable. I'm not going to guide specific. What I will tell you is when we look at our business, both Tonya, myself and the leadership team is getting to breakeven is a key objective. We're going to spend what we have to spend to optimize and to drive our growth, but being financially efficient, and make sure that we get to breakeven at some point is a key priority for us. Operator: Your next question comes from the line of Quinn Bolton with Needham & Company. Quinn Bolton: Welcome Tonya. Great to have you on board. I wanted to follow up, Chris, you mentioned that at least on the 800-volt GaN opportunity, you've kind of moved from device level testing to board level testing. Kind of can you walk us through what the following steps would be to get to final production and sort of the time line if these higher power racks go to production, say, second half of calendar 2027, when do you think those designs would be sort of fully locked down? Did that happen at the end of this year? Or could that continue into 2027 in terms of the testing process? Chris Allexandre: Thank you, Quinn. You're very consistent asking the same question in the quarter, so I appreciate that. Nothing has changed really. I would change the answer, as you said, depending if you're looking at the first phase of the DC to the second phase. Again, for everybody to understand, the second phase is when the DC-DC conversion gets inside the rack. The big difference is in the first phase, you're designing AC-DC PSUs, DCDC PSUs. You're working with the hyperscalers, but really the implementation of that is at the merchant power, ODM, OEMs, the Delta, the Flex powers, the Vertiv, [inaudible] and so on. We know where we are with those guys. We first delivered the samples, both the 1.2 kV SiC that we mentioned, the Gen 5 in the new package as well as the gas devices. We now have delivered the final samples, which I think is the sample that will get to production, which I think is important. For those boards, we are, as I said, moving from component level testing to standard testing. What does it mean? Well, the customers have done a couple of prototypes, they're optimizing the systems, the layout, the ELI performance, the efficiency, we are highly active and supportive of this with our application engineers and our field application engineers. That's kind of where we are. The next step is once they've done some level of system testing, then they're going to do system reality and system validation at the next level. I would say for the first phase of the 800 volt DC since this is meant to ramp at the end of the year to earlier next year, I mean, we're going to get clarity very quickly. As I told you before, for me, I'm not going to comment on design and engagement with customers unless the customer wants to, but you're going to see the proof point in the backlog and as we go. Now when it comes to the second phase, which is really driven by the hyperscalers, when the DC-DC conversion gets in the train inside the rack, mostly with GaN because there is no other technology that helps you to do this 800-volt 50 or 800-volt 12, 800 volt 6, inside the rack. I think today, we are still working with the hyperscalers and getting the ODM to be comfortable. One of the reasons why we're spending so much time developing those references that we've announced earlier this year, the 850 or 860 is that it gives comfort to the hyperscalers and the customers on how to deploy. It's only 6 to 9 months behind. If you ask me when we're going to get proof points of the in-tray GaN-based DCDC current, probably Q1 to Q2 next year. Again, this is a duration. Customers, what I see is I measure my team and the engagement with customers in terms of the number of samples we ship 10 samples or 50 samples. When you get to 5,000 samples, it's not samples. It's quo build. My team on the amount of energy that the customer is spending on testing the technology and putting us in from an apps point of view in terms of helping us. I see that energy, that momentum, that number of samples are going up. That's why I'm comfortable in the momentum we are building. However, as I said in the past, I think the proof is in the pulling, and we are not going to talk about pipeline. We're not going to talk about customer engagement unless the customer decide to, but we're going to refer to growth and outlook and guidance and backlog, which I think is what you should expect in terms of success. Quinn Bolton: I guess a follow-up just longer term, do you guys have a view? Or are you seeing customers push the intermediate bus voltage to 48, 12 or 6 in that 800 to step down? Do you think that 800 to 6 ultimately wins? Or do you think there's going to be a mix of different intermediate bus voltages across different hyperscaler platforms? Chris Allexandre: In the first phase, as we talked about at the end of the year, the bus bar at 50. I think you're referring to the true in-tray 800-volt HVDC. At this point, I would say it depends on the hyperscaler. I think you're going to see different flavors. You have seen that we announced GTC, NGX with NVIDIA and they are going to fix. I think that's kind of one of the trends we see. With that scale back to 12. It's a possibility. Some other hyperscalers might decide to scale 50. You might see some hyperscalers ramping next year with the in-tray massive volt HVDC keeping 50 volts as a bus bar, but moving the DC-DC conversion from top of rack to inside the rack. The short answer to your question is I think we're going to see multiple flavors. Directionally, I would say the trend is the same, reduced number of conversion as you move to higher density rack, which means that the secondary voltage is going to go down over time. Operator: With that, I will now turn the call back over to Chris Allexandre for closing remarks. Chris Allexandre: Yes. Thank you for joining us today. As I said earlier on, too early to declare victory, but what I see is the company is on track and accelerating the pivot and the transformation to Navitas 2.0. We have a lot of work to do still ahead of us. If you look at our momentum in high power, the growth in high power, the growth in AI infrastructure, which I mentioned quarter-over-quarter and the trend that we have ahead of us, I'm confident this will continue. I want to close by thanking our team,s Navitas team a lot of work. This was a big pivot that we asked the team to go through moving from historical consumer low-end mobile type of business to high power. It's a big shift in terms of geographical coverage and in terms of product mix. I want to thank them for the effort, the reliance and the effort that we are putting into making that happen. Of course, our customers, okay, that are supporting us as well. Thank you. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Good morning, and welcome to the conference call on the results of the Second Quarter of Fiscal 2026 of Infineon Technologies AG. I'm Matilda, your Chorus Call operator [Operator Instructions] And that the conference call will be recorded. [Operator Instructions] The conference may not be recorded for publication. I would now like to hand the floor to Florian Martens, Chief Communications Officer. Please, sir, go ahead. Florian Martens: Thank you so much. Good morning, ladies and gentlemen, and dear colleagues and coworkers, welcome to our conference call regarding the results of the second quarter of fiscal 2026. Representing the Infineon Management Board at this conference are, as usual, Jochen Hanebeck, Chairman of the Board of Management; and Dr. Sven Schneider, Chief Financial Officer. Dear listeners, as usual, Mr. Hanebeck will first provide you with an overview of the business performance and the outlook. Afterwards, both members of the Management Board will be available to answer any questions you may have. Our conference call will end promptly at 8:45 a.m. Of course, our press team, led by Andre Tauber and I will remain at your disposal afterwards. Having said that, I'll hand the floor over to Jochen Hanebeck now. Jochen Hanebeck: Thank you very much, Florian. Hello, and a warm welcome from me as well. Esteemed listeners, after 10 days in space, the Artemis I mission returned to earth about 3 weeks ago, 4 astronauts landed back safely on earth. The successful mission has once again proven that Infineon semiconductor solutions function reliably in all situations even under the extreme conditions of space from critical power supplies and control systems to data communication, our technologies and radiation hardened components made a significant contribution to the electronic backbone inside the Orion capsule. My heartfelt congratulations to all of our engineers. They truly contributed to the success of this historic mission. However, we're also seeing some success on our planet, a broader upswing across many end markets is clearly on the horizon. We are seeing rising demand in several key markets. While geopolitical conflicts continue to weigh on people and markets, our business indicators such as order intake, delivery times, cancellation rate and inventory levels are showing a significantly improved picture. This picture continues to vary by application area. In the field of artificial intelligence, momentum continues to grow. It is also having positive ripple effects on adjacent sectors. The market development in industrial applications is being supported by rising demand for energy infrastructure. In the Automotive sector, order intake is rising as customers begin to replenish their low inventory levels. However, electromobility remains in difficult waters, while we are seeing a positive global trend in software-defined vehicles. Overall, demand in our end markets is improving significantly. We are preparing for a broad-based upswing. Now let's take a closer look at the performance in Q2 of fiscal 2026. Infineon delivered results that were fully in line with expectations. Our company generated revenue of EUR 3.812 billion, which represents a 4% increase over the previous quarter. Compared to the same quarter last year, revenue rose by 6% and by over 14% on a currency-adjusted basis as the U.S. dollar was significantly stronger 12 months ago. Segment earnings reached EUR 653 million. The segment earnings margin was at 17.1%, down from 17.9% in the previous quarter. This development reflects, on the one hand, the positive effects of rising volumes. On the other hand, however, the usual price adjustments that take effect at the beginning of each calendar year. In addition, a decline in the high-voltage business in the Automotive segment and costs associated with its realignment created significant headwinds for profitability. More on this in just a second. Now the recovery momentum mentioned at the beginning is clearly evident in our order backlog. This rose by EUR 4 billion quarter-on-quarter and stood at around EUR 25 billion at the end of March. Year-on-year, this represents an increase of around 25%. And the order backlog continues to grow in the current quarter. To the extent that our capacities allow, we are now confirming customer orders well into the next fiscal year. Free cash flow in the second quarter was minus EUR 63 million, following minus EUR 199 million in the previous quarters. Now let's turn to the results of our 4 business segments in the second quarter, starting with Automotive. Before we look at ATV's quarterly performance, let's take a brief look back. We are very pleased to have defended our global leadership position in automotive semiconductors for the sixth consecutive year in 2025. This is shown by the recently published data from TechInsights. Ranking first or second in all major regions in the world confirms our outstanding position as the automotive industry's preferred partner. We were even able to extend our lead over our main competitors, particularly in the crucial microcontroller category. In this segment, we actually increased our market share year-on-year from 32% to 36%. Now to the quarterly figures. Automotive achieved a slight increase in revenue to EUR 1.830 billion during the reporting period. We were able to offset price declines in the low single-digit percentage range with high unit volumes. Segment earnings amounted to EUR 331 million. The segment earnings margin was at 18.1%, down from 22.1% in the previous quarter. The decline was primarily attributable to 2 factors: charges related to our businesses with high-voltage power semiconductors for electric powertrains as well as the price adjustments mentioned earlier. I will discuss the former again in more detail in just a few seconds. Looking at the automotive market, the short-term outlook remains subdued. In April, the market research firm, S&P Global, revised its vehicle sales figures for 2026 downward. The forecast now largely aligns with our original assessment. For our company, however, structural semiconductor growth driven, for example, by the rapid proliferation of software-defined vehicles is more important than actual vehicle sales figures. The trend towards electromobility also remains intact. However, the adoption of electric vehicles is proceeding more slowly than expected. Market pressure is particularly pronounced for high-voltage power semiconductors for the electric powertrain. Intense competition driven in part by the significant expansion of the manufacturing capacity in the sector and the shift in attitude towards e-mobility promotion has led to prices and volumes falling faster than expected. The result of this, the profitability level in our automotive high-voltage business is unacceptable to us. That is why we are fundamentally realigning it. In addition to the restructuring of our back-end production of automotive frame modules at the Warstein site, which was already announced in November, we're also taking further targeted measures to reduce our operating costs, including by streamlining our portfolio. However, this is also an opportunity to reallocate available front-end capacity to our rapidly growing business in the AI data center segment. There, demand continues to significantly exceed the supply. Let me now take this opportunity to emphasize 2 important points. First, Infineon is committed to electromobility, and we will continue to drive it forward, but we will not chase market share at any cost. Our focus remains on profitable growth. Second, the situation described is limited exclusively to high power voltage -- high-voltage power semiconductors, which account for about 7% of the automotive revenue. It does not affect other products such as microcontrollers, analog semiconductors and sensors in any way, not even MOSFET transistors. Infineon has a strong technology and manufacturing base for power semiconductors and an outstanding system understanding. This gives us all the key levers we need to reposition our high-voltage business in the field of electromobility for future success. Now in the meantime, Infineon is driving the adoption of software-defined vehicles. The combination of powerful computing power, fast and secure connectivity and intelligent power management forms the foundation of these vehicles, and Infineon is a leader in all of these areas. A great example is the BMW iX3, the first model based on the Neue Klasse platform. The Neue Klasse features our AURIX and TRAVEO microcontrollers, the connectivity from the BRIGHTLANE family, our power management ICs as well as smart power switches and eFuses. And of course, it has an electric powertrain. This just demonstrates how closely the 2 structural trends in the automotive sector, software-defined vehicles and electromobility are actually intertwined. We're also very pleased about recent design wins with the leading Chinese automaker, Geely. These include a large number of microcontrollers and analog semiconductors. These are used, among other things, in battery management systems and central control units in various Geely vehicle models and brands. These successes underscore the strong value proposition that Infineon offers to its Chinese customers. Let's now turn to Green Industrial Power. This business segment recorded revenue of EUR 403 million. This represents a significant increase of 15% compared to the previous quarter, which was very weak due to seasonal effects. This growth was primarily driven by energy infrastructure, HVAC and home appliances. Segment earnings improved to EUR 47 million, which corresponds to a segment earnings margin of 11.7%, up from 8.9% in the previous quarter. We were able to more than offset negative price effects with positive effects resulting from higher sales and lower vacancy costs in our factories. The situation in the market for industrial power applications is also improving. We're seeing signs of a broader economic recovery. Inventory levels in the supply chain are reaching low levels. And as a result, order intake is picking up significantly again. In addition, there are structural growth opportunities in certain areas. The necessary modernization of the power grid is driving investment in related infrastructure. This includes energy storage systems as well as equipment for power transmission and distribution. The expansion of AI data centers is fueling demand for uninterruptible power supplies and cooling systems. And in some cases, semiconductors are ideally suited to replace electromechanical components. Infineon is ideally positioned to capitalize on this trend. We're seeing strong demand for semiconductor-based power converters, so-called solid-state transformers. They enable higher efficiency, significantly greater power density and improved scalability. As a result, they will increasingly replace conventional transformers. We are already generating initial revenue in this area in the current fiscal year. We have also built up a robust design in pipeline and our business with solid-state power switches is developing well. So we have a solid foundation for future growth. But let's now move to the Power & Sensor Systems segment. Revenue here reached EUR 1.260 billion in Q2, which represents a plus of 8% compared to the previous quarter, driven primarily by our business in power supply solution for AI data centers and radar sensors for automobiles. Along with the rise in revenues, segment earnings also increased. They rose to EUR 257 million. The segment earnings margin jumped to 20.4%, up from 17.4% in the previous quarter, another major step on PSS path to profitable growth. This is closely linked to our leadership position in AI power supply solutions. Sustained high levels of investment in AI data centers and the associated infrastructure are driving demand. And currently, our AI-related business is in allocation. We're shifting spare manufacturing capacity from other areas while simultaneously ramping up new capacity as quickly as possible. We, therefore, confirm our revenue forecast for power solutions for AI data centers, EUR 1.5 billion in this fiscal year as well as EUR 2.5 billion in fiscal year 2027 despite a weaker U.S. dollar. With our solutions, we serve the entire energy supply chain from the power grid to the AI processor. To this end, we offer the most comprehensive product portfolio and stand out, thanks to deep system understanding, quality and delivery capabilities. All of this helps our customers scale AI clusters and deploy increasingly sophisticated power architectures. A key milestone in this context is the ramp-up of gallium nitride solutions for AI data centers. We're already supplying increasing volumes of these solutions to select customers and more and more customers are actually incorporating our solutions across multiple stages of power conversion. This is where gallium nitride makes a clear difference in performance. Demand for silicon carbide solutions from AI-related applications is also very strong. Our silicon carbide business at Infineon is benefiting from this in the current fiscal year with low double-digit growth numbers. These developments underscore our excellent market position. We collaborate with leading companies in the AI ecosystem and are represented in virtually all platforms of the relevant key players. The semiconductor value per kilowatt of installed power ranges between $100 and $250. The average has now risen further to around $175. This semiconductor value per kilowatt installed capacity replaces our previous forecast of an addressable market size for Infineon of EUR 8 billion to EUR 12 billion by the end of the decade. Now the background of this, gigawatt installation plans are growing rapidly, also significantly increasing the market potential for Infineon, of course. Using the aforementioned semiconductor value per kilowatt of power as a benchmark allows us to better account for this dynamic. Let's now turn to our Connected Secure Systems segment. At EUR 319 million, revenue in Q2 remained virtually unchanged from the previous quarter. Revenue growth in our microcontrollers and connectivity was offset by a decline in the Government Documents segment. Segment earnings declined to EUR 18 million. The segment earnings margin was 5.6%, down from 7.2% in the previous quarter. Now the shift from the Internet of Things to Edge AI, meaning the use of artificial intelligence directly in the end device or in its immediate vicinity is opening up new opportunities for innovation across multiple end markets. We're pleased with the growing momentum in design wins for our next-generation connectivity solutions and our AI-enabled microcontrollers. This momentum spans various application areas from servers to security cameras and wearables to in-vehicle monitoring systems. Another positive impact of AI adoption for Infineon is growing demand for our secure element to safeguard data integrity in servers. This specialized security chip uses encryption to protect the confidentiality and authenticity of data. Ladies and gentlemen, before I turn to the outlook, I would like to inform you about an important strategic decision at Infineon. Effective July 1, we will be changing our divisional structure and organizing our business into 3 divisions instead of the previous 4, namely, Automotive, Power Systems and Edge Systems. This reorganization is the next logical step of our evolution, moving beyond a merely product-centric mindset towards solutions based on a deep understanding of our systems. Our previous structure enabled us to achieve strong growth over many years. However, today, our customers expect innovative system solutions at an ever-increasing pace. And we aim to meet these demands by further enhancing customer value, reducing complexity and thereby becoming more agile. Now the guiding principles of these new structures is clear ownership of applications. Each of these 3 future divisions is responsible for strategically advancing the focus applications assigned to it. Automotive, of course, remains responsible for the key trends in the Automotive sector, software-defined vehicles and e-mobility as well as for all other automotive applications. Power Systems, or PS for short, will assume responsibility for all power supply applications outside the automotive sector. This includes, in particular, power supply for AI from the power grid to the AI processor, power generation from renewable energy sources and grid infrastructure. In addition, this division will serve all applications in the consumer communications and industrial sectors. PS is, therefore, formed from the combination of GIP and the power business of PSS. Edge Systems or ES for short, focuses on applications at the interface between the physical and digital worlds. The interplay of sensors, microcontrollers, connectivity and security is a key driver of future innovation and growth. Examples here include Edge AI robotics, medical wearables, industrial automation and smart home applications. ES brings together the current CSS division as well as PSS' sensor high-frequency and USV business. The sensor portfolio of ams-OSRAM will also become part of Edge Systems. We expect to complete the acquisition this quarter. With the 3 divisions and clear responsibilities for our focus applications, we're gaining speed, simplifying decision-making processes, reducing coordination efforts and can better leverage our deep system understanding even more effectively. Based on the 2025 financial figures, this new structure corresponds to a revenue breakdown of approximately 50% to Automotive, 30% for PS and 20% ES. The new divisions can thus also leverage economies of scale. Ladies and gentlemen, let's now move to the outlook. The upswing is gaining momentum and scope. The recovery is spreading to more and more of our target markets, although geopolitical risks and macroeconomic uncertainties remain, which we are, of course, monitoring closely. We're seeing higher order volumes, which are leading to a growing order backlog. As customer orders for the coming quarters are building up encouragingly, our outlook beyond the current fiscal year is also improving. In the Automotive sector, we see manufacturers replenishing their semiconductor inventory to reasonable levels. On the supply side, localized bottlenecks are emerging, particularly in areas adjacent to product categories related to the AI boom. Of course, the dynamics vary across different application areas, but we expect a broader upswing to be on the horizon. We are, therefore, raising our full year forecast despite unfavorable currency movements. For the current June quarter and the remainder of our fiscal year, we are adjusting our assumed exchange rate between the U.S. dollar and the euro from EUR 1.15 to EUR 1.17. For the current third quarter of our fiscal year, we expect revenue of approximately EUR 4.1 billion, which corresponds to an 8% growth compared to the prior quarter. We expect the segment profit margin to be in the high single-digit percentage range. In addition, a positive volume effect, we anticipate rising prices in certain areas, particularly in the AI sector and related product categories. This development is offset by rising costs for energy and precious metals, which are dampening our margin growth. For fiscal 2026, we now expect revenue of more than EUR 16 billion, which is, of course, a significant increase over the previous year. In 2025, Infineon generated approximately EUR 14.7 billion in revenue. The ATV business unit is expected to post slight revenue growth, driven by its broad product portfolio and the continued proliferation of software-defined vehicles on the one hand, but weighed down by the decline in our high-voltage business on the other hand. Now to put this in perspective, excluding our high-voltage business and the Ethernet business, which is being consolidated for a full year for the very first time and assuming exchange rates remain stable compared to the previous year, ATV would grow by nearly 9% in fiscal 2026. Now for the GIP segment, we expect moderate growth. PSS should grow significantly faster than the group average, driven by strong demand for our AI power supply solutions. For CSS, we expect revenue to remain stable compared to the previous year. With increased revenue forecast for the group, expected profitability is also rising. The segment profit margin should reach around 20%. Previously, we had anticipated a margin in the high single-digit percentage range. In addition to the positive revenue effect and pricing that is advantageous for us, we also expect vacancy costs to decline. However, the planned reduction of inventory levels is having a dampening effect here. These positive effects are also offset by unfavorable currency movements as well as rising costs for precious metals, energy and freight due to the war in the Middle East. We also have factored in these direct impacts. However, the outlook does not account for potential indirect effects from a prolonged or even escalating Middle East conflict or from other geopolitical tensions. Now to our investments. In the current fiscal year, we continue to plan our capital expenditures of approximately EUR 7.2 billion. As we reported in our last quarterly conference call, this figure includes around EUR 500 million in accelerated investments to support the steep revenue growth with power supply solutions for AI data centers in the coming fiscal year. In this context, I am pleased to confirm the date for the official opening of our smart power fab in Dresden on July 2. We cordially invite you to celebrate this important milestone with us. The factory will focus on state-of-the-art analog and mixed signal and power semiconductor technologies. Production is starting at exactly the right time to strengthen our growth opportunities in highly attractive markets such as AI data centers, software-defined vehicles as well as robotics and Edge AI in the coming years. Finally, here our expectations for free cash flow. Due to the improved business outlook and the planned reduction in inventory levels, we are raising our forecast for reported free cash flow to approximately EUR 1.25 billion, up from EUR 1 billion previously. Free cash flow adjusted for major investments in front-end facilities and acquisitions is expected to be around EUR 1.65 billion, up from EUR 1.4 billion previously. Ladies and gentlemen, this concludes my remarks. And now together with Sven Schneider, I'm happy to answer your questions. Operator: [Operator Instructions] The first question comes from Hakan Ersen from Thomson Reuters. Hakan Ersen: Mr. Hanebeck, earlier you mentioned that if capacities allow, you could confirm customer orders through to the next fiscal year. Does that mean that you're fully booked through to the next fiscal year? Jochen Hanebeck: No. This doesn't generally translate into that message. But in some areas, we see an upcoming allocation, especially in all product groups, which also go into AI power supply solutions and also potentially in other markets. There, we are doing all we can to continue expanding our capacities. But whether this will be sufficient for everyone and everything isn't something I can say today. Hakan Ersen: Okay. You're saying that you're fully booked in some areas, but that you're not fully booked in other areas. Is that correct? Jochen Hanebeck: Yes, that is correct. Especially the 300-millimeter fabs really have very, very high capacity utilization. That I can tell you. Operator: [Operator Instructions] The next question comes from Joachim Hofer of Handelsblatt. Joachim Hofer: I have 3 questions. The first one is just for the sake of clarification. You're talking about significant revenue growth, EUR 16 billion, that is roughly 10%. Is that correct? Jochen Hanebeck: Yes, that is correct. Joachim Hofer: Okay. Great. The second question, because you -- a lot of people have been speaking about the critical situation in helium supply because of the situation in the Gulf region. What about Infineon? Are you lacking helium and other raw materials? Jochen Hanebeck: Sven Schneider will answer that question. Sven Schneider: Yes. Indeed, we see that, but it is safe for you to assume that the industry has learned its lessons from the past crisis in order to come up with a multi-sourcing strategy and network so that you don't depend on deliveries from individual suppliers. This is something that we do with helium as well. So we see that, but we can always work around such problems. So from our current standpoint, we don't have any material effects. But as Mr. Hanebeck alluded to earlier on, we have been witnessing price increases, for instance, for copper, for gold, for the gases that you spoke about for logistics and freight. We see substantial cost increases. However, they are also factored into our outlook. Joachim Hofer: The third question I have is this, perhaps you can give me a more detailed explanation of what you want to do with the high-voltage business because it was rather complex in your presentation. So what you're doing is fitting out the portfolio, if I understood it correctly. But what are you doing above and beyond that? Jochen Hanebeck: Yes, that's correct. But let me put it in these words. We believe in the mobility trend, and we sell a lot of products that are built into EVs. Now there's one area, the high-voltage products. And here, we're talking about the inverters, in particular, which take the current from the battery. They turn the AC current into DC current. And in the past, this was done by IGBTs. And now and in the future, we're moving increasingly to silicon carbide. This market, especially in China, is under substantial price pressure. IGBTs are increasingly manufactured in China. This isn't surprising to us because a while ago, our R&D was orientated towards silicon carbide. In the area of silicon carbide in this application, however, we also see a very aggressive pricing strategy from other market participants outside of China. This coupled to a drop in worldwide volumes because you mustn't forget that the market in the United States has basically collapsed. It is growing in Europe, but not as fast as anticipated. And China as a local market is running into a phase of stagnation. So unit figures are going down. And therefore, in turn, revenues are going down. The idle costs are increasing in this area. However, in this respect, the front end, the wafer capacities can be repurposed or rededicated quickly, for instance, into AI applications, if needed. And when it comes to assembly, we need to adjust capacities. And this is why we are taking the measure in Warstein, which we announced in November. Above and beyond that, we are taking a look at our portfolio to figure out where in the future, when new price points are formed, we can generate customer benefits. And here, in the future, we will invest into R&D in these areas because we believe that we have all of the key elements necessary to do so. We have the technological expertise. We have the right manufacturing footprint and of course, the system competence that's necessary as well. Certain other product families may perhaps not be developed or maybe put on the back burner. So what we are doing is to refocus the business because the margins that we're currently earning with it in this special situation, as I said before, revenue today is about 7% of the ATV revenue for the high-voltage components for the inverters. It used to be far north of 10%, and we need to realign this business, put it on new pillars, and this is what we intend to do. Thank you very much. Operator: [Operator Instructions] We do not have any further questions. I hereby close the Q&A session, and I would like to ask Mr. Hanebeck to make his concluding remarks. Jochen Hanebeck: Dear listeners, I'll summarize. The second quarter of the current fiscal year was closed by Infineon fully within expectations. We have achieved our targets for the first half of the fiscal year. The growth outlook is improving. We are seeing a broader upturn in several of our markets. However, the momentum varies by application area. Based on an overall more positive business outlook, we are lifting our full year forecast. We expect significant revenue growth to more than EUR 16 billion and a segment profit margin of around 20%. In the future, we will transition from 4 to 3 business divisions with a streamlined structure and clearer responsibilities for the various application areas, we will deliver value to our customers even faster and thus further accelerate our profitable growth trajectory. Thank you for your interest, and goodbye. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Terje Pilskog: Good morning, everyone, and thank you for joining us for our first quarter presentation for 2026. It has been a strong quarter with a high activity level, and we continue to deliver on our strategy to drive growth at a high pace across our geographies. And at the same time, we also continue to strengthen our financial position. In the quarter, our operating portfolio has increased as several projects have moved into commercial operation. We have improved near-term growth visibility with new projects reaching both backlog and also reaching into construction. And finally, we have also strengthened our liquidity and have reduced our corporate debt. And our available liquidity currently stands at NOK 6.1 billion. On the market side, demand for energy is growing and Scatec is operating in countries with strong and increasing underlying demand for clean, reliable and affordable renewable energy. And renewable energy is the most competitive source of power generation in our markets, and we continue to see attractive long-term market opportunities and now more than ever as energy security is increasingly becoming important. So today, I will start by going through a bit on the macro situation. I'll then go through the highlights of the quarter. Hans Jacob will go through the financials. And then at the end, we will open up for questions. So in terms of the macro situation, focus on energy security and cost competitiveness reinforce the case for renewables. As shown to the left, many of our core markets remain highly dependent on imported fossil fuels, which increases both cost and supply risk. Recent geopolitical developments and a significant increase in the price of fossil fuels have reinforced this dynamic. And this is a stark reminder of the risk of being exposed to fuel imports and is driving an increased focus on domestic, reliable and predictable energy sources. And at the same time, economics are clearly moving in the favor of renewables. To the right, you can see that solar and wind are the most competitive sources of power and with declining battery costs, renewable energy is able to also deliver dispatchable and baseload type of power. The recent developments in fossil fuel markets will strengthen the case for renewables. And renewables demand is no longer only driven by sustainability. It is driven by energy security and cost competitiveness. And this is expected to accelerate deployment of renewables across the globe, and Scatec is uniquely positioned in high-growth import-dependent markets where the need for affordable and reliable power is the strongest. And in our markets, we are delivering energy faster, cheaper and with greater reliability than the conventional alternatives. Egypt and our 1.1 gigawatt Obelisk project is here a clear example. With strong execution and diligent cost control, we have advanced the project from PPA signing to operations in less than two years. We are already supplying electricity to the Egyptian grid from the first phase of the project. And at the same time, Egypt still relies on gas for close to 90% of its electricity, leaving it highly exposed to expensive LNG imports. At current gas prices, our project, the Obelisk project will deliver significant annual savings in the range of $300 million on an annual basis. And this is before we also consider the volatility and supply risks associated with fossil fuels imports. And as a reference, remember that the total CapEx for Obelisk project is in the range of $600 million. So from a mathematical economical point of view, we're talking about a two-year payback on the investment. And this fact is also clear to the authorities in Egypt and also in other countries and other markets where we operate, and they look to increase targets and accelerate the deployment of renewables. And overall, as I said, this is not only about sustainability any longer, but providing cheaper power, faster delivery and improved energy security. This is a combination I see as a strong driver of growth for Scatec going forward. Now let me take you through the highlights of the quarter. We delivered group revenues of NOK 1.6 billion and EBITDA of NOK 774 million. We've had good progress on our projects under construction, and we recognized NOK 695 million in revenues and NOK 100 million in EBITDA. And this quarter, we realized a gross margin in the D&C segment of 22%, and this is due to a contingency release of NOK 80 million, which is related to the completion of the first phase of the Obelisk project in Egypt. And the underlying gross margin in the D&C segment continues to be in line with our guidance. Further, our growth engine continues to run at high speed. We finalized construction of three projects during the quarter in Egypt and in Tunisia. In total, 683 megawatts of solar capacity and 200 megawatt hours of battery storage capacity. This increased our total capacity under generation now to more than 5 gigawatts. We also started construction of another five projects across South Africa, Colombia, Romania and the Philippines in total, 575 megawatts of generation capacity and 80 megawatt hours of battery capacity. And finally, we also strengthened our financial position. We're paying $30 million on our vendor financing, and we renegotiated our RCF at improved terms. This brings our total available liquidity, as I said, to NOK 6.1 billion. With that, let's look at the Power Production segment. We generated 1,046 gigawatt hours in the quarter. This is up from 881 gigawatt hours last year after adjusting for divested assets. New projects contributed with 241 gigawatt hours. This is from the Mmadinare project in Botswana, Grootfontein in South Africa, also Sidi Bouzid, Tozeur in Tunisia and the first phase of Obelisk in Egypt. Revenues from power production amounted to NOK 929 million. This is down from NOK 1.1 billion same quarter last year, excluding divested assets. In terms of underlying operations, new projects contributed with NOK 68 million during the quarter in terms of revenues, while we had lower revenues in the Philippines compared to a very strong quarter last year. The revenues in the quarter, they were also impacted by several specific events. One power plant in Ukraine continues to be out of operation and our Apodi plant in Brazil experienced some downtime during a lightning strike. We reversed an accounting gain of NOK 56 million related to the divestment in Vietnam as payment conditions for this earn-out was not met. While in the same quarter last year, we recognized a positive one-off related to a tariff true-up. And finally, we also had a negative FX effect relative to last quarter as the NOK has strengthened against our main operating currencies. So in summary, our large growth portfolio is starting now to enter operations. And going forward, this will contribute to growing and even more resilient portfolio of contracted revenues going forward. Let me now turn to the Philippines. We continue to see significant strength of having a flexible portfolio shown by the financial contribution from the ancillary services also this quarter. Power production decreased by 28% to 107 gigawatt hours in the quarter, while revenues by comparison only fell by 13%. Revenues reached NOK 279 million and EBITDA ended at NOK 231 million, which is at the higher end of the guided range. Philippines is a strong cash-generating market and now with four energy storage projects in construction, we continue to add battery capacity to the attractive ancillary services market to strengthen our position going forward here. Then in terms of construction, we currently have 1.4 gigawatts of solar and 587 gigawatt hours of battery storage projects under construction. This also includes the release platform, where we continue to see very strong progress. Since last reporting, we've had a very good construction progress across the portfolio. We recorded, as I said, D&C revenues of NOK 695 million, and this is largely driven by the progress we've seen on the Obelisk project as well as on the Mogobe BESS project. As I said, gross margin came in at 22%. And after reaching commercial operation for the first phase of Obelisk, we released a contingency of NOK 80 million. This is reflecting the cost-efficient and swift execution that we've had on this project. Adjusting for this, the underlying gross margin was 11%, and this is in line with our communicated targets. Also Sidi Bouzid, Tozeur in Tunisia came into operation during the quarter, adding another 120 megawatts into our operating portfolio. And looking forward or looking forward to the second quarter this year, we also aim to reach COD for both Urucuia in Brazil, as well as two battery storage projects in the Philippines. As for the rest of the construction portfolio, we expect to see a steady flow of new projects coming into operation over the next 12 months. I'm very pleased with the progress that we're currently seeing on the construction area and incredibly proud of the teams, the large teams that are making this happen. And at the end of the quarter, the remaining contract value that we have in the D&C segment has increased to NOK 4.2 billion, up from NOK 1.8 billion at the end of last quarter. So we also see that, that is increasing as we move projects into construction. And we expect to continue to realize a gross margin of 10% to 12% on this portfolio. And behind this, obviously, we continue to have and we continue to mature additional projects that will move into construction also over the next quarters. So now let's also take a look at Lyra. And during the quarter, we announced construction start for our first project in the Lyra JV, the 255 megawatts Thakadu project. And we have established the Lyra platform together with our local partners, STANLIB and Standard Bank, and it's an important part of how we are positioning ourselves for the future in the South African market. Through the platform, we seek to capitalize on the ongoing deregulation in the power sector in South Africa. And in Lyra, we are able to build a scalable platform for power production and PPA aggregation. This allows us to serve multiple C&I off-takers at attractive tariffs, and this is compared to our traditional model in South Africa with public tenders and Eskom as the sole off-takers. And we expect both these parts of the market to continue and provide significant opportunities going forward. The Lyra platform benefits from Scatec's development, EPC and operational capabilities, and we extract margins from providing these services to the platform. At the same time, we benefit from strong financial partners, which provides equity and debt funding for the project at pre-agreed terms. So this is a model that allows us to grow with limited balance sheet exposure while still capturing value across the full value chain of our activities. And importantly, it positions us well to benefit from what we see as a structural shift in the South African market going forward. So let us then also have a look at our growth portfolio. We have an all-time high backlog of 5.9 gigawatts of generation capacity. This includes projects mainly in Egypt, South Africa, Tunisia and the Philippines. And when the construction and backlog projects have been completed over the next few years, we will reach more than 12 gigawatts of generation capacity. This is increasing our capacity relative to what we have today by almost 2.5x. In addition, behind this, we have a pipeline also of 5.9 gigawatts of projects that also will mature over time and contribute to future growth. In addition to our growth portfolio, it now also on generation capacity, it also now includes battery storage. These are either in hybrid projects or as stand-alone installations. And here, we have a backlog of 4.6 gigawatt hours also across South Africa, Egypt and the Philippines. Together, this project pipeline provides great visibility on significant value-creating short-term growth. And we will continue to grow on a self-funded basis, and we will continue to stay disciplined relative to our return requirements. So with that, I will hand over to Hans Jacob to take us through the financials. Hans Jakob Hegge: Thank you, Terje. And we delivered a strong results across the group, high D&C activity and a good quarter in the Philippines. I'll walk you through the group financials and the performance of our operating segments, and I will also cover further improvements to our capital structure. Looking at the quarter on group level. We continue to generate solid revenues from our D&C activity, which has a positive effect on the proportion of financials. Consolidated revenues was NOK 1 billion compared to NOK 1.8 billion in the same quarter last year. The EBITDA reached NOK 729 million compared to NOK 1.5 billion, and the reduction is mainly driven by the divestment gains in the same quarter last year. This is in line with our long-term self-funded strategy. Our proportionate revenues was NOK 1.6 billion compared to NOK 2.4 billion in the same quarter last year, and proportionate EBITDA was NOK 774 million compared to NOK 1.4 billion year-on-year. Now let me take you through the segments. Starting with power production, revenues was close to NOK 900 million compared to NOK 1.6 billion in the same quarter last year, mainly explained by the divestment gains of NOK 426 million booked in the first quarter 2025. EBITDA was NOK 702 million. And the last 12 months, we have delivered NOK 4.5 billion in revenues and NOK 3.5 billion in EBITDA. Overall, we are very pleased with the value generating from our operating assets. In the D&C segment, activity levels continue to increase. Proportionate revenues was NOK 695 million compared to NOK 751 million last year, and the EBITDA was NOK 100 million compared to NOK 26 million. This was driven by NOK 80 million contingency release from the Obelisk phase 1. The contingency release is a result of timely and cost-efficient execution of the project. The trend from the last 12 months confirms the long-term strength and scalability of our D&C business. D&C revenues in the last 12 months was NOK 5.9 billion with a steady increase over the last five quarters. Rolling EBITDA ended at NOK 535 million with contributions from high-margin projects, contingencies and disciplined cost control. Our free cash flow position ended at NOK 2.6 billion in the quarter, and this is due to the following movements. We received NOK 94 million in distributions from power plants, generated NOK 72 million EBITDA from D&C and corporate, invested NOK 195 million in growth projects and repaid NOK 286 million corporate debt and paid NOK 109 million of interest. This is compared to NOK 165 million in the same quarter last year. Following the quarter, we have refinanced our RCF at improved terms and increased the limit from $230 million to $350 million. The increased limit provides a comfortable liquidity buffer and will support the execution of our record high near-term growth portfolio across geographies. With the increased limit, we have a total available liquidity of NOK 6.1 billion, which provides a solid liquidity buffer to deliver on our strategic targets. We continue to strengthen our capital structure. Gross corporate debt was reduced to NOK 6.5 billion following a repayment of NOK 286 million of the vendor note. This is in line with our strategy to deleverage on corporate level to increase financial flexibility and reduce interest costs. On project level, the gross debt increased by NOK 0.4 billion to NOK 19.5 billion due to drawdown of debt on new growth projects. Net debt for projects in operation increased by NOK 1.1 billion as Obelisk phase 1 reached COD during the quarter and net debt for projects under construction was correspondingly reduced by NOK 1.2 billion. Cash held in our SPVs increased by NOK 400 million to NOK 2.8 billion. Then having a look at the outlook. In our Power Production segment, we estimate a full year power production between 505 and 545 terawatt hours. Our estimated full year EBITDA is reduced by NOK 200 million to a midpoint of NOK 3.75 billion, mainly due to NOK 150 million of negative foreign exchange effect as the NOK has strengthened against our main operating currencies. The largest effect relates to dollars, ZAR, and the Philippine peso. NOK 56 million reversal of the divestment gain related to the Vietnam earnout. And for the second quarter, we expect a total power production between 1150 and 1250 gigawatt hours and EBITDA in the Philippines of NOK 150 million to NOK 200 million. We note increased uncertainty in the Philippines due to global geopolitical developments and El Nino impacting the second quarter EBITDA estimate and the full year '26 proportionate EBITDA. In our D&C segment, the remaining contract value has increased by NOK 2.4 billion to NOK 4.2 billion as new projects are moved to construction. The estimated gross margin is unchanged at 10% to 12% on average across the portfolio of projects under construction. For corporate, the expected full year EBITDA is unchanged at negative NOK 125 million to NOK 135 million. And these estimates reflect a strong base of operating assets, high construction activity and healthy cost control. And then, Terje, I'll leave it to you to take us through the summary. Terje Pilskog: Thank you very much, Hans Jacob. So a couple of key points for the quarter. We continue to build and we now have an all-time high growth portfolio with 5.9 gigawatts of projects in backlog related to generation capacity and 4.6 gigawatt hours of energy storage projects. We've also shown that we have very strong execution evidenced through the fact that we have released NOK 80 million in contingency from the Obelisk project, and we continue to progress well on the projects that we have in construction. And finally, we are improving our financial position. We have paid down corporate debt as well as we have refinanced our RCF. And in summary, what we see currently is that the case for economics, the case for renewables is strengthening in the current situation, economics is competitive, and we can provide flexible, dispatchable energy. We have an all-time high growth portfolio and the opportunities beyond this portfolio is also improving. And we also see that we have the financial flexibility to realize both this portfolio and further projects beyond this. So I believe that Scatec currently is in a uniquely strong position to continue to capture and realize value-creating growth. Thank you. Then we will open up for questions. Andreas Austrell: Yes. We will then move to the Q&A session. We will start with questions here in the room and then move on to the ones listening online. So any questions from the audience here in the room? -- seems to be no questions. So then we will move on to the questions from the online listeners. We have one question regarding the Obelisk, National Bank of Egypt coming in as a new owner. Following the transaction, National Bank of Egypt will have an economic interest of 20% in the project. What's the financial impact from this transaction? Terje Pilskog: Yes. So the National Bank of Egypt is coming in at pre-agreed terms before we reach commercial operation for the full plant. The way we look at this is that getting the National Bank of Egypt in as an equity investor is significantly derisking the project because they are taking dividends in local currency. And already when we started construction of this project, we have optimized the project in terms of the return levels that are acceptable for the other equity investors. There is no further accounting impact of this transaction beyond the fact, obviously, that our equity is being released back to us. Hans Jakob Hegge: I also think it's a testimony of the attractiveness of this project that we actually have the National Bank of Egypt joining with equity. This is a fast-paced development project. It's a fantastic project ahead of schedule and very important for the Egyptian economy and the economic development in the area. So we are quite proud to have them with equity. Terje Pilskog: I mean, I have three high-quality co-sponsors in the project. We have obviously EDF from France that joined us into the project. We have Norfund here in Norway, and we now have the largest commercial bank in Egypt joining into the project as well. Andreas Austrell: Thank you. Next question from Jorgen Lande. Good morning. On the lowered power production guidance, what are the key factors lowering the full year production as Q1 production ended in the very high end of the guided range? Terje Pilskog: Yes. The key factors impacting our guidance for the full year it's mainly two things. One is uncertainty on the power production levels in the Philippines in the second half related to the potential El Nino effect. And the second element is the fact that the Ukraine project, which is currently out of operation is expected to come into operation a bit later in the year than we first had anticipated. Andreas Austrell: Another question from Sindre Sorbo. Could you elaborate why you're not notching up the D&C margin guidance? Terje Pilskog: The D&C margin guidance is based on the contracts that we have entered into on the EPC side, and they're based on the forecasted cost levels in those projects that we are constructing. Obviously, when -- obviously, in all of those estimates, there are some levels of contingencies as you would always do in the EPC business, and we will only release that when we see that the risks have been taken out of the project. Andreas Austrell: One question about our debt. You claim that you have reduced debt, but the total debt has increased. Can you elaborate? Hans Jakob Hegge: Yes. I think he's referring to -- on project level, we have high gearing, nonrecourse project debt, and this will continue to grow with the success of the company growing. On corporate, you should expect lower debt as you also have seen in this quarter. Andreas Austrell: One question from Anders. Referring to our guidance and the uncertainty we mentioned there in the Philippines, asking what does that mean? Is that risk on the upside or the downside? Spot prices in the Philippines are up quite a lot. Terje Pilskog: That is correct. So with the -- as the suspension of the WESM market has been ended beginning of May, we -- on a short-term basis, we expect to see prices going up. And then I think it's difficult to foresee exactly how long this is going to last, including the war in the Middle East, which has a huge impact on prices. Currently, in the Philippines, we are in the drier part of the season. And when we move into May and June, we will come into the more wet part of the season. So obviously, how long the prices are going to stay high relative to when we get more water is going to impact how this is going to have -- how this is going to affect Scatec on the economic side and the financial side. So that's why we're saying the uncertainty is increased. And it's important to emphasize that it's also uncertainty on the upside, and it could also be positive effects from this. Andreas Austrell: A question from Anis Zgaya, ODDO BHF. On the Vietnam earn-out reversal, could you clarify what specific conditions were not met and whether this reflects timing issues or more structural shortfall versus initial assumptions? Terje Pilskog: Well, the specific element related to that was a reversal of a tariff reduction that the government in Vietnam implemented retroactively related to a project. And we will get paid more if that had been carried out. The reversal had been carried out, but it was not done so within the time zone that we had identified for that to happen. Andreas Austrell: Thank you. Another one from Anis. On FX, how should we think about sensitivities going forward? And how much of the NOK 150 million impact could be reversed if NOK weakens? Hans Jakob Hegge: Well, I think the reference to FX in the quarter on consolidated, there was an FX loss of NOK 69 million. This was related to the relationship between euros and dollars. On the full-year guidance, we have corrected for the FX loss in the quarter. So hopefully, that was answering the question. Could you repeat it, Andreas, to make sure that we fulfilled? Andreas Austrell: Well, it's basically how much of the NOK 150 million that could potentially be reversed if the NOK weakens. Hans Jakob Hegge: I don't think I have a specific number for that. Andreas Austrell: Okay. We have the next question also from Anis. New projects are ramping up nicely. Should we expect a more visible uplift in EBITDA contribution from these assets already in H2 2026? Could this offset FX impact? Terje Pilskog: Obviously, in our outlook for the year, we are taking into consideration that new projects will come online. So the projects that we are currently having in construction, they are all represented in terms of also the power production revenues for the year based on when we anticipate and when we have guided that those projects will come into operation. Andreas Austrell: I think that's the final question as of now. So with that, I think we end today's presentation, and thank you very much for listening. Terje Pilskog: Thank you.
Operator: [Operator Instructions] With that, I'll hand it over to CEO, Jan Rindbo; and CFO, Martin Badsted. Mr. Jan, please go ahead. Jan Rindbo: Thank you very much, and hello to everyone. Thank you for joining. Let me start by just giving you just a brief introduction to NORDEN. We are a leading global operator transporting the essential commodities for industrial customers worldwide. We have a capital-efficient fleet strategy combining owned and chartered vessels, which enable us to navigate market cycles and deliver competitive returns. So today, we will take you through our performance and the strategic positioning of the company. So let's dive straight into it, and let's do that with probably one of the most discussed topics at the moment, the conflict in the Middle East, which obviously are having big impact on both the markets and operations. So we see, obviously, on the tanker side, strong support on the tanker rate. We've seen surging spot rates where tankers are in high demand to help rebalancing oil markets in view of the lack of the oil supply that's coming out of the Middle East. The dry cargo market reaction has been more muted. And here, it's probably more the additional operational impacts and costs that affect the business. We have seen, obviously, with higher oil prices, a significant increase in the bunker costs. So they're up roughly around 50% since the start of the conflict. That does not directly impact NORDEN because we hedge the directional risk of the oil price, but we are seeing physical delivery premiums have spiked that cannot be hedged. NORDEN has, as you can see here on the map, we have 7 vessels inside -- trapped inside the Persian Gulf, 6 dry cargo vessels and 1 tanker. And we have obviously suspended all new business coming into the region. But we'll obviously touch much more on the situation in the Middle East later in the presentation. If we look at the highlights, the financial highlights of the quarter, we've made $11 million net profit in the quarter, which is giving us a return of just under 8% on the return on invested capital. We have a very strong operational cash flow of $172 million in the quarter. And what is probably the most significant development overall in the quarter has been this increase in the net asset value of our business and our fleet of 11% since the end of the year. So in just 1 quarter, the net asset value of the company has actually gone up by 11% to now stand at DKK 422 per share. And we continue to return cash to investors. In this quarter, we are continuing with a quarterly dividend of DKK 2 per share. And on top of that, we have a share buyback program of $25 million, and that brings the total payout to $35 million for this quarter. When we look at the group fleet overview, we continue to be very active in optimizing the fleet. We have, in this quarter, sold 7 vessels, 4 of those are from declared purchase options. We also continue to lock in longer-term earnings through time charter out. So we've done 8 long-term deals on time charter to secure forward earnings. We also continue to add ships. So we have actually added more ships than we have sold. We've added 11 vessels in the quarter, 8 leases with purchase options, and then we have purchased 3 vessels. And we continue to sit on this big portfolio of purchase options. We have 91 in the portfolio, of which 33 can be declared over the next 2 years at prices that are currently 22% below current market prices. And if we dive a little bit more into the fleet and look at the fleet composition, you will notice here that we are mainly on the ships that are exposed to what we call the positioning margin. So that's more the ships that are dependent on directional market calls. So typically, the larger dry bulk vessels, but also the MR ships. So here, we have specifically sold 1 Cape and chartered out 3. We've sold 2 Panamaxes. On MRs, we have sold 2 ships and time chartered out 5 ships. So quite a lot of activity on these large and medium ships but predominantly reducing exposure in those segments. And then the ships that we are adding to the fleet have all been in what we call the smaller vessel sizes. They are more exposed to the base margin part of the business. This is the core operating margin that is not dependent on the market direction, but this is where a combination of cargoes, reducing ballast time, loading more niche type cargoes add additional margin. And here, we have added 2 Handysize ships to the core fleet and then 9 Multipurpose ships. So we now have built a core fleet of Multipurpose ships of 22 vessels. And strategically, this is sort of one of the areas that we are focused on building. Most of these ships are newbuildings. The first one will deliver later this year, and then this fleet will deliver in the coming years. One deal stands out in the quarter, and that is that we have signed a newbuilding contract for two ice-class multipurpose vessels. Those ships are ordered against a long-term contract that we have signed with a Swedish mining company, and the ships will be used partly to perform that contract when they deliver in 2028. With that, I will hand you over to Martin, who will talk a little bit more about our NAV. Martin Badsted: Thank you very much. Yes, as Jan already alluded to at the highlights page, the NAV developed quite positively during the quarter, up 11% to DKK 422 per share. And it was actually a broad-based increase in the value of assets, both in dry and in tankers. You'll see from the table here that currently, actually, in terms of our own fleet, the majority of the value, $800 million lies within dry, whereas $200 million are in tankers. But when you look at the value of the TC portfolio, including purchase options, it's actually a little bit overweight tankers with $263 million. On the right-hand side, you will see a sensitivity analysis of what happens to the DKK 422 per share if we change both the forward curve and the asset values by 10% or 20%. And you will see the outcome ranging from DKK 308 to DKK 559 per share, all actually either in line or above the current share price. Sorry for that. It's a little bit slow. So looking at the market development in dry, it was actually a fairly strong quarter. When you look at the turquoise line in the middle of the graph, you will see that the spot rates for Supers, as an example, were far higher than 2025. Actually, they were up 41% over the quarter. And that was mainly driven by the standard commodities, iron ore, bauxite, grains, whereas coal was actually quite weak, although we are seeing that changing currently. We do have a firm view on the long-term outlook for dry cargo, not least based on a favorable supply side, where you'll see on the right-hand side that the order book is actually matched more or less by the share of the fleet, which is over 20 years. So there's good reason to believe that you can actually still have favorable fundamentals in the dry cargo market going forward. Looking at our earnings in dry cargo, you will see that we made on an EBIT level, a loss of $45 million, which is, of course, unsatisfactory. It was mainly driven by dry operator large and small, which both made a loss in the quarter. Of course, some of this was related to cost as a result of the Persian Gulf conflict, where we both have vessels stuck within the Persian Gulf, but certainly also the regional bunker premium that Jan talked about in the beginning, which are hedged to the extent possible, but there is still some non-hedgeable items of the bunker exposure we have that has costed us quite dearly during the quarter. Of course, it's not all the Persian Gulf. It's also what we call regional positioning, which really means that we have decided to reposition some of our vessels from the Pacific into the Atlantic in expectations of higher Atlantic rates. The benefits from this have yet to materialize, but we still expect some of that to show up in Q2 earnings, and we do see gradual improvement in earnings in dry operators going forward. In tankers, it was a super strong spot market during the quarter, of course, driven by the dislocation of trade flows following the closure of the Strait of Hormuz. You'll see the graph here actually coming up to close to $70,000 a day. That was actually an average of very large regional discrepancies where the U.S. Gulf ramped up exports quite aggressively and paying rates close to $100,000 a day, whereas it was a little bit more muted, but still good rates of, call it, $30,000 a day in the East. The development in rates has turned around in recent days. And of course, the underlying problem here is that with the closure of the Strait of Hormuz, we are lagging 15% to 20% of volumes that will normally have occupied a lot of seaborne capacity. But also here, actually, fundamentally, we are not so worried about the supply side, as you will see on the right-hand side also here, the order book is matched more or less with the share of the fleet being more than 20 years old. But we do think some of this order book is starting to accelerate deliveries during the second half that should put some pressure on rates going forward. In tankers, we made a total EBIT of $47 million, and it was actually mainly in the dry owner, which has some spot exposure through our NORDEN product pool. The tanker owner made $37 million and the tanker operator just over $10 million in the quarter. And that brings me to the full year guidance, which, as you know, we upgraded end of April, and we raised it by $40 million to a new guidance of $70 million to $140 million and that includes a reservation of $30 million to cover possible costs for the 6 TC vessels that we have stocked within the Persian Gulf, which is really based on an assumption that those vessels may stay there actually until the end of the year before they can get out. The earnings that we expect for 2026 are quite front-end loaded, meaning that much of it should come in Q2 and then taper off within the second half of the year. And in terms of risk exposure, we have about 2,300 open tanker days and close to 7,000 open dry cargo days, all being long against the market. That concludes my part of the slides, and I'll hand you back to Jan. Jan Rindbo: Thank you, Martin. So this is just a reminder of the key drivers in the business model and how we approach markets. So we have these 4 drivers: dry cargo and tankers are 2 and then asset heavy and asset light the operating business. So we have these four. Our exposure to the prevailing market conditions. And what we are seeing now is that in a very, very high tanker market, we have decided to reduce exposure there and move more of that exposure towards dry cargo. And as we explained earlier on some of the previous slides, we have done a few deals to both sell tanker vessels but also take longer-term time charter contracts on tankers. And we now have, on average, around 80% cover for our tanker business until the end of 2028. So taking advantage of these high tanker rates and locking in long-term profits in that part of the business. That means that we have more exposure in the dry side. And within the dry cargo business, as we explained on one of the previous slides, we are moving exposure more towards the smaller segments where we have more impact on the earnings than just being driven by the market. And we think this flexibility in the business model where we have several drivers, realizing that it's not always all 4 drivers that will go at the same time. But over a rolling 5-year period, we can see that this generates higher returns than industry peers that are more specialized in just one segment. So this ability to switch between the segments actually has a lot of value for NORDEN in the long run. If we move to the next slide and then look a bit more at the direction we are taking towards 2030, we see an opportunity to go even deeper in our relationships with customers. At a time where there is a lot of focus on supply chains and geopolitical uncertainty, NORDEN stands out as a reliable service provider in the freight industry, and that is something that we want to leverage and continue to build both more cargo networks with complementing contracts, but also have more efficiencies in the way that we operate the cargo book and the fleet. The expansion towards the smaller vessel sizes within dry cargo is also with a view to focus more on what we call the base margin, the core operating margins in the business and thereby reduce the volatility in our earnings because in the smaller segments, project cargo, minor bulk commodities, but also the logistics part of our business, it is less exposed to market fluctuations and thereby giving more stable returns through the expertise that we can provide in those segments. We will, however, continue to be focused on this adjusting our exposure and remaining what we call asset agile and continue to take the opportunities that we see in the market. So both buying and selling our vessels as an example, is largely driven by the opportunities that we come across in the market. And that sort of is an important part of providing strong upside in better markets. And that's exactly what we're seeing right now through the whole optionality portfolio where we have a lot of extension options and a lot of purchase options in our fleet. And in rising markets, there's a lot of value there that we can realize. And that brings me just to the last slide and just a few points here on the investment story in NORDEN. When you zoom out and look at the industry, we think actually the macro view of the industry is fundamentally very positive because when you take a longer-term view towards 2030 and beyond, we see an aging global fleet, both in dry cargo and in tankers. And we currently have a low order book, especially on the dry cargo side. So this replacement need of all these older vessels is not currently being met by the order book. And as we've also previously explained, all the geopolitical uncertainty and the dislocations are creating longer distances for transportation. And that means that we have a very healthy market balance as we see it. And even if -- even at times of lower economic activity, the inherent risk of a prolonged oversupply situation is much, much smaller than what we have seen historically over the last couple of decades. Our business model, point #2 here that we can adjust to the different markets that we are in, gives us huge flexibility to manage the risk through the market cycle and deliver better returns compared to a pure-play company. And then we have the strategic focus on expanding in areas where we believe we have even more impact ourselves in terms of our operating capabilities and really building this business that is more sophisticated, not least with the AI-driven opportunities that we also see in enhancing our decision-making and really bringing out the -- what we call the NORDEN platform, the value of being one of the largest operators in the industry and having a global network of offices close to our customers bring out all of that value as an important part of our strategic focus. And then the last point we're making here is that we continue with a relatively asset-light approach in our business model, but with the upside from purchase options on the asset upside that enables us to return a lot of cash to shareholders and have this disciplined capital allocation that over time, at least historically have driven a ROIC outperformance compared to the industry. I think with those words, let's turn over to the Q&A session. And hopefully, there are questions where we can put a little bit more color to some of the points that we have made here today. Operator: Thank you, Jan and Martin. And yes, we are now ready for the Q&A session. [Operator Instructions] But let's start off with a couple of the written questions here. They were originally in Danish, so this will be our translation. So the energy company, MASH Makes, which among other things, was supposed to produce biofuel for DS NORDEN's fleet, has gone bankrupt. It is reported that they were unable to raise capital for the next phase. You have been invested in the company since 2023. Can you tell us what loss you'll be taking in NORDEN's future financial reports in connection with this bankruptcy? Martin Badsted: Yes, I can respond to that. So when you look at the future financials, this will have no impact because all of it has been provided for in the current accounts already. So of course, we have been very happy to work together with the team behind MASH Makes and I think they have a very interesting technology. But I think the phase that they are coming into now means that they will need new investors to take this forward. Operator: And a follow-up question in connection with this. Can you tell us how this will affect your transition to biofuel? Are there new partners on the horizon or any concrete partnerships in the works? Martin Badsted: Our efforts to work on decarbonization and offering that also as a product or service to some of our clients is unaltered. So we have a strong belief still that biofuel is part of the answer for the shipping industry, and we are working with several partners to help them actually realize zero emission transportation based on our products. Operator: And the next question here is, as an investor, one has noticed that the bulk/dry cargo market for what is by now an almost excessively long period has not been optimal for NORDEN. The tanker market, on the other hand, is booming. Looking a bit into the future, where we also see risk of, for example, lower Chinese growth, wouldn't it make good sense for NORDEN to look more towards the tanker market over the coming 1, 2 years and prioritize this business leg more heavily? And do you agree with this analysis is also stated? Jan Rindbo: Yes. I think let me start by saying that going back to the business model that we have, both being in dry cargo and in tankers, there will be periods where one leg is more attractive than the other. And only a few years ago, it was the dry bulk business where we actually got the same question, why are we not just focusing on that? I think we've shown over time that the strength of having both activities, that's important. If you talk about the risk reward from where we are today, yes, clearly, tanker earnings are very strong right now, and it's attractive to be in tankers. But to invest further in tankers right now is also very expensive and quite risky. So the risk reward, we think, is more skewed towards the dry cargo side. That's also why we're running with relatively high coverage on the tanker business. We have actually made money overall in dry cargo last year. We are, of course, having a more difficult first quarter in dry bulk, which Martin also explained, there are some different drivers, some repositioning costs that will come back. So we do expect better dry cargo performance in the coming quarters. And of course, our focus is on obviously ensuring that we have the best possible performance. It also, a little bit, ties in with the strategic choice of going towards the smaller vessels where we have more impact on the results through our own operation and not just being driven by the market. Operator: And then a question related to the current situation in the Middle East. It goes, how do you see the scenario for yourself when the Strait of Hormuz is reopened, and peace returns to the region there? One would imagine you'll be extremely busy for an extended period with simultaneously high freight rates primarily for tankers. Do you agree with that expectation? If yes, how long might one expect it to last? And would you also have a positive impact on the dry cargo from this? Martin Badsted: Yes. So that's a very good question or a number of questions actually baked in there. But I think overall, our view is that the closure of the Hormuz Strait as we are seeing now is fundamentally negative for the tanker market. Yes, there have been some super short-term spot rate earnings in the last couple of months, but we think those are temporary. And after that, if it continues for that long, there will be a lag of 15% to 20% of normal seaborne volumes, which we think if such a demand hits that the market will be under pressure. But of course, if the Strait of Hormuz were to open tomorrow, I think you're right that there could be an added employment for, again, a temporary period because countries and companies would need to restock, and there would be quite a lot to do in that case. So it's very dependent on the time frame that we are discussing here. It's less of an issue on the dry side, where I think the impact on the market is more indirect through the impact on the macroeconomic environment. So if global economy suffers because the oil price goes to $150 a barrel, then that will also lead to pressure on demand within dry cargo. But overall, we think it's a fundamentally negative story with some very strong positive temporary effects that we have experienced in the last couple of months. I hope that answers your question. Operator: And then a more specific question towards the Tanker segment. Rindbo mentioned earlier today in the radio show Millionaerklubben that NORDEN has already secured coverage of 80% of the tanker order book through the end of 2028. Is that understood correctly? And does that mean you're looking to bring more tanker vessels into the business going forward? Jan Rindbo: Yes. So that is correct that we have covered now around 80% of our tanker capacity until the end of 2028. And bringing more tankers into the book probably right now in terms of long-term deals, so time chartering in ships on long-term contracts and buying ships. Right now, we don't think that that's the right time to do that. Prices are very high; rates are very high. That's why we've done the opposite, selling ships and taking in cover by charting out ships. Now, of course, how the market plays out in the coming quarters, if there's an opportunity, for example, in the scenario that Martin described that if there is a softening in tanker rates, then that could be an opportunity then to step in and take more capacity on again. So that is obviously part of the playbook in our business model that we can do that. But right now, we feel that the risk reward is not there to add tanker tonnage. Operator: A question related to this, tanker outlook beyond Q2. You say the market eases or expect to be easing in second half of '26. How severe could this easing be if Hormuz reopens quickly versus stay closed? Martin Badsted: Yes, that is a very difficult question. As I said before, if it opens immediately, there will be some short-term benefits from, I think, desired restocking. But if it lasts for a very long time, then we think, as we said, then the easing will come and being driven to a large extent by the lack of volumes, but also by newbuilding deliveries that will accelerate in the second half of the year. Operator: And we will then look at the dry cargo segment. There are a few questions here related to this. There's one here. Entering Q1, you were short on the dry bulk market. How much of the dry cargo loss can be attributed to a wrong positioning? Jan Rindbo: Yes. So that is part of the explanation, but it's not actually the main driver of the results in the first quarter, and we now have a long position also in dry going forward. The main driver of the results in the first quarter is the additional costs that we've seen following the conflict in the Middle East and then this repositioning of ships on lower-paying backhaul routes from the Pacific into the Atlantic and the benefit of then positioning those ships back at fronthaul rates will only come in the coming quarters. Operator: And another question related to dry cargo. Could you provide more detail on the bunker price impact in dry cargo during Q1, especially while the sharply higher regional bunker prices following the Persian Gulf conflict could only be partially hedged? And how much of this impact you expect to reverse or normalize over the coming quarters? Martin Badsted: Yes. So that's actually a very interesting question. And I think there are multiple sorts of impacts on the oil market overall. What you normally see based on quotes in the media and so forth is typically the development in the standard barrel of oil, where you've seen rising prices may be from $70 before the crisis up closer to $120, $125 per barrel. But on top of this, when you look at the diesel and gasoline and some of these refined products, then the price changes have been even more vehement and if you then look into the specific prices when you actually go into a bunker port in different regions, you've seen spikes that we probably have never seen before. And this goes to explain why even though we have a hedge framework that actually hedges all our flat rate exposure, if you will, sort of the standard price of oil, then you can't hedge what happens in local bunker ports here and there because there are no price indices, there are no derivatives to do the hedging. And that means that when you have to perform a cargo and you go into bunker, then suddenly you are met with very unpredictable and in this case, very high bunker prices that will then seriously affect the voyage results that you can incur. Operator: And another question to the dry operator segment here, you're still loss-making at USD 9.2 million. When do the multipurpose Handysize additions start to show up positively in this segment? Jan Rindbo: So the core fleet that we are building, so the 22 ships that we referred to earlier, the majority of those ships are newbuildings that will deliver in the future. And the first newbuilding will deliver to our fleet during Q3. That is the latest estimate for that delivery. And then it will ramp up through '27 and '28. So it will come over the next sort of 2 to 3 years in terms of that core fleet. And that includes these 2-ice class newbuildings that will deliver in 2028. Operator: And then a question related to the fleet and the options that you have here, let me just have a look. You sold 7 vessels year-to-date and then you have 33 purchase options in the money at strikes 22% below broker values. What's stopping you from declaring more of these now while asset values are at a multiyear high? Jan Rindbo: Well, one thing is that the underlying charter rate is very attractive compared to the current market rates, and then we have options to extend that as well. So in addition to the purchase optionality that we have, and there is also value in that. And when we look at the development on asset prices, we are quite optimistic that the prices are not going to decline substantially from the current levels because new yards are full with newbuildings. The markets, especially on both dry and tankers, underbuilt the current asset values. So we would like to both get the value out of the extension options and then subsequently also get the value out of the purchase options. And then I think it's also important to highlight that we are also from time to time, declaring purchase options without necessarily also selling the vessels at the same time. So we could also -- and we are also looking at declaring some of these options and then actually keeping the vessels in our fleet as owned vessels. Operator: And then a question related to your net asset value and capital allocation and what now seems to be the last question. Now it's up to DKK 422 per share, while the share price is around DKK 294, that's a 30% discount. You're distributing around USD 35 million for Q1. That's DKK 2 in dividend and a buyback of $25 million. With the share-trading well below now, would you not lean more aggressively into the buybacks rather than dividends? Martin Badsted: Yes, that I think it is a good question and something that we, of course, also have discussed. There is one problem, which is really that there are some legal limitations as to how big a share buyback program you can undertake compared to the general liquidity in the share in the market. So we can't actually do much more on the share buyback side than what we are doing. So we actually agree in the argument that it's trading at a discount. So it's a good place to actually invest, but we have maxed out on that opportunity already. Operator: Thank you. There seems to be no further questions. So I will leave the word to management for a final remark. Jan Rindbo: All right. Well, thank you for tuning in. Thank you for great questions related to the Q1 report. So thank you again for joining us here, and we look forward to seeing you again for the next quarterly presentation. Thank you. Martin Badsted: Thank you.
Operator: Good morning, ladies and gentlemen, and welcome to the Andersons 2026 First Quarter Earnings Conference Call. My name is Joe, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now hand the presentation to your host for today, Mr. Mike [ Hoelter ], Vice President, Corporate Controller and Investor Relations. Please proceed. Michael Hoelter: Good morning, everyone, and thank you for joining us for -- the Andersons First Quarter earnings call. We have provided a slide presentation that will enhance today's discussion. If you are viewing this presentation via the webcast, the slides and commentary will be in sync. This webcast is being recorded, and the recording and the supporting slides will be made available on the Investors page of our website shortly. Please direct your attention to the disclosure statement on Slide 2 as well as the disclaimers in the press release related to forward-looking statements. Certain information discussed today constitutes forward-looking statements that reflect the company's current views with respect to future events, financial performance and industry conditions. These forward-looking statements are subject to various risks and uncertainties. Actual results could differ materially as a result of many factors, which are described in the company's reports on file with the SEC. We encourage you to review these factors. This presentation and today's prepared remarks contain non-GAAP financial measures. Reconciliations of the GAAP to non-GAAP measures are included within the appendix of this presentation. On the call with me today are Bill Krueger, President and Chief Executive Officer; and Brian Valentine, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will be happy to take your questions. I will now turn the call over to Bill. William Krueger: Thanks, Mike, and good morning, everyone. Thank you for joining the call to discuss our first quarter 2026, results and outlook. I am pleased to report that we delivered our strongest first quarter ever, achieving record net income and earnings per share. These results reflect the strength of our diversified portfolio, improved market conditions and above all, the dedication of our teams who continue to execute in an increasingly dynamic environment. From an industry standpoint, the quarter included a significant positive development with the finalization of the largest ever renewable volume obligations for 2026 and 2027. The RVO will support domestic demand for U.S. corn and soybeans, along with providing greater regulatory clarity for our Agribusiness and renewables platforms. In Agribusiness, fertilizer margins improved year-over-year due to strong product positioning amid supply disruptions. Increased volatility and better premium ingredients results drove merchandising performance. Our grain asset inventory basis appreciation was delayed this quarter, and we anticipate positive changes in the next quarter. We continue to pursue organic growth through strategic investments to enhance customer service and respond to changes in demand trends. Construction at our Port of Houston facility is progressing with full operations expected in the third quarter. Our Carlsbad Mineral plant is now operational and the upgrades to increase clean corn capacity at our Mansfield, Illinois facility are underway. In renewables, we are making strategic investments in our large high-efficiency ethanol plants, including preparations for the previously announced debottlenecking project in Clymers, Indiana, which is expected to be completed by late 2027. We continue to assess further opportunities to expand production and lower the carbon intensity of ethanol at all of our plants. Production volumes within renewables have consistently surpassed those of previous periods, driven by efficient operations and robust demand. Although market fundamentals remain favorable in the quarter, increased corn basis and natural gas prices reduced our improved margins. Despite ongoing global uncertainty, we believe the trough of the grain cycle occurred in 2025 and underlying conditions continue to improve. With that overview, I will turn the call over to Brian to discuss our financial results. Brian Valentine: Thanks, Bill, and good morning, everyone. We're now turning to our first quarter results on Slide #5. In the first quarter of 2026, the company reported net income attributable to -- the Andersons of $33 million or $0.97 per diluted share and adjusted net income of $38 million or $1.12 per diluted share. This compares to adjusted net income of $4 million or $0.12 per diluted share in the first quarter of 2025. Gross profit increased as ag fundamentals were improved compared to the difficult market conditions in the first quarter of 2025. Operating expenses were down slightly year-over-year. Adjusted pretax earnings were $44 million compared to $3 million in 2025, with improvements realized across both agribusiness and renewables, including the recognition of 45Z producer tax credits in 2026. Adjusted EBITDA for the quarter was $91 million compared to $57 million in 2025. Our effective tax rate varies each quarter based primarily on tax credits earned and the amount of income or loss attributable to noncontrolling interests. We recorded taxes at an effective tax rate of 14% for the first quarter and expect our full year adjusted tax rate to be in the range of 14% to 18%. Next, we'll move to Slide 6 to discuss cash, liquidity and debt. We generated cash flow from operations before changes in working capital of $68 million in the first quarter of 2026 compared to $57 million in 2025. This continues to demonstrate our ability to generate strong cash flows in various market conditions. Our short-term borrowings are up compared to the prior year as we funded the purchase of our partner's share of the ethanol plants last summer, and we have seen a recent increase in market volatility. However, our readily marketable grain inventories continue to be well in excess of our short-term debt, which is consistently the case throughout the ag cycle. Next, we'll take a look at capital spending and long-term debt on Slide 7. First quarter capital spending was $52 million compared to $47 million in 2025, which includes the funding of previously announced long-term growth projects as well as normal maintenance capital. We continue to take a disciplined, responsible approach to capital spending, which we expect will be approximately $225 million for the year, excluding acquisitions. Our long-term debt-to-EBITDA is 1.6x, which remains well below our stated target of less than 2.5x. We continue to evaluate various acquisitions and internal growth projects and have a strong balance sheet that will support investments that meet our strategic and financial criteria. Now we'll move on to a review of each of our segments, beginning with Agribusiness on Slide #8. The Agribusiness segment reported adjusted pretax income attributable of $18 million compared to breakeven results in the first quarter of 2025. Agribusiness saw considerable improvement year-over-year as volatility returned to the ag markets. As prices rallied, old crop bushels still on farm came to market, which provided more opportunities for our merchandising businesses. However, with the shifting market dynamics, our asset footprint saw limited basis appreciation. Our premium ingredients business had improved earnings as we continue to focus on serving our CPG customers, including through recent investments in our corn and wheat cleaning capabilities. Our fertilizer assets were well positioned, and we were able to capture higher margins leading up to the spring application season. Agribusiness had adjusted EBITDA of $49 million compared to $31 million in the first quarter of 2025. Moving to Slide 9. Renewables had another strong quarter, generating pretax income of $40 million compared to pretax income attributable of $15 million in the first quarter of 2025. Our ethanol plants continue to perform well with efficient operations resulting in record first quarter production. Ethanol crush margins were up significantly year-over-year on continued strong demand. We did have some of the first quarter margins hedged at historically favorable levels, which limited a portion of the upside as margins started to run early in the quarter. Ethanol margins were also challenged with higher Eastern corn basis and natural gas costs. As expected, we qualified for the next tier of 45Z tax credits in 2026, recording $26 million of these credits in the first quarter. Our merchandising businesses also performed well as corn oil prices and volumes improved compared to the prior year. Renewables had EBITDA of $54 million compared to $37 million in the first quarter of 2025. And with that, I'll turn things back over to Bill for some comments about our outlook. William Krueger: Thanks, Brian. We remain optimistic about 2026, supported by a favorable outlook for our agribusiness portfolio and reduced uncertainty regarding renewable fuels regulations. Recent initiatives have concentrated on enhancing the efficiency of enterprise support functions as well as reinforcing our commitment to safe operations within production facilities. In agribusiness, we anticipate a year-over-year shift from corn to soybeans, although corn plantings are expected to remain above the 5-year average. On-farm storage levels are substantial and should enter the market following spring planting. The positive RVO and rising ethanol blend rates are projected to drive domestic demand for both corn and soybeans, thereby improving farm gate economics for the U.S. farmer. Our investments in premium ingredients, specifically those for human consumption and pet food manufacturing continue to deliver profitable growth. Global fertilizer supply issues will continue due to the Iran conflict. And while we were well positioned for spring planting, ongoing tensions in the Middle East will continue to influence agribusiness dynamics. In the Renewables segment, the finalization of the RVO has had industry-wide impacts, supporting renewable diesel and ethanol production. Ethanol exports remain strong with several countries increasing blend rates. Elevated crude prices, especially in nations dependent on Middle Eastern supply have further enhanced ethanol's appeal as a gasoline additive. We would like to see the enactment of year-round E15 this year. However, voluntary blend rate increases are already occurring based on the comparative economics of ethanol versus gasoline. Our renewable diesel feedstock merchandising business has experienced increased activity this year, which is expected to continue. Spring maintenance shutdowns were completed in April, and our plants are operating well above nameplate capacity. We are actively pursuing projects aimed at improving production processes and reducing the carbon intensity of ethanol. As previously stated, our facilities are benefiting from higher tax credits this year under the current guidelines. Additionally, preparations are underway for carbon sequestration at our [ Clymers ], Indiana site. The Class 6 well permit continues to progress through regulatory review. And if approved and operational, this initiative will further reduce the carbon intensity score of our ethanol, enabling additional tax credit generation. We are evaluating investment opportunities for the cash generated from operations and available tax credits in our renewables business. Given our strong balance sheet and growth ambitions, we will continue to assess potential investments within our existing infrastructure as well as acquisitions aligned with our financial and strategic objectives. We reaffirm our long-range EPS target of $7 per share by the end of 2028. Achieving this milestone will require successful completion of key projects and sustained operational excellence. I am grateful for the dedication and focus demonstrated by our team in pursuit of these goals. We will now take your questions.[Operator Instructions] At this time, we will take our first question, which will come from Ben Mayhew with BMO. Benjamin Mayhew: Congratulations on the strong performance out of the gate here in 2026. And my first question actually has to do with the first quarter and kind of where it stands in your usual cadence of annual earnings. So first quarter tends to usually be your weakest earnings quarter of the year. So I was wondering if you could frame up and maybe extrapolate what first quarter '26 might signal about the rest of your year? And what is your level of confidence in the sustainability and potential acceleration of current market fundamentals as the year progresses? Brian Valentine: Thanks, Ben. This is Brian. Yes, good question. What I would say is you're right, the first quarter for us does tend to be a slower start out of the gate. But as we think about the cadence to the year, I would say it's the typical cadence that you've seen from us in the past, where usually for us, I would say our fourth quarter tends to be really our strongest quarter. And then obviously, in the second quarter, we're usually see stronger fertilizer performance depending on the spring planting season. But so from our perspective, the overall cadence is really expected to be relatively the same. One exception I would note is certainly 45Z tax credits are something that would be earned ratably throughout the year with ethanol production. Benjamin Mayhew: Got it. And then you mentioned you had some hedges on your ethanol margins in the first quarter, which might have prevented some upside especially at the beginning of the quarter when margins started to run. are you still utilizing hedges in the second quarter? Like how should we think about that? Because when you look at the paper margins, they look very strong. Some of your peers have reported very strong ethanol operating results. I think the expectation is things are still going to be really good and likely accelerate. So could you just touch on the ethanol trajectory and what you're seeing maybe Q2 to date and your level of confidence in things looking pretty attractive there? William Krueger: Ben, this is Bill. Yes. Your analysis is pretty much spot on. So I'll take them in 2 different parts. If you look back historically over the last 3 years, Q1 board crush has been just below breakeven. So I think it's[ $0.005 ] under for the last 3 years. We were able to put on hedges in the first quarter that were well above that. And as we look back, we felt like it was a good decision. We do not have any hedges on -- we did not have any hedges on past Q1, which we traditionally don't hedge any production other than Q1, and we only do that when it gets close to double digits over board crush. So hopefully, that answered that question. In terms of looking forward, you can do the math. Board crush looks good for Q2 and Q3 today. You do have to keep in mind that natural gas prices are slightly elevated for everyone. And corn basis in the East will ebb and flow. And so when you put it all together, I would characterize our ethanol results in Q1 as very good also. So I think we're no different than our peers in terms of your comment there. Benjamin Mayhew: Okay. Great. And then if I could just sneak in one more quick question about -- on the capital investment side, can you remind us why the Port of Houston soybean meal investment is so important for the Andersons? Like outside of the obvious, like what does it get you? What is it now? Where does it position you in the world of soybean crush? I know you're not going to be crushing soybeans, but it does get you into that flow, right? And so I just want you to talk about that and remind the investment community why this is such an important growth investment. William Krueger: That's a great question. And you are correct, it will not get us into the soybean crush industry. But with the RVOs coming out for '26 and '27, we know there's going to be substantially more demand for soybean oil. 80% of the soybean that gets crushed goes out in meal. So we will have a continued increase in soybean meal produced in the United States. We've seen nice growth on domestic consumption of soybean meal recently, but the domestic growth is not going to be able to keep up with the increased supply. And so from our perspective, our timing is about perfect to have another outlet for soybean meal to be able to export -- to be able to be exported into the global market. So it's just another step down a traditional path where we tend to look out into the future and find opportunities that we think are going to deliver value to our shareholders. And we continue to be very optimistic on the potential results for the soybean meal export program coming out of Houston. Operator: And our next question will come from Pooran Sharma with Stephens. Pooran Sharma: Congrats on the strong results. I wanted to start off maybe just asking about ethanol demand, both domestic and export, has been very robust since the start of the year, kind of against expectations. Have you seen any incremental strength from the war? Does it make ethanol more appealing domestically? And just to tag on to that, do you see a situation where ethanol remains favorable for a longer period of time in terms of blending? William Krueger: I think we've seen a substantial uplift in demand for ethanol. And as I mentioned in my outlook, you have crude trading at or around $100 a barrel, at least last night, I've not looked at it this morning. And the biggest piece that we've seen in the U.S. is ethanol was trading at as much as[ $1.30, $1.35 ] a gallon recently. I think this morning, it's at $1.25 a gallon under ARBOB. So the blending economics and the ability to drive the overall cost of gasoline, which I think I read this morning is over $4.45 a gallon nationally, really will drive demand for ethanol in the U.S. and Canada, which is our largest export partner for ethanol. And then as you look globally, there are a whole host of countries that are increasing their blend rate of ethanol, which is going to continue to drive global demand outside of North America. And so yes, as I look forward, Pooran, I think there's going to be substantial demand for ethanol just as a gasoline additive in order to reduce the overall cost. Pooran Sharma: Appreciate the color, Bill. Maybe just shifting to agribusiness and on the outlook on some of your prepared comments, you mentioned maybe getting that basis appreciation in the coming quarter. But I just wanted to get a better sense of how to frame this up. If we get another spike in grain prices, does that again push out your basis appreciation opportunity? William Krueger: Great question. And it leads right back to the story we've been talking about for the last several years. The Andersons over the last 5 or 6 years has diversified its portfolio. So let's go right to your example. You can't predict the future, but as corn prices, wheat prices rally, your basis tends to break, okay? So in your scenario, yes, that would push out potential basis appreciation in our assets. However, the offset to that is the volatility that price spikes bring to the Andersons collectively as a whole, allowing our merchandising group to take advantage. And we saw that very clearly in Q1. And so that's what we really like about the portfolio that we have today is under most market conditions, we're able to take advantage of the opportunities that the market presents. But -- the short answer is, yes, if we see a rally in corn, we would expect the basis at our grain assets to lag. But simultaneously, we would expect merchandising results to perform. Pooran Sharma: Great. Appreciate the color there. And just on my last question, really just kind of follow-up here. On the tax rate, 14% to 18%, can you remind me, is that because we should be flowing 45Z tax credits through and basically taxing everything else at a higher tax rate? Is that higher tax rate, should we assume that to be like 25%? Brian Valentine: Yes, Pooran, I think that's fair. I mean, the 45Z tax credits are recorded above the line in other income, and those are nontaxable tax credits. So I think the way that you're thinking about it is the right way. The only -- the other impact, but it's pretty small, is noncontrolling interest. But the vast majority of it is exactly what you cited. Operator: And our next question will come from Ben Klieve with Benchmark. Benjamin Klieve: Congratulations on a really great first quarter. First, I wanted to ask about the merchandising business, specifically within the agribusiness sector. I'm wondering if you can help us understand the degree to which this improvement that you cited was relative to kind of a stale macro backdrop last year? Or has that business kind of returned to kind of more -- well beyond that to more kind of historic levels? That's my first question. William Krueger: Ben, this is Bill. I think it's a combination of the 2. 2025 was, in your words, stale. -- low volatility, burdensome balance sheet. And so the opportunities just simply didn't present themselves. And as we mentioned, I do believe that the trough of the cycle was likely set in 2025. How fast we come out, and as I think you and I have talked about before, the slope is obviously to be determined. But yes, when you have market disruptors like the war in Iran, it's going to generate additional volatility. Overall, we're still looking at very ample global supplies of corn and soybeans. But we do have to get the 2026 crop planted and obviously harvested. But we do see an underlying increase in domestic demand, obviously coming from corn to ethanol, beans to soy crush, but we also are seeing it in the poultry market and other end users where we are feeling a little bit more of a shot in the arm for increased demand that was a little unexpected. And then lastly, if you look at our corn export program out of the U.S., it is very strong, even if you consider the years that we had big Chinese programs. So yes, I think a combination of those are creating a better outlook for our merchandising businesses in agribusiness. Benjamin Klieve: Got it. Great. Good to hear that there's some broad-based drivers there, and it's not specific to the outbreak of the war of Iran. Okay. Very good. And then you cited a doubling of the ingredient business. And I know this is a small part of the agribusiness sector, but I'm wondering if you can elaborate on that a bit. I mean that's doubling is -- that's pretty significant. So can you talk about kind of the drivers behind this, the degree to which there's any kind of lumpy items within that? Or is that kind of a growth rate something that we can expect here in coming quarters? And then what the drivers were behind that, et cetera? William Krueger: To answer your question in terms of doubling, I think that was I think you're referencing Q1 over Q1, '26 over '25 premium ingredients financial results, Doug? Benjamin Klieve: Yes. Yes, that's correct. William Krueger: Okay. So we've talked to the investing community and analysts for well over 18 months about our desire to continue to grow our premium ingredients. Those investments take a while to get completed. And as we've talked through the recent calls, those investments are all coming online, and we are now working on a new one in Mansfield, Illinois. But yes, we have a very strong opinion that the way our premium ingredients business is set up, structured and operates, we have quite a long runway for us to continue to build out that business, working with anywhere from the largest CPG companies in the U.S. at least down to private companies that manufacture our products. So will we be able to double it over time? Yes, we will. It will take some investment, and it is a smaller part of our business today, but that doesn't mean that we're not focused on improving it because, in general, those returns are higher. Benjamin Klieve: Congratulations....... Operator: [Operator Instructions] Our next question will come from Derrick Whitfield with Texas Capital. Unknown Analyst: I have a couple of policy and macro questions for you. First, given the importance of 45Z to your ethanol business, I wanted to ask for your latest expectations on the finalization of 45Z policy, which is expected to include positive revisions for CSA in the provisional emission rate process. William Krueger: Eric, this is Bill. Great question. And any opinion that we will provide on timing is simply a guess. The public comments are being held at the end of this month, I believe it's May 28. So if you use kind of our historical path in terms of finalization, our best guess would be late summer, early fall. And that is simply that a guess. But it does feel like the IRS is listening and there's been a lot of public comments. We are participating in the public comment period, working both directly with legislators or the IRS and more importantly, through organizations like Growth Energy. So we feel like our voice is getting heard. In terms of CSA and PER, the PER, which is the provisional emission rates for feedstocks that do not currently have a pathway -- those results are important to the industry, but not to the Andersons. We use corn as our primary feedstock at all 4 of our ethanol plants. And so although we are paying attention to them, for the Andersons, it will have a limited effect on those finalized rulings. In terms of CSA, that's a great question. And we are already working on CSA type programs with CPG companies. So we have the platform set up. We have the desire to help the farmer be able to generate more value for -- so that is kind of a wait and see. The one thing that you do need to realize is the farmer only plants corn once a year. And so today, we need to have those rulings in order to be able to help the producer prepare for the 2027 planting season. Unknown Analyst: Great color. And maybe that was fantastic. And shifting over to macro more broadly and the impacts of the conflict in the Middle East. I wanted to ask if you could elaborate on any changes in corn crop yields or allocations to corn you'd expect as you look a little further out on the curve resulting from the lack of fertilizer or hog prices here in the U.S. William Krueger: That is a good question. And I honestly thought I'd be getting asked several questions around fertilizer today. So let's start with the '26 crop that's going into the ground today. It varies among different geographies inside the U.S. But well over the majority and in some parts of our area, up to 85% of our farmers had their fertilizer prices locked in prior to February 28 and the start of the war. So our producer base, we feel like there will be a shift. There will be a shift in terms of, as we mentioned in the comments, a slight shift from corn to soybeans still north of the 5-year average. What we have started to focus on is what does fall applications in 2026 look like? And the U.S. as compared to our global partners and competitors for production are in a much better space for nitrogen because nitrogen is really the fertilizer or the input that's getting affected the most over the conflict in Iran. The U.S. produces more or a higher percentage, excuse me, fertilizer than some of our competitors. So we do think it is a concern. We do believe it will affect the U.S. farmer less than some other countries globally. That's the best answer I can give you today as we're looking forward, but I do think that's a very good question and a very real issue that we're already looking towards Q4 for -- the Andersons. Unknown Analyst: Great update and congrats on your quarter today. Operator: And this concludes our question-and-answer session. I'd like to turn the conference back over to Mike Holter for any closing remarks. Michael Hoelter: Thanks, Joe. We want to thank you all for joining us this morning. Our next earnings conference call is scheduled for Tuesday, August 4, 2026, at 8:30 a.m. Eastern Time when we will review our second quarter results. As always, thank you for your interest in -- the Andersons, and we look forward to speaking with you again soon.
Operator: Ladies and gentlemen, hello and welcome to the Bnode First Quarter 2026 Analyst Conference Call. On today's call, we have Mr. Philippe Dartienne, CFO. Please note this call is being recorded. [Operator Instructions] I will now hand over to your host, Philippe Dartienne, CFO, to begin today's conference. Please go ahead, sir. Philippe Dartienne: Thank you. Good morning, ladies and gentlemen. Welcome to all of you and thank you for joining us. I'm pleased to present you our first quarter result as CFO of Bnode. With me, I have Alexandra and Antoine from Investor Relations. We posted the materials to our website this morning and I will walk you through the presentation and will then take your question. As usual, 2 question each, which ensure everyone gets a chance to be addressed in the upcoming hour. I will start with our quarterly financial results, then provide an update on the progresses on our key strategic initiatives during the quarter before concluding with our financial outlook. As you can see on the highlights on Page 3, our group operating income for the first quarter amounted to EUR 1.063 billion representing a year-on-year decrease of EUR 56 million or 5%. This performance reflects a combination of factors. First, as expected, we saw the impact of contract termination at Radial U.S., which were announced in the course of last year and already incorporated in our outlook we presented earlier this year. This termination resulted in a 11% year-on-year revenue decline or EUR 38 million and together with temporary top line pressure at Staci Americas largely offset by the 4% top line growth achieved at Paxon Europe. Second, in Belgium in addition to the revenue decline following the termination of the 679 contract, domestic mail volumes declined by 14.3%. This was only partially offset by a parcel volume growth of 9.1%. In our cross-border activities, we also recorded higher inbound volume from Asia, which supports overall parcel flows. Overall, and as expected, the accelerated decline in mail volumes and the termination of the 679 activities weighed on the EBIT on the bpost segment despite the positive contribution from our ongoing reorganization measures. That said, at Paxon despite a sharp contraction in top line, we were able to deliver EBIT growth reflecting a strong cost discipline in North America and solid operational execution in Europe. As a result, group adjusted EBIT reached EUR 33 million, down EUR 8 million compared to last year and broadly in line with our expectations. Before turning to the financial performance of our business units, let me highlight as shown on Slide 4, that beyond the evolution of EBIT, our adjusted net profit reflects a EUR 12 million improvement in financial results. This improvement was mainly driven by favorable noncash FX effects and higher net income from our treasury investment partially offset by higher interest expense related to the bonds issued in June last year. Let me now move to detailed performance of the 3 segments. I am now on Slide 5 covering the bpost segment. Revenues for the segment declined by EUR 21 million to EUR 524 million year-on-year. Domestic mail revenue decreased by EUR 21 million or 7.2%. Mail and Press volumes contracted by 14.3% in the quarter compared with minus 7.5% last year and in line with mid-teens volume decline guidance we provided earlier this year. This accelerated decline mainly reflects lower transaction mail volumes following the introduction of mandatory B2B e-invoicing as of the beginning of the year as well as the termination of several advertising contracts. Overall, the decline in mail volumes had a negative revenue impact of around EUR 40 million, which was partially offset by roughly half by positive price and mix effect of plus 7.1% or EUR 19 million. Parcels revenue increased by EUR 7 million or 5.8% year-on-year driven by volume growth of 9.1% partially offset by a negative price/mix effect of 3.3% during the quarter. On the volume side, the reported 9% growth corresponds to an underlying growth of around 5% after adjusting for the estimated volume loss linked to the strike in February last year when parcel volume declined by 12% in that month and over 2% in the full quarter. As observed in recent quarters, growth continued to be driven by strong performance of marketplaces. This dynamic weighs on product and customer mix and explains negative price and mix evolution of minus 3.3% despite underlying price increases. Finally, revenues from other activities including retail value-added services and personnel logistics declined by EUR 7 million year-over-year. This mainly reflects our revenue following the termination of the 679 activities at the beginning of the year as well as lower revenue from Fines solution partially offset by higher revenue at DynaGroup. Let's move to the P&L of bpost on Page 6. Including higher intersegment revenues from inbound cross-border volume processed through the domestic network, total operating income declined by 3.1% or EUR 17 million year-on-year. On the cost side, OpEx including D&A decreased by 1.2% or EUR 6 million mainly driven by 2 opposing effects. First, we recorded a reduction of approximately 1,260 lower FTEs and interim staff representing a decrease of more than 5% reflecting the benefits from the ongoing reorganization of our distribution rounds and retail offices. And second, this was partially offset by higher salary costs per FTE, up 2% year-on-year following the March '25 and '26 salary indexations. Despite last year EBIT impact of around EUR 6 million for the 2-week strike, EBIT declined by EUR 11 million year-on-year. This evolution was mainly driven by the anticipated acceleration of the structural mail decline and the termination of the 679 contract, only partially mitigated by parcel growth and the benefit of our reorganization measures. Moving on to Paxon on Slide 7. Broadly in line with the trend we observed in the fourth quarter, 2 main effects came into play during the quarter. At Paxon Europe, revenues remained broadly stable year-over-year. We recorded around 4% growth across European businesses and geographies with some activities still achieving high single-digit growth. This positive momentum was, however, offset by a negative performance at Staci Americas which is reported within Paxon Europe, following a contract termination in the fourth quarter. This resulted in a significant revenue decline during the quarter compounded by an adverse FX impact of EUR 5 million. At Paxon North America, revenues declined by EUR 39 million. At constant exchange rate, this corresponds to an 11% decrease driven by 3 factors: revenue churn from contract termination announced last year together with mid-single-digit negative same-store sales evolution partially offset by the in-year revenue contribution of around EUR 27 million from new customers, of which 40% are Radial Fast Track clients. Let's move to the P&L of Paxon on Slide 8. Against this backdrop, total operating income declined by 9.3% or minus EUR 40 million year-on-year. Operating expenses, including D&A, decreased at a faster pace down 10.4% or EUR 44 million. This cost reduction was primarily achieved in North America driven by lower variable OpEx in line with the revenue evolution at Radial U.S. while maintaining a solid variable contribution margin. These effects were further reinforced by fixed costs and headcount actions. As a result, adjusted EBIT increased by EUR 4 million to EUR 11 million in the quarter with growth recorded in both Europe and North America. In Europe, this reflects top line growth combined with productivity gains. In North America, EBIT growth was driven by cost containment measures, which more than offset the ongoing top line pressure. Turning now to Landmark Global on Slide 9. At Landmark Europe, revenues increased by EUR 8 million or plus 10% year-over-year. Once again this quarter growth was driven by strong increase in volume from Asia across all major destinations, most notably Belgium supported by large Chinese e-commerce platform as well as the United States. In addition, other European lanes continue to grow as well. At Landmark North America, excluding unfavorable FX effect, revenue was slightly up year-over-year. This reflects on one hand, soft volume growth in the context of a macroeconomic slowdown and on the other hand, a negative mix effect with higher share of domestic volumes and lower Canada to U.S. volumes. Overall, Landmark Global operating income increased by EUR 5 million or plus 3.4% year-on-year. As shown on Page 10, OpEx and D&A increased by 7.7%. This was primarily driven by high transportation cost linked to volume growth including increased inbound volume with Belgium as [indiscernible] destination. In addition, the quarter was impacted by unfavorable phasing cost effects both in transport and payroll, which we expect to reverse over the coming quarters. As a result, adjusted EBIT decreased to just under EUR 15 million. This decline mainly reflects the temporary cost phasing effect, which offset the underlying profitable growth in Europe and to a lesser extent, in North America. Moving on to Corporate segment on Slide 11. The adjusted EBIT improvement is driven primarily by cost development. Strengthened cost management and a 1% FTE more than absorbed the 2% salary indexation resulting in an improved adjusted EBIT of EUR 3 million to minus EUR 9 million. Let's now move to the cash flow on Slide 12. The net cash inflow for the quarter amounted to EUR 110 million compared with EUR 91 million last year. This improvement mainly reflects favorable working capital movements and continued CapEx discipline. Overall, the key drivers were as follows. Cash flow from operating activities before changes in working cap amounted to EUR 114 million representing a EUR 17 million decrease year-on-year mainly driven by lower EBITDA. Change in working capital and provision contributed to EUR 74 million. The EUR 29 million positive variance year-on-year mainly reflects 2 effects. First, the settlement of a client balance; and second, the payment of a cash advance in the context of the 679 activities transferred to BNP Paribas Fortis. While a small part of these activities are still partially subcontracted to bpost, we received a working capital injection in return. It's important to note that this movement is expected to reverse over the course of the year. Net cash outflow from investing activities amounted to EUR 21 million, driven by CapEx for parcels. lockers and capacity expansion investment in our domestic fleet and international e-commerce logistics. This element largely explains the evolution of our free cash flow for the quarter. Finally, the net cash outflow from financing activities totaled EUR 57 million, broadly in line with last year and primarily reflecting payments related to lease liabilities. Let me now briefly turn to our strategy and transformation update. I'm on Page 13. Two months ago we outlined our annual plan and key priorities for the year. Today, I will share a few updates and Chris will provide you a more comprehensive review when we present our half year results in August. Let me start with bpost with transformation efforts around 4 priorities area. First, the shift in our operating model. We are making progress on the key tracks of our future operating model notably through the rollout of dense and nondense distribution rounds as well as optimized correct model, which correspond to 2 complementary round types and a further centralization and automation of mail preparation. These are designed to deliver operational efficiencies with FTE savings and space consolidation and optimization. As planned, this model was implemented during the first quarter in 5 distribution offices out of a national network of a bit less than 160 offices. We are progressing with the phased rollout over the coming quarters with a clear acceleration from Q3 onwards targeting around 50 distribution offices by year-end. In parallel, we continue to execute the reorganization of distribution offices and their delivery rounds together with the delivery of associated FTE savings. On the full year plan, around 140 organization leading to approximately 1,150 lower FTEs. We delivered close to 40 reorganizations in the first quarter, fully in line with our planning. Importantly, the April strike has not impacted this transformation stream and execution remains on track. For perspective, we completed 138 reorganization last year, which are now clearly delivering results and contributed as observed in this quarter of a reduction of around 5% or approximately 1,260 FTEs within the bpost business unit. Second, scaling out our out-of-home network. Building on the strong acceleration achieved last year where rollout already significantly increased, we continue to make solid progress on scaling out-of-home with the installation of 155 parcels, lockers or bbox, again fully in line with the annual plan and we also secured over 200 locations for future installations. As a reminder, our objective is to grow the APM network by 35% by year-end, which will bring us almost 1 year ahead of the ambition presented at the Capital Market Day. To date, we have a total of more than 2,700 lockers installed compared to around 1,250 at the end of '24 and around 2,550 at the end of '25. As a result, during this first quarter we doubled the number of parcels delivered through the bbox network compared to last year. In parallel, bpost continued to improve customer convenience by scaling same-day locker delivery notably when home delivery is unsuccessful, which translate into higher NPS and improved profitability compared with next-day availability at post offices. Third, asset utilization optimization. We are actively exploring opportunities to improve the utilization of our assets and in particular our transport fleet, which is today primarily used during night hours. As part of this effort, we launched a pilot transport of the future aimed at testing the creation of a stand-alone transport activity serving both internal and external customers. The pilot was initially designed around 20 trucks and 40 volunteer drivers, but interest has significantly exceeded expectation demonstrating strong engagement from the field and validating the relevance of the concept. The objective is to generate additional revenues, improve utilization of the fleet and drivers and progressively expand our service offering. Finally, strengthening our B2B offering. As previously communicated, we recently launched an Innight delivery solution for our B2B customers initially based on the bbox, parcel, locker model. This quarter we have upgraded the offering by expanding it through 2 additional logistics subsidiaries within the Bnode Group turning it to a multi-model solution, including options such as car boot delivery and on-site deliveries. Overall, this initiative reflects our continued progress in reshaping the bpost operating model, improving capital and asset efficiency and reinforcing our value proposition to boost consumer and business customers. Moving on to Paxon North America. At this stage, top line expansion in Paxon North America is progressing in a more challenging demand environment with same-store sales softer than initially anticipated while new customers contribution are progressively building up. In response and in order to remain on track to deliver our EBIT objective, we are implementing additional cost actions. These measures are not only designed to offset the near-term top line pressure, but also to further strengthen Paxon North America competitiveness in the market. We have already made significant progress on variable cost where discipline remains very strong and where we continue to maintain a record high variable contribution margin. Building on this, the focus is now on fixed cost. The additional actions include optimizing our real estate footprint, reducing discretionary spending and rightsizing nonoperational fixed overhead to better align our organization with our volume. Following the actions already taken on both variable and fixed operation FTEs, we are now focusing on the nonoperational fixed cost base. Let me now shift to Paxon Europe. The launch of our Forward plan marks the next steps in accelerating top line growth building on the now fully integrated and consolidated commercial platform that brings together Staci, Active Ants and Radial Europe led by Staci's commercial know-how. The plan is designed to amplify existing customers' momentum while expanding across products, geographies and customer relationship supported by more structured and disciplined sales execution. In practice, this includes improved account coordination and closer executive level engagement ensuring we continue to deepen relationship with our core customers and capture the full value of those partnerships. At the same time, we are strengthening lead generation, leveraging our rebranding and continuing to invest in the development of our sales team to support incremental and sustainable growth. Finally, I will conclude this section with Landmark Global where our focus in the first quarter remained twofold: expanding volume through new cross-border lanes while strengthening transport cost management. On the growth side, by leveraging agility and rapid opportunities capture in a challenging macroeconomic environment, we saw a strong acceleration of volumes towards the U.S. notably fueled by continued momentum on the China to U.S. lane. U.S. is, therefore, increasingly becoming a key destination alongside Belgium and Canada. And in Europe, we also see a solid pipeline of new lanes originating from Spain and the Netherlands. This leads me to the outlook update for '26 on Slide 14. As a reminder, 2 months ago we introduced our '26 adjusted EBIT guidance in the range of EUR 165 million to EUR 195 million. Based on our first quarter performance, group results are broadly in line with our internal plan and our expectation at this stage of the year. Since then, however, we have been impacted by industrial action at bpost in April. As a result, while we are maintaining the adjusted EBIT guidance that we introduced 2 months ago, we are today more exposed to the lower end of the range. This reflects an estimated direct EBIT impact from the strike of around EUR 15 million. Beyond this, fuel price development are currently not considered as a material risk for the group as we are largely insulated through a combination of pricing mechanism, contractual pass-throughs or internal cost hedging measures depending on the entity. That said, continued vigilance remains of course required as the current outlook does not reflect potential indirect and long-term commercial impact resulting from the April strike nor does it factor potential effects relating to the current geopolitical situation in Iran. This could include industrial disruption linked to fuel shortages, higher energy cost as well as a broader impact on inflation, consumer confidence, disposable income and spending and therefore, on the top line development. Overall, while we remain within our community guidance range, the April strike put significant pressure on the guidance. And although this has been widely and intensively covered by Belgium media, for those less familiar with the situation beyond our own market, let me briefly summarize what happened and the impact identified to date. In April, bpost experienced a 5-week nationwide strike in Belgium, which significantly disrupted our sorting and delivery operations. The impact was most pronounced in Wallonia and in the Brussels region. As a result, we accumulated a backlog of more than 16 million letters and 0.7 million parcels. In addition, we estimated a loss of approximately 3.2 million parcels volume mainly due to customers diverting shipments to competitors. The strike was triggered by employee opposition to certain elements of the ongoing transformation plan, in particular proposed adjustment to starting hours, which shifts up to 2 hours later in the morning. These changes are aimed at enabling later parcel cut-off times and better aligning our operation with customer requirements in an increasingly competitive parcels market. From a financial perspective, our current assessment is that the direct EBIT impact of the strike is estimated around EUR 15 million expected to materialize in the Q2 result. This estimate excludes any potential future indirect impact and mainly reflects 3 direct elements: revenue losses in both Mail and Parcels including quality-related penalties, incremental costs linked to contingency measures and the cost associated with clearing the accumulated backlog. Our operational and commercial teams are currently fully mobilized to clear the backlog as quickly as possible while actively working to rebuild customer confidence and address the reputational impact resulting from the strikes. As mentioned, while we consider this estimate to be robust for the direct impact, it does not capture potential longer-term and indirect impact. which is why we continue to closely monitor the situation. With this, I'm now ready to take your questions. As usual, 2 questions each. Operator, please open the line. Operator: [Operator Instructions] The next question comes from Michiel Declercq from KBC Securities. Michiel Declercq: I have 2, please. The first one is on the strikes in Belgium. I appreciate the direct impact of EUR 15 million. But is there a bit more color that you can give on those quality penalties and these contingent measures? How we should look at that when these costs will be booked? Will that also be Q2 or I think it will also be a bit later in the year for the quality penalties? That's 1 angle of course. Secondly, you also have the commercial impact. You had strikes last year. The lasting impact remains a bit more limited I would assume looking at the volumes in the remainder of 2025. But now second year on a row and a bit of a bigger strike, let's just say. What has been your feedback here from customers? You say that you estimate to have lost 3.2 million parcels to competitors this quarter, which I assume is 3% to 4%. Will they be coming back or how have your discussions with these customers been? So that would be my first question. And then secondly, we have seen in the news that Amazon is also opening its supply chain logistics network. I'm just wondering if you look a bit at the Amazon offering today in the U.S., how does this overlap with your existing activities at Radial and Landmark and how you are looking at this given that the same-store sales at Radial are already down mid-single digits in the recent quarters. So any comment on that would be useful. Philippe Dartienne: Okay. Thank you, Michiel, for your question. So strike direct impact, they will mostly be booked in the second quarter. The top line impact is in the month of April. Pure technically there were 2 days of strike in the month of March, but it's really immaterial. Most of it is in the month of April so the loss of revenue will materialize definitely in the second quarter. The contingency cost that we had to support was some storage cost. I'm sure you have read in the newspaper that we had some of our customers ask us to store the parcels in a location because their own warehouse were totally full. So there are some costs associated with that. Sometimes we have redirected some parcels to some of our subsidiaries to deliver the parcels. These are extra cost that we have supported. And there will be also a bit of the cost linked with the decrease of the backlog where we are injecting roughly 200 temporary workers on top of the usual one to decrease the backlog as soon as possible. So this is a bit what it entails in terms of direct cost and contingency costs. When it comes to the commercial aspect of it, I will be as transparent as I used to be. Our customers were not delighted to say the least, especially in the context that you rightly mentioned. We already had a strike last week like last year once again and customers have indeed diverted their volumes. Now it's really up to us to demonstrate that from an ongoing basis, we are capable of coming back to a high level quality service as we used to do when we are not on strike. And I think it will be a discussion customer by customer and a decision customer by customer at the speed at which they will reinject volume into the network. They are already reinjecting volume into the network, no discussion, but some customers have not returned back. And as I said, it will be a more one-on-one discussion with each of them. So the commercial impact will be seen on one hand in the second quarter by the speed at which the customer come back and at which level and potentially more longer effect as some customers have definitely opted for a dual-carrier strategy while some of them were only mono-carrier with us prior to this strike. So it's up to us and it's really the willingness of the management and the people on the ground to deliver as much qualitative service as possible and as soon as possible. As we speak right now, we could say that we are back in full operation. There is no strikers anymore since roughly a week so we are in full operational mode. Your question on Amazon, yes, but it's not the first time that a major player is developing this kind of activities. It will be 1 more competitor than we had in the past. We had some big retailer chain not so long ago who decided to do the same. So fundamentally, I don't think it will have a direct impact on us. Indeed, you pointed out the same-store sales evolution, the negative one. Indeed, it was in the first quarter more than what we had anticipated. And you will be reminded that same-store sales evolution has been negative for multiple quarters in a row. We told that Q3, Q4 last year we had reached the bottom, but it seems that it's not the case and we had, as you mentioned it, a mid-single-digit decrease again in the first quarter of '25. I hope this answers your question. Michiel Declercq: If I can ask a small follow-up on the strikes. I know commercial impact you won't see or have visibility on that in the short term or maybe a bit of course. But on the indirect costs for the storage and the quality penalties, is it fair to assume that we will get a number on that during the second quarter results? Philippe Dartienne: It's already partially included. Frankly, in the impact, the biggest part is relating to the lost volume and the related EBIT and not so much about those contingency costs because those measures that have been put in place are rather limited if you look at the total operation cost. Operator: The next question comes from Frank Claassen from Degroof Petercam. Frank Claassen: My first question is on Paxon on the financial performance. If I look at Q1, minus 9% on top line and 2.8% on EBIT margin yet if I recall well, one of the building blocks of your full year guidance was Paxon to reach low to mid-single-digit growth for the full year with a 6% to 8% EBIT margin. So I'm struggling to see how we can get there in the rest of the years because that's quite a gap. So could you elaborate how you think you can bridge this gap? That's my first question. And then secondly, on the automatic wage inflation in Belgium, you just made a step of 2%. When do you expect to see the next step and what is, let's say, baked into your current guidance on that one? Philippe Dartienne: Let me start with the second one and I will come back with the first one. So indeed, we learned late afternoon yesterday that there will be an additional 2% step increase. We had anticipated to have 1 in 2026. We had anticipated that to happen a bit later in the year. We had 1 month we have -- this step-up comes 1 month ahead of what we had in our forecast. Coming to Paxon, your point is absolutely right and we will not be able to catch up. We will not be able to catch up. Different reason to that one if you allow me to elaborate a bit. If we look at Radial U.S. or Paxon U.S., if you want; as I said, we are facing same-store sales which are significantly higher than anticipated. It depends if it's a negative, it goes up. Antoine will try to correct me, but I repeat to make sure that the message is clear. There is a decrease and the decrease is bigger than what we anticipated and it's across the board on all customers. The second point is that we were anticipating a pickup of the contribution of new customers especially in the second half of the year. We don't see it coming to the expected level. So we will be worse than one anticipated. This being said, there is a top line discussion. And there is a second one when it comes to EBIT contribution and cash contribution and there we believe that with all the measures that have already been taken and the ones that are in the pipe as we speak, we could be able to offset that negative evolution in terms of top line. What kind of measures are we talking about? Some of them we already mentioned them and now we are implementing them, Optimization of real estate footprint including sublease of underutilized facilities, divesting some noncore assets, reduction of discretionary spending travel and entertainment and also rightsizing fixed cost and headcount aligned to lower volume. Again there is nothing new on that one except the fixed cost one, as I said, that was not the primary focus over the last quarters, now it has become. So all in all, I do believe that those measures will be able to offset largely the decline or lower the development -- the top line development at a lower than anticipated -- the lower top line development. That was for Radial. Staci Americas, indeed we are low in the top line evolution. We lost a major customer at the end of 2025, which is materializing in the Q1 result. So 2 elements on that one and I don't want to oppose them, but I want to make the comparison. As much as I said that at Radial, we see a lower revenue contribution from the pipeline development, it's not the case in Staci Americas. The pipeline of Staci Americas is very strong and we believe that it will be able to offset part of the losses of the volume related to the departure of 1 customer combined with fixed cost measures to protect the top line evolution to a lesser extent than Radial, but it will contribute as well. So to summarize, we have to recognize that, yes, we are a bit behind. This being said, element that I really want to point out is that all over the place within the Paxon world, the profitability is and remain very high. Variable contribution at Radial, you might tell me, Philippe, you tell us that. Since I will be close to 4 years in bpost, I'm telling you that every quarter, but it's reality and it's still there. So this is an achievement. And also despite a lower top line development, when you look at the Paxon Europe environment, we see still significant or very strong gross margin in the existing business, which is very reassuring. It's very, very robust. And we also see thanks to the fact that in Europe, the 3 former brands are now being operated together so Staci, Active Ants and Radial. We see a pickup on the performance in Central Europe mainly by operating all these 3 brands on the same territory altogether. So it's a bit of mixed bag, but there is still very good and reassuring positive element. Operator: The next question comes from Henk Slotboom from the IDEA!. Henk Slotboom: I've got 1 clarification question and 1 other question. The clarification question relates to what you just talked about, the impact on margins and the mitigation impact on margins. We are talking about margins in the U.S. and not about the absolute EBIT I assume. Philippe Dartienne: On one, it's yes and no, Henk. So we maintained the margin. But if we compare to the guidance that we had that expected a development of the top line, since there will be less top line, it will be additional EBIT contribution to offset that one. So it's a bit yes to both in fact. Henk Slotboom: Okay. That's clear. Then on Landmark and that's basically 2 questions folded into 1. The higher transportation costs, Philippe. I thought that the organization was structured in a way that there are back-to-back agreements. So you know on forehand roughly what you're going to pay, what you have to ask your clients based on your estimated costs. The transportation cost impact, didn't you use a fuel surcharge for example or something like it? You're an asset-light player in that field or is this reflecting the disadvantage of an asset-light model that when capacity is scarce, we saw a lot of disruption in sea transport, in air freight and that sort of things that you end up paying a higher cost price anyhow no matter what to get the stuff from for example China to Europe. That's the first question. And connected to it, is it fair to assume that Landmark had a bit of tailwind in Europe because the French have introduced the EUR 2 levy per product line already in January whereas the rest of the EU is doing that as of 1st July. So I've been hearing a lot of stories about Chinese taking their goods to Schipol Airport, Amsterdam and Liege in Brussels instead to avoid this hassle of the EUR 2 and to avoid the EUR 2 as a whole. Perhaps you can highlight that. Philippe Dartienne: Sure. I will start with the second one. Indeed, you are well informed. We see in Liege, I was just right before this call with our guy in charge of the inbound volume in Belgium, we see an increase of activity in Liege. But what we are seeing is that the planes are coming, that they are offloaded, but the containers are directly loaded to trucks to go either to France, go to the Netherlands or to Germany. So we might have a small ripple effect in our last mile activities in Belgium because we only do that in Belgium. But I would not say that it's significant, but it's a fact. This being said, it's also something we are contemplating since we are the operator. We are the incumbent in Belgium, can our activity and the transport one could play a role into capturing part of those volumes. But most of them, as you rightly pointed out, are not directed to the Belgium market. They are mostly directed to the non-Belgium market. So that's for the EUR 2 taxes. When it comes to Landmark and transport cost, I would like to broaden a bit the debate and also emphasize the fact that Landmark is managing the transport for all the group for Bnode. Of course transport for Belgium last mile is limited because we do the last mile activities. But for all the fulfillment activities within the Paxon world, it's managed through Landmark and the one who are benefiting -- everyone is benefiting from the good condition that we could get. So it's important to notice that that activity is not only limited to Landmark business unit. Now your question about transportation cost and the fact that they are evolving upwards due to different elements, it's really a pass-through for us and we do not see an EBIT impact from that. Operator: The next question comes from Marc Zeck from Kepler Cheuvreux. Marc Zeck: Really on, let's say, consumer sentiment or the impact of higher energy prices on the consumer. Could you elaborate a bit what you currently see both for the U.S. and Europe in your business? You talk about, let's say, lower same-store sales in the U.S. for Radial. Do you feel like this is related to the energy price increases and therefore drain on consumer finances and therefore mostly concentrated in March and looking forward maybe in April or have you seen lower same-store sales for the entirety of Q1 that obviously includes then January and February as well? And what you can see in your European business not only Paxon, but maybe also Landmark Global and the parcel business in Belgium. How did March compare to January and February? Was there any impact from higher fuel prices on the consumer and what do you see currently for April? That would be the first question. Second question, if you could elaborate a bit on why you don't see a material impact from Amazon in the U.S. I guess from what we can get from Amazon's press release, it's at least to me not entirely clear where they are actually really competing. Do you feel like they are opening up really contract logistics proper 3PL services in the U.S. or it's more like warehousing with not too much direct management of inventory there. So I could guess that if it's just warehousing, there wouldn't probably be much of an impact. But if they do proper 3PL contract logistics as well, I can imagine that maybe that is a bit higher. So it would be great to hear your thoughts on what you believe Amazon is actually doing in the future. Philippe Dartienne: Okay. It's going to become an habit. I will start with the second and we'll continue with the first one. So I'm not in the shoes of Amazon. So I recommend you to direct your question to them on that one because I don't want to speculate on what they are doing. What I'm telling you is that we do not see impact from that at least so far. They have always operated their warehouse sometimes themselves, sometimes outsourcing to contract logistic players. They have been active in transport. They are permanently starting testing or going with new activities around the 3PL. That's true. But so far, we don't see any impact from that and again I cannot speak for Amazon. When it comes to the consumer sentiment, I don't have the figures for the U.S., but I think the same-store sales is a good proxy for measuring what is happening there. As I said, 7 quarters in a row, then the same-store sales is going down and it even accelerated in the first quarter of this year. I don't know what the next -- the further part of the year will bring us. As I said, we already thought that at the end of Q3, Q4 we had reached the bottom. We have been proven wrong on that one. So it's difficult to speculate on that. When it comes to Europe, I have the consumer sentiment numbers in front of me. And if we ended up the last quarter of last year something which is, I would say, breakeven; slightly positive in November, very slightly positive in December. The beginning of the year was -- Jan and Feb were more positive, but we saw a total flip of that consumer confidence in the month of March and even more so in the month of April. So again in terms of trend, it's difficult to speculate. But currently, we see a downwards trend. Operator: The next question comes from Marco Limite from Barclays. Marco Limite: I've got couple of follow-ups on your strikes in Belgium. So first question will be I mean what sort of confidence have you got in terms of the strikes to be totally over or do you see a risk of the strikes coming back? And to what sense negotiations and discussions are sort of stopping you to go through your transformational change, operational changes you wanted to make. So what is, let's say, also the negative impact from implementing your operational changes slower than what you had thought maybe at the start of the year? And the second question is on your volume growth in April. I appreciate you quantifying the hard numbers. But if you could give us a bit of color of what has been the volume growth or the volume decline in April for parcel volumes in Belgium? And have you seen, let's say, the growth rate picking up in May post end of strikes? Philippe Dartienne: Again I will start with the second one. Thank you for your questions, Marco. Volumes decline that we have seen in the month of April is around 25% and it's still too early to comment on what is happening in May. When it comes to the strike and the risk associated with them so I just want to remind that several elements. So there is in the mind and I don't want to speak for them. But based on what my colleagues are telling me while discussing with our social partners is that there is a clear understanding of the need to change the business model. They clearly understand the fact that the mail is no longer bringing growth. It's declining at high pace and it will not come back. They totally acknowledge it as well as that the change in the demand from the customer, they totally acknowledge it. What is very difficult for them from a human standpoint for all the affiliates and all our colleagues. If we look back 3 to 4 years back when we still had the press concession, we had colleagues who were waking up at 3 or 4 in the morning coming back at the office to be able to have delivered all the press and the magazine prior to 7:30 in the morning. Those volumes are gone because the press concession ended up and we are no more except in Wallonia still for until the end of this year. We are no more distributing those volumes. So that was already a first shock for them, which is impacting their life because we have that concept which is very usual in the mail business, which is when your job is finished, you can go. So those guys have since years not to say decades used to have a life organized about you start early, but you also finish early and if you want to have some activities after your hours or potentially if you decide to go for a second job, you had plenty of time to do it because most of these people, especially the one distributing the press; around 11, 12 in the day, they were done and they could do revert to other activities either professional or leisure or going and pick up the kids at school. Then there has been a second element to that one is with declining mail volumes, the number of people that we need in our distribution network is decreasing. I mentioned the fact that last year we have been able to reorganize the offices. It has always been done over the last 15 years the reduction, the adjustment of the FTEs in the distribution network, but it accelerated I think over the last 2 years. Last year we reduced the headcount by more than 1,000 employees. We will continue doing the same in 2026 and people understand that. It's a mechanical consequence of the evolution of the business, but it's not easy to take it on board. Also, the way we reorganize the offices with the combination of some routes, we have some dense and non-dense routes. We also want to extract more efficiency on that part. So it's an additional pressure on these people who sometimes in some offices when we adjust the headcount, it could lead to reduction of 15% to 16% of headcount in 1 particular distribution office. So it's tough on people, we have to recognize that. But there is a very clear understanding and no discussion on the need for change and the society is changing. Again the fact that we want for some of our colleagues to delay the start of their day to be able to deliver the parcels -- to accept parcels, the cutoff time in the sorting center a bit later. Again it's a disruption into their private life. We have to recognize it. I do believe that it will take maybe a bit of time, but people will adjust to that one. I think I would be more worried if there would be a strong opposition on the need for change than, I would say, the short-term impact of the direct impact on their private life if I could say so. So can we guarantee that strikes are over? No. Also, what I see is that our colleagues have at heart the willingness to serve the customer in a qualitative way and I don't think it has changed during the course of the strike. That gives a bit of time for people to swallow, digest, adjust and I'm very confident for the future. Marco Limite: Can I sneak another question, please? So you have kept today the guidance despite a EUR 15 million EBIT negative from the strikes plus wage increased 1 month before, let's say, your business plan, which from memory I think is about low single-digit million higher OpEx per month. So rough numbers, you now have got EUR 20 million EBIT headwinds compared to your original guidance, but you're still holding on the old guidance. Does this mean that beyond -- I mean you think you are sort of tracking or you were tracking at the upper end of the guidance and therefore minus this EUR 20 million, now you are at the low end of the guidance or how do you justify you keeping the guidance? Philippe Dartienne: Thank you for your question. Indeed, we maintain the guidance; but as we said, we are more exposed to the low end of it. I think during the presentation and with the question of your colleagues, I had the opportunity to emphasize on the reaction on the cost side that we are putting in place everywhere. Good example again in Belgium, the reorganization has not stopped in the first quarter. They have not even stopped during the strike meaning that all this positive evolution in the cost development mean being more efficient. We are still planning and confident that we could execute them. For all the other entities especially on Paxon, those guys are really committed to compensate the temporary shortfall or the slower development of the top line by cost measures and we have levers. It's not just a task that we put in an excel spreadsheet. We have detailed plans at various entity level, which lead us to believe that it could materialize. And hence, we have concluded that at this stage based on the direct impact, we still maintain our guidance though guiding more to the low end of it. Operator: Ladies and gentlemen, there are no further questions. So I will hand it back to Philippe to conclude today's conference. Thank you. Philippe Dartienne: We would like to thank you, everybody, in the call for having taken the time to be with us and for your very pertinent questions. As a reminder, bpost NV will hold its AGM next Wednesday and our second quarter results will be released on August 7. In the meantime, we look forward to staying in touch. And thank you very much and have a great day. Operator: Thanks for participating to the call. You may now disconnect.
Operator: Good afternoon, and welcome to AtriCure's First Quarter 2026 Earnings Conference Call. This call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Marissa Bych from the Gilmartin Group for a few introductory comments. Marissa Bych: Great. Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call (513) 644-4484 to have one e-mailed to you. Before we begin today, let me remind you that the company's remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including risks and uncertainties described from time to time in AtriCure's SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises and growth initiatives, future product approvals and clearances, competition, reimbursement and clinical trial enrollment and outcomes. AtriCure's results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward-looking statements. Additionally, we refer to non-GAAP financial measures, specifically constant currency revenue, adjusted EBITDA and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website. And with that, I would like to turn the call over to Mike Carrel, President and Chief Executive Officer. Michael H. Carrel: Great. Good afternoon, everyone, and welcome to our call. AtriCure is off to a strong start in 2026 with worldwide revenue of $140 million in the first quarter, reflecting 14% growth year-over-year. We are building on the momentum we established in 2025 from new product launches with this quarter marking an acceleration in our worldwide growth rate from the preceding quarter and comparable quarter last year. Fueling this acceleration is our U.S. business, which drove approximately 15% in the quarter from expanding adoption of AtriClip FLEX-Mini and PRO-Mini devices, cryoSPHERE MAX probe and continued strength from our EnCompass clamp. In addition, we generated $17 million in adjusted EBITDA, nearly double the first quarter of last year. Our results this quarter once again demonstrate our ability to deliver durable, double-digit revenue growth and expand profitability. Beyond our financial results, we have made exceptional progress in our BoxX-NoAF clinical trial. Since initiating trial enrollment in the fourth quarter of last year, we have enrolled approximately 300 total patients. To date in this 960-patient randomized controlled trial, we are tracking well ahead of our original time line and now expect to complete enrollment around the end of this year, nearly 1 year ahead of plan. The pace of enrollment in this trial reflects an extremely high level of engagement from surgeons who experienced firsthand the impact postoperative Afib has on their patients. As a reminder, up to half of cardiac surgery patients without pre-existing Afib will develop postoperative Afib, which is the most common complication of cardiac surgery. Because there is no established treatment today, postoperative Afib is a substantial burden on the health care spending, with estimates exceeding $2 billion annually in the U.S. alone. We are confident that our BoxX-NoAF clinical trial utilizing our EnCompass clamp and AtriClip device has the potential to meaningfully change treatment outcomes for this patient population and address the significant unmet clinical need. BoxX-NoAF is also highly complementary to our LeAAPS clinical trial, studying stroke reduction benefit of left atrial appendage management in cardiac surgery patients without atrial fibrillation. We expect both of our landmark clinical trials to generate robust clinical evidence in support of preventative treatment for cardiac surgery patients, unlocking a massive global market opportunity for AtriCure while establishing new standards of care in cardiac surgery. We at AtriCure are well positioned to realize these significant catalysts for our business in the coming years. Now on to updates covering franchise performance in the first quarter. Pain management once again led our portfolio growth, increasing 28% year-over-year. The cryoSPHERE MAX probe continues to be the primary driver of growth, contributing roughly 70% of our pain management sales this quarter. Surgeons across both new and existing accounts recognize the significant time savings and clinical effectiveness it provides, leading to more patients having their postoperative pain managed effectively. Building on our legacy of innovation, we are also pleased that our cryoXT probe for amputation procedures is beginning to gain traction. We continue to receive outstanding feedback from each new surgeon that uses this device and through our registries are capturing clinical outcomes for this therapy. We are still in the early innings for cryoXT for the cryoXT therapy development and adoption. However, we remain confident in cryoXT contributing more meaningfully as we move to the back half of 2026. Within our cardiac ablation franchises, worldwide open ablation revenue grew 15% in the first quarter, led by steady adoption of EnCompass clamp in the United States and Europe. EnCompass is delivering growth from both new and existing accounts even as we approach the 4-year anniversary of our U.S. full market launch. As mentioned in our fourth quarter earnings call, our efforts to drive treatment of Afib in cardiac surgery patients was validated with a recent announcement from the Society of Thoracic Surgeons' Annual Meeting, including concomitant Afib treatment as a quality metric. There is strong precedent for the impact of quality metrics in cardiac surgery, and we believe this change will support increased adoption for surgical Afib ablation and appendage management, serving as a durable tailwind for growth for years ahead. Our minimally invasive ablation franchise continued to face headwinds in the first quarter. We believe there is a role for hybrid therapy in the current and future treatment landscape and remain committed to providing a solution for the unmet need for patients with long-standing persistent Afib. Finally, turning to our appendage management franchise, which saw 16% growth worldwide, driven by both our open and minimally invasive appendage management products. Our open left atrial appendage management business benefited from strong adoption of AtriClip FLEX-Mini in the United States, where we exited the quarter with FLEX-Mini contributing approximately 40% of our open appendage management revenue. More importantly, we believe our FLEX-Mini device has been impactful in driving share gains in this market. Surgeons using our trialing competitive devices are impressed by the small form factor of AtriClip FLEX-Mini, along with robust clinical evidence and superior product performance of our AtriClip devices. In minimally invasive procedures, AtriClip PRO-Mini is building upon that adoption in the U.S., providing a pricing uplift that offsets pressure of our hybrid AF therapy procedure volumes. It remains clear that differentiated innovation plays an important role in maintaining our position as the leader in appendage management in cardiac surgery, and we continue to prioritize investments in this platform. In our international markets, we are growing adoption across our legacy left atrial appendage management devices. Following the first quarter, we received CE Mark under EU MDR in Europe for both AtriClip FLEX-Mini and PRO-Mini devices and expect to launch both products in Europe later this year. New product launches in Europe, the United States, China and Japan, coupled with the future of LeAAPS clinical trial outcomes, provide a long runway for growth in our appendage management franchise. In closing, the performance we delivered this quarter underscores the power of our innovation and focus on execution. While the rapid progress in our BoxX-NoAF clinical trial reinforces the significant opportunity ahead at AtriCure. We remain committed to advancing standards of care, scaling responsibly and delivering durable growth with improving profitability for our shareholders. And with that, I'll turn the call over to Angie Wirick, our Chief Financial Officer. Angie? Angela Wirick: Thanks, Mike. Worldwide revenue for the first quarter of 2026 was $141.2 million, up 14.3% on a reported basis and 12.8% on a constant currency basis versus the first quarter of 2025. Our performance reflects substantial growth driven by the continued adoption of key new products in the United States and many regions throughout the world. On a sequential basis, worldwide revenue increased approximately 1% compared to the fourth quarter 2025. First quarter 2026 U.S. revenue was $116.2 million, a 14.9% increase from the first quarter of 2025. Open ablation product sales grew 17.3% to $39.1 million, fueled by the strong and sustained adoption of our EnCompass clamp across new and existing accounts. U.S. sales of appendage management products were $48.4 million, up 14.9% over the first quarter of 2025, driven primarily by increasing adoption of our AtriClip FLEX-Mini and PRO-Mini devices. U.S. MIS ablation sales were $6.4 million, a decline of approximately 25% over the first quarter of 2025. And finally, U.S. pain management sales were $22.4 million, up 29.5% over the first quarter of 2025, led by the cryoSPHERE MAX probe, which contributed approximately 70% of pain Management sales in the quarter, driving increased adoption in both thoracic and sternotomy procedures. International revenue totaled $25 million for the first quarter of 2026, up 11.5% on a reported basis and up 3.3% on a constant currency basis as compared to the first quarter of 2025. European sales were $16.1 million, up 13.2% and Asia Pacific and other international market sales were $8.9 million, up 8.4%. International growth was tempered by continued uncertainty in the U.K. as well as lower distributor sales in Asia. Offsetting these headwinds, we saw significant growth across franchises in other major geographies, largely driven by our direct markets. Gross margin for the first quarter of 2026 was 77.4%, up 246 basis points from the first quarter of 2025. The increase was driven primarily by favorable product and geographic mix with strong U.S. performance propelled by our new product launches and adoption. Transitioning to operating expenses for the quarter, total operating expenses increased $10.2 million or 10.3% from $98.6 million in the first quarter of 2025 to $108.8 million in the first quarter of 2026. Rapid enrollment in our BoxX-NoAF clinical trial, which offsets a decrease in LeAAPS clinical trial costs, along with increased headcount focused on product development initiatives, resulted in a 7.6% increase in research and development expense from the first quarter of 2025. SG&A expense increased 11.2% from the first quarter of 2025 as we continue to support growth while driving leverage across the organization. Completing the P&L, first quarter 2026 adjusted EBITDA was $17.1 million compared to $8.8 million for the first quarter of 2025, representing a 95% increase. We recorded net income of approximately $100,000 compared to a net loss of $6.7 million in the first quarter of 2025. Earnings per share and adjusted earnings per share were both breakeven at $0.00 compared to a loss per share and adjusted loss per share of $0.14 in the first quarter of 2025. Our results reflect a balanced approach to allocating capital towards area we believe will sustain and accelerate growth, all while continuing to improve profitability. Now turning to our balance sheet. We ended the first quarter with approximately $146 million in cash and investments. Cash burn for the quarter was slightly improved from the first quarter of 2025 and reflects our normal pattern of cash usage, driven by share vesting, variable compensation and operational needs. As we move through the remainder of the year, we expect positive cash flow, resulting in full year cash generation that is moderately higher than 2025. Our balance sheet remains healthy and supports both current operations and our investment in strategic initiatives that we believe will drive long-term value creation. And now on to our outlook for 2026. We are reiterating our expectations for full year revenue of $600 million to $610 million, reflecting growth of approximately 12% to 14% over full year 2025 results. Consistent with our first quarter results, we expect performance over the remainder of the year to be driven by our pain management, appendage management and open ablation franchises and partially offset by continuation of headwinds from our MIS ablation franchise, along with certain international markets. For the second quarter, we anticipate typical seasonality translating to mid-single-digit sequential growth. On gross margin, while our first quarter 2026 results were exceptional as a result of extremely favorable mix. We continue to expect modest improvement in full year 2026 gross margin over full year 2025. Product and geographic mix are expected to be favorable in the near term. However, we will bring our expanded manufacturing facilities online in the second half of 2026, which will increase manufacturing cost burden, moderating the full year gross margin outlook. Turning to operating expenses. As Mike mentioned, the accelerated timing for full enrollment in our BoxX-NoAF clinical trial has placed us significantly ahead of schedule, and we now expect full enrollment of the trial around the end of this year. As a result, over the next 3 quarters, we expect additional R&D investment. While the cost of BoxX-NoAF acceleration is incremental to our plan, we continue to drive strong gross margins and operating leverage, reflecting discipline across our business. With that in mind, we are reiterating our expectations for full year 2026 adjusted EBITDA of $80 million to $82 million and full year net income, translating to earnings per share of approximately $0.00 to $0.04 and adjusted earnings per share of approximately $0.09 to $0.15. Consistent with our 2025 performance, our quarterly outlook for adjusted EBITDA is largely informed by normal top line cadence and the timing of R&D spend. As a reminder, 2025 R&D spending included LeAAPS enrollment costs for the first half of 2025 only. Therefore, we expect a slightly higher increase in R&D spending in the second half of 2026. In conclusion, our first quarter results highlight the durability of AtriCure innovation and continued improvement in our financial profile while funding investments in growth catalysts for the future. We remain energized by the opportunities in front of us and the exceptional AtriCure team who will make 2026 a success. With that, I will turn the call back to Mike. Michael H. Carrel: Thanks, Angie. 2026 is off to a good start, and our team is fully committed to our patients, our partners and our shareholders. As we look ahead, we are confident in our ability to execute with discipline, sustain operational excellence and build on the momentum that we've created, delivering meaningful progress throughout 2026 and well beyond. And with that, I'll turn it over to the operator for any questions. Operator? Operator: [Operator Instructions] And our first question comes from Bill Plovanic with Canaccord Genuity. Zachary Day: This is Zachary. Can you talk about the progress you're making on PFA integration? Any milestones that we should be on the lookout for this year? And then can you talk quickly about the RF enhancements you're making to come with the next-generation catheter? Michael H. Carrel: Sure. I'll take that on. I appreciate the question. On the PFA, we're making great progress on that. We've done our first in-human over in Australia so far. We're now starting first in human in Europe as well. It's not really first in-human anymore, but we're going to be doing an additional 30 to 40 patients in Europe. And so that will obviously lead for our submission for the trial that we expect to start running sometime next year. And so we're on pace, doing great. No additional commentary at this point in time, but we're really pleased with the results that we've seen so far and feel like there aren't any specific milestones other than really submission to the FDA later on this year, acceptance of the IDE and then beginning to enroll as we kind of look into 2027 at some point in time. So we'll give more details as we kind of get forward on that. We really want to focus today's effort on, obviously, the great progress we've made on the BoxX-NoAF clinical trial because we're so far ahead of plan that we wanted to make sure that we got that out there. 300 patients in a very short period of time put us well over a year ahead of plan, and we thought that was just a big, big milestone for us as we kind of close out this year being able to finish up enrollment around the end of the year. That's something we're super excited about. As for the RF advancements, they are embedded in there. We've got both the RF and also the dual energy combined in some of those first-in-human playbooks, and that will all be indicated and looking forward to kind of seeing that in trials sometime next year. Operator: Our next question comes from Matthew O'Brien with Piper Sandler. Matthew O'Brien: The first one, Mike, I know you can't grow this pain management business 30% every quarter but just talk about what you saw in the quarter from a growth perspective in terms of new accounts, existing accounts with cryoSPHERE MAX? And then also on the ortho side of things, just maybe the contributions that you got from those different buckets and how do we think about the growth trajectory for that business? And then I do have a follow-up. Michael H. Carrel: Yes. I'll start and just say that the cryo business, the pain business, is as we talked about our Analyst Day about a year ago, this is something that's got -- it's multiple billions of dollars of opportunity. Obviously, thoracic is an area that we've been established in for a long period of time. We're now starting to see some traction on the sternotomy side, and we're just starting on this, obviously, below-the-knee amputation area. We're just scratching the surface in my mind in all the areas that people undergo surgery and have a lot of pain afterwards, both from other parts of the body and other types of surgeries to looking into and researching the impact that you can have on actually phantom limb pain, which affects over 3 million people. I mean these are big, big numbers when you look at it. So we've got decades worth of growth in my mind here. Whether or not we can grow 30% for decades, obviously, the numbers get bigger and that becomes more difficult. But the good news is we've got multiple places to actually grow this market for many, many years to come. And with that, I'll turn it over to Angie to give you some of the specifics on the numbers. Angela Wirick: Yes. Matt, from an account perspective, we are about 70% of our pain management accounts have adopted cryoSPHERE MAX, and we continue to see every quarter since we've launched, we continue to see nice uptake. It was about 10% growth in the cryoSPHERE MAX accounts within the quarter. So this is clearly becoming the dominant device that's being used. I think surgeons are very compelled by the quick freeze times that they're seeing and just exceptional outcomes for their patients. Matthew O'Brien: Got it. That's great to hear. On BoxX-NoAF, in my experience, Mike or Angie, when these things enroll faster, it's because doctors are seeing good outcomes. That's why they're doing more of these cases. Can you just talk about any kind of anecdotal feedback you're getting from the clinicians as far as outcomes here? And then kind of what's expected from these outcomes? And then given the time line for finishing enrollment, could we see -- because I think the follow-up is pretty short. Could we see data at ACC or HRS next year? Michael H. Carrel: Yes. Great question. I think you're right that, that is kind of what you said. We don't have any specific information because it's obviously a blinded trial. I don't know exactly what's happening within the trial relative to the individual patients or the randomization on that front. That being said, we do know sites that have utilized this technology for their postoperative pain. We've seen it in all the preliminary work that went into going into the trial. And what we saw was significant reductions as a result of that. So much in fact that we have several sites and even more. We've got 5-plus sites or so that have decided to adopt this and will not come into the trial because they're seeing such good results relative to using the EnCompass clamp plus the AtriClip to see significant reductions in that. If you look at the STS database, what you see is it's about 35% to 40% of all patients that undergo cardiac surgery go into postop Afib, sometimes you'll see up to 50% in some studies where you'll see it as high as that. And we're seeing in the trials in different areas that it's less than 10%. We don't need that to win the trial, though, and to have a meaningful clinical impact on it. So we feel really confident and really good about where this is going and the results that we'll wind up seeing. In terms of timing of results, you're correct. We think it's going to be around the end of the year based on the pace of enrollment we're seeing right now. I said around because it could be sometime at the end of December or early January time frame that we might have full enrollment in place. Then you're right, we've got about 30 days of follow-up from that last patient. And then we'll have to obviously adjudicate all of that data. So if you start to do the math, as you just described, probably not HRS, more likely a surgical congress that we would do some sort of late breaker. The surgical congress that is out that late is AATS next year. If we got the data earlier, STS is in the January, February time frame. Obviously, that is highly unlikely to make it that quickly, but we're hopeful that we can conclude the trial, get those initial results and get some data out there as a late breaker sometime at the AATS, which is around the same time as HRS next year. Operator: Our next question comes from Marie Thibault with BTIG. Marie Thibault: I wanted to spend a minute here on your international business. I think you called out some uncertainty on the U.K. side, which I know isn't brand new and also some lower distributor sales from APAC. So can you tell us a little bit more about what's going on behind the scenes there? And any visibility on when things might start to improve? And then it sounds like the direct markets, OUS have been healthy. So just any more color on those markets as well. Angela Wirick: Yes. Marie, you called out the 2 kind of headwinds that we're facing within our international business. The U.K. within Europe, we had anticipated that being a drag and talked I think, at length within our guidance that we've baked in a run rate that looks very similar to how we exited 2025. That held true for the first quarter of 2026 as we started the year. And then just with our larger distributors in Asia, inherently, distributor orders can be lumpy. We expect that pressure to be transient as we think about the rest of 2026. You mentioned it, but I'll remind everybody. I'd say outside the headwinds, we saw really good growth in our franchises in our direct markets in Europe, Australia and Canada. We continue to be excited about bringing new products into each of those markets and seeing the progress that the teams are making there and continue to focus on the NHS and making sure that our pain management device. And then kind of any other budgetary pressures, what we can control that we are addressing quickly to get this market to a rebound. So guidance does not assume any kind of recovery in the U.K. and then strong business in other areas within Europe and the distributors in Asia that that's expected to be transient again. Marie Thibault: Okay. Great detail. And then maybe my follow-up on the Convergent procedure side, just wanted to understand kind of how your view of that market has been evolving. Obviously, the PFA landscape has evolved quickly. So would just love an update on what you're seeing there on the ground. Michael H. Carrel: Yes. On the ground, we kind of talked about it very briefly during my remarks. There's definitely a continued headwind in that area. What we're seeing is the data is still incredibly strong and these patients benefit from using the Convergent platform. That being said, they're getting multiple PFA catheters first. They're trying one than another. Some are going up to 3. That's obviously delaying that pipeline and those patients coming through. That's why it becomes tough to predict exact timing for us on that. That being said, if you talk to most people that are actually using it, they actually do believe in it. They're just seeing fewer patients or they're trying to catheter out one more time before they actually send that patient on. So that's the reality that we're dealing with right now. That's why we've set the expectations as we have. But we really feel like those that are utilizing technology are getting incredible benefit, and we're having lots of -- we continue to have lots of good conversations with the EPs. And we do think that it's a solution that matters, and we have to continue to support. Operator: Our next question comes from Lily Lozada with JPMorgan. Unknown Analyst: This is Henry on for Lily. I just wanted to pivot a little bit to talk about the guidance. You were able to beat on the top line but you reiterated the revenue guide. Can you talk a little bit more about why that's not flowing through into the full year guide? And are there any headwinds in particular you'd like to call out for the remainder of 2026? Angela Wirick: Yes. I think on the top line guide, we came in ahead of our expectations, both top and bottom line, a positive start to the year, but it is still early in the year and want to see continued outperformance before we revisit the guidance. I think that's very much in line with our philosophy and track and impact years. We are guiding to numbers that we feel very confident that we can achieve and look to beat and raise throughout the year. The headwinds we just touched on is primarily within our international business and then in our hybrid ablation business in the U.S. and in the areas of outperformance, very similar to what you saw in the first quarter results. Expecting continued really strong growth within our pain management franchise, our open ablation franchise and appendage management as well. Operator: Our next question comes from Mike Matson with Needham. Joseph Conway: This is Joseph on for Mike. Maybe just one on international first, China and Japan. I was wondering if you guys could just maybe give a broad overview on where you are now with the portfolio in terms of approvals or launches and maybe where that portfolio could sit in China and Japan by the end of this year? Angela Wirick: Yes. Pretty comparable between both our China and Japan markets. You have the basic RF ablation devices. Neither market has EnCompass at this point in time. We just recently put China -- put our AtriClip in China. So that's a newer product launch in that market. And then within Japan, we've had different versions of our AtriClip on market and got expanded clearances for the mini devices more recently there and are working on other product launches. I think with any market that you enter into, you're looking at the product set and what the market can absorb given economic considerations, so on and so forth. But it is a subset of the overall products that we've got launched and are selling within the U.S. market. Joseph Conway: Okay. Great. Makes sense. And then one on appendage management. So obviously, a very strong year in 2025 and with new products, it's looking good as well. But with the increased competition, it's just, I guess, trying to get a handle on basically where they are, where your competitors are with trialing and incentives. Has that kind of steadied off? Are you seeing increased incentives for them to trial the product from your customers? Just trying to understand how these new entrants are affecting your sales or not affecting. Michael H. Carrel: Yes. And just right now, there's only one entrant in the market that's Medtronic. They do have a product that we compete with today. And as I mentioned in my comments, what we saw was they kind of peaked in market share back in the kind of summer time frame, late summer, early fall time frame. And we've seen with FLEX-Mini gaining more and more adoption at more and more sites that we're actually gaining some of that share back. We still have the predominant market share in the United States. We feel like the innovation that we put out there with FLEX-Mini, with PRO-Mini with obviously clinical evidence that we'll generate that will be very specific to our product that we're going to be in a very good place both in terms of who we're competing with right now and also if Edwards does come into the market. Obviously, they've mentioned that they're going to be coming into the market later on this year, and we will be ready for that. Again, the way that we know how to compete is to build the best products that are what the market really wants to meet those needs. We continue to innovate. On top of that, we've invested heavily in clinical evidence that's very specific to our product, both in the LeAAPS and in the BoxX trial, which both include the appendage, looking for the benefits that we can get for stroke reduction on that, that will be very specific to our product and our product only. And putting that level of evidence is something that none of the competition has actually started a trial down that pathway, and these are long trials. So it gives us a great deal of confidence in terms of the future for that. So. Continue with the innovation, continue with the clinical evidence gives us confidence that when competition comes in, whether it's the ones that are out there, the ones that are talking about coming into the market and there may be more in the future that we are going to be incredibly well positioned. We also believe, as I've mentioned on this call before, that competition coming into the market means it's a big market. It means that it is a multibillion-dollar market that can take on competition like this. All great markets in medical devices typically have several players in there, and we believe that, that's actually a really good sign that this is a big and robust market on the international scale. Operator: Our next question comes from John McAulay with Stifel. John McAulay: Just want to put a finer point on the 2026 guidance commentary you gave. So reiterating the top line range and adjusted EBITDA range. I just want to understand the intention there as you beat on both. Would you expect that we let numbers for the rest of the year sort of stay where they are to reflect the strength in the quarter or the hybrid and international headwinds you called out, you expect that those sort of offset the $2 million of upside as we look ahead to the rest of '26? Angela Wirick: John, no different from our philosophy on guiding. We are putting out numbers that we believe we cannot only meet, but that we've got a pathway to beat. I think with one quarter in, you're still early in the year. And specific to the top line, felt like the right and prudent thing to do at this point in the year was just to hold the guide and expect that we've got the ability to outperform no different than when we started the first quarter. On the bottom line, I'd say more of a shift in we are -- with the pace of enrollment on BoxX-NoAF, those costs are incremental, pulling enrollment in by a year into 2026, that is incremental to our plan in 2026 for the full year. We had a very strong margin -- gross margin in the first quarter, expect for there to be improvement over 2025. But that being said, some of the favorability on the margin side is transient, again, with the mix of the international business primarily. You take that kind of whole calculus and the diligence that we're seeing across the business to see improvement in leverage that positioned us really well to be able to absorb the additional trial costs and hold the bottom line guide where it's at. And again, no different are putting numbers out there, we expect not only to meet but to be. John McAulay: That's helpful. And just to make sure I'm understanding the dynamics OUS. So in the quarter, you highlighted 3.3% constant currency growth. Is that what we should be expecting for the year ahead? Or what are the drivers of acceleration or reacceleration we should be looking at in that business? Angela Wirick: Yes. Good question. I'd say the -- we are expecting our international business to grow on a reported basis closer in line to the overall company guide. So that would be kind of double-digit growth for our international business. You saw more favorability from a currency in the first quarter, expect for that to lean a bit as we think about the rest of the year. Strength in our direct markets in Europe, we expect for that to be a continued driver there. You've got newer product launches in that market. EnCompass is a big driver in our European market and then a bit of a rebound in our Asia distributors. Again, I think ordering patterns can be kind of lumpy there. So expecting that to rebound as well. And that's the calculus to get to kind of that mid-double-digit growth expectation for the year. Operator: Our next question comes from Danny Stauder with Citizens. Daniel Stauder: Just first one on pain management. Great to see the strong quarter. You noted improved market penetration in thoracic and sternotomy. But just on the latter of the 2, it's nice to hear you're starting to see traction. But I was just curious what was driving this of late. We've talked about sternotomy and that opportunity for a bit now. So I just wanted to see if there was any newer developments that's leading to this? Michael H. Carrel: Yes. Great question. I think what you're seeing here, Danny, is that you're seeing it works in sternotomy. It just takes a little bit longer to get there. With the MAX product that has reduced the time in half that really has improved adoption and the willingness of somebody to even try it. And then once they try it, they see really good results pretty quickly, and then it becomes a lot more sticky at that point in time. So I'd say that's really what you're seeing. It's not something that you'll ever get a hockey stick curve off of, I don't believe, but I think that you're going to continue to see nice robust growth within this area as we add more and more accounts. So we've got many accounts that are actually doing this now. It's no longer just a handful across the country. People are talking to each other. They're talking about the results, whether it's at trade shows or other places like that or peer-to-peer conversations, and that's really what's driving it. Daniel Stauder: Okay. Great. And then just one follow-up on the FTS quality metric update. Could you give us a little more color on this? First when will it start? And should we be thinking of this more as a longer tail growth over the next few years versus more near-term uptick? Just any more information on how we should think about this in terms of incremental adoption or just frame the potential revenue opportunity here would be really helpful. Michael H. Carrel: Sure. I'll start by saying just a reminder to everybody that in the U.S., about 35% of all patients that have Afib that undergo cardiac surgery actually get an ablation. And so that is obviously a very low number. You still have 65% left to go. The quality metric is meant to address that. It's meant to say that -- and what they put out there was that there'd be 70% of the patients actually get treated. That number will likely grow. That was the commentary that was at STS back in January of this year. They anticipate that they'll put some teeth into it. They wanted to roll out that this is becoming a quality metric. And that quality metric will go into effect sometime in 2027, at which point in time there will be some teeth in it in terms of they'll be measured on it. It will be recorded in the STS database. How that's all -- the specifics behind that are still not disclosed yet by STS, but that is coming out. To give you some perspective, I mentioned in the call that previously, the last time they did any kind of therapeutic view like this, it was the Lima to the LAD. And when they made it a quality metric, it went from about 10% adoption up to 99.8% adoption or so today. So quality metrics matter. They make a difference. People look at them, hospitals look at them, they affect their ratings. And so we do anticipate that on the Afib side of things, we should see some uplift relative to the Afib side in 2027 as they're kind of rolling this out. And obviously, that will continue into '28 and beyond. So we think that's going to be a big boon and positive for us on the ablation side to improve that penetration from 35% in the U.S. to hopefully obviously getting it closer to 80%, 90% or so at some point over the next 3 to 5 years. So we've got a lot of room for growth. This is a little bit of -- I don't know, you can call it care or stick depending on how you want to look at it, but it's an incentive either way for people to do the treatment. On top of that, obviously, we're going to have data that comes out on the non-Afib patients. And we believe you combine that with the quality metrics and the fact that the EnCompass clamp is so easy to use that we will start to see some really nice adoption overall over the next 3 to 5 years in a big way. Operator: Our next question comes from Keith Hinton with Freedom Capital Markets. Keith Hinton: I just have a quick one on AtriClip. Can you just talk a little bit -- and I apologize if I missed this, I'm jumping around a little bit. But can you talk a little bit about the use of FLEX-Mini versus the prior generations in open appendage? And then more broadly, can you just talk about the current ASP for AtriClip in the U.S. and how we should think about those dynamics going forward as uptake continues for FLEX and PRO-Mini? Angela Wirick: Yes, I'll take this one. The AtriClip FLEX-Mini, what we are seeing is a pretty steady conversion from our last-generation AtriClip device, the AtriClip FLEX fee, less so from the original AtriClip device, which is still on the market. But between the 3 products, you've got different price points, and you've also got the ability for a surgeon to choose depending on the approach that they want to take for managing the appendage. Exiting the first quarter 2026, we were up to about 40% of the revenue in the U.S. in open appendage management in the FLEX-Mini clip. We exited last year a little over 35%. So we continue to see steady share gains by that new product launch. And from an ASP perspective, we're well positioned by offering a range here as low as $1,100 with the original AtriClip device for accounts where pricing is a sensitivity and the FLEX-Mini clip up to $2,250. Operator: Our next question comes from Suraj Kalia with Oppenheimer & Co. Suraj your lines is open, please unmute your button. I am showing no further questions at this time. I would now like to turn it back to Mike Carrel for closing remarks. Michael H. Carrel: Great. Well, I just wanted to thank everybody for joining for the call today after an exciting Q1 and what's starting to be a great 2026 overall. So thank you for joining. We appreciate it. We look forward to talking to you again in July. Talk to you soon. Operator: This concludes the question-and-answer session. This concludes today's conference call as well. Thank you for participating. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Arcus Biosciences' First Quarter 2026 Business Update and Financial Results. [Operator Instructions] I will now hand the conference over to Holli Kolkey, VP of Corporate Affairs. Holli, please go ahead. Holli Kolkey: Good afternoon, and thank you for joining us on today's conference call to discuss Arcus's first quarter 2026 financial results and pipeline update. I'd like to remind you that on this call, management will make forward-looking statements, including statements about our development strategies and our expectations regarding the advantages and opportunities afforded by our investigational products, our clinical development milestones and time lines, our projected cash runway and our financial outlook. All statements other than historical facts reflect the current beliefs and expectations of management and involve risks and uncertainties that may cause our actual results to differ from those expressed. Those risks and uncertainties are described in our most recent quarterly report on Form 10-Q that has been filed with the SEC. For today's call, please refer to our latest corporate presentation posted in the Investors section of our website. This afternoon, you will hear from our CEO, Terry Rosen; Chief Medical Officer, Richard Markus; President, Juan Jaen; and CFO, Bob Goeltz. With that, I'd like to turn the call over to Terry. Terry Rosen: Thanks very much, Holli. And thanks, everyone, for joining us this afternoon. We're starting a new era for Arcus with full ownership of our lead program, casdatifan, our Phase III kidney cancer study, PEAK-1, enrolling rapidly, a clear path to win in the frontline and the next generation of molecules for inflammation and immunology that can be advanced rapidly into and through development, and with that, the strategic optionality imparted by a rich portfolio of wholly owned molecules and programs. We are at an inflection in value creation for patients and shareholders that will continue to accelerate over the next 12 to 18 months. Arcus has proven to be a highly productive company, creating and advancing a steady stream of potential best-in-class molecules for patients with cancer and inflammatory and autoimmune diseases. We believe that discovery is not a commodity, and we have built exceptional small molecule medicinal chemistry and drug discovery capabilities. Our scientists utilize proven biology to create unmatched medicines designed to raise the standard of care. Since its inception, Arcus has advanced molecules from program initiation to IND filing in a short of 18 months and accelerated platform and signal-seeking studies to move from proof-of-concept Phase I studies to randomized Phase II and registrational Phase III trials in just a few years. Today, the company is laser-focused on casdatifan, which represents a market opportunity of more than $5 billion in kidney cancer alone. I want to stress that casdatifan's efficacy advantages are underpinned by much better molecular properties and a superior pharmacodynamic profile. This profile reflects the key capabilities in Arcus that I described earlier. The simple fact is that casdatifan hits its target much harder and in a more sustained way than belzutifan. As illustrated on Slide 6, this is a point we've emphasized since the data first emerged. These data are clear and they're striking. We believe this fundamental differentiation between casdatifan and belzutifan and the limitations of belzutifan's pharmacodynamic profile and durability of effect are undoubtedly contributors to, if not the principal driver of, the outcome of LITESPARK-012. And the pharmacodynamic advantages of casdatifan will continue to result in improved clinical outcomes across the lines of therapy. I want to emphasize this point. This dramatic difference in profile has been evidenced since late last year. It is not esoteric. Its manifestations on clinical outcomes are dramatic and are at the core of our differentiation. No results to date are surprising. Our top priorities for 2026 are clear. One, complete enrollment for PEAK-1, our second-line Phase III study; and two, initiate a Phase III study in the frontline patient population. With the recent outcome of LITESPARK-012, casdatifan has a clear path to consolidate a fragmented frontline setting as the first HIF-2 alpha inhibitor in this setting. Let me spend a moment on why casdatifan is at the center of everything we do. We believe casdatifan can transform the treatment paradigm in clear cell renal cell carcinoma, and our development strategy is designed to generate evidence to secure cas as a backbone therapy so that every patient has the opportunity to benefit from cas across each line of therapy. PEAK-1 represents our fast-to-market strategy. This is designed to build on the clinician enthusiasm that we've seen for cas as an experimental agent and to generate the data to support the approval of a foundational treatment for clear cell RCC as rapidly as possible. Enrollment in PEAK-1 is accelerating, and we're on track to complete enrollment by year-end 2026. We're confident that PEAK-1 will establish cas plus cabo as the new standard of care in the IO experience setting. The peak sales opportunity for cas in this setting alone is more than $2 billion. At the same time, we are aggressively building a holistic strategy to embed cas across the treatment paradigm. We have been making tremendous progress in the frontline setting with multiple IO combinations now enrolling in ARC-20 and generating data in support of our first-line strategy. These approaches offer the greatest potential for long-term survival for patients. One of our key objectives today is to make very clear our integrated development strategy for casdatifan. It's actually quite straightforward, and here's how we believe things will play out. In the first line, our bedrock therapy will be cas, ipi, anti-PD-1. We believe that we can drive the 35% share of ipi/nivo to a regimen with greater than 50% of the important first-line market. While the IO regimen of ipi/nivo is the dominant therapy today, there's a segment of physicians that's always going to want to reach for TKI, particularly for patients with a fast-growing bulky tumor. Therefore, we will also be developing a cas combination inclusive of the TKI, a TKI with a well-established track record of both efficacy and safety that will allow the patient to have cas/cabo as a subsequent regimen. Our second-line treatment now enrolling its registrational trial PEAK-1 will be cas/cabo, building on the standard of care in this line, cabozantinib monotherapy. Finally, we will have a third-line plus regimen cas with another well-established TKI, and we will be investigating this regimen in both belzutifan naive and belzutifan experienced patients. We think this is a very important, kind of cool study. We also plan to explore novel cas combinations in HCC, liver cancer. I would like to emphasize that all of the clinical development plans discussed today are accounted for within our existing budget and have no impact on the guidance and runway that we have provided. We now control in all respects our early-stage pipeline, including our CCR6, CD89 and CD40 ligand programs, all of which are expected to support IND candidates in the next 6 to 18 months. So as we focus our resources, capital, human and otherwise on the late-stage development of casdatifan. The follow-on programs in our pipeline are early, but also with clear, early and capital-efficient clinical proof-of-concept opportunity and huge commercial potential. Therefore, we anticipate low spend and short time lines to get the proof-of-concept that will drive disproportionate value creation. Juan will discuss these programs in more detail later on in this call. If you want to walk away with just one thing from today, it's that Arcus has complete control of its destiny. The core asset of the company is casdatifan, and we have the strategy, data and resources to transform the treatment of clear cell RCC and create a $5 billion-plus drug. Bob will further elaborate on the enormous commercial opportunity here. We also continue to leverage our demonstrated competitive advantage in small molecule drug discovery, an increasingly scarce capability to generate wholly owned and unique development candidates, the advancement of which further enhances our strategic optionality. With that, I'd like to turn the call over to Richard to discuss our clinical programs. Richard Markus: Thanks, Terry. I'd like to start with casdatifan. As Terry described, our development plan is designed to establish casdatifan as a foundational standard of care in clear cell RCC so that all patients have the opportunity to benefit from treatment with a casdatifan-based regimen across multiple lines of therapy. At ASCO GU this year, we presented updated ORR and PFS from our 4 late-line monotherapy cohorts of ARC-20. As you can see here, the efficacy data continued to improve with longer follow-up at each data presentation. Moving to Slide 12, where we show the ORRs for the 100-milligram QD cohort, which is the dose and formulation being used in our Phase III studies, the confirmed ORR increased from 35% at the August data cut to 45%. A 45% ORR in this late-line patient population is rather remarkable. It's twice that observed with belzutifan in LITESPARK-005 or any study in this patient population. Similarly, the confirmed ORR for the pooled analysis improved from 31% to 35%, well above the range of ORRs that have been observed with belzutifan. On Slide 13, we show the Kaplan-Meier curve for the 100-milligram cohort. As you can see here that the 100-milligram cohort shows an impressive median PFS of 15.1 months after 17.9 months of median follow-up. On the next slide, we show the latest Kaplan-Meier curve for the pooled analysis. The median PFS remained at 12.2 months. So overall, we're seeing PFS that is 2 to 3 times longer with Cas monotherapy than the 5.6 months observed with belzutifan in the same setting. And as is often discussed, while the median is an important benchmark, it's not the only metric that's important. As you can see here and perhaps more impressive is the number of patients still on treatment beyond 18 months and even beyond 24 months. These data clearly support the proposition that casdatifan is the best-in-class HIF-2 alpha inhibitor. And our highest priority now is to maximize the potential of this molecule in ccRCC. Our first registrational trial, which is in the second-line setting, is well underway. Enrollment in the ongoing Phase III study, PEAK-1, is accelerating, and we are on track to complete enrollment by year-end. We are confident that PEAK-1 will establish cas plus cabo as a new standard of care in the IO experience setting. With a sole primary endpoint of PFS and a 2:1 randomization favoring the experimental arm and cabo as the control arm, we believe PEAK-1 is optimized for both probability of success and speed to data. I'd like to spend some time now on the frontline setting. With the outcome of Merck's LITESPARK-012 last month, Cas has the opportunity to be the first HIF-2 alpha inhibitor option in the frontline setting. Treatment in the frontline is generally bifurcated into IO-IO or a TKI, [ anti-PD-x ] combination. This currently leads to the conceptual trade-off between longer time to response or higher primary progression, but with the potential for durable responses and long-term survival with the IO-IO option or a faster time to response and lower primary progression but with much more treatment-associated toxicity for the TKI, [ anti-PD-x ] options. There's currently no treatment option that has the ability to both rapidly control disease and provide the best chance for long-term survival, while also having a favorable tolerability profile for long-term use. We believe a Cas plus IO-IO combination in the frontline setting has the potential to deliver on both of these fronts. We are enrolling several cohorts within the ARC-20 study, evaluating Cas combinations in the frontline setting. While the data are maturing, primary progressive disease rates have already been shown to be low, just 7% or 2 out of 30 patients for the Cas plus zimberelimab, our anti-PD-1 cohort. This rate compares favorably to published rates for anti-PD-1 monotherapy or ipi/nivo in the first-line setting. And in fact, it is close to the rate of a TKI-containing regimen but without the need for the TKI. We're also enrolling a cohort evaluating Cas plus zim plus ipi. Emerging data from these cohorts of ARC-20 will inform the first-line registrational strategy with the goal of finalizing the Phase III study protocol and beginning start-up activities by the end of this year. In parallel, we will shortly begin to evaluate additional Cas plus TKI-containing regimens in the early and late-line settings, including in patients with prior belzutifan experience. This effort contemplates the preference and in fact, the strategic necessity to utilize alternative TKIs as patients advance from one line of therapy to the next. Near term, we expect to have multiple data readouts for casdatifan in 2026. First, mature ORR data and initial PFS data for approximately 45 patients treated in the ARC-20 Cas plus cabo cohort in the IO experience setting will be presented at an investor event or at a medical conference, and all patients will have had at least 12 months of follow-up. Second, we will share initial data from the ARC-20 cohorts evaluating Cas in early line settings, including the cohort evaluating Cas plus zim in the first line. We also expect updated data from late-line monotherapy cohorts, including overall survival. Before I hand it over to Juan, I'd like to quickly touch on quemliclustat, our small molecule CD73 inhibitor. CD73 is highly expressed in pancreatic cancer and high CD73 expression is associated with significantly poor prognosis in several tumor types. In spite of this, as we recently published in Nature Medicine, in our Phase II study, ARC-8, those patients with higher baseline levels of CD73 or adenosine activity were the ones with longer PFS and OS in response to quemli treatment. Pancreatic cancer is one of the most aggressive cancers with an average 5-year survival rate of just 13%. In PRISM-1, our Phase III study evaluating quemli plus gemcitabine and nab-paclitaxel, versus gemcitabine and nab-paclitaxel in the frontline pancreatic study, completed enrollment in September of 2025. Results from this study are expected in the first half of 2027. And if positive, PRISM-1 could represent the first transformative therapy for an all-comer first-line patient population in 30 years. There's no biomarker requirement and no nonresistant mechanism and data to date have indicated that the regimen was well tolerated. Finally, we recently announced that the Phase III STAR-121 study, evaluating our anti-TIGIT domvanalimab plus zim and chemotherapy, versus pembrolizumab plus chemotherapy as a first-line treatment for metastatic non-small cell lung cancer will be discontinued due to futility. While these are certainly not the results we expected, the study had one important positive outcome. In addition to the assessment of Dom in this trial, STAR-121 also evaluated zim plus chemo as an exploratory endpoint. Zim plus chemo performed consistently with respect to overall survival as compared to pembro plus chemo. These data are consistent with what was observed in numerous studies with zim. And this randomized data set provides valuable support for the utility of zim as an anti-PD-1 combination partner for Arcus and its collaborators. I'd now like to turn the call over to Juan to discuss our immunology and inflammation programs. Juan Jaen: Thanks, Richard. Arcus has an exceptional small molecule discovery team that has demonstrated time and time again the ability to create highly effective drug candidates against difficult targets. We have been utilizing this expertise to create and develop drugs that have the potential to address very large markets in inflammation, allergy and autoimmune diseases. In-house expertise in immunology has been a core aspect of our discovery group since Arcus's founding, having been key to many of our oncology programs. Our team is addressing well-understood and validated mechanisms, and has implemented a two-pronged strategy in immunology. First, we leverage our medicinal chemistry capabilities to design and create small molecule drugs that regulate key cytokines therapeutically validated by existing biologics. Secondly, we target immune cell types that play key roles in human disease and have been historically under studied such as mast cells and neutrophils. Our first molecule in the immunology area to enter the clinic will be AB102, a highly selective, orally bioavailable MRGPRX2 antagonist. In the coming weeks, we will be sharing its preclinical profile in an oral presentation at the Society for Investigative Dermatology. The presentation will highlight the ability of AB102 to fully block MRGPRX2-dependent activation and degranulation of mast cells. AB102 inhibits all common human MRGPRX2 variants. We have optimized the potency of AB102 under physiological conditions, such as in human blood and serum. Due to its potency under these conditions, we believe that AB102 is a potential best-in-class once-daily oral treatment for chronic spontaneous urticaria and other atopic conditions such as atopic dermatitis and allergic asthma. It is expected to enter the clinic in the third quarter of 2026 with PK data available shortly thereafter and potential for proof-of-concept data in early 2027. In rapid succession, we have selected an oral, small-molecule TNF inhibitor drug candidate, which is a potential treatment for rheumatoid arthritis, psoriasis and inflammatory bowel disease and an orally active small-molecule CCR6 antagonist candidate as a potential treatment for psoriasis. Both of these molecules are expected to enter the clinic in 2027. We are very excited about the potential for our I&I programs to provide improved options for patients, and we are working to advance these into the clinic as rapidly as possible. I'd now like to turn the call over to Bob to discuss the market opportunity for casdatifan and our financial results. Robert Goeltz: Thanks, Juan. Before I get into the quarterly financials, I'd like to spend some time on the multibillion-dollar market opportunity in RCC for casdatifan. Sales for RCC drugs in just the major markets are anticipated to grow to $13 billion by 2030. Historically, the market has been dominated by 2 classes of therapy, IO and TKIs. There have been a number of offerings in both classes, which is why the market is fragmented. In contrast, there are only 2 HIF-2 alpha inhibitors on the horizon, and we believe our data have demonstrated clear advantages over our only competitor. We have a clear path to consolidate the market and entrench casdatifan as the primary backbone therapy. The development plan that Terry and Richard described is designed to accomplish this objective. If we look at the sales for the sole marketed HIF-2 alpha inhibitor, belzutifan, which is currently approved only in late-line clear cell RCC, is already generating annual run rate sales of nearly $1 billion, only scratching the surface. With casdatifan, we are also targeting earlier line settings, the IO experienced population with PEAK-1 and the IO naive first-line population with our next pivotal study. These earlier line settings have larger patient populations and longer durations of therapy, both of which contribute to a much larger market opportunity. Specifically, our PEAK-1 study targets approximately 20,000 patients in the major markets in the IO experience setting. We believe our commercial opportunity here exceeds $2 billion. In the first line, the opportunity is even greater. With the lack of HIF-2 alpha inhibitor competition in the front line, our goal is to grow the IO-IO share from roughly 1/3 of the market to more than 1/2 by adding Cas. In fact, our market research indicates that oncologists overwhelmingly prefer the promise of a Cas plus IO-IO over a TKI-containing regimen. As Richard mentioned, we also plan to investigate a regimen with IO and TKI in the frontline to address the remainder of the market. We believe the opportunity for casdatifan in the frontline exceeds $4 billion. One point I'd really like to emphasize as we think about the commercial opportunity is duration of treatment. We've seen impressive data in late-line monotherapy with many patients on therapy beyond 18 months. We plan to share updated data later this year. As we think about earlier lines of therapy, we believe there is the potential for meaningful upside resulting from the durability of effect. Conceptually, we think strong HIF-2 alpha inhibition holds the promise of a long-term tail effect. All in, we think Cas has a peak sales opportunity of $5 billion to $10 billion. As a reminder, we own all of the commercial rights to Cas other than in Japan and certain other Southeast Asian countries held by our partner, Taiho. Now let's turn to the financials. Arcus is well positioned to advance its full pipeline with $876 million in cash at the end of the quarter. We have cash runway until at least the second half of 2028. We expect to end 2026 with approximately $600 million in cash, indicative of the declining spend we expect over the year. As Terry outlined, Arcus is entering a new era with more control over our pipeline investments. While we are building a plan to take full advantage of the casdatifan opportunity, we are also sequencing these investments such that any significant growth in overall spend will be largely incurred after the PEAK-1 readout. As a result of the wind down of Dom and reduced spend on quemli, together with broader spend management, we expect to significantly reduce our overall R&D spend in 2026 and 2027 compared to 2025. For example, as our late-stage efforts have become focused on casdatifan, we have decreased our headcount by approximately 10%. Let me transition to the financials for the quarter. For our P&L, we recognized GAAP revenue for the first quarter of $17 million. Our revenue continues to be primarily driven by our collaboration agreements. We continue to expect to recognize GAAP revenue of $50 million to $65 million for the full year 2026. Our R&D expenses for the first quarter are stated net of reimbursements and were $122 million and included non-recurring workforce costs. Our actions to reduce headcount have lowered our ongoing cost structure, which we expect will result in reduced R&D expense in future periods. The discontinuation of STAR-121 and the broader reduction in our Dom-related investment will contribute to a meaningful decrease in R&D expenses as the year goes on. By 2027, we expect more than 80% of our portfolio spend will be directed towards cash development. G&A expenses were $29 million for the first quarter. Total noncash stock-based compensation was $19 million for the first quarter. For more details regarding our financial results, please refer to our earnings press release from earlier today and our 10-Q. I will now turn it back to Terry. Terry Rosen: Thanks, Bob. That was awesome. Let me close by summarizing the key themes for the remainder of 2026. Casdatifan is our #1 priority, and this year will be another transformative year for data and importantly, development as we advance towards commercialization. We expect multiple data sets, Cas plus Cabo data, initial first-line data and overall survival data from late-line monotherapy cohorts, all of which will further reinforce casdatifan's best-in-class profile and support our registrational strategy. PEAK-1 enrollment continues to accelerate, and we're targeting full enrollment by year-end. All of the clinical development plans for casdatifan that were discussed today are accounted for within our existing budgets and have no impact on our guidance or runway. Beyond casdatifan, our PRISM-1 Phase III trial for quemli pancreatic cancer is fully enrolled and on track for a readout in the first half of 2027. Juan shared the exciting progress on our I&I portfolio with AB102 expected to enter the clinic in the third quarter and our TNF inhibitor CCR6 antagonist following shortly thereafter. With $876 million in cash and investments and runway into the second half of 2028, we're well positioned to execute on all of these priorities and create significant value for patients and shareholders. We're moving into a new era for Arcus with full ownership of our lead program casdatifan and a clear strategy to win and transform the frontline setting while rapidly advancing the next generation of wholly owned molecules for inflammation and immunology. We have no doubt that we will be generating disproportionate value for patients and shareholders over the coming 12 to 18 months. Thank you all for joining us. We appreciate your interest and continued support of Arcus, and we will now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Daina Graybosch with Leerink Partners. Daina Graybosch: Tell us about the Cas-TKI frontline combo. Specifically, we all know Merck failed with that triplet mechanistically with bel, lenva, pembro, and that's the LITESPARK-012. We have the press release. We don't know the detailed data. What could you see in that detailed data that would give you more confidence in Cas-TKI IO? And what could you see in the Merck data that would give you less confidence in the TKI combo strategy? Terry Rosen: I think we'll see what their data say, but I think the data that are out there tell us a lot already. So if you consider what we discussed at the beginning, that pharmacodynamic difference between casdatifan and belzutifan, not only the depth of response, but particularly the durability. And you think of that as a surrogate for its antitumor activity and a direct measure of its ability to inhibit HIF-2. I think what you can reconcile very easily is even in the absence of the data from the study itself, if you think about LITESPARK-011 versus LITESPARK-012, the duration of the treatment that you're talking about when you think about PFS roughly for the 2 different studies, is almost 2x. So if you recognize that belzutifan is whatever that surrogate for HIF-2 inhibition, directly relates to inhibition of the tumor, it's clearly losing that effect with time dramatically. So you see at least on erythropoietin production, on the average, you've lost that effect within 9 to 13 weeks. So when you think about it in the second-line population, the percentage of times what's bringing benefit is x. And then in the front line, it's much less. Then on top of that, if you think about the regimen, it's pretty toxic regimen. So even pembro-lenva had about a 37% rate of discontinuation. We know that the triplet was pretty unfavorable from a patient perspective. So if you think about basically, you're having diminishing effect of the HIF-2 inhibitor on top of a much longer duration of an arm that has more AEs than the control arm. So you're basically getting -- paying a price, but getting less benefit. So it's not surprising that you would end up with a hazard ratio that might not be too favorable. For us, we're going to select a TKI that we think has a very favorable -- relative to the TKIs out there, profile. But the most important feature will be that we have a HIF-2 inhibitor that has its robust effect and the durability of that effect is essentially the same on day 1 as it is on day 730. Operator: Your next question comes from the line of Jonathan Miller with Evercore. Jonathan Miller: Congrats on all the progress. I guess looking at a very broad Cas development plan here with a lot of combinations in -- across first-, second-, third-line settings. One thing that's notably absent is any approach in the adjuvant setting, which obviously we know Merck is going after. So I'd love to hear your updated thoughts on adjuvant and why that's missing from the current development plan? And then related to that, I guess, or the flip side of that is relatively recently, recently as well as relatively, you were talking about a more conservative approach to late-stage development for Cas, at least with respect to the number of Phase III trials you would want to start, you were considering going after partnerships to ameliorate the cost of late-stage development. Obviously, there's been a bit of a shift there. But Terry and Bob, I heard you say we don't expect to see any impact on runway or the ability to prosecute all these different programs. So I'd love to get a little bit more granularity on the sequencing that you're talking about and when you would start these TKI containing and potential novel combo development efforts to enable you to pursue all of these different approaches without running up against the bandwidth limitations? Terry Rosen: Thanks, Jon. And I'll let Bob handle that, and then I may have a few comments to add. Robert Goeltz: Yes, in terms of adjuvant setting, I think for us, it comes down to 2 simple things. One is the size of the opportunity and probably more importantly, is the need. So when you think about that particular setting, we think that it's around 12,000 patients or so that get therapy in the adjuvant setting, it's only the high-risk patients with resection and their treatment is capped in 1 year. And so when you actually do the math on that, we actually think that the opportunity, certainly from a revenue perspective, is probably certainly smaller than the second line and probably even smaller than what could be a third-line regimen with an alternate TKI as we described. I think the other important part is we've had a chance to talk to physicians after seeing the LITESPARK-012 data. The bar to add another therapy on top of pembro is considered quite high. In fact, most physicians told us that they actually wouldn't add belzutifan to the regimen even in light of the LITESPARK-012 data. So we actually think it will be a minority of patients that ultimately will receive belzutifan in that setting. So it's prioritization. And frankly, the other settings in first, second and third line are higher on the list for us. And so that's sort of why we've made the decision that we have from an adjuvant perspective. In terms of the sequencing of the spend, as we highlighted, we have PEAK-1 up and enrolling right now. Our goal is to have the study enrolled by the end of the year. The work towards launching these additional Phase III studies would have us in a position to sort of move those studies forward as early as late this year into next year with obviously probably our highest priority being that frontline combination with ipi and anti-PD-1. But the other studies will be shortly on the heels. But if you think about just sort of the general investment profile for the studies, we'll be through the bolus of study start-up for PEAK-1 and the cost profile for PEAK-1 will be starting to decrease as we get into the second half of next year. So we kind of feel like that it's going to be a nice portfolio effect that when we think about these other studies, kicking in really from a spend perspective in late '27 and into '28, we sort of see a generally steady spend profile through the PEAK-1 readout like we described. Terry Rosen: Jon, and I'll -- Bob kind of gave you the line of the spend along with the studies, and I'll give you a little bit more granularity on how we literally see the trials themselves playing out. So the first study, obviously, PEAK-1 that's enrolling, as Bob said, it will be fully enrolled by the end of this year, and then we'll be waiting for readout. We're going full speed ahead and expect that ipi, anti-PD-1 Cas, as we've been talking about for some time, to be getting up and going by the end of this year. We'll see where the TKI inclusive regimen comes in. There's -- Without getting into all the detail now, we'll be sorting through whether there's -- that's actually 2 studies -- 2 registrational studies or a 3-arm study is also a possibility. And then finally, in the later line study that we talk about, we'll start off in ARC-20. And as you know, those are relatively small cohorts that enroll very efficiently. But the other point that I think will be very important within those studies, and we'll get the answers quickly is that we'll be looking at that combination in the third-line plus in belzutifan-naive patients as well. And I think that will establish. It's a cool study, and I think, it's going to establish something [indiscernible] Juan Jaen: [indiscernible] Terry Rosen: Yes, I'm sorry, bel's experience in addition to bel's naive. Thank you, Juan. And I think that will nail something that we think we know the answer to, but we'll have those data even this year. Operator: Our next question comes from the line of Li Watsek with Cantor. Li Wang Watsek: Hey guys congrats on the progress. I guess just one question on the ARC-20 update, especially from the triplet cohort. It sounds like you guys are enrolling the combination with zim plus ipi. Can you clarify if we're going to see the initial data from this cohort this year? And what data points would you want to see to enable a Phase III frontline trial? Terry Rosen: Thanks, Li. So we do think what you'll get to see, and it will be probably in the fall, are the initial data from ipi anti-PD-1 Cas regimen. And essentially, we'll get a sense of the safety data and the rate of primary progression. While there may be some early ORR data, we don't consider that critical. We're most focused on the safety. We'll have an agreement with the FDA as to what safety data package they would want to see to enable us to get that Phase III up and going by the end of this year. And then obviously, because that's the first point, but it's also an important point for that regimen is we'll see the rate of primary progression. I think one thing to recognize about that regimen when we think about triplets, doublets, et cetera, is also just I'd like to make the point is, as you know, we've already talked about the rate of primary progression with casdatifan plus anti-PD-1 alone and those initial data are quite favorable where we only saw a 7% rate of primary progression. Now if you think about what that Cas, anti-PD-1 ipi regimen is going to look like, you basically get 4 cycles of ipi at the outset, of course, with Cas and anti-PD-1. But then the duration and the bulk of your therapy is going to be anti-PD-1 plus Cas. So both the efficacy that you're seeing with that as well as the safety of that will certainly impact the bulk of the therapy. So we're excited about that regimen. We think we're well on track to be able to start the Phase III by the end of this year and have a good safety data package. And we do plan to share that with the external world as well this year. Operator: Our next question comes from the line of Richard Law with Goldman Sachs. Jin Law: Yes, very helpful to see Cas's development laid out in its life for all the different lines of therapy. A couple of questions from me. So looking at the LITESPARK-012 failures in both triplets and dual Cas discontinuation by [ AZ ] and then all the frontline therapies of doublets or monotherapy so far, what is your confidence that a Cas triplet of any kind either with IO-IO or IO-TKI could be safe enough to succeed in 1L? And I mean, what do you think is the safety bar for 1L? Do you think that those triplets have to show like comparable safety profile to like that IO-IO, IL-TKI doublet for them to work? Terry Rosen: So I think we feel very confident based upon what we already know about our molecules with triplets, whether it's a triplet inclusive of a TKI or a triplet with the ipi anti-PD-1. So keep in mind, while we haven't analyzed in detail, and we will later this year, the zim, so that anti-PD-1 Cas, we know that doublet, and we certainly haven't seen anything untoward with that. We know we can combine with cabo well. So what we believe is that the ipi/nivo regimen has been extraordinarily well worked out in terms of dosing of that particular regimen. And as I was mentioning in my response to Li, you're basically going to treat with 4 cycles of ipi, that's quite worked out. So we believe that we have orthogonal AEs. We haven't seen anything in terms of a clear combination issues. When you think about casdatifan, you're basically bringing those on-target anemia and of course, rarely or certainly more rarely hypoxia. Again, we're going to pick a good TKI. We know that Cas anti-PD-1 is looking good. So we think a reasonable TKI will not bring anything untoward there. Keep in mind, we haven't actually seen the Merck data. And I think the thing that you should take away until otherwise is their hazard ratio must have been not good. So that doesn't get to an intrinsic inability to have a triplet. It just says when you're bringing that TKI, when you're bringing belzutifan on top of a pretty rough doublet, and you're treating for a long period of time and you are undoubtedly introducing some new AEs, but you're not having a robust long-term efficacy effect, you're probably not creating a hazard ratio, but we really don't know exactly how that played out. But all the data with our own molecule suggests that casdatifan is a very well-tolerated and robust HIF-2 inhibitor and with an orthogonal AE profile from anything that we plan to combine with. And we'll have all those data within the next 6 months or so. Jin Law: Got it. And then a follow-up on that. Have you seen the efficacy and the safety results from that dual Cas before Astra discontinued it? And will that data be shared to you guys even if Astra does not plan to share that? Terry Rosen: So we haven't seen anything other than what we said at the outset. Since they did disclose, you can now know that there were 9 patients. We -- What we described was that initial safety signal that was very CTLA-4 and more specifically volru-like when they dosed down volru. But casdatifan at the same 100 milligram dose we didn't see any more of it. And those patients still continue on. And in fact, the interesting thing out of that is, as we've commented before, we didn't see any progression. So that, if anything, we don't even know, quite honestly, that given that it was 9 patients, it's not obvious whether that was even purely volru or not. But what is obvious to us, at least as we were thinking about going forward, is that given that ipi/nivo well worked out regimen, well worked out dose, it's time tested. And of course, probably most importantly that you're only going to be carrying your anti-CTLA-4 dosing for 4 cycles made it a clear regimen for us to want to proceed with all the 4 things considered, not wanting to have both of those activities for the duration of the therapy. Operator: Our next question comes from the line of Salim Syed with Mizuho. Michael Linden: This is Mike Linden on for Salim. Just one from us on casdatifan in frontline again. Maybe just how you guys are thinking about patient selection for an ipi/nivo plus Cas combination for a Phase III? Like would these be all-comers versus poor intermediate favorable risk patients, things like that? And I guess, how is the thinking around patient selection changed post LITESPARK-012 failure? Terry Rosen: Yes. So our patient selection strategy hasn't changed. And in fact, we're thinking of all comers. And we would also be thinking of all comers in so far as a TKI inclusive regimen. So what we're really trying to address there is there's clearly -- we've had at Board meetings, there's clearly a strong preference for a TKI sparing regimen. So that's unequivocal, and that's the way we described it as the bedrock of the front line. With that said, it's a little bit one of those things where there's almost a tribalism is the way the investigators in the field would describe it, where there are certain investigators that are very prone, particularly if there is a bulky fast-growing tumor, but even otherwise do want to reach for TKI. So we feel from that overlap of particular patient with particular investigator, there should be a HIF-2 inhibitor containing regimen. And we think we can offer a very good one. So we look at both of those to be in all-comer patient populations. I think, again, the LITESPARK-012 data for us until we see something otherwise, we simply think it has to do -- and certainly, this has to be a contributing factor to that durability of effect, and let's just call it on HIF-2 inhibition with time that we know that's a dramatic difference between our 2 molecules. And of course, when we look at the choices of what to combine with, keep in mind, we have no commercial predisposition there. I -- Essentially, the world is our oyster. If you look at the front line, there's a number of TKIs used. There's not one that's particularly dominant. Overall, you have probably 60% of the patients are getting a TKI, but they're spread somewhat evenly. So we've gone and looked and been very strategic about it and looked at what's the smartest TKI from a safety standpoint, it's well used, it's well tested, approved, understood that we should combine within the front line. We know that we're going to have cabo in the second line. And then we've done the same in thinking about that late-line patient population with what then becomes another TKI that you would use in the late line. And like I said, the other important thing there is that we are going to look at that combination of Cas with that TKI in belzutifan experienced patients and establish that unequivocally. You get the activity that you want to see in that HIF-2 experienced patient. Operator: Our next question comes from the line of Jason Zemansky with Bank of America. Unknown Analyst: This is Jackie on for Jason Zemansky. Congrats on the progress. Just a quick one for you. So what do you think is necessary to drive broad uptake of a TKI-free regimen in the first-line RCC, given how popular TKIs are overall, especially given their ability to rapidly debulk tumors? Or is the goal to compete directly with dual IO therapies? Terry Rosen: So I think -- so what's interesting is we think there is a strong receptivity towards this. Now one of the most important things that we've seen to date is that casdatifan as a monotherapy, even in the late line, performs -- is good or better than TKI in any line of setting. So if you go -- we have in our deck somewhere, you can actually look that even in the late line casdatifan monotherapy, whether you're looking at ORR or PFS, looks quite good. And the thing that's standing out, and I think this is the issue that was identified with belzutifan at the outset was that rate of primary progression. So I think that's raised the question for HIF-2 inhibition, can you compete with TKI at bringing that tumor under control quick enough that you don't have that high rate of primary progression. So we believe that belzutifan was forced in the front line to combine with the TKI to address a potential high rate of primary progression, but we actually think that despite the fact that HIF-2 inhibition is well tolerated, it can get the tumor under control quite fast. And the place where we've already seen our evidence of that is in combining with anti-PD-1, where in 30 patients, we only saw 2 progressors, 2 primary progressors. So 7%, very much in line with the TKI. So we think there's a receptivity to the TKI-sparing regimen, and we think that the key thing to driving that uptake will be to show that our rate of primary progression and then everything that flows from, that looks like a TKI. The last point I would make is it's almost like there -- the mentality would be like because TKIs are a rougher treatment, it's sort of like when you think about chemotherapy that there's a linkage that sort of in people's minds, they associate rougher, but bringing the tumor more under control. Keep in mind that 85% to 90-plus percent of clear cell RCC has HIF-2 as a key driver. So you're hitting the tumor with something that really matters. And we think that's why with a robust HIF-2 inhibitor like casdatifan, you actually can compete with the efficacy effects of a TKI. Juan Jaen: Add one other point is like, I think Dr. McKay in our event in the fall indicated this that the reasons you really prefer using ipi/nivo for the most part is it gives the patients the best chance for long-term survival. And the problem is the Achilles heel as Terry described, of the primary progression. So if you could blunt that and still give patients the best chance of long-term survival and we just saw 10-year follow-up data with 40% of patients alive 10 years later, that's a very compelling regimen we think. Operator: Our next question comes from the line of Emily Bodnar with H.C. Wright. Emily Bodnar: Based on the LITESPARK-011 data, how are you kind of looking at your upcoming Cas plus cabo updated data? And what are you kind of hoping to see to feel confident that you might have a superior profile versus what we saw in the LITESPARK-011 trial? Terry Rosen: Yes. So we already feel that confidence, and we're obviously running the Phase III trial. I think you kind of have to think of things holistically. In the end, what you're going to have is a hazard ratio. And what's nice is that since we are both running versus cabo, those will be directly comparable. While our data when we share later this year, we will still be early, we're going to give Kaplan-Meier curve. We'll have landmark PFS, we'll have ORR. And people will be able to extrapolate to whatever extent how they want to look at those data, but we'll give a very holistic view. I think the other thing that we don't want lost on people because we think it's an interesting other aspect of the data that really will only be emerging. And we'll see how things play out by the time we have some mature data later this year. So while from a regulatory standpoint, the PFS is what matters, we're going to have data now our -- from our monotherapy cohorts that are getting mature enough that we'll start to get a sense of whether we do bring an OS advantage there, albeit in the late line. And the reason we feel that's important is it just -- depending on how that looks for casdatifan, it will potentially give a good sense that this mechanism can not only drive enhancements in PFS, but bring enhancements to OS. And while that may not be a requirement from a regulatory standpoint, we certainly could see it as an important differentiation that would drive more uptake by clinician, in fact, we start to show that there can be OS enhancement from HIF-2 inhibition, which we believe there's no reason there shouldn't be. Operator: Our last question comes from the line of Yigal Nochomovitz with Citigroup. Joohwan Kim: This is Joohwan Kim on for Yigal. Congrats on the progress. Maybe just to mix in a noncash question. Regarding AB102, while it's still early, is there any color you can provide on the intended proof-of-concept study design, whether you're planning on going into CSD versus AD first? Any color on primary endpoints or level of clinical signal you need to see to give confidence to advance into a future registrational program? Terry Rosen: So Juan, why don't you describe how we see ourselves going from A to B to C in the near term? Juan Jaen: Yes. So at a very high level, we have recognized that while we think we may have a better molecular profile, we have a little bit of ground that we need to make up relative to the couple of existing clinical players. So what we've devised is a fairly accelerated plan for establishing PK tolerability in healthy volunteers, followed by a fairly quick, rapid mechanistic confirmation of biological activity and very quickly progressing into a Phase II study in CSU. So we think we will in reasonable speed, catch up and hopefully begin to illustrate the better profile of our drug. In parallel with that, we're thinking about where it might make sense concurrently with that CSU type of Phase II study to demonstrate the value of an MRGPRX2 inhibitor. Right now, our lead candidate for that additional indication seems to be allergic asthma, but that's still at a very early stage of conceptual framing. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect. Terry Rosen: Thanks, everybody. Operator: Goodbye.
Operator: Hello, everyone. Thank you for joining us, and welcome to Bumble First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Will Taveras, Head of Investor Relations. Please go ahead. William Taveras: Thank you for joining us to discuss Bumble's First Quarter 2026 Financial Results. With me today are Bumble's Founder and CEO, Whitney Wolfe Herd; and CFO, Kevin Cook. Before we begin, I'd like to remind everyone that certain statements made on this call today are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of factors and risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in today's earnings press release and our periodic filings with the SEC. During the call, we also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to and not as a substitute for or in isolation from our GAAP results. Reconciliations to the most comparable GAAP measures are available in our earnings press release, which is available on the Investor Relations section of our website at ir.bumble.com. With that, I will turn the call over to Whitney. Whitney Herd: Hello, everyone, and thank you for joining us today. This is a period of real transformation at Bumble. Over the past few quarters, we have executed a deliberate reset of our member base. We made a clear choice to prioritize quality over quantity, focusing on well-intentioned engaged members. That decision reduced overall scale, but meaningfully improved the health of our ecosystem. Importantly, this quality reset was not isolated. It was the first step in a broader strategy to reestablish Bumble as the brand that sets the pace for innovation in our category. We focused first on strengthening the underlying supply of our platform because scale without quality degrades the experience and stifles the outcome people are seeking: high-quality, relevant connections. At the same time, we continued rebuilding our technology and product platform to better serve our members' demand for real dates and in-real-life connection. These moves required short-term trade-offs, but they were deliberate and necessary. Now with healthier supply and stabilization in our member base, we are entering the next phase, activation. This phase is anchored by 2 innovation initiatives. First, the introduction of our new technology platform. Second, the launch of a fully reimagined experience for Bumble members, including a new interaction model and profile system. The new Bumble platform and experience will roll out over the balance of the year, beginning with the first stage of the new tech platform in the coming weeks. Our direct member engagement and our research, including our work with author and professor, Dr. Arthur Brooks reinforces a key insight. The biggest friction in dating today is not discovery. It is the gap between online interaction and real-world connection. People get stuck in that in between. This is a central challenge faced by every scaled dating app. Everything we are building is designed to close that gap and drive real in-person dates between high-quality connections. Accelerating each member's progression towards finding that connection and getting out on a date is our priority. We've been doing foundational work on this problem ahead of introducing our new platform and reimagined experience. We have improved profiles, strengthened intent signaling, enhanced safety and built more dynamic onboarding. These changes have helped members show up better even within the limits of our legacy systems. We are also continuing to improve the current Bumble experience by addressing core member pain points, improving recommendations and enhancing usability. Early tests are showing promising results, including improvements in matching behavior and monetization trends, but results are expected to be relatively limited on the legacy tech stack. We have more to do here in the months ahead. What comes next will go much further. The innovation starts with our technology platform. As we shared last quarter, we have been actively rebuilding our new cloud-native AI-enabled tech stack. This modern platform will allow us to move faster, iterate more efficiently and begin to unlock entirely new product experiences. Today, making meaningful changes to our recommendation engine or introducing new features can take months. This has been a real constraint on the rate of innovation. Our new tech platform is expected to eliminate this constraint. As the platform rebuild nears completion, we are ramping development of the next-generation Bumble Date application, a merging of the new back end and the reimagined member experience, launching in select markets in Q4 of this year. Between now and then, elements of our new technology platform will begin powering a parallel roadmap of incremental improvements in the existing product. With our new app experience, the opportunity is not just to improve the current interaction model, but to evolve beyond it. We are designing a system that shortens the distance between intent and outcome, eliminating the friction caused by multiple steps between interest and connection. Clearer signals drive more mutual engagement and faster progression towards in-real-life connection. Early reactions to this new model have been very positive. Our AI layer, Bee, is expected to play a key role in the reimagined experience. Testing Bee and onboarding new members has been especially encouraging, not just in Bee's effectiveness, but in members' willingness to engage deeply and share richer context about who they are and what they are looking for. Bee's ability to capture more signal and process information quickly improves our understanding of each member and will strengthen our recommendation engine. Onboarding is just the first step in how Bee will be used in the new experience. We also expect Bee to help facilitate connection and to suggest and plan real dates among other roles. Bee is a great example of what we can accomplish on the new modern tech stack and how AI will be an important catalyst for our business. It is important to note that we built Bee separate from the legacy system. I have said a lot here. So let me summarize. First, demand for love and human connection is as vital as ever before. We have done the heavy lifting to reset our business with healthy supply that is ready to engage. We are giving them the tools to show up authentically as their best selves. Next is our new platform, which will accelerate product innovation. Right behind that will be an entirely transformed Bumble experience, which dramatically reduces friction and gets members to in-real-life connection faster. We believe this is our path to deliver what daters are seeking today. This is the path to restoring revenue growth, and we are already at work building the monetization model behind it. That is the core of the Bumble app transformation, but it's only part of the picture. Beyond dating, we are also investing in broader connection, which we see as both a critical need in the world and a competitive advantage for us. We have expanded groups on Bumble BFF and are seeing strong early traction with total group joins nearly doubling between December and March. This success is driven by Gen Z women who comprise the largest cohort on the platform, highlighting our opportunity with this core demographic. Overall, more than 80% of BFF members are women, reinforcing the durability of our overall brand. We will continue to expand on group connections and in-real-life meeting for platonic purposes through BFFs, but we are also bullish on the opportunity of romance beyond one-to-one in terms of how people come together and meet for love. We are testing new ways to bring people together for both platonic and romantic purposes, including a new product beta launching next month, which we are super excited about. Across all of these efforts, our approach remains consistent: test, learn, iterate and do it quickly. We are data-driven, member-obsessed and more passionate about the opportunity and problem we are solving than ever before. In terms of timing, members will first experience the rollout of our new platform, delivering a faster and more reliable experience starting in the coming weeks from a back-end standpoint. From there, we expect to introduce the initial features of our new interaction model and profile. This is our big thing. It will start to roll out to select markets in Q4, backed by a 360 marketing campaign. Then we'll continue to refine the experience into 2027, including adding features like group dating and expanded access to Bee. Ahead of our upcoming unveil, we are continuing to deliver innovations in the current Bumble experience that helps members show up better, more confident and ready to engage. Not all of these improvements will be immediately visible to members, but the critical signal enhancements they enable will drive more relevant connections on the back end. And the UI/UX will be on our modernized back end, which will enable the rollout of our transformed experience later this year. As we execute this transformation, we remain disciplined. We delivered a strong Q1 compared to our expectations, and we are managing our cost structure carefully while continuing to invest in product, technology and selective marketing. Of note, we have reduced our performance marketing spend to less than 50% of pre-quality reset levels. We are starting to see the benefit of organic marketing again, including positive word of mouth now that we have improved the member base quality. Despite tech limitations, we've been able to drive meaningful improvements, which we believe signals the opportunity ahead with a modern tech stack in place. To close, we have been hard at work rebuilding our foundation. Now we are focused on translating that into a meaningfully better product experience, which members will start seeing in the coming months. We cannot wait to reignite our brand, product and mission as we transform Bumble and our category. We look forward to sharing more in the months ahead. Thank you so much for your time. And now I will turn it over to Kevin. Kevin Cook: Thank you, Whitney, and hello, everyone. In the first quarter, we delivered results in line with our expectations as we move past our quality reset to focus on product and technology innovation. As Whitney noted, we're seeing signs of stabilization in our member base as we enter the next phase of activation. I'll review our quarterly results before turning to our outlook. Unless otherwise noted, my comments are on a non-GAAP basis, and comparisons are year-over-year. Total revenue for the first quarter was $212 million compared to $247 million in the year ago period. Foreign currency exchange rates contributed $9 million to revenue in the quarter. The loss of revenue from Fruitz and Official equate to approximately 1 percentage point of headwind in the quarter. Bumble App revenue was $173 million compared to $202 million a year ago. Foreign currency exchange rates contributed $6 million to Bumble App revenue. Adjusted EBITDA was $83 million, representing a margin of 39% compared to $64 million and 26% in the prior year period. Higher adjusted EBITDA despite year-over-year revenue decline is a function of how we have executed through our reset period, most notably with more intensive operating discipline and thoughtful marketing spend. Selling and marketing expense was approximately $26 million or 12% of revenue compared to approximately $60 million or 24% of revenue in the prior year period. In addition to the reduced overall spend, we've increased our focus on lower cost and higher return organic and targeted marketing channels. This strategy brings us back to our historical marketing strengths, which we believe also supports long-term brand health. Product development expense was approximately $25 million or 12% of revenue compared to approximately $24 million and 10% in the prior year period. Our product development spending is focused on core product innovation and platform modernization. General and administrative expense was approximately $24 million or 11% of revenue compared to approximately $26 million or 10% of revenue in the prior year period. I'll now turn to the balance sheet and cash flows. For the quarter, we generated $77 million in operating cash flow, $74 million of which converted into free cash flow. We ended the quarter with $246 million of cash and cash equivalents and continue to generate substantial cash flow while maintaining a strong liquidity position. In April, we completed the refinancing of our term loan that had been previously announced. Consistent with our plans to continue deleveraging, we paid down $114 million of debt in connection with the transaction. Pro forma for the refinancing, we had $150 million of cash and cash equivalents at the end of April. Turning to the outlook. As we move beyond the quality reset, our focus is now on activating our higher-quality member base through product innovation and improved member experience. This transition will unfold over the balance of the year as we introduce our new tech platform and accelerate the introduction of new member experiences. While this work will take time to be reflected in our financials, we believe it best positions us to drive more durable engagement and monetization. For the second quarter, we expect total revenue in the range of $205 million to $213 million, including Bumble App revenue of $168 million to $174 million and adjusted EBITDA of $65 million to $70 million, representing a margin of approximately 32% at the midpoint. As we move through 2026, we expect revenue headwinds to moderate as the most acute effects of the quality reset dissipate and we transition from stabilizing to rebuilding the member base. Adjusted EBITDA margins are expected to normalize over the remainder of 2026 as we increase investment in technology and talent to modernize our platform and drive product innovation. We also plan to increase marketing spend to support our innovation initiatives, organic member growth and brand strength. In closing, we've made meaningful progress on our transformation and are now focused on executing the next phase of the business, pairing a healthier, more engaged member base with a modernized platform that will enable faster product innovation and more effective revenue generation over time. Operator, let's take some questions, please. Operator: [Operator Instructions] Your first question comes from the line of Eric Sheridan from Goldman Sachs. Eric Sheridan: Whitney, I want to come back to some of the comments you made in the prepared remarks and go a little bit deeper. When you think about the tech stack and how it will iterate going forward, I wanted to ask a 2-parter. One, how should we be thinking about the velocity of innovation and your speed in terms of going to market that will result from that as we continue to monitor the business from the outside in? And what do you think about your opportunity around personalization and how much of it will be either AI-driven or non-AI-driven when you think about what the tech stack might enable you to do in the years ahead? Whitney Herd: Thank you, Eric. Great to hear from you. So I'll take this piece by piece. I think before we talk about the actual incredible opportunity we have ahead with this new tech stack, just to double down on a couple of the prepared remarks I had around what we've been dealing with. We have had extraordinary tech debt. What do I mean by this? We have frankly not been able to make the changes that both our members are wanting, commanding, needing, demanding, but that we have wanted to roll out. So all of the results you've seen to date are done on the back end of a very legacy system, which really does inhibit the second part of your question, which I'm going to get to in a moment, the personalization of the experience. So let's talk about velocity, my favorite word. Velocity is going to go up in such a way with this new tech stack. So as an example, if we wanted to make a change to the recommendation engine right now, which is the algorithm essentially, right, it could take us months. It's extremely clunky. It's extremely cumbersome. It's extremely difficult to navigate. On this new tech stack, we're talking we can put tests in immediately. We can be monitoring in real time. We can have A/B testing going at levels we've never been able to access before. And frankly, we can make changes in a matter of days or weeks versus months or even, frankly, years. So when you really start to wrap your head around the opportunity there, I think you can understand why I am personally so excited about this new system finally hitting members' back end here -- in the back end of the system here in the coming weeks. Let's talk about personalization. So this is the name of the game. What's the one reason why people come to a product like ours, particularly Bumble. They're not coming for entertainment. They're not coming to use it like a social media platform. They are coming to meet people. And if you want to meet someone, the baseline is you have to be showing people you want to see and that you want to meet. And so what we're able to do with this new system and this next-gen recommendation engine, which kind of goes side by side with the new -- with the new tech infrastructure, we will be able to personalize the system in ways that we just frankly never had access to. It's not lack of innovation. It's not lack of road map. It's not lack of talent. It has been lack of technical capability. So you will see extreme personalization. Turning to the last part of your question, AI or not AI. It's a hybrid. So I think it's important to maybe just spend a quick moment on how I look at AI for this business. AI should never replace human authenticity or human connection. And frankly, I've been saying this for a long time, but I certainly hope that the rest of the world is starting to see it the way I am in the sense that human connection is starting to matter more now than ever before and real authentic human connection. For those of you that have been following and watching people fall in love with AI bots, I mean, this is not the future we want for ourselves or the next generation. So this is why I'm at work. I'm giving it my all to make sure that we can bring people closer to real -- in-real-life, face-to-face, human, meaningful relationships and connections. So we will leverage AI to enable that, but we will not use AI to replace that. So I hope that answers the question. I could talk about this for 6 hours, but I want to give other folks an opportunity to jump in. But thank you again, Eric, for your question. Operator: Your next question comes from the line of Shweta Khajuria from Wolfe Research. Shweta Khajuria: As we think about the time line, could you please talk to what gives you confidence post the activation phase of the renewed tech platform in 2027 or in Q4 of 2026 into 2027? You will start seeing potentially market improvements in the refreshed tech platform. So could you point to what you saw in your test that gives you that confidence? And what should we be looking for starting in Q4 into next year? Whitney Herd: Shweta, it's great to hear from you. So let's talk about these different kind of work streams. I want to be very clear that the back-end tech rebuild is different than what the front forward-facing member-facing interaction model and profile redesign are. So these are 2 separate things that will converge into each other. However, one comes before the other. That is the back-end technology migration and enablement and rebuild. That is coming here in the coming weeks for select members, and we will start to roll out globally and more broadly, obviously, over the weeks following and the months following. So that is the enabler of everything. That is where we can go in and make algorithmic improvements. We can start to make matching and recommendation economics better for folks and really make sure that you are seeing who you want to see. Now very importantly, so that's the back end, and that will start to enable everything. But very importantly, I fundamentally believe, and I feel that I am a trusted source here because I've been on the front line of this industry from its kind of mobile explosion inception, if you will. I fundamentally believe the interaction model is outdated, not just for us, I'm talking about the industry at large. And I believe it's time to leapfrog anything that currently exists and help people break through these areas of friction where these cliffs exist. So right now, to get somebody from first sight to first date is extremely difficult. There are so many areas of drop-off opportunity where that mutuality of needing to like each other, needing to chat to each other, needing to keep the conversations going on this double-sided format, it's quite difficult to get you to a date. And frankly, Shweta, we're a dating app. We're not a matching app. We're not a swiping app. But have we really been behaving like that? And that is the impetus of the new interaction model. So we have listened to our members. We have been in the trenches with them. I personally have been on the front lines of research and deep in the data. So that forward-facing, member-touching interface interaction transition and profile redesign, that is what you will start to see in a major market in Q4 and then, of course, rolling out more broadly through the end of Q4 and early into '27. So let me actually try to answer your precise question. When do we start to see a rebound in the numbers you're all looking for? Well, the answer is very simple. When our technology and our next-gen recommendation engine can actually help better connect people more compatibly and show people who they want to see and then get them out on great dates, that's where the magic happens. And every single thing we are doing, I'm spending every waking hour of my life right now in effort of serving that one goal: get people out on great dates. So I hope this starts to answer your question, and thank you again for taking the time. Operator: Your next question comes from the line of Nathan Feather from Morgan Stanley. Nathaniel Feather: Digging in a little bit more on that kind of pipeline from discovery to actually getting out on dates. What do you feel are the current real pinch points that cause people to maybe have a match, but not actually convert that into an in-person connection? And to what extent can you actually solve that problem? Is there any issues from a perspective of a lot of people have different preferences? There's local markets? Are there ways that you can kind of solve those? And so that's the first part of the question. And then second, continue to see really strong performance on gross margin. Can you give an update on what you're seeing in terms of payment adoption? And do you think about the uplift that's driving EBITDA? Whitney Herd: Thanks, Nathan, for the question. I'll take the first half. I'll kick the second part to Kevin. So the reality is, you're right, everyone has different dating preferences. But the one thing everybody can kind of agree on at this point is everyone is exhausted from this passive model of just low-effort -- like low-effort interest that there's very little follow-through. And frankly, the industry, at large, and us included, we've made it just too easy to express low-intent interest. And so we are turning that on its head. I can't say much more. I really believe that this is going to be category defining, and we want to keep it close to the chest. But what we will tell you is the early testing has come back remarkably positive. There is very little concern that this is not the right direction. But to your point, every market is different, culturally different, preferences are different. We have no issue with being really agile and making sure that we test our way into the appropriate sequencing and the appropriate rollout strategy to make sure that those nuances are accounted for. But I really -- listen, I'm now 36. I've been doing this since I was 22. I cannot tell you how much this is needed right now for people to really feel reinvigorated with finding love. And there's a few frank realities. We are on our phones more than we've ever been on our phones before, much more so than when I started this company. The need for human connection and love is greater right now than ever. We are more disconnected. Everything is working in our favor. The only thing that has been going wrong is our ability to execute on product innovation, and that is simply due to legacy tech debt, and we are working extraordinarily hard. The teams are incredible, and they are so close on getting us to a place where we can finally innovate and deliver a modern product to our members so that they can continue to make meaningful connections in the real world. Kevin? Kevin Cook: It's Kevin. So the improvement in gross margin is primarily a function of increased adoption of alternative billing methods and therefore, a reduction in aggregator fees. So you're right to point out that we had very strong gross margin in the quarter, about 300 basis points than the prior year period, and we continue to see strong adoption of our Apple Pay program, for example, in the U.S., and that program is slightly ahead of expectation, but we expect to see alternative billing be a tailwind to margin throughout 2026. Operator: Your next question comes from the line of Andrew Marok from Raymond James. Raj Solanki: This is Raj dialing in for Andrew Marok. So as it relates to the post-reset disclosures made today, could you update us through March and April and explain how the curves for registrations, retention, MAUs and payer penetration trended from October until now? Given that this is the first month -- that was the first month of post-quality reset, which metric should best predict payer recovery going forward? Kevin Cook: Yes. Ron (sic) [ Raj ], thanks for the question. So obviously, the disclosures were provided specifically as a way for us to meet a contractual obligation to prospective lenders to cleanse data that we shared with them in connection with the refinancing. That information is all for the periods provided. You can see them outlined there in the specific disclosure on the website. They're all reflected in our current financials. They're out-of-date, stale, and have no sort of import in terms of the business today. The only thing I can share is that the business has stabilized with respect to KPI performance. And in particular, on registrations, I think you see highlighted there the steps that we took quite intentionally to bring the member base down to what we viewed as a healthier, higher-quality ecosystem from which now we can build. So that's all I have for you on that. Operator: Your next question comes from the line of Ken Gawrelski from Wells Fargo. Kenneth Gawrelski: As you look out a couple of years in success as you kind of transition the business, can you talk about how you see -- how you could see the financial profile of the business just relative to [indiscernible] built up in the past. You obviously don't want that to recur. Could you just talk about any changes we might see to the financial profile of the business as you kind of get back to growth in '27, '28? Kevin Cook: Ken, it's Kevin. So apologies, you broke up. Can you repeat the question or summarize the question quickly? Kenneth Gawrelski: Sure. Sorry. Is that better? Can you hear me better, please? Whitney Herd: It's still a little shaky. Try one more time. Kenneth Gawrelski: I'm sorry. Is this better? Sorry. Kevin Cook: So why don't you go ahead and we'll do our best. Kenneth Gawrelski: Yes. My quick question is this, are you -- when you think about the future kind of financial profile of the business, if you go out 24 months, 36 months relative to what we've seen in the business in '22, '23 time frame, how may it look different in your view? Different tech stack? You didn't -- don't want to -- and maybe a different kind of marketing go-to-market strategy. So can you just talk a little bit about what the changes in the financial profile might look like? Kevin Cook: Of course. Okay. So you're right to point out 2 key things. First, in the time frame you referenced, it was a marketing-led business, not a product- and technology-led business as it has been since Whitney returned as CEO. So what you'll continue to see is a much more efficient marketing spend. It will never return -- marketing should never return to the levels that you observed in '24 and '25. Marketing is used as -- in support of and as a tool to enhance product and contribute to new product introduction launch and of course, to some degree, brand. You will see a higher rate, overall, in technology and spend or product development. We're in a period of investment now. You see us beginning to gently increase product development expense to deliver all of the innovation that Whitney was describing and is expected for the second half of the year. So overall, with steady revenue or revenue growth, there would be substantial operating margin in the business. So you should expect to see continued adjusted EBITDA margin expansion, again, so long as revenue is stable or revenue is increasing. Let me know if that answers the question. Kenneth Gawrelski: Yes. Operator: At this time, there are no further questions. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the HelloFresh SE Q1 2026 Results. [Operator Instructions]. Let me now turn the floor over to your host, Dominik Richter, CEO of HelloFresh. Dominik Richter: Good morning, ladies and gentlemen. Thank you for joining our Q1 2026 earnings call. Before my colleague, Fabien, takes you through our detailed financials, I want to spend a few minutes addressing our current standing, the progress we've achieved over the past 12 months and what this first quarter reveals about our trajectory for the remainder of the year. To be direct, we are in the midst of a deliberate transformation of the business. This process involves clear trade-offs, which are visible in our reported results today, but constitute a conscious choice to allow the business to be set up for long-term success. Over the past year, we've fundamentally overhauled our customer acquisition strategy, marketing spend and product proposition. We've made the conscious choice to walk away from unprofitable volume, tightened our marketing ROI thresholds and redirected capital from acquisition into product quality while restructuring our fixed cost base. None of this was accidental. It was a sequenced effort to fix the foundation even if it comes with a near-term trade-off to reported growth, but will allow for better revenue quality in the long run. The central question is whether this logic is working? I believe the evidence is clear that it is, and we've seen success in those metrics that are most associated with the long-term health of the business. First, let's take a look at our Meal Kits Products segment. One year ago, meal-kit revenue was declining at roughly 14.5% in constant currency in Q1. In Q1 2026, that decline narrowed to 8.5%, marking our fifth consecutive quarter of sequential improvement. The trajectory is moving clearly in the right direction. On efficiency, we have delivered structural improvements. Fulfillment costs as a percentage of revenue improved by 0.8 percentage points year-over-year. We reduced absolute marketing spend by EUR 62 million to about 21.8% of revenue. That's not a onetime squeeze, but a permanent shift in our operating cost discipline. Regarding the product, we've executed the most significant investment cycle in our history. Under the ReFresh, we have substantially broadened menu choice, doubling the recipes we offer in markets like the U.S. or the Nordics, while upgrading ingredient quality and expanding protein variety across all geographies. The sum of these investments leads to a materially better product value proposition, which will only compound from here as more and more initiatives come to life. That's the backbone of our strategy to drive higher customer lifetime value. Crucially, this means the quality of our revenue has improved. Our tenured customers are ordering more frequently and they're ordering higher baskets. Group level average order value rose EUR 4.2 in constant currency with meal kits specifically up 4.5%. Revenue retention and thus customer lifetime values of our tenured cohorts have been improving and trend at the best levels ever seen in the business. These are not temporary effects but rather the response of a healthy customer base to a fundamentally better product and a stronger value proposition. The sum total of these changes have to date most positively affected our tenured customers, which was clearly our primary focus area. However, it's not yet been enough to fully offset the impact of front-loaded product investments, inflation and the volume-led operational deleveraging. We expect the trend improvement for meal kits to continue going forward and also to see more proof of a return to eventual revenue growth by H2 when we will have the benefits of our product investments and the outstanding parts of the efficiency program materialize more forcefully in our P&L. I also want to address ready-to-eat and specifically factor U.S. directly. Again, our primary goal for 2026 is to return the RTE product segment to full year profitability on the basis of product excellence and strong operations. We are on a good trajectory to achieve this. The operational setbacks we faced in the U.S. last year, which impacted customer experience and retention, are now fully resolved. The underlying indicators have turned strongly. NPS is now trending at the highest level since 2023. Our tenured active customers grew double digits in Q1. A direct consequence of better product excitement among them and validation of our strategy to add more variety into the menus. RTE adjusted EBITDA losses also narrowed by about EUR 18 million in Q1. That's a 40% improvement year-over-year. This represents a very encouraging trend line in our P&L and is the result of improving both the unit economics and a more disciplined marketing investment approach. The remaining challenge now is rebuilding the active customer base, which reduced in the last 9 months due to those earlier mentioned operational issues and our subsequent response to not invest aggressively behind a product and supply chain that needed fixing. While conversions are improving, switching the acquisition engine back on does not happen overnight. It rather requires multiple touch points with consumers. New customer volume in Q1 was not yet enough to fully offset the gap in active customers accumulated over the past 12 months, which has come as a result of the aforementioned weaker retention and reduced new customer volume. However, we are now restarting the growth engine on top of operational confidence and strong ROI discipline. Outside the U.S., our RTE businesses in Australia and Canada continued to post healthy double-digit growth. Furthermore, our new production facility in Germany has opened and will soon be fully operational, providing the dedicated capacity needed to scale factor also in Europe in the second half of the year. In addition, we are excited about our product and menu expansion road maps, which should help to drive positive outcomes with regard to retention and order frequency of our tenured RTE customer base. We expect the combination of all of these improvements to flow through our P&L more visibly in the second half of the year. With that, let me come to the highlights of Q1. Revenue for the quarter was approximately EUR 1.7 billion, a 7.7% decline in constant currency, which was in line with our expectations. Meal kit revenue trends improved for a fifth consecutive quarter in a row, while RTE revenue trend showed a stable trend versus what we saw in Q4. Adjusted EBITDA came in at about EUR 24 million. To put this in context, severe winter storms in the U.S. and Europe, including a once in 75 years event in the U.S., disrupted our logistics and impacted adjusted EBITDA by approximately EUR 25 million. This is a one-off event that does not change the underlying trajectory of the operating model. Excluding this weather impact, our underlying adjusted EBITDA run rate was closer to EUR 49 million. This gives a much more accurate read of where the business structurally sits today. Fabien will bridge these numbers in more detail. Contribution margin for Q1 sat at 25.6%. We saw strong operational improvements on the fulfillment side, which were offset by our investments into better product value for consumers. That's a deliberate strategy, which will help us to divest from marketing and improve customer retention and order frequency in future quarters. Critically, we generated EUR 49 million in positive free cash flow, our fourth consecutive quarter of positive free cash flow despite the EUR 25 million impact from the adverse weather events. Finally, we're reconfirming our full year 2026 guidance, constant currency revenue decline of 3% to 6% and an adjusted EBITDA in the range of EUR 375 million to EUR 425 million. The delivery will be second half weighted. We front-loaded the ReFresh investments because we saw clear evidence that they were working. These costs hit the P&L now by the revenue benefits compound as retention and order frequency improve. In H2, the investment drag will moderate and structural savings from our efficiency program will flow through more fully. There are also variables we do not fully control such as consumer sentiment in North America and inflationary pressures. However, the leading indicators we track about the health of the business and our customer base, such as the customer order patterns I referenced and cohort retention, all point in the right direction. 15 years in, our mission to change the way people eat is more relevant than ever. By focusing on product quality, customer loyalty and cost discipline, we're building a business that creates lasting value. We're not only optimizing for the next quarter. We're building a company that earns its place on the dinner table every single week. Thank you. I will hand over to Fabien now. Fabien J. Simon: Thank you, Dominik, and good morning, everyone. Let me take you through the financial details of the quarter before we open for questions. You would have noticed that we have only a handful of slides this quarter, but I will make sure that I bring the necessary level of detail to understand how the trends that Dominik just described are showing up in our financials. So starting with revenue. The group net revenue was EUR 1.68 billion in Q1, a 7.7% decrease in constant currency. If you recall, in the previous quarter, Q4 2025, that figure was 9% negative in constant currency. But definitely, this represents another step in the right direction as we anticipated. As of next quarter, we will start reporting a full P&L split by product category. So allow me to already discuss with you the drivers for each of our key product categories now. Meal kits delivered close to EUR 1.2 billion in revenue, 8.5% lower than last year in constant currency. As Dominik noted, this is the fifth consecutive quarter of sequential improvement in constant currency rates. The makeup of this number is defined by the trajectory of orders and of AOV. Order growth in meal kits, while still negative, also improved sequentially for the fifth consecutive quarter. What we are seeing today is our tenured customer base ordering more on a per customer basis. On the other side, the cumulative impact of the marketing reduction over the past 18 months means that orders from recent customers are still down comparatively and more than offsetting the resilience in our tenure base. Average order value for meal kit was up 4.5% in constant currency, supported by fewer discounts and some marginal price increase and some positive mix. Ready-to-eat delivered EUR 466 million, which is lower than last year in constant currency by 6.9%. This is made up of average order value up by 1.4% in constant currency and lower order by about 8%. So let's pause for a second to understand the underlying drivers of order decline, which I believe is not necessarily fully understood by the market. First and most importantly, the cumulative impact of the preceding 9 months of operational issues precluded us from acquiring as many new customers as we would have liked while we were fixing those issues. Second, some underperformance in conversion in Q1 this year as we start to ramp up quality conversion, and we optimize our channel, our product and our marketing messages. Nevertheless, the tenured customer for ready-to-eat in Q1 displayed double-digit revenue growth, which is a great trajectory. But basically, because the category is in early stage, the conversions still represent an outside part of the revenue dynamics. So the takeaway on revenue is that the direction of travel on Meal Kits is improving as anticipated. On ready-to-eat, the slope of improvement is not yet visible in the revenue because the customer base entering this year was smaller than a year ago. The improvement will materialize progressively through the second half of the year as we rebuild the customer base on top of improving profitability. For contribution margin now. The contribution margin, excluding impairment and share-based compensation was 25.6%, down 1.4 percentage points year-on-year. I want to be specific about what drove that decline because the composition matters to understand how our strategy is being implemented. The first factor is the severe winter storms. EUR 25 million of nonrecurring disruptions that hit primarily in North America. I mean, I don't need to remind anyone, certainly not our U.S. listeners that the winter storm front in the U.S. was widely reported to be the heaviest winter storm in 75 years. This event affected ingredient delivery, wastage, increased credit and refund cost and disrupted last mile delivery operation. This is a weather event that has no bearing on the underlying structural margin trajectory. The second factor is deliberate. We have accelerated product investment ahead of the revenue curve, investment in higher quality protein, expanded meal choice significantly or onboarding of new ingredients have been rolled out across countries. Just to give an example, our customer in the Nordics can have 100 different recipes in their weekly menu, roughly doubling the size of the menu in 6 months. But these are recipes that now, for the most part, have a minimum of 200 grams of vegetables and fruits and better quality and better variety in their protein source. These investments increased gross cost in the near term. The returns come through higher retention, better frequency of orders and larger basket, i.e. better customer lifetime in subsequent period, especially as some of this investment compound and turn HelloFresh meals into being perceived as a higher value options. In this particular case of Nordics, I explained before, we registered a very encouraging positive total revenue growth in Q1 already. Overall, we still expect the impact of the product investment cycle in 2026 to take up approximately 150 basis points of gross margin, net of the impact of price increases. On the positive side, our efficiency program continued to deliver. Fulfillment costs declined 0.8 percentage points of the share of revenue when we exclude the impact of impairment and share-based compensation. This is a direct output of the network optimization and productivity improvements we have been embedded into the operating model. These savings are structural in nature. Marketing spend came in at 21.8% of revenue in Q1, down 30 basis points year-on-year with absolute spend reduced by EUR 62 million with only an 8% reduction in relative term in constant currency. So the marketing efficiency model we established in mid-2024 with tighter ROI thresholds, the elimination of unprofitable acquisition channels and a more disciplined and product-led approach to acquiring high-quality customers is now the baseline and it is embedded in how we operate. We do not expect to revert to prior spending levels, but we also do not expect to reduce marketing in 2026 in the same way we did in 2025. And this dynamic is particularly clear when you look at the meal kit product category, where absolute spend was down only slightly year-on-year and as roughly flat as a percentage of revenue. What is critical now from a marketing perspective is that the value of the product investment land well. This is not an overnight type of occurrence as word of mouth, public reviews, top of funnel and performance marketing, all need to work in unison to crystallize those advantages and become top of mind for new consumers. On ready-to-eat, spend was down. And it was down substantially year-on-year in both absolute and relative terms and this reflects 2 things: First, we are lapping an elevated Q1 2025 in terms of investment when we were running significant brand campaigns for Factor. Second, we have been deliberately conservative on acquisition spend while rebuilding the operational foundation. Now that the operational issues are behind and we were able to also invest in the product propositions, we will lean back into acquisitions progressively, but we will do so from a position of disciplined ROI, not volume at any cost. Remember, our primary goal for 2026 is to drive Ready-To-Eat back to sustainable profitability and establish the right foundation for long-term profitable growth. Group EBITDA was EUR 23.6 million absorbing, as I mentioned, EUR 25 million of weather-related disruption. [indiscernible] that, nonrecurring item, the underlying group adjusted EBITDA run rate was EUR 49 million. By product category, Meal Kit adjusted EBITDA was EUR 105 million, representing a margin of 9%. This reflects the weather impact, which fell disproportionately on North America and the front-loaded product investment cost. The weather adjusted Meal Kit adjusted EBITDA margin would be closer to 10.3%, still below last year 11.4%, primarily due to the deliberate product investment pull forward and the impact of volume-led operational deleverage. And that, as Dominik said, that is a trade we have made. Q1 is typically the quarter with the lowest margin. So we are confident we can finish the year with double-digit adjusted EBITDA margin for this product category. On Ready-To-Eat, the adjusted EBITDA loss narrowed to EUR 27.6 million from EUR 45.9 million in Q1 2025. I mean this is a EUR 18 million improvement or a 40% reduction of the loss. This is, in my view, the most compelling trend in the P&L right now. And the improvement has come from marketing efficiency, operational cost recovery and the resilient economics on the active customer base. And obviously, we want to maintain this momentum in the subsequent quarters. All-in costs of EUR 48 million are up modestly year-on-year, reflecting continued investment in IT and tech inflations, while personnel expenses has gone down. Free cash flow for Q1 was EUR 49 million. It reduced by EUR 18.8 million year-on-year, which is entirely explained by 2 items: Lower adjusted EBITDA, primarily weather-driven; and higher CapEx. Q1 CapEx was EUR 44 million, up from EUR 34 million a year ago. The majority of that increase reflects the Factor Europe facility investment in Germany. I mean this is a growth CapEx with a clearly identified strategic return. And going forward, we expect CapEx to normalize within our full year guidance range as the year progresses. The free cash flow this quarter was also supported by the positive inflow of operating working capital which was approximately EUR 30 million better than last year, of which 1/3 is structural and 2/3 is, phasing and therefore will be unwinds for you. On the outlook, I want to reconfirm what we had previously communicated for the group for 2026, which is constant currency revenue growth of minus 3% to minus 6%. Adjusted EBITDA in constant currency of EUR 375 million to EUR 425 million. I also acknowledge that if you take into consideration the result we are presenting today and the directional guidance I will communicate for Q2, we are looking at a second half weighted delivery, and I will explain that. Q2 still has 2 months to go, obviously. But for now, we expect the top line for the group to remain relatively stable in terms of rate of decline driven by some underperformance in Q1 conversion, which impacted -- the impact of the product investment in top line is also expected to be more tangible in the second half of the year. On the bottom line, we expect Q2 to be between EUR 30 million to EUR 40 million below Q2 2025. This is driven by primarily the fact that investment in product has been accelerated between H2 2025 and H1 2026. With the data we are seeing in terms of how product investments are resonating with existing customers and the learning from the peak period, we are expecting to hit the guidance for 2026. With that, I will open the line for questions. Thank you. Operator: [Operator Instructions] We have the first question coming from Joseph Barnet-Lamb from UBS. Joseph Barnet-Lamb: A couple of questions from me, please. You referenced pricing a few times in the release. I'm interested if you could give us some more color on what's driving the uptick in pricing? Is it just reduced discounting, pricing up as a response to inflation or some form of pivot in underlying approach to pricing? And then maybe a second question, you sort of referenced no improvement in underlying trends year-on-year in Q2. I'm interested as to why that's the case? I mean you referenced that the benefits of investment will kick in more in H2 than in H1. But regardless of investment, if you didn't have investment, comps are getting easier, would you not expect the underlying trend to be improving regardless of the timing and benefits of your investment program? I'm just interested as to why things are not getting better in Q2 versus Q1? Fabien J. Simon: [indiscernible] one and Dominik maybe can answer on pricing, or otherwise, I will. So on Q2. So I understand your question was more what is the fabric of our Q2 year-on-year? What I would say is most of what I've been describing for Q2 is something that we have been already anticipated where we gave the guide -- guidance for the full year. So it's not totally a surprise. What you see year-on-year is, I would say, 3 key components. You have the [indiscernible] as we expected, which we see impact on the P&L. And on the other side, you will see investment in products to increase the value propositions to our customers, which is hitting the P&L as we have been scaling that up from H2 to H1, which, of course, is giving a negative comparison to last year. But we still have the operational leverage, especially on meal kit. And I would say, last year, we were having a very meaningful reduction of marketing to offset that, which we don't want to do this year. And it is a choice we have been looking for supporting long-term growth. As a reminder, total company last year, we have been reducing marketing spend by more than EUR 200 million with an increase in ready-to-eat. So you can imagine the magnitude of the reductions we have had in meal kit, which is not happening this year, which is why you have an uptick of a lower EBITDA. But on a like-for-like basis, it is roughly where we expect it to be, which means that from Q3 already, we are expecting year-on-year improvement on our adjusted EBITDA trajectory. But what's important to notice as well, despite the numbers that we have just been talking about, we are expecting in Q2 on ready-to-eat most likely to be already on a positive trajectory as we continue to improve, and we will keep on a very solid double-digit adjusted EBITDA margin. Dominik Richter: Other question was on pricing. So the way I would be -- so on pricing, I wouldn't say there's a massive shift in strategy. There's 2 things that I would like to call out. Number one, yes, we have reduced some of the incentives. So that is then coming through in higher net AOVs. And secondly, we've taken sort of like some pricing action, but mostly in line with inflation, sometimes a little bit over inflation, but also giving more value to customers. So you see the net impact in our COGS line, but the gross impact of investments has actually been higher than what you in the COGS line because we've also got some pricing changes, but not across all geographies, et cetera. So that's not the hugest impact of what you see. The incentives definitely play a part here. Joseph Barnet-Lamb: And if I can have a quick follow-up, Fabien, on your point about Q2. You were breaking up a little bit, but it sounded to me like you were basically saying that it's due to sort of like a progressive reduction in marketing, leading to a compounding effect on your cohorts effectively. But firstly, is that what you were saying? And then secondarily, given the product investment, I would imagine that your lifetime value of your customers would be going up. And as such, I'm not entirely sure why marketing continues to reduce. Is it because you're seeing CACs trending up and as such, you're progressively reducing marketing further to compensate for that to get your CAC versus LTV lining up? Or is there another driver behind that, that I'm not quite understanding. Fabien J. Simon: I was maybe -- sorry, maybe I apologize if I was not clear on breaking up on my earlier comment. I was referring to still the dynamic of operational deleverage we still have on meal kit because we are still on negative order year-on-year. But last year, some of these declines were offset by a very meaningful reduction of our marketing spend. I was reminding how much we reduced overall marketing spend last year by about EUR 200 million and even more than that if we take meal kit alone, which do not have this year because we want to ensure we can support long-term conversion momentum. And on product investment, we -- it is clear that today, what we see is already a positive trajectory on tenured customers, which are ordering more than before, which is a very good news. What we don't see yet is the impact on ability to drive new conversions because we know this will take time. And that's why we believe that we probably need a still few quarters to be able to show that in the P&L and it's what we have anticipated from Q3 onward. Operator: And the next question comes from Nizla Naizer from Deutsche Bank. Fathima-Nizla Naizer: Great. I have 2 questions as well, please. First, just to clarify Dominik, did you mention in your comments that you would expect a return to overall revenue growth for meal kits in H2 based on the trends you all are seeing? Or just would that still be more for 2027 type of outlook? Any color on that return to growth trajectory based on the trends you all are seeing, whether it was for meal kit or for the group in H2 would be great? And second, one of the questions we're getting is on the health of the consumer, particularly in the U.S. with the worries around energy prices and cost of living going up. So just wanted to understand how you all are seeing an impact on that, whether you're offsetting it by other means? And if all of this is now baked into the outlook that you reconfirmed today, some color on that would be great. Dominik Richter: Sure, Nizla. So let me be clear. What I said is that in H2, you should see evidence more clearly for an eventual return to growth, also in line with Fabien's answer just now. So given sort of like the massive year-over-year reduction in marketing in Q1, some of that carries over into Q2, so where you don't see sort of like the revenue growth inflecting in Q2, but you should see more evidence for an eventual return to growth in the second half of the year. That's what I was referencing. On your question with regards to consumer health in U.S., I would say it's definitely not the sort of like best environment that we've been in. There's obviously definitely also on the part of consumers like a lot of fear of inflation coming back and other things. That's also why we want to be very strict in our ROI thresholds that we target with new customers and not overshoot, especially when a lot of the impact of our strategy is basically for consumers to order more over time. We want to make sure that as we switch back on the acquisition engine that we are cautious and do not invest aggressively into a consumer sentiment that is very much weakening when a lot of the return should come from better lifetime retention, better frequency, higher AOVs, et cetera. So I would say we don't see it massively right now, but we definitely see some of the indicators. We see a lot of the research et cetera, coming, and we want to be cautious in that environment. Operator: And the next question Comes from Andrew Ross from Barclays. Andrew Ross: A couple for me, please. So first 1 is to come back on the Q2 guidance where, to be clear, I think you're guiding to revenue declining in constant FX, similar to what it did in Q1. And to be clear, are you saying that meal kits should also decline at a similar cadence in Q2, like we did in Q1? If that is the case, can you just remind us again why has been no sequential improvement in meal kits in Q2? I hear you in terms of having had less marketing last year, maybe that's flowing through in cohorts. But historically, you've always pointed to each quarter about year-on-year trajectory meal kits gets a couple of points better. And you'd always kind of point to that continuing sequentially throughout this year. So why is meal kits not improving in Q2 is my question? And then the follow-up to that is, you said on the Q2 guidance that most of the softer outlook was anticipated when you reported for Q4. What was not anticipated? And can you give us some sense as to what's happening in April? Fabien J. Simon: Andrew, on the outlook -- so you had 2 questions was more around top line, the other one more around the bottom line. I think on the bottom line, I've answered already the question, which is we are expecting, as I've said, a double-digit adjusted EBITDA for meal kit, but lower than last year because of the phasing of product investment and the operational leverage where we don't have a similar level of marketing reductions than last year. I think it's pretty simple. On the top line, indeed, we are expecting a similar rate than what we have seen in Q1. With meal kit, and it's probably similar across the category with meal kits around same level, maybe slightly better because if you strip out the fact that we are going to stop delivering to Italy and Spain in Q2. They were still in our Q1 number, but they will not be in Q2. So if you factor on that we might have another slight improvement, which, of course, we would like because then we'll be able to say 6 consecutive quarters of improvement. But it's not always completely linear by quarter, but it's what we are expecting for Q2, while on ready-to-eat, we know it's going to take a bit more time, as Dominik described, and we think Q3, Q4 will be more defining trajectory for our ready-to-eat segment. Andrew Ross: Okay. That's helpful. And then on the second question in terms of what you had not anticipated in terms of the Q2 outlook when you reported the Q4 results? Dominik Richter: So I think I was answering to Nizla's question before. Obviously, since we've reported that, everything going on in the Middle East sort of like inflation, customer sentiment, those are things that I think at this time, we're not sort of like as clear, I think there's still obviously, a lot of distribution of outcomes over the course of the year. But those are definitely things that let us also take somewhat more conservative stance and making sure that we only invest behind strict ROI discipline as we restart the acquisition engine. Andrew Ross: So you are seeing some softening in trends on the back of Middle East conflict, or it's more in anticipation, but you could see some softening? Dominik Richter: That's not something that we see right now. But in anticipation, also in anticipation, obviously, if sort of like inflationary pressures kick in or not, I think if you have sort of like any more uncertainty, then obviously, it's the prudent approach to take a more conservative stance even though right now in the business, I don't really see it. I do see it as leading indicators from consumer research, et cetera. I don't see it in the data right now. But against that environment, we feel it's prudent to have a strict and disciplined ROI approach. Andrew Ross: Okay, cool. And one more follow-up, I really do apologize. But just on this Q2 outlook for meal kits not being better Q1. I hear you on the impact of shutting down Italy and Spain, but didn't Q1 also have a negative impact from weather? I appreciate those not necessarily the same magnitude, but I still would have expected that Q2 would improve. In this is obviously a very important number for investors who are looking for stabilization in trends in the meal kits, but it's not continuing to improve. I guess, is a big focus. I just want to make sure we're 100% clear on this. Fabien J. Simon: Yes. So let's be clear on meal kits. We are expecting further improvement as the year pass, but of course, the improvement is not always linear, and I don't want to come to too much detail, but sometimes you have a big quarter [indiscernible] where you have not fully on the same month as mostly go. There we are on track with what we were expecting. And that's for me the most important message. Operator: That concludes our Q&A session, and I will hand back to Dominik Richter for some closing words. Dominik Richter: Thank you so much for attending our call. I think to sum up, we feel that the primary objectives that we're focused on making sure that our tenured customers are happy that they're ordering more that we can basically price better with them because they get better value in the product. I think all of those metrics are pointing in the right direction. We obviously still need to work hard now to get the acquisition engine back on. We will do that in a -- with a strict ROI focus, especially within the environments that we're in and some of the uncertainty over the course of the year when it comes to macroeconomic environment, consumer sentiment, et cetera. But we do feel that those are metrics that we're focused on that are the defining metrics for a long-term, healthy business are very much trending in the right direction and we look forward to updating you in August about the progress that we will achieve in Q2. Thanks a lot.
Operator: Hello, and welcome to Triple Flag Precious Metals Corp. Q1 2026 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. If you would like to ask a question at that time, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Sheldon Vanderkooy. Sheldon, please go ahead. Thank you. Sheldon Vanderkooy: Good morning, everyone, and thank you for joining us to discuss Triple Flag Precious Metals Corp.’s first quarter 2026 results. With me on the call this morning are Eban Bari, our chief financial officer, and James Dendle, our chief operating officer. Triple Flag Precious Metals Corp. is off to a record start in 2026, with Q1 representing the strongest quarter in the company's history across every key metric. This includes over 30 thousand GEOs, $129 million of adjusted EBITDA, and operating cash flow per share of $0.55. These are all quarterly records. The Q1 result is a straightforward demonstration of the model working as intended: high-margin, top-line exposure to higher gold and silver prices translating into per share cash flow growth of 67% year over year. On the transaction front, we kicked off 2026 by unlocking the high-grade E44 gold deposit at North Parks, which was not previously included in Evolution’s life of mine plan. Triple Flag Precious Metals Corp. will receive guaranteed minimum deliveries from E44 over seven years starting in 2030, which aligns with Evolution’s approved plans for a block cave at E22 and a potential mill expansion to 10 million tons per annum, all of which position North Parks as a clear growth asset for Triple Flag Precious Metals Corp. Then in March, we acquired a 3% gross revenue royalty on the Gunnison copper project in Arizona for $23 million. James will walk you through the details. This is an asset that fits precisely within our strategy of highly accretive transactions for projects in mining-friendly jurisdictions, in this case, the United States. For our existing portfolio, our assets are performing ahead of our expectations. Hope Bay’s construction decision is expected later this month, with a production profile of at least 400 thousand ounces per year. The mill at Beta Hunt has been approved for expansion to 2.6 million tons per annum with further potential growth to 4 million tons per annum. Kone’s oxide circuit remains on track for production later this year. Fosterville is planning a 65% throughput increase that will boost production over the next three years. And Last Arthur’s feasibility work, permitting submission, and drilling are underway on what AngloGold sees as a world-class deposit that will continue to grow for decades to come. Our first quarter performance, as well as the underlying achievements made by the assets within our portfolio, have us on track to deliver our 2026 guidance and our 2030 outlook of 140 to 150 thousand GEOs. I will now turn it over to Eban to discuss our financial results for Q1 2026. Eban Bari: Thank you, Sheldon. As Sheldon highlighted, Q1 was a record quarter on every line item. Adjusted earnings were up, adjusted EBITDA was up 82%, and most importantly, cash flow per share was up 67% year over year. Operating cash flow per share is the metric that most directly compounds shareholder value over time. This strong cash flow generation continues to support all of our capital allocation priorities, given our high-margin business, including shareholder returns and external growth opportunities. We aim to pay a progressively growing dividend that is sustainable across all metal prices, and we have increased our dividend every year since IPO by about 5% mid-year. We will continue to assess the right pace of further increases against the broader growth and capital deployment opportunity set. In addition to our dividend, we have an active NCIB and, as always, will buy back shares in the open market on an opportunistic basis. We have a pristine balance sheet and exited the quarter with $144 million of cash, no debt, and over $1 billion of liquidity available. This gives us meaningful flexibility to continue executing on accretive growth opportunities while funding our progressive dividend and buying back shares when warranted. With that, I will turn it over to James to walk you through Hope Bay, Gunnison, and our growth expectations beyond 2030. James Dendle: Thanks, Eban. We hold a 1% NSR royalty on Hope Bay, which is one of the most exciting development assets in our portfolio. We expect a meaningful development in the next several weeks. The asset is an 80-kilometer greenstone belt in Nunavut, with over 90 regional exploration targets identified across the property. Our royalty covers well over 1 thousand square kilometers. AMECO’s unparalleled operating capabilities are essential in ensuring the successful development and operation for projects at this scale and remoteness. A technical evaluation update and a construction decision are expected by Agnico in May, which will highlight the 6 thousand tonnes per day operation with the potential to be a 400 thousand to 425 thousand ounce per year gold producer. Hope Bay’s exploration potential is also significant in areas such as Patch 7 and Madrid, but also at the geological potential to support a multi-decade district across the broader 80-kilometer belt. As Sheldon mentioned, in late March we completed the acquisition of a third-party 3% gross revenue royalty on the Gunnison copper project in Arizona for $23 million, which is strongly accretive on a per share basis. There are a few things that we particularly like about this transaction. First, it is an existing royalty on a large-scale U.S. copper project that is designed to be mined and processed using conventional methods. The updated PEA released in February supports approximately 125 million pounds of annual copper cathode production, totaling roughly 3.2 billion pounds over a 21-year life of mine. Second, the location is genuinely top tier. The project sits on a combination of private and state land in Arizona, which we expect to help streamline permitting, with on-site power, rail, and water infrastructure already in place. Domestic U.S. copper production is a strategic priority in the current environment, and Gunnison is positioned to deliver into this need. Finally, I want to discuss the growth that our portfolio is expected to deliver beyond 2030. Outside of our formal outlook, Arthur, Kemess, Hope Bay, and North Parks represent world-class, long-life assets located in the most established mining jurisdictions. They provide substantial growth potential beyond our 2030 outlook. At Arthur, a pre-feasibility study was released in February to drive the commencement of permitting in 2027. The current mine plan has been described by Anglo as the top of the iceberg, and they further noted that Arthur is a marquee asset that will anchor the portfolio into the 2050s. We are very excited about the development trajectory and potential of this tier-one gold asset. At Kemess, Triple Flag Precious Metals Corp. holds a 100% silver stream. The January 2026 PEA supports a large-scale copper-gold-silver operation reaching production by 2031, leveraging existing brownfield infrastructure and permits from previous mining operations. Notably, the PEA mine plan represents only 47% of the total indicated and inferred resource tonnes, providing further upside potential for subsequent economic studies. Hope Bay I have already covered, but its place in this discussion is worth noting: a potential 400 thousand to 425 thousand ounce per year producer with district-scale exploration upside along the 80-kilometer belt and a construction decision expected this month. Finally, North Parks is Triple Flag Precious Metals Corp.’s largest asset. Numerous growth projects have been recently approved, which will unlock value from a world-class copper-gold district, including the E22 block cave, the E44 gold open pit with minimum guaranteed deliveries, and, most importantly, a potential mill expansion to at least 10 million tons per annum, which is currently being studied over the next year. We believe that the mill expansion is the optimal path forward to unlock value from not only the 575 million tons of current measured and indicated resource inventory, but other prospective and underexplored targets that could materially add to the potential production profile associated with the improved scale and processing optionality at North Parks. Taken together, these four assets are diversified across long-life, district-scale systems in Nevada, British Columbia, Nunavut, and Australia. They are all operated by high-quality counterparties and represent the foundation for further organic growth beyond 2030. I will now pass back to Sheldon for closing remarks. Sheldon Vanderkooy: Thank you, James. We had a record start to the year, and we are positioned to achieve our 2026 guidance. We saw record growth in operating cash flow per share and delivered transactions that will benefit our shareholders for decades to come. Beyond 2030, Triple Flag Precious Metals Corp. shareholders can expect significant additional GEO growth from long-life, district-scale assets, including at North Parks, Arthur, Kemess, and Hope Bay. Overall, Triple Flag Precious Metals Corp. is exceptionally well positioned to deliver long-term organic value to our shareholders from a diverse portfolio of producing and development assets. Our balance sheet remains pristine. We are debt free with over $140 million in cash and over $1 billion in available credit, providing us with substantial financial flexibility to continue pursuing accretive growth opportunities for the benefit of our shareholders. That concludes our prepared remarks. Operator, please open the floor to questions. Operator: We will now open the call for questions. If you would like to ask a question at this time, simply press star followed by the number one on your telephone keypad. Your first question comes from the line of Sam Overwater with Scotiabank. Sam, please go ahead. Sam Overwater: Good morning, everyone, and congratulations on another great quarter. Could you please walk us through an M&A and transaction outlook update—specifically the size of transactions that Triple Flag Precious Metals Corp. commonly engages, the mine life stage, the commodity, and any more information. Thank you. Sheldon Vanderkooy: Certainly, Sam. I will take that. First of all, I am very pleased that we deployed over $100 million in Q1 on very good terms. There continue to be many opportunities, and I am confident we will manage to do more in 2026. With regard to what we are looking at, it is mostly precious, mostly good jurisdictions, and a range of sizes—certainly in that $100 million to sub-$500 million range—again, generally good jurisdictions that would be attractive for our shareholders. Sam Overwater: Great, thank you. Just one more tag-on: What is the transactional outlook in Australia? Has Triple Flag Precious Metals Corp. been engaging any opportunities there? Sheldon Vanderkooy: We really like Australia, of course. It is our single highest country concentration. We are active in Australia. We are also active in many other jurisdictions around the world. Sam Overwater: Great. Thank you. That is all from me. Operator: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Our next question comes from the line of Brian MacArthur with Raymond James. Brian, please go ahead. Brian MacArthur: Good morning. My question relates to the buyback on the Gunnison agreement, and there are two parts to it. The royalty part, I think, is clear to me. But can you just go through—I thought there was a $65 million stream expansion payment. Now you are talking about a termination for $35 million. Can you update me on exactly what is left and how the stream is working these days, please? Sheldon Vanderkooy: Certainly, Brian. I will take that. The royalty buy-down option is pretty straightforward. To set the context, we wanted to provide a pathway, on a change of control, to have a lower royalty burden on the property, which we think could unlock value for all parties, and it is at an attractive price for Triple Flag Precious Metals Corp. With respect to the stream, we have an option to fund an additional $65 million and effectively almost double the stream rate. Instead of us funding $65 million to double the stream rate, they would pay $35 million to us in order to cancel that option on our part. I do not think anyone values our expansion option right now, so $35 million would be a nice win for Triple Flag Precious Metals Corp. Brian MacArthur: Right, so you would just get $35 million for that option, but the 3.5%, the 16.5%, that all stays in place. There is no change in step-downs or adjustments or anything. It is a pure payout of the option. Sheldon Vanderkooy: Exactly. It is not a reduction in our current stream at all. Brian MacArthur: Okay. Thanks very much, Sheldon. That is very clear. Sheldon Vanderkooy: Thanks, Brian. Operator: Your next question comes from the line of an analyst with Bank of America. Please go ahead. Analyst: Hi, thanks for taking my question. I just had a question on the buyback program, which has been underutilized to date. Perhaps you could comment on why there has been little activity there relative to other companies with buyback programs, and what the outlook is going forward. Sheldon Vanderkooy: Yes, thanks. We have always been opportunistic with respect to the NCIB and have shown a willingness to deploy on that from time to time. All I would say is we view our shares as being undervalued. Maybe I will stop there. Analyst: Noted. Thank you very much. Operator: There are no further questions at this time. I will now turn the call back over to Sheldon Vanderkooy for closing remarks. Sheldon Vanderkooy: Thank you, everyone. I really appreciate your attendance. It has been a fantastic start to the year, and I think it is going to be a fantastic finish to the year as well. I appreciate your time. Operator: This concludes today’s call. You may now disconnect. Unknown Speaker: Thank you. Take care.
Operator: Greetings. 2026 first quarter earnings conference call. At this time, all participants are in a listen-only mode. A 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. I would now like to turn the conference over to your host, Anne-Marie Megela. Thank you. You may begin. Anne-Marie Megela: Thank you, and thank you all for joining us today. Welcome to the Q&A session for our first quarter 2026 business update. During today's call, we may make forward-looking statements regarding our expectations for the future. These statements are based on how we see things today, and actual results may differ materially due to risks and uncertainties. Please see the cautionary statements and risk factors contained in today's earnings release and our most recent SEC filings for more information regarding these risks and uncertainties. Additionally, we may refer to non-GAAP financial measures. Please refer to today's earnings release and the non-GAAP information available on our website for a discussion of our non-GAAP financial measures and reconciliations to the comparable GAAP financial measures. Joining me today to answer your questions is our chief executive officer, Steve Cahillane, and our chief financial officer, Andre Maciel. Operator, please open the call for the first question. Operator: Thank you. 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. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Our first question comes from Peter Galbo of Bank of America. Your line is now live. Peter Thomas Galbo: Hey, good morning, everybody. Thanks for the question. Steve, I was actually hoping to start with Hold, Win, and Win Big. Just comparing what you said at CAGNY a few months ago to what you are presenting today, at least in the slides, I think there have been a few shifts of some of the platforms and/or sub-platforms. Can you touch on the decision between the different categories and some of those changes, and then as a part b to that question, whether that signals anything in terms of how you are viewing potential asset sales of different platforms? Steve Cahillane: Yes. Thanks for the question, Peter. As I said at the outset, we reserve the right to continue to get smarter, and that is what we have done as we have made some of these changes. A couple of examples: we did downgrade our Frozen from Win Big to Hold. We think that is based on what the category is showing us, what our real opportunities are, and really confronting the facts as they stand and being realistic about them. Equally, we looked at hydration and moved that from Win to Win Big. We see strong category growth. We really like our brands in this space. We really like Capri Sun and its ability to follow the cohort when young and age with them with our new hydration platform that is coming out now. So we see a real opportunity to Win Big there based on our brands and our place in the category. Equally, we have moved cheese from Hold to Win. We like the margin there. We like our brands. We like our opportunities. Those are some of the changes that we have made. I think they are all positive and they point to the fact that we are continuing to look at our portfolio, challenge our portfolio, invest in our portfolio, and look for those areas where we can grow. Peter Thomas Galbo: Great. Thank you for that. And, Andre, maybe just as a follow-up: I know the guidance is largely unchanged after what was probably a better than expected Q1. You called out some timing factors. Maybe just expand a little bit on your prepared remarks around Q2 and how you view the evolving outlook. I know you bumped that up a little bit today. Thanks very much. Andre Maciel: Good morning, Peter. Thanks for the question. We expect the second quarter to have top line between minus 3% and minus 5%. This is a consequence of the Easter shift that we have explained a few times, combined with the fact we still anticipate and expect SNAP to be a 100 bps headwind in the year starting in the second quarter. Nothing that we have seen so far indicates otherwise. We do expect to continue to see market share improving like we observed in Q1, but given softness in the category, we expect that to be a headwind in the second quarter. These will all be partially offset by continuous improvement in away-from-home business worldwide and in emerging markets. When it comes to inflation, we initially guided the year to be approximately 4%. In fact, our number implied in the outlook was a little lower than that. We are now seeing, mainly because of the conflict, inflation around energy and resins spiking up. We are well hedged in energy for the year. Resins we are hedged through mid-Q3, so I do expect, if the situation remains the same—there is still a lot of volatility out there, which can get better or even worse—that we will start to suffer the impact from that inflation in the third quarter. Operator: Our next question comes from Steve Powers with Deutsche Bank. Your line is now live. Stephen Robert Powers: Great, thanks, and good morning, everybody. Steve, if we just look at the improvement you have started to show through and exiting the first quarter, as you dig into it, are you able to parse out where there is more meaningful, true underlying progress that you think can really be momentum you can build on versus maybe some transitory impacts—areas where Easter timing or weather or what have you flattered the quarter? Is there a way to parse out what is most promising versus maybe where we should temper our thinking a bit? Steve Cahillane: Yes, Steve. Definitely, we benefited from the Easter shift—there is no question about that—and the winter storms caused some pantry loading, no doubt about that. But underlying that, we have seen real improvement in our share trajectory and performance. We said in the prepared remarks, the total business last year held or gained share in only 21% of categories. In the first quarter, that moved to 35%, and in March, that moved all the way up to 58%. If you look at our Taste Elevation, where we were investing earlier last year, that moved from 24% holding or gaining share last year all the way to 81% in the six and exited March at 87%. That is really a function of the investments that we have made, the product improvements that we have made, and the distribution that we have been able to hold or gain based on the activities we put in place. The totality of the business and the good start to the quarter can also be attributed to the fact that for the last at least sixty days, this organization has been maniacally focused on growth and execution. Pausing the split freed up lots of resources, as we said it would, and we turned our attention and the attention of this entire organization to get off to a strong start, and that is exactly what we did. So we are being very realistic about what flattered the quarter, as you said, but we also see the underlying strength that is building. That is important because that is where we are going to continue to invest, and the vast majority of our $600 million is still dry powder that is being deployed as we speak from now through the rest of the year. So we are holding guidance, but we are very encouraged by the start to the year, and we plan on continuing our maniacal focus against our consumer, our customer, and execution. Andre Maciel: And to complement a little bit with the numbers: last year, we started the year losing 90 bps of market share, mix-adjusted. That was really the bottom of the last ten years. As we started to step up investment in the second half, we were able to exit last year losing 50 to 60 bps of market share. Now, year to date, we are at 30 bps, so there is definitely good improvement happening right now, led also by hydration, as Steve mentioned, and desserts—places where we have stepped up investments in marketing and renovated the product—and we have started to show some signs of improvement. Stephen Robert Powers: Great, thank you. And, Andre, while I have you, just on free cash flow—obviously a strong quarter, but with some working capital and marketing accrual timing benefits. You have maintained the free cash flow outlook for the year, but as you think about the balance of year, 2Q through 4Q, anything to call out in terms of timing of year-to-go free cash flow? Andre Maciel: Our cash flow comp remains very strong. Think of all the changes we have done to incentives a couple years ago. We now have the organization focused on really being disciplined in deploying CapEx and managing working capital better. We are seeing that translated again in the first quarter. Because of the step-up in investments happening in the second half, we should expect cash flow potentially to go down in the second half of the year, but that is anticipated. Now, we exited the quarter with very strong cash on hand, so you will see us now in the second quarter paying down debt. We have debt maturing now in Q2, and we are strongly considering anticipating paying back part of the debt that is maturing next year. We have $1.9 billion next year again, so we are considering anticipating a portion of that as well, and there are a couple other things we are doing in terms of managing our debt tower better, which will allow us to reduce interest expense. But I think it is a good position that we put ourselves in, to allow us to invest $600 million in the business and still generate strong cash flow. Operator: Our next question comes from Michael Lavery with Piper Sandler. Your line is now live. Michael Lavery: Thank you. Good morning. Just curious how to think about the pricing environment. You have obviously started the year with plans that include price adjustments, and it looks like there are early signs in this quarter that they are in place already—that that is working. But then there are shifts in the input cost environment. Does that do anything to change how you think about your plans, or how fluid and dynamic would your pricing expectations be? Steve Cahillane: Thanks, Michael. I would say the pricing environment can be best characterized as very rational. We have come through this inflationary cycle, which was obviously unprecedented. The consumer is under a lot of pressure, and so our focus is very much on value—creating value and affordability. We have looked at opportunities to adjust pricing where we think it has gone a little too far, and you are seeing some results in that. But we will always look at the input cost environment and say our first line of defense is productivity. We are really looking to ramp up and have a top-notch productivity year this year because it is really needed since the consumer can only absorb so much price. Ideally, a business like ours would take about half of input cost inflation in price and then the rest in productivity. If we could do better than that, this is the year to do it because the consumer is under a tremendous amount of pressure. We look at it as very much our goal to be affordable and be there for our consumers in an environment like this. Andre Maciel: To complement what Steve said, in the guidance for the year, we had contemplated initially that we would price only 20% of the inflation. So this was already anticipated. To Steve's point, we are relying on another strong year of productivity. We started Q1 strong again, above 4% of COGS, and we do expect to be able to maintain that pace. Michael Lavery: That is really helpful. Related to that, I wanted to follow up on—I think it is Slide 8—you flagged a simplified operating model as part of the turnaround for the U.S. It has the Ore-Ida logo there; it could be referring to the Simplot JV. How much opportunity is there to simplify the operating model? And part of the question is, through the lens of history, knowing that cost cutting can obviously go too far, how should we think about what opportunities there are and maybe the risks, and how you think about that approach? Steve Cahillane: We made a terrific hire in bringing Nicolas Munoz to run our North American business, and he has been hard at work looking at the operating model, as have we all. We see real opportunities to have stronger accountabilities and stronger empowerment at the people who are running the business. We also see big opportunities to supplement our commercial activities and our commercial people, and we have been doing a lot of that—hiring people in sales and marketing—with a focus on the consumer and the customer and very strong objectives that are aligned around our business objectives. The chief one is growing organic sales and improving market share performance. We are simplifying everything that we do in service of the consumer and the customer and our goal to drive profitable, volume-led, value market share. Operator: Our next question comes from Chris Carey with Wells Fargo. Your line is now live. Christopher Carey: Hi. Thank you, everybody, for the question. If you think about the back half acceleration in top line that you are embedding for the year, can you unpack that a little bit across the most meaningful drivers—as it pertains to the lapping of Indonesia, the step-up that you are expecting from investments, the improvement in market share that you are expecting, perhaps some of this acceleration in Western Europe post-pricing? Give us a sense of the major contributors to the back half improvement that you would expect in the top line. Steve Cahillane: Chris, I will start and Andre can help with more details on the numbers. We are not really calling for an acceleration. We got off to a very good start, and we are being prudent about the way we think about the rest of the year. Of course, we would always like to overdeliver on our top-line goals and overdeliver on our market share objectives, but we are being prudent in the way we think about the rest of the year and not embedding the first-quarter overdelivery into our guidance for the top line. Andre Maciel: In terms of the building blocks, you mentioned Indonesia—that is certainly a contributor. In the first quarter, for example, Indonesia alone was a 70 bps headwind to top-line growth, and we do expect that to go away in the second half as we lap all the adjustments we have made in the business. Market share in the U.S., as we step up the investments, should see an improvement versus where we are today. Similarly, we feel good about our European plans and everything that we are doing behind Heinz. There is a lot of step-up investment as well as part of the €600 million that is going against Heinz in Europe. We are going to see that also helping improve performance there. And away from home, even though there is still overall softness in the category, we are now seeing signs of market share improvement in the U.S., which is quite encouraging, especially in the sauces portfolio. All of those factors should allow us to see a step-up, so there will be a balanced contribution across those levers. Christopher Carey: Thank you. It has been touched on a bit, but as you think about the inflation exposure in Q4, this is going to imply bigger exit rates going into 2027. What does the toolkit look like for you to work through a sustained higher inflation environment? There is pricing, productivity running at relatively high levels, maybe harvesting some of the investments that you have made in SG&A to protect the bottom line going into 2027. Obviously this is a fluid environment, and inflation can certainly change, but can you give us more insight on how you would be planning from a cost-offset perspective if we look out 18 months? Steve Cahillane: We would not look at our investments—the $600 million and otherwise—as a way to protect profit. In fact, we are looking at opportunities to even invest more as we see good returns against those investments and good outcomes in terms of the top line. We will protect that and, in fact, even lean into it. As we said earlier, the first line of defense is always going to be productivity. It is unknown what the fourth quarter and 2027 will bring. It could be that the whole environment moves towards needing to take more price. We cannot predict what the outcome will be in the Middle East and how that will affect costs, but it would be something that affects the entire environment. We would be looking to go with that if needed, but again, first line of defense is productivity, investing in our brands, and driving a good top-line outcome. Operator: Our next question comes from Thomas Palmer with JPMorgan. Your line is now live. Thomas Palmer: Good morning. Thanks for the question. Maybe starting on the marketing side: you noted a 37% increase in the first quarter on a year-over-year basis, also the plans for 5.5% spend. Any framing on where that level of increase in the first quarter takes you relative to that annualized percent of sales? And when we think about the magnitude of the increase, are there any timing considerations, such as having that earlier Easter impacting how that marketing spend flowed through? Lastly, any detail on where that spend has really been focused and if you are seeing, when we look at the share improvements, disproportionate spend in the areas that have inflected the most? Andre Maciel: As we said in our prepared remarks, we do expect marketing for the year to be at least 5.5% of revenue. As Steve mentioned, we have been looking very closely at how our performance is shaping up, and if things end up better than we anticipated, we will be willing to lean more into investment, with marketing being one of the key drivers. The reason why we see 37% in the first quarter—you might remember last year we stepped up marketing investment in the second half—so now you have an easier comp on the marketing front. Year over year, we are going to see that benefit gradually reducing because of the step-up in the second half. But overall in the year, we do expect at least 20% increase. In terms of where this money is going, we have been prioritizing our Win Big categories. There is a proportionate amount, started last year, that went against sauces, cream cheese, mac and cheese, and hydration. But we do have the opportunity to step up marketing across the whole portfolio. We have been gradually stepping up investments across different parts of the business to different extents, but we believe that to be healthy for the whole portfolio. Thomas Palmer: Thank you for that. On the SNAP side, you have noted expected headwinds, especially ramping this quarter. I know it is still early in the quarter. Are you already seeing signs of this incremental impact as we think about the second quarter? And just to confirm, there was not really an impact in the first quarter—I know it was not a callout. Thanks. Andre Maciel: We definitely see an impact from SNAP already happening in February and March. If you look at SNAP transactions, they are already down, in line, if not even a little more than expected. On the other hand, we saw strength in the non-SNAP households, which helped to offset that in the first quarter. It is hard to predict at this point if that strength in the non-SNAP households will hold into the remainder of the year. We are anticipating that we will start to see that net household impact more pronounced into sell-out for the year to go, and that is why we have been calling for a 100 bps headwind. Obviously, we are not sitting on the problem. That is why part of the price investment we have deployed in the $600 million was put against opening price points. This part of the consumer base is definitely under a lot of pressure. Operator: Our next question comes from Megan Klap with Morgan Stanley. Your line is now live. Megan Klap: Hi, good morning. Thanks so much. Maybe to pick up on Tom's first question on the marketing investments—and, Steve, some of the comments you have made—clearly you are seeing some benefits from things that were done prior to you making this new plan. You mentioned $600 million is still dry powder. As you see the improvements you have made in the first quarter and then some of the areas you highlighted—meats in particular—there is still opportunity. Can you talk about whether anything you have seen so far has changed how you are thinking about concentrating some of those investments, particularly as the macro continues to shift and perhaps the cost inflation outlook gets more challenging as we go into the back half? Steve Cahillane: What we have seen is good returns on the investments that we have made, and that is where we are leaning in. If you look at some of the exciting things that we have going on right now, you can follow our investment against those. For example, Power Mac & Cheese, which just came out in April—too early to see any sell-out data, but the sell-in was outstanding: 35 thousand accounts right now as we speak. I think that is a function of the commitment that we made to increase our investments substantially, which led to better distribution, and we are going to be investing against it. We anticipate a good launch there. In our varieties business, we have a nice Shapes innovation that we are investing in. The Capri Sun Hydrate that we mentioned earlier is a big opportunity to continue the momentum that was built last year on Capri Sun with new distribution and new doors there, so we are investing against that. We have a Lunchables renovation coming next month; we will be investing against that. We have seen a good turnaround in Lunchables, which started at the end of last year. In the back half of the year, Philadelphia Lactose Free is coming, which we think is a big opportunity given the number of people who suffer from lactose intolerance in the U.S., and it is a great innovation we will be investing against. The brands where we think we have a real right to win, we will be investing in. You mentioned meats—where we have things that we need to turn around, we need to make some investments there. We do not like leaky buckets, and we are going to look to plug those at the same time as we lean against our biggest and best opportunities. Megan Klap: Great, thank you. And, Andre, maybe just a quick follow-up on the gross margin performance—still down in the quarter but significantly better than what you were expecting and what the Street was modeling. I understand there were probably some fixed-cost leverage benefits on the top line, but anything else in the quarter in terms of upside versus your expectations to call out? Thanks. Andre Maciel: There is about 40 to 50 bps of gains in the quarter that are nonrecurring. A portion of that is selling excess byproducts; we do not expect that to be repeated in the year to go. There is a small contribution from a maintenance we were expected to do in a certain factory that would have required us to cut back production to a co-packer temporarily. We decided to move that to later in the summer, so that is a phasing thing. Cheese commodities came a little better than what we anticipated. We did see the peak in inflation that we expected across most of the commodities, including coffee and meats, but we had those other upsides that helped in the quarter. That is why we are also maintaining our expectation for the year of a headwind of 25 to 75 bps. Anne-Marie Megela: Perfect. Thank you. Operator, we have time for one more question. Operator: Our last question comes from Scott Marks with Jefferies. Your line is now live. Scott Marks: Hey, good morning. Thanks so much for squeezing me in here. In the interest of time, I will just ask one. Can you give us a lay of the land in terms of the away-from-home environment? I know you called out some pressures in the U.S. business. You have some clear paths to growth there. Can you help us understand what is happening both in the U.S. and abroad, and how you think about the improvements within that part of the business? Thanks. Steve Cahillane: Yes, Scott. From a macro perspective, away from home is under a fair amount of pressure based on the macroeconomic environment both in this country and around the world. Having said that, we see tremendous opportunities for us in away from home based on the strength of our brands and the opportunities in front of us, and this is one of the areas we are investing in. We see away from home as a strategic outlet and a strategic opportunity for us. We like the momentum that we are building early this year. We see a lot of opportunities both in this country and especially around the world to continue to gain share in away from home. We have one of the greatest away-from-home brands in Heinz, and we can do a lot more in leaning into Heinz—and not just in ketchup. Heinz has been successful in mayonnaise and other spreads as well. There are big opportunities for us to continue to leverage our brands, especially Heinz, as we think about the away-from-home opportunity. Operator: We have reached the end of the question and answer session. This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Greetings, and welcome to Gulfport Energy Corporation's First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Jessica Antle. Please go ahead. Jessica Antle: Thank you, Carrie, and good morning. Welcome to Gulfport Energy Corporation's first quarter 2026 earnings conference call. I am Jessica Antle, Vice President of Investor Relations. Speakers on today's call include Michael Hodges, Executive Vice President and Chief Financial Officer, and Matthew Rucker, Executive Vice President and Chief Operating Officer. I would like to remind everybody that during this conference call, the participants may make certain forward-looking statements. Actual results and future events could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we may reference non-GAAP measures. Please refer to our most recent earnings release and investor presentation for important disclosures regarding such measures, including reconciliations to the most comparable GAAP financial measures. An updated Gulfport presentation was posted yesterday evening to our website in conjunction with the earnings announcement. Please review at your leisure. At this time, I would like to turn the call over to Michael Hodges. Michael L. Hodges: Thank you, Jessica, and thank you for joining our call today. Before we begin, I would like to take a moment to welcome a new leader to Gulfport that I know many of you are already familiar with. Last evening, we announced that Nick Delazzo will be joining Gulfport as our President and Chief Executive Officer beginning May 28. Following a thorough search process, the board unanimously agreed that Nick is the right leader at the right time to propel Gulfport into its next chapter. He brings more than two decades of energy industry experience, a sharp focus on operational and financial discipline, and a proven track record of delivering value to shareholders. Nick is joining Gulfport at a time when the company has never been stronger, and we are excited to work with him to create long-term value for all stakeholders. Nick looks forward to engaging with our employees and shareholders in the coming months, and joining us to take your questions on our next quarterly call in August. With that said, we are off to a great start to 2026 at Gulfport, highlighted by the successful completion of our previously announced discretionary acreage acquisition program and a record quarter of share repurchase activity. I will share additional details on our land acquisition accomplishments a bit later, but we believe the swift and decisive actions we have taken over the past three years in the Ohio Utica have delivered significant value to the company as the demand for high-quality, low breakeven inventory across the industry continues to increase. When combining these initiatives to grow net asset value with our ability to repurchase nearly 10% of our market cap over the past two quarters at prices well below the underlying value of our business, it has been a very successful close to 2025 and start to 2026. Turning to our first quarter results, it was an especially strong kickoff to the year financially as the company generated $264 million of adjusted EBITDA and $119 million of adjusted free cash flow, driven by strong commodity pricing and the continued development of our high-quality asset base. Average production totaled 997 million cubic feet equivalent per day, which was consistent with the expectations we provided in February and keeps us on track to deliver on our previously stated full-year production guidance of 1.03 to 1.055 billion cubic feet equivalent per day. Cash operating costs for the first quarter totaled $1.38 per million cubic feet equivalent, also in line with our expectations and similar to last year. We expect this to be a quarterly high point for Gulfport as we anticipate declining per-unit cost as we move through the year. With our production cadence expected to accelerate later in 2026, the fixed charges embedded in our operating costs are expected to decline on a per-unit basis over the course of the year and land within the range of our full-year guidance. For full year 2026, we are reaffirming our per-unit operating cost guidance, which includes LOE, midstream, and taxes other than income, of $1.23 to $1.34 per Mcfe. On the capital front, we incurred a total of $118 million related to drilling and completion activity and $4 million related to maintenance, land, and seismic investment while achieving the significant operational success that Matt will address in his comments. Most importantly, and as I mentioned earlier in the call, we wrapped up our previously announced discretionary acreage program, investing approximately $102 million over the past four quarters to add more than two years of high-quality inventory adjacent to our core positions in Belmont and Monroe Counties. These acquisitions were made at an average cost of just over $2 million per net location, significantly below implied recent valuation metrics from larger inorganic transactions in the immediate area. We have focused our efforts over the past few years in the wet gas and dry gas windows of the Ohio Utica, areas that generate some of the strongest returns in our portfolio and where we can convert these locations into producing assets in short order. As a reminder, since 2022, our targeted discretionary acreage acquisitions have added over 4.5 years of high-quality net locations, enhancing the durability of our asset base and reinforcing the significant value uplift we are achieving through the execution of our ground game leasing program. We continue to monitor opportunities to further strengthen our leasehold footprint and increase our resource depth. We believe these opportunities continue to rank extremely high as we evaluate the uses of free cash flow in 2026 and beyond. Turning to the balance sheet, our financial position remains strong and we recently completed our spring borrowing base redetermination, adding 10% to elected bank commitments and reaffirming the borrowing base at $1.1 billion. Our trailing twelve-month net leverage exiting the quarter was approximately 0.9 times and, pro forma for the increase in elected commitments, at the end of the first quarter, Gulfport’s liquidity increased by $100 million and totaled $872 million, comprised of $2.9 million of cash plus $869.3 million of borrowing capacity under our revolver. We greatly appreciate the support of our bank group as we position the company to opportunistically deliver value to our shareholders, and our liquidity position is more than sufficient to fund our development needs for the foreseeable future, providing significant financial flexibility as we continue executing on our capital allocation strategy. As I mentioned earlier, with this balance sheet strength and liquidity in place, we continue to deploy capital towards shareholder returns through our share repurchase program. During the first quarter, we repurchased 866 thousand shares of common stock for approximately $172.8 million, representing the highest quarterly investment in company history and well ahead of our previously announced plans in February. As of March 31 and since the inception of the program, we have repurchased approximately 8.2 million shares of common stock, including the preferred redemption in 2025, at an average price of just over $133 per share, more than 30% below our current share price and totaling nearly $1.1 billion of capital returned to shareholders over the past four years. Over just the last two quarters alone, we have allocated over $300 million towards repurchasing what we believe to be our undervalued common stock, resulting in the retirement of nearly 10% of our shares outstanding. Given our current valuation and the strength of our underlying fundamentals, we expect share repurchases to remain an attractive capital allocation priority and plan to maintain an active repurchase program through 2026, supported by adjusted free cash flow and available revolver capacity, all while maintaining leverage at or below one times. In closing, Gulfport is delivering consistent financial results, maintaining disciplined capital allocation across asset bases, and returning significant capital to our shareholders, all while preserving flexibility to navigate market conditions and pursue value-enhancing opportunities. With a strong foundation in place, and a proven leader joining our company, we are confident in our ability to continue executing our strategy and creating durable long-term value for our shareholders. Now I will turn the call over to Matt to discuss our operational highlights for the quarter. Matthew H. Rucker: Thank you, Michael. Operationally, during the first quarter, the company completed drilling of eight gross wells, comprising of two Utica wet gas wells, four Marcellus wells, and two SCOOP Woodford wells. We entered the year with three operating drilling rigs running and, as planned, released the SCOOP rig at the end of the first quarter and currently have two rigs drilling ahead in Ohio. We plan to release one rig at the end of the second quarter, transitioning to a one-rig program in Ohio for the remainder of 2026. On the completions front, we brought five gross Utica dry gas wells online during the first quarter, including our first two U development wells, which continue to perform consistent with recently developed straight lateral offsets. Importantly, this activity has unlocked approximately one year of additional high-quality inventory that can be strategically placed in our future development plan, providing additional flexibility. Looking ahead, we have an active completion and turn-in-line schedule with approximately two-thirds of our remaining 2026 turn-in-lines expected to include a significant liquids component in their production profile. This mix highlights the company's balanced approach to developing our assets and provides exposure to dynamic market conditions, allowing us to capture value across changing commodity price environments. Lastly, I would like to compliment our team's continuous focus on operational improvements, as we delivered strong results during the quarter. In the period with our highest level of activity, the operational teams executed with zero recordable incidents or spills, underlying our commitment to safety and the environment in tandem with best-in-class operations. Our drilling team delivered an exceptional quarter, achieving incremental efficiency gains in each area of our core operations. In the Utica, we maintained our record all-in footage per day realized in 2025, and as we continue to extend lateral lengths across our asset base, we have concentrated our efforts on improving performance in the vertical section of the drilling phase to enhance overall cycle times. During the quarter, our average top-hole drilling days improved by 8% compared to full year 2025, and we set a new company record for the fastest Utica top hole drilled for Gulfport to date, completing the section in just 5.4 days. Not only did we set a single-well record, the four-well pad delivered an average top-hole record of 5.9 days per well, demonstrating the opportunity for long-lived efficiency gains. In the Marcellus, we finished drilling a four-well pad during the first quarter, and when compared to the prior two Gulfport-operated pads in the area, we delivered a 20% improvement in footage drilled per day. Lastly, and perhaps most notably, I am extremely proud of our team's performance in the SCOOP and the drilling results achieved on our recent HERO pad. On average, the team delivered the pad with a spud-to-rig-release time of approximately 40 days per well, beating our internal expectation of 55 days. These results highlight the team's ability to apply learnings from our best-in-class operations in Ohio and deliver more consistent execution in the SCOOP, where drilling is more challenging. Collectively, these results underscore the strength of our operating team's leadership and our ability to consistently deliver best-in-class execution across all of our operating areas. As we have discussed previously, the completion side of our operations has been continuing to perform at very high levels and our emphasis there remains on maintaining those efficiencies. With that consistency, we have been able to deliver our first two pad turn-in-lines of the year on time and on budget. In summary, our operational results this quarter mirror the broader performance Michael outlined—disciplined execution, continuous improvement, and a focus on creating long-term value. The consistency we are seeing across our operating areas positions us well to support Gulfport's strategy. And with Nick preparing to join our team, we are confident our operations are well aligned to support the next phase of execution and deliver durable returns over time. With that, I will turn the call back over to the operator to open the call up for questions. Operator: Thank you. We will now be conducting a question and answer session. We will now open the call for questions. Our first question will come from Neal Dingmann with William Blair. Neal Dingmann: Good morning, all. Michael and Matt, thanks for the details. My first question is probably for you, Michael. It is on capital allocation. Specifically, how do you all think about allocating for further discretionary acreage—which, again, the stuff you have done seems to have fantastic upside—versus your stock buybacks, where you have been very active? And maybe add one more twist to this: in a quarter like the one we are in now, which is probably your lowest free cash flow quarter of the year, would you consider using debt to do either of those if the opportunity existed? Michael L. Hodges: Hey, Neal. Thanks for the question. I think it is an excellent one. Our approach has been consistent over the last few years—it has been to capture as many of those high-quality locations as we can. The opportunity set there has been available to us, and we think those generate some of the highest returns when you can drill those in the near term. That has been a priority for us and continues to be a priority. We believe there is still more running room there, and we will likely update the market a little later in the year on what that looks like for the rest of the year. I would say that has consistently been a high priority. We think the equity is still undervalued; it has been a good opportunity for us to get that back at what we think are attractive prices. So I would say it is a combination of the two. The health of the balance sheet allows us that flexibility, as you pointed out, to lean on that a little bit in quarters where we may have a little bit less free cash flow. As we go into the second quarter, we do still have quite an active development program that Matt talked about. If we see opportunities to use the revolver to get some equity back at a good value, we would consider doing that. Our approach has been dynamic; we have stayed away from formulaic approaches, and that has worked well for us. I would summarize it by saying it is a combination of all of them, and it is something we evaluate continuously. The priority around locations over the last few years has been a strategically advantageous move for us, and we think others are starting to follow along more closely with that. We will keep you updated as we have more details, but that will continue to be one of the highest priorities. Neal Dingmann: Great to hear. Your inventory sort of speaks for itself now. Secondly, on marketing—you talked about optimizing the marketing strategy. How has that evolved, and how are you thinking about that strategy? Do you have any constraints if you wanted to crank up production—thinking more about takeaway—if you wanted to expand production? Michael L. Hodges: It is a good question, Neal. There are really not any constraints around that. We have a very strong firm transportation portfolio that gives us good access to various locations, and that has been an advantage over the last few years. We have Gulf Coast access that gives us LNG-type pricing. We have Midwest exposure that we think is advantaged, certainly in the seasonal periods—the winter season tends to trade very well. We are able to sell gas locally as well. There is a lot of excitement around data center demand, and, as we talked about on the last call, there is some improving outlook for prices even in the Northeast. So no constraints around being able to sell additional gas. We are always thinking about maximizing free cash flow, and so far we feel like the right way to do that has been to keep our production relatively flat. Certainly, if there were a signal that would be rewarded—or an opportunity to move the needle from a pricing perspective—it is something we could consider. But the strategy has been very successful the last few years and, at least at this point, makes sense for our company. There are no constraints around midstream or downstream markets that would keep us from considering that type of option. Operator: And our next question will come from Zach Parham with JPMorgan. Benjamin Zachary Parham: Yes. First off, congrats on Nick joining the team. I think that is a great hire. My first question for Matt—you talked a lot about drilling gains in both the SCOOP and in Appalachia. Could you unpack that a little bit more? Where do you think we are in the evolution of those drilling gains, and what is the runway in front of you to continue to shave days and hours off? Matthew H. Rucker: Yes, sure. Thanks, Zach. I would categorize that as kind of the sixth inning, if you will, in a baseball analogy. We have talked for a while about our completion side of the business achieving things like 22-hour pumping days, and obviously there are only 24 hours in a day, so it is really about maintaining efficiency there. We have talked a lot about the drilling side and the opportunity set in front of us. This quarter demonstrates that focus that the team has had and the ability for us to keep chipping away at that. What I am most proud of is hitting that in all three core areas and finding those gains. In the Utica, where we have been operating for a long time, outside the curve and lateral we are finding opportunities in the top-hole section of the wells, which are incremental days you can gain back. The Marcellus is relatively new to us as a company, but not to our operating team, and just now on our third pad there, we have been able to see that 50% increase even with the longest laterals that we have drilled in that play to date. Then in the SCOOP, being able to achieve roughly 40-day cycle times in a pretty challenging environment speaks to us becoming a more consistent program in that asset where we feel more comfortable continuing to deploy capital. I think there is more room to go, to be fair, but we have made great headway heading into 2026 where that has been a key focus area for us. Benjamin Zachary Parham: And my follow-up—are you seeing any inflation on service prices at this point? There has been some volatility in the commodity, but we have seen some modest activity adds, and some service providers think there is more coming—maybe not so much in Appalachia, but in other parts of the U.S. What are you seeing? Matthew H. Rucker: We are certainly seeing it around diesel. That is not only straight fuel price, but it can bleed into logistics and trucking as well. I would say that is where we are seeing the biggest move. A lot of our heavy service contracts around pressure pumping, rigs, and things like that, we do a good job of locking in for the year ahead or being constructive around that. So no real impact to the capital—we are not changing guidance. Some of these efficiencies we have talked about could help offset those recent impacts around diesel. We try to mitigate those things by maintaining and improving our efficiencies and continuing to work with our service providers in this challenging fuel environment. All in all, I would say we are kind of net neutral at this point, but keeping an eye on it and working with our providers as the year progresses. Operator: We will hear next from Tim Rezvan with KeyBanc Capital Markets. Timothy A. Rezvan: Good morning, folks. Thank you for taking our questions. Mike, I want to start on repurchases. You gave specific targets the last two quarters—I know you exceeded it in the first quarter. You did not give one going forward. You used more ambiguous language about it being an attractive use of capital, and we are looking at the first quarter, which was about half of the total for 2025. Should we think about 100% of free cash flow and land there in the ballpark for this year? And is there a reason you did not put a number now and why you did put a number the last couple of quarters? Michael L. Hodges: Hey, Tim. Thanks for the question. If you think back to the fourth and first quarters: in the fourth quarter, we had some CapEx where we were doing appraisal work and had some acceleration of capital. There was logic around giving a target to ensure the Street understood that we were not borrowing against what we had otherwise allocated to share repurchases—that the accelerated capital was in addition to that. That was the thought process there. We got into the first quarter, saw some opportunity in the equity, and also had the wrap-up of our discretionary acreage program. Those were the quarters where we gave more of a target, and as you noted, we ended up exceeding it in the first quarter because we saw some opportunities with a block we were able to pick up and changes in what we felt like the underlying value versus the opportunity to buy at was. Going forward for the rest of the year, we will be more consistent with what we have done the last four years—think about things on a full-year basis, not marry ourselves to a formula, and be dynamic. We will not allocate quarter by quarter; we think about it annually. The balance sheet, at nine-tenths of a turn, gives us some opportunity with a lot of free cash flow coming later this year. We have a lot of liquids development coming up, and we see the environment for liquids as pretty positive right now. I do not think we will allocate all in the later part of the year; we will see what near-term cash flows look like—second quarter, third quarter, even into fourth quarter—see where the equity trades, and allocate accordingly. I understand it is a little bit ambiguous—it is intentionally that way because we want to be dynamic—but we do see a lot of value and plan to continue the repurchase activity. Timothy A. Rezvan: Okay. That makes sense. As a follow-up on liquids—you put a bar chart in your deck showing the increase in liquids skew. Can you help us ballpark that? Is that like a 15% exit rate or back-half liquids skew? You were at 9% liquids in the first quarter. Should we assume you are going to lean in and maybe be at a 15% plus level going forward? Michael L. Hodges: I think the nice thing is we have the option to make those changes. Thinking back a few years ago when Matt and I joined, Gulfport did not have that flexibility in the program. Now those things are available to us. You are right—we will become a little more liquids heavy as the year progresses. We have a couple of wet gas Utica pads coming up, some Marcellus development, and our SCOOP, which has the liquids component. There is a fair amount of liquids coming online for us at a very opportune time. As we go into 2027, we can make those decisions as well. In terms of being 15% liquids—we are a gas company with a mature asset base, so moving that needle to that level may be a bit ambitious. But I do think as we go through the year, you will see us get to more of a low-teens liquids percentage, with the opportunity over time to take that even higher. For this year, back-half weighted, call it low teens, and then we will assess where we want to go for 2027. Operator: Our next question will come from Carlos Escalante with Wolfe Research. Carlos Escalante: Hey, good morning to you. Thank you for taking our question. Matt, on the North Marcellus pad or appraisal that you are drilling later this year, can you outline this for us? What is the gross resource that the well spud is testing for, and what is the EUR you need to see to justify a programmatic Marcellus North development versus considering maybe a one-off? I know that there is some production from one of your competitors up there that looks good, but wondering if you see anything particular in your specific area. Matthew H. Rucker: Sure, Carlos. Thanks for the question. I would bracket that there is not as much delineation for us. When we think about the types of EURs and deliverability we will see there, we approximate it very similarly to our Marcellus South. Quite simply, for us it is a new pocket of development without an infrastructure component at the moment with a third party. We are going in with a two-well approach—one north, one south—to confirm our assumptions and make sure the liquid percentage—both NGLs and oil—and composition are understood so that we can then go to our potential midstream providers to get the best economic outcome for that block of acreage. There is nothing specific we need to see to pull the trigger; it is more about confirming our type curve from a liquids-weighting perspective and then immediately going into contract negotiations with a midstream and processing provider to unlock that development with good economic parameters. Carlos Escalante: Thank you. That is very helpful. A quick follow-up for Mike on hedges. You are targeting roughly 30% to 40% hedge coverage in 2027. Presumably you would start to work on that in the near term. At what NYMEX level do you accelerate that or contract that? Is there a floor below which you choose to stay unhedged on the view that the curve is too low? Michael L. Hodges: It is a good question, Carlos. On the hedging side, we try to remain flexible. Your observation on where we sit for 2027—we have talked previously that we like to be in the 30% to 70% range as we enter a year. We are near the lower end of that if you think about 2027. We have six or seven months left here in 2026. We are pretty bullish on gas going into next year. The volatility earlier this year, and what some of our peers have talked about, indicates there will be opportunities to create value through the hedge program. We like that we have that baseline amount in place already for 2027. From here, we can nibble when there are opportunities. I do not feel like we have to go do anything in the near term unless we see those opportunities, and typically this time of year is not where you get a lot of them. As we get into next year, we will continue to adjust. There have been years where we are a little more bearish and at the higher end of the range, and years where we are more bullish. Right now, we are a little on the bullish side, so we may keep that a little bit lower, but it will be a dynamic process as we continue to assess what 2027 looks like. Operator: We will go next to Jacob Roberts with TPH. Jacob Phillip Roberts: Good morning. I wanted to start on the SCOOP. Obviously, decent results there. You have said in the past that the SCOOP was competitive with your Northeast assets, and the implication here is that it has become even more competitive. What do you need to see in the market to allocate a more meaningful amount of capital to that asset, and where do you see this asset participating in that growth scenario you spoke about if the market calls for it? Matthew H. Rucker: Thanks for the question, Jake. I will start and Michael can add his comments. The results on the drilling side are a great step in the right direction for us. We have talked about the last couple of years really being about finding operational execution consistency in the SCOOP. If we are able to get those drilling days to 40, sub-40, and do it consistently and repeatably, it gives us a lot more confidence in that asset if the time calls for us to flex activity there. On a single-well IRR basis, it competes in our portfolio. When you blend that in, it is still a capital-intensive asset with longer cycle times, and we are very mindful of that when we think about our calendar-year cadence and what that does for the company. For this year, we will get these wells completed and turned to sales later in 2Q, evaluate those results, and then it will be part of our program going forward. To the extent we flex more into that in later years, we will always be looking at that within our overall capital allocation program. It is really about seeing that consistency every time we go to drill. With this one being the best we have done so far, we would like to see that again before we make any radical changes. Jacob Phillip Roberts: Thank you. That is helpful. As a follow-up, on liquids hedging—I saw you added some swaps in addition to the collars on the oil side during 2027, as well as some propane swaps for 2027. What is the thinking there, and should we expect that number to move higher throughout this year? Michael L. Hodges: Great observation, Jake. That market improved in the last couple of months, and we really did not have a lot in place for that component of our revenue stream. We saw an opportunity to put a position in. As I mentioned earlier, we like to be in that 30% to 70% range, so we layered those in. That is an area where you have to monitor geopolitical events and decide whether they get resolved in the near term or longer term. We are not going to try to get too cute with it. If there are opportunities where we can capture a little more value, we could do that, but we made some good progress looking out into next year at prices that are very attractive based on where we have seen realizations for both WTI and NGLs. We will assess our program for 2027. To the extent that we want to continue to lean in on the liquids side, we have unhedged barrels that you can always shift around, and that is a way of adjusting your hedge percentages through your own activity. We will continue to monitor this as we think about the right blend for 2027. Operator: Moving next to Peyton Dorne with UBS. Peyton Rogers Dorne: First question on my end, maybe for Mike. Gas pricing was really strong in the first quarter. Could you provide some color on how you see differentials trending in 2Q and as we progress into the summer months? Michael L. Hodges: Hey, Peyton. Thanks for the question. I want to give a pat on the back to our marketing team. A number of operators in the Northeast saw opportunities with the setup going into February and captured some of the first-of-the-month pricing. Our team did an excellent job there, which led to some outstanding differentials and overall realizations for the quarter. That is something we work on consistently. It does not get a lot of airtime because it is a routine process here. Looking forward, we are still bullish on differentials overall. We talked about this on the last call, and some of our peers are starting to talk about it as well: a lot of the demand we are seeing coming in the Northeast—specifically around data centers and power demand—seems to be lifting the long-term view on basis in the Northeast. It is an important component of our differential. We have exposure to the Gulf Coast and the Midwest, but still do have some Northeastern exposure that we think is only going to rise going forward. Our full-year guide on differentials is still appropriate. I think there is opportunity for some improvement as we go into later years—2027/2028—as some of that demand starts to show up. Those are meaningful to our company. Even a $0.05 move in differentials can be important to free cash flow and EBITDA. We are set up well for the year and feel bullish about where things are headed in the future. Peyton Rogers Dorne: Great, thanks. Just to go back to the Valerie pad in the Marcellus—it was nice to see the drilling efficiencies you obtained there. I know you changed the completion design a bit in the Marcellus when you went from the Hendershot pad to the Yankee pad and targeted the formation a bit differently too. How did you attack Valerie, and what learnings did you incorporate from Hendershot and Yankee into this most recent pad? Matthew H. Rucker: Some of the completion design testing you spoke of was around the Hendershot being a two-well, one-in-each-direction unbounded delineation test initially. The Yankee four-well pad was more of a true development on our spacing. We learned a lot from that and landed our spacing assumptions where we wanted them. The designs around the Valerie are more about optimizing economics—well spacing and how much sand and water you need to effectively drain the wellbore. We took those learnings and applied them here to look at the best economic outcome. On this pad, that is what we did. With the ability to have four wells, we did a bit of incremental testing on two of the inter-laterals as well—minor tweaks to continue to get more economically efficient. More to come there, but that is the evolution of what we have been doing. Peyton Rogers Dorne: Sounds great. Look forward to seeing those. Thanks a lot. Michael L. Hodges: Thanks, Peyton. Operator: We will go next to Gabe Daoud with Truist. Gabe Daoud: Thanks, operator. Good morning, everyone. Thanks for the time and congrats on bringing Nick aboard. Mike, on the back of your comments around in-basin pricing improving later this decade, are there any transport agreements that could be rolling in that period that you would let roll to provide a tailwind to the cost structure and margins? Michael L. Hodges: It is a good question, Gabe. We are always assessing what we have. There are always smaller pieces within the portfolio that are not as critical and that you consider letting go from time to time, which can help a little bit. There are also opportunities to optimize your book and offload some of those on a shorter-term basis to other operators that need space. As basis improves in the Northeast, there are probably more netback decisions you can make around your firm portfolio and whether it makes sense to hold all of it. From a strategic perspective, we feel really good about the diversity we have and the exposure to different basins. I would not forecast making significant changes. Having exposure in the Midwest and at the Gulf Coast—and even the diversity from a risk mitigation perspective—makes a lot of sense. You may see some small improvements on the cost structure within the portfolio around our Northeastern position, but nothing I would describe as a wholesale strategic shift for Gulfport at this point. Gabe Daoud: Got it. Thanks, Mike. That is helpful and makes sense. David Adam Deckelbaum: As a follow-up, your discretionary land program has been pretty successful over the last several years extending inventory life. How should we think about that program for 2026 and moving forward? Michael L. Hodges: I am glad you asked, David. It really has been a big part of our success over the last few years. We are in the process right now of formulating our thoughts around it. We like to have a very clear path when we come out and talk about it. We think there continue to be some exciting opportunities around the basin. It is typically something we talk about around midyear. Our next call is likely to be in August. Over the last few years, we have done somewhere between $50 million and $100 million of discretionary acreage programs annually. To the extent that we have been successful—and we have—we like that allocation of capital. I think there is a strong likelihood we will have something to talk about midyear that is a pretty exciting opportunity to capture more land this year. It is not unlimited—you have to be smart about it. There are areas where we can find locations that move into the near-term development plan, which is what enhances the economics the most. It is not a carpet-bombing exercise; it is us going out and making sure we have that line of sight before we allocate the dollars. We will talk about it more later this year, but you can probably sense in my tone that I am pretty excited about what we will have to share later on. David Adam Deckelbaum: For sure. Thanks, Mike. Great color—really appreciate it. Gabe Daoud: Great. Operator: This now concludes our question and answer session. I would like to turn the floor back over to Michael Hodges for closing comments. Michael L. Hodges: Thank you, operator, and thanks to everyone for taking the time to join the call today. Should you have any questions, please do not hesitate to reach out to our Investor Relations team. This concludes our call. Thank you and have a great day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Good morning, and thank you for attending Unifi, Inc.'s Third Quarter Fiscal 2026 Earnings Conference Call. During this call, management will be referencing a web presentation that can be found in the Investor Relations section of unify.com. Please familiarize yourself with page two of that slide deck for cautionary statements and non-GAAP measures. Today's conference is being recorded, and all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Our speakers are listed on page three of today's presentation and include Albert P. Carey, Edmund M. Ingle, and Andrew J. Eaker. I will now turn the call over to Albert P. Carey. Please turn to page four of the presentation. Albert P. Carey: Thank you. Good morning, everyone, and thanks for joining our call. We are pleased to report that our yearlong effort to reduce our cost base and improve cash generation is providing results. As a matter of fact, we are a bit ahead of expectations for Q3. Andrew is going to take you through the full story in a few minutes, but here are the three top headlines. The Madison plant closure is complete. Number two, the much improved efficiencies in our current plant. And three, we have optimized our product lines and SKUs so that we do not have products that contribute no profitability to our lineup. These actions set us up for improved profitability, especially as revenue begins to pick up and we are able to see higher levels of capacity utilization. There was one area that did not see a reduction in cost over the last 12 months, and that was the work that we are doing on product innovation. These products will provide revenue growth for the future, so they are very important. We have begun to get traction with our customers on these products, and that will move us into a very important priority right now, which is to begin to commercialize these innovations. The innovations are, first, textile-to-textile recycling, second, products for categories that are outside of apparel and provide higher profitability, and third, products with performance benefits that customers and consumers are looking for. Now Edmund is going to take you through the full story on that in just a minute. The textile industry still has plenty of headwinds, especially as our customers navigate around the tariff complexities and the oil prices. We believe those headwinds will diminish and our profits will improve even in the current environment that we are in right now. I would like to say one last thing and turn it over to Edmund. We are very proud of our team, the executives, the managers, and the front employees as well. Over the last 12 to 15 months, it has been a rough road. But the team has worked through the challenges collaboratively. There really is a special resiliency about the people from Unifi, Inc., and their loyalty has been very evident throughout this entire time frame. So we are grateful for their big efforts over the last several months, and we are looking forward to returning to growth. So now I would like to turn the call over to Edmund and Andrew who will provide you with the full story. Thank you. Edmund M. Ingle: Thanks, Al. And, as Al just noted, this really was a stronger quarter for Unifi, Inc., and it clearly highlights the benefits of the actions we have taken to realign our cost structure, optimize our operations, and improve the conversion margins through portfolio management and, of course, targeted pricing that Al has inferred. We have kept our inventories flat. Spend was managed with discipline, and the margin improvement that you see in the numbers in part reflects this strong operational progress. We are a significantly more resilient business today, and despite geopolitical headwinds, we have managed our balance sheet very effectively. Structural changes to our customer contracts, combined with faster commercial decision-making, have positioned us well to be able to respond more proactively to today's market conditions. I am going to turn the call over to Andrew now to walk you through the financial details for the quarter, and then I will come back shortly to discuss our near-term priorities, our innovation progress, and what lies ahead for Unifi, Inc. Andrew? Andrew J. Eaker: Thank you, Eddie, and good day, everyone. I will start off by discussing our consolidated financial highlights for the quarter on slide four. Consolidated net sales for the quarter were in line with our expectations, down 11% year-over-year but up 7% sequentially. Our markets continue to be impacted by geopolitical events, as well as trade- and tariff-related uncertainties. Consolidated gross profit was 9.1 million dollars, and gross margin was 7% during the period compared to a gross loss of 400 thousand dollars and gross margin of negative 0.3% for the prior-year period. SG&A was 11.2 million dollars during the quarter, a 9% improvement from one year ago, while adjusted EBITDA during the period was 4 million dollars, a nearly 9 million dollar improvement on a year-over-year basis. These stronger results during the quarter, as Eddie and Al mentioned, reflect serious operational improvements, both on the cost and efficiency side, that we have implemented over the last several quarters now translating into real results. Turning now to slide five. In the Americas, net sales were down 16%, as the region continues to face volume headwinds. Despite the lower sales during the quarter, we did generate gross profit of 3.6 million dollars in that segment. This is the first time we have been able to deliver positive gross profit in the Americas for some time now, which further highlights the benefits of footprint consolidation and cost actions we have taken to improve our domestic operational efficiency. Slide six displays our Brazil segment, which saw net sales increase by 1 million dollars and gross profit decline just slightly by 200 thousand dollars. Overall, the performance in Brazil during the period was solid due to a particularly strong March with both volume and pricing contributing. This March for Brazil was our best sales volume month on record because of cost and price dynamics where the scales tipped in our favor. While this dynamic may normalize soon, we expect to see robust results in the fourth quarter for Brazil. On slide seven, our Asia segment net sales and gross profit declined to 22.6 million dollars and 2.7 million dollars respectively, primarily due to lower sales volumes associated with the tariff uncertainties and pricing dynamics in the region. Margins have continued to hold up well in Asia given the asset-light model we employ there, and we did see some momentum in the region improve during March that we are hopeful will continue. Slide eight outlines our improving balance sheet and capital structure. During the third quarter, we generated 7.2 million dollars of free cash flow, bringing year-to-date free cash flow to 20.5 million dollars. The positive free cash flow in the third quarter was a major beat against our expectations, as we were originally anticipating that we would experience some cash burn during this quarter. But thanks to our operational improvements and diligence, we experienced a nice increase in cash flow generation. CapEx for the quarter came in at just 800 thousand dollars, and our CapEx on a year-to-date basis was 3.9 million dollars, a 50% decline compared to the prior-year period as we continue to closely manage all spending. Net debt was reduced to 68 million dollars, a stark improvement from recent levels, and our working capital remains balanced, healthy, and lower due to our leaner operations in the U.S. This significant improvement to our balance sheet and capital structure was directly attributable to the hard work that our whole team has executed across the globe over the last few years. We aligned our cost, consolidated our footprint, and drove improved efficiencies, all of which have helped us establish a more efficient manufacturing base in the U.S. Looking at the fourth quarter, we do anticipate a moderate increase in working capital to accommodate a modest increase in sales and the higher-cost raw materials purchased thus far. We estimate between 4 million and 7 million dollars of working capital impact to the fourth quarter, which will obviously fluctuate in terms of amount and duration based on current geopolitical events. This concludes my financial review, and I will now pass the call back to Eddie. Edmund M. Ingle: Thank you, Adrian. And as you have just heard from Andrew in quite a amount of detail, we are continuing to see the benefits of our operational improvements and the business is demonstrating improved resilience and flexibility in what I would consider an ever-changing business environment. So let us turn to slide nine for an overview of our priorities going forward. As we look ahead, our focus continues to remain on returning Unifi, Inc. to long-term growth and enhanced profitability. In order to achieve this goal, we are keeping our efforts focused on four key areas. First, we will continue to build on the operational improvements that we have implemented and ensure we do not lose any of the enhancements to the business that we have made. At the same time, we will continue to invest in our capabilities and technologies and reinforce and scale our platform of sustainable solutions. Next, we have a culture built around innovation, and as Al mentioned, we have not given up on those efforts. In new product developments, we will continue to invest in resources necessary to advance the customer adoption of our innovative solutions to support future growth. And finally, we are focused on making sure we do everything we can to navigate the current trade and geopolitical environment that is creating some challenges for us. We are also maintaining a sharp focus on positioning the business to drive more consistent top-line growth as some of these global economic headwinds subside. It is good to see some momentum in a number of our innovative initiatives, especially in the U.S., with what we have called Beyond Apparel. You have heard us talk a lot about the potential we are seeing for our Beyond Apparel business, and while Q3 was still a work in progress, we are seeing real commercial success in Q4. Moving on to slide 10. A key highlight for the last quarter was the global launch of Luxel, a new yarn technology that delivers the look and feel of linen while adding performance benefits like moisture management, wrinkle resistance, and odor control. It is made with REPREVE recycled polyester, including a minimum of 30% textile-to-textile recycled content with our REPREVE Take Back. Luxelle is designed to help brands reduce environmental impact while maintaining the look and feel of linen with easy care. The innovation can be used in a wide range of applications from footwear, apparel, and home goods. And Luxelle is just another example of how we at Unifi, Inc. have continued to develop yarn technologies that can replicate the performance of natural fibers and enhance the technical performance beyond what nature can actually provide. And in our military and tactical markets, much of the success we are seeing is centered around our Fortisyn brand. We are seeing success here because we offer enhanced strength nylon yarns, natural white, all with color embedded into the yarns, and in addition, these products can be made with REPREVE nylon as the base polymer. These advancements that we have made in this market, with the performance promise backed up by Unifi, Inc.'s quality systems, alongside a sustainable offering, are finally starting to move into the serious commercialization stage. So alongside the Beyond Apparel growth of military and tactical, carpeting is getting more traction. Packaging has continued to perform well, with volumes growing in both these markets too. We expect to see further growth in the periods ahead. In Asia, we are beginning to see more activity in both REPREVE Take Back, our textile-to-textile fiber platform, and Thermal Loop, our innovative circular insulation product. In a couple of quarters, I expect to be able to discuss openly which additional brands and retailers have been adopting these offerings once they themselves go public. Turning to slide 11. In February, we released fiscal year 2025 sustainability snapshot highlighting progress in scaling our REPREVE recycled materials platform and advancing sustainable manufacturing. We announced a new goal to recycle 65 billion plastic bottles by 2030, and updated our other established goals, such as converting the equivalent of 1.5 billion T-shirts worth of textile waste into REPREVE products. The sustainability snapshot, as we call it, really helps telegraph to the brands and retailers how serious we are about helping them meet their sustainability targets and, of course, how committed we are at Unifi, Inc. to product innovation and building out our already substantial sustainable product portfolio. Turning to slide 12. In April, which is recognized globally as Earth Month, we celebrated our partners through our Champions of Sustainability program, announcing the winners of our ninth annual REPREVE Champions of Sustainability Awards, recognizing brands and mills who are advancing circularity and responsible manufacturing across the textile industry. This year's program introduced new textile waste awards to spotlight partners accelerating circular solutions, reinforcing our commitment to scaling recycled and traceable materials globally. And since the event was held in our main U.S. manufacturing location in Yadkinville, North Carolina, it gave those who attended a view into the production of REPREVE Take Back and the process. Moving to slide 13 for an overview of our outlook and how we anticipate sustaining our financial momentum. For the fourth quarter, we expect to see our Brazil segment benefit financially from the supply chain dynamics that currently exist in the market, and we will be able to leverage the long supply chain to our advantage in the coming months. In the Asia segment, there is an expectation that we will see increased adoption resulting in revenues from our technologies and circular solutions. The Americas segment should improve in terms of volumes and revenues, primarily from pricing actions and our value-added Beyond Apparel portfolio. However, we are still facing some demand challenges with our underlying business, specifically in Central America. To wrap up, we are encouraged by the progress that we have made, which is now being reflected in our financial results. Our business is in a stronger position today than it has been in some time, and we are continuing to remain focused on ensuring that our operational enhancements translate into sustained financial improvements that will help create value for our shareholders. And before I hand the call over to the operator, I would like to acknowledge that the improvements to the business were a team effort, and I want to take the opportunity to thank each of the teams in the regional businesses for their hard work and efforts. With that, let us open the line for questions. Operator? Operator: We will now begin the question-and-answer session. To withdraw your question, press 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 while we compile the Q&A roster. Your question comes from the line of Anthony Lebiedzinski with Sidoti. Your line is open. Please go ahead. Analyst: Good morning, everyone, and thanks for taking the questions, and yes, certainly nice to see the improvement in the earnings results and also the pretty good cash flow in the quarter as well. So first, just can you talk about pricing versus unit volumes in Q3 and how that might change in the fourth quarter here given the increased input costs and some of the supply chain dynamics? I think Brazil is probably the one where you would probably see the most in terms of pricing actions, but just wondering if you could comment on the quarter that you just reported, plus also give some more details about the pricing and volume dynamics that you may anticipate here in the fourth quarter? Andrew J. Eaker: Sure, Anthony. It is Andrew. A bit of a mixed bag. I will try to go slow on some of that and ask Eddie to help as well. But if we start from a year-over-year perspective, we have the majority of decline in the Americas is volume-based. There is some price and mix in there, but predominantly volume. When we look at Brazil, their year-over-year was predominantly price movement—again, Q3 versus Q3—that was based on a lot of the competitive activity, lower prices coming from imported product. And third, in Asia, year-over-year, we did have a larger pricing impact versus volume impact as well. So now when we look sequentially, Q3 to Q4, like you asked, we do see generally flat volumes in the Americas but certainly some pricing as we have had to make some responsive pricing actions given the movement in petrochemical markets. In Brazil, we will also see meaningful pricing increase, but also a bit of volume. And in Asia, we see a mix of volume and price there, again partly with petrochemical-related inflation and partly with some of the recovery that we mentioned beginning with the month of March in Asia headed into Q4. And I will ask Eddie to add on any more there. Edmund M. Ingle: Yes, he has covered most of it. I just want to add one specific thing around the velocity of the pricing. We are in a situation today where more of our pricing is order-to-order and not index like it had been in the past. So we are able to react more responsibly. We are being careful, of course, to talk to customers and be responsible suppliers. But because of the nature of the raw materials and the speed at which they have increased, we have had to react faster than we normally do. So during the fourth quarter, especially by the time we exit, we expect to be caught up on any raw material increases, unfortunately, that we have to pass on. Analyst: Got it. Thank you both. So just to clarify, you expect the pricing actions to essentially fully offset any of the cost headwinds that you are seeing at the moment, right? Edmund M. Ingle: I think there will be a little bit of lag in the U.S., but primarily most of the cost increases will be passed on as we move through this quarter, and we are seeing that already. Analyst: Got it. Okay. Thanks for clarifying that, Eddie. And then, in terms of the Asia segment, you highlighted that you expect improved adoption of innovative and sustainable platforms. Can you give some additional details in regards to that? And then as far as some of the new products that you have talked about, which one do you think has the most potential to make a difference in terms of the sales contributions? Edmund M. Ingle: Yes. Here in the U.S. on the Beyond Apparel, in Q4, we are expecting to see about a 2 million dollar uplift in the quarter from these Beyond Apparel initiatives, which is primarily from our military and tactical Fortisyn programs, our carpeting business, and also the packaging business that we have. These are all margin-accretive opportunities for us, and we are—especially on the Fortisyn product—we spent a lot of time. We talked a lot about this on the calls. It takes a long time to get traction, primarily because it is just such a technically difficult product to make, and then of course the customers are very sensitive to make sure that if they do make a switch, that they are switching to a product that can sustain itself and give them the advantages that we have described to them. We are at the point now where we are getting adoption, and I am very excited about that. I think the volumes potentially, overall for the whole market, will increase because of what is happening with Iran. But overall, we are certainly very positive about that market and where it can bring us in the next few quarters, but specifically in this quarter. It is not going to be huge, but we have got commercial programs that we did not have just a quarter ago. And then in Asia, it is a mixture of our Thermal Loop—which most of the insulated jackets are made actually in Asia, so we do not expect to see any of that here in the Americas—and we are starting to get traction. This is the season to make insulation for the fall jacket sales. We have good programs there. We have good programs in our REPREVE Take Back, which is our textile-to-textile, and also our technologies such as TruTemp 365 and SolveJek; they are also starting to create traction. So our revenues in Q4 will be up in Asia, primarily driven by our technologies. And in Brazil, they actually have increased the ratio of value-added sales, which is in part why the revenues will go up. Analyst: Thanks so much for all that color. This is more of a longer-term, bigger-picture kind of question. As we look at the Americas, it is your very asset-heavy segment where you have taken out a lot of fixed costs. So even with lower revenue, you were able to generate much better gross profit here in Q3. As the segment recovers at some point, how should investors think about gross margin potential here in this segment with better revenue that you may see at some point? Andrew J. Eaker: Sure, Anthony. I will start that and ask Eddie to add any. We are certainly proud of what was achieved in this third quarter, again beating expectations on what the team was able to accomplish in terms of getting cash back, cost out, and improving efficiencies in the facilities that remain. From a long-term perspective, we certainly want to get back to some of those better levels that were in the around 10 years ago. Those margin levels were certainly healthy in the Americas, and with a lot of what Eddie has outlined in terms of new programs, new customer penetration, and continued efficiencies and cost management in the Americas, we do see that as a relevant goal and an achievable goal when those catalysts do hit. Edmund M. Ingle: Yes. I just want to add, we are very, very careful about our spend—more than we ever have been before—and it is across every part of the organization. It is a new mindset. All we need is a little bit of volume to really get those margins that Andrew was talking about. We still expect it to come back, especially in Central America. We are getting the bright signals, but we are still just waiting patiently. While we are waiting, we still believe we can manage our spend relative to the revenues that we have to continue to give us positive profit in the Americas. Albert P. Carey: Anthony, this is Al. I would add one thing to the Central America business. In many conversations with customers, all indications are they are going to use Central America for near-shoring because it is a good option for them to not be so dependent on China, and it is also a good option for close-in supply chain. We are just waiting. I think what is happening in the sourcing organizations of these companies is they are trying to determine, with the tariffs changing so much, is it a better deal to buy from the U.S.? Is it better to ship from China to Vietnam over to the Americas? It is going to happen, but it has just been very confusing. We are waiting for it to happen. All indications are it will happen. Analyst: Understood. Thanks for all that color. And somewhat of a similar question in regards to Brazil. Obviously, the near-term picture looks bright there, but just looking back over the last few years, there has been quite a lot of volatility in the Brazil segment in terms of sales and gross margins. Maybe if you guys could talk about what is different now, other than the supply chain dynamics, and how should we think about the longer-term opportunities and challenges beyond the current quarter? Edmund M. Ingle: Thanks for the question, Anthony. The market is still continuing to grow because of the population and because of the general economy down there. We are the only large player down in that market. We have talked about the dumping that has been going on from Asia into Brazil. With this higher-cost dynamic, we are advantaged a little bit. So we do expect our margins to become a little bit more stabilized. Like we have said on this call, Q4 should be pretty strong, and going forward, we should get back to more normal EBITDA and more normal gross profits in Brazil on that business segment. The dumping has lessened simply because the Asians appear to be a little bit more constrained from a petrochemical perspective, and they are passing those costs on to the market. Analyst: Got it. That is very helpful context. Thank you very much, and best of luck. Andrew J. Eaker: Great. Thank you, Anthony. Operator: There are no further questions at this time, and this concludes today's call. Thank you for attending. You may now disconnect.
Operator: Please stand by. We are about to begin. Good morning, ladies and gentlemen, and welcome to Genworth Financial, Inc.'s First Quarter 2026 Earnings Conference Call. My name is Jess, and I will be your coordinator today. As a reminder, the conference is being recorded for replay purposes. We will facilitate a question and answer session towards the end of this conference call. I would now like to turn the presentation over to Christine Jewell, Head of Investor Relations. Please proceed. Christine Jewell: Thank you, and good morning. Welcome to Genworth Financial, Inc.'s First Quarter 2026 Earnings Call. The slide presentation that accompanies this call is available on the Investor Relations section of the Genworth Financial, Inc. website, investor.genworth.com. Our earnings release and financial supplement can also be found there and we encourage you to review these materials. Speaking today will be Tom McInerney, President and Chief Executive Officer, and Jerome Upton, Chief Financial Officer. Following our prepared remarks, we will open the call for questions. In addition to our speakers, Jamala Arland, President and CEO of our Closed Block Insurance business, Greg Caruana, General Counsel, Kelly Saltsgeber, Chief Investment Officer, and Samir Shah, CEO of CareScout, will also be available to take your questions. During this morning's call, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding forward-looking statements in our earnings release and related presentation as well as the risk factors of our most recent annual report on Form 10-K as filed with the SEC. Today's discussion also includes non-GAAP financial measures that we believe may be meaningful to investors. In our investor materials, non-GAAP measures have been reconciled to GAAP where required and in accordance with SEC rules. Additionally, references to statutory results are estimates due to the timing of the statutory filing. And now I will turn the call over to our President and CEO, Tom McInerney. Tom McInerney: Thank you, Christine, and thank you all for taking the time to join our first quarter earnings call this morning. In the first quarter, we continued to execute across our strategic priorities and have once again generated strong shareholder value. We advanced our long-term growth strategy through CareScout, and we further strengthened the self-sustainability of our closed block. Before turning to our results, I would like to briefly address an update to how we present and evaluate our core operating earnings. As we have discussed, our closed block of legacy insurance products is separate from our other business lines and self-sustaining, and the quarter-to-quarter GAAP volatility does not reflect the underlying economics or how the business is strategically positioned for the long term. As a result, going forward, we will report Genworth Financial, Inc.'s consolidated adjusted operating income excluding the closed block. We believe this view of our operating performance better aligns with our strategy and capital allocation framework, driving current and future shareholder returns through Enact and long-term growth opportunities with CareScout. We will continue to report the adjusted operating income for the closed block separately in our disclosures. For the first quarter, Genworth Financial, Inc. reported net income of $47 million with adjusted operating income, excluding the closed block, of $109 million. Our results this quarter were led by continued strong performance from Enact, with adjusted operating income of $140 million. The holding company ended the quarter with a solid liquidity position, holding $166 million of cash and liquid assets. Turning to our strategic priorities, I am pleased with our progress as we execute with discipline across the businesses. First, we continue to create shareholder value through Enact's growing market value and capital returns. Our approximately 81% ownership stake in Enact remains a key source of cash flows to Genworth Financial, Inc. and helps fuel our disciplined approach to capital allocation. This strategy includes returning capital to shareholders through share repurchases while also investing in our long-term growth opportunities through CareScout. This balanced approach enables us to drive near-term value while still positioning the company for sustainable long-term growth. In the first quarter, we received $99 million in total capital returns from Enact. Supported by these strong cash flows, we continue to execute on our share repurchase program. Since the initial authorization of our current buyback program, we have bought back a total of $875 million worth of shares at an average price of $6.38 as of April 30, 2026. Turning to our next strategic priority, we continue to drive growth from CareScout, which represents a significant long-term opportunity given the growing demand for aging care, including from 70 million baby boomers now aged 62 to 80 in 2026. We are building a comprehensive aging platform designed to help people understand, find, and fund the quality long-term care they need, all in one place. We do this in three ways. First, comprehensive solutions, providing access to a full suite of services across the aging journey from care planning and guidance to finding providers to funding care. Second, expert guidance, leveraging our data, technology, and decades of claims experience to match individuals with the right care provider options and help them make informed decisions with confidence. And third, technology-enabled human connection, delivering that expertise through trained advisers who provide personalized local support and help families navigate what is often a complex, fragmented, and emotional process. Under Samir Shah's leadership, we are integrating these capabilities across the platform to deliver a seamless experience and build a capital-light, scalable business for long-term growth. During the first quarter, we continued to expand the CareScout Quality Network, or CQN, at an impressive pace across both home care and senior living communities. In the first quarter, we added our first senior living communities to the network. This development marks another important step in broadening access beyond home care and expanding options available to consumers in the marketplace. As we continue to integrate senior living communities from our acquisition of SeniorLeaf, we are building a more comprehensive network that can support people across different stages of the aging journey. By the end of 2026, we anticipate having more than 1,000 home care locations and approximately 2,000 senior living communities as part of the CQN. As a reminder, our revenue model for senior living communities differs from our home care model, with CareScout earning a one-time placement fee upon a successful move-in, consistent with how the broader industry operates. Over time, we expect this to complement our existing home care discount model and contribute to a more diversified, scalable, and substantial stream of revenue in the business. In home care, our network now covers approximately 97% of the U.S. population aged 65 and older. We continue to see strong interest from more providers every day as we expand into additional markets and strengthen coverage in geographies with high demand. As the network grows, we remain focused on optimizing coverage and pricing efficiency while ensuring quality, consistency, and long-term scalability. We facilitated approximately 1,500 matches between care seekers and providers in the first quarter, reflecting strong sequential and year-over-year growth. This was driven in part by the expansion beyond home care matches and into senior living communities. The Q1 figure includes our first direct-to-consumer matches, which we are making in both home care and senior living communities. While quarterly pacing may vary, we are building momentum and remain on track toward our previously discussed target of approximately 7,500 matches in 2026, compared to 3,255 matches in 2025. As our network continues to scale and brand awareness grows, we expect to drive increased traction across the platform. We also expect a higher share of Genworth Financial, Inc. policyholders to utilize CQN providers and benefit from more efficient care coordination by our team, helping to stretch their benefit dollars further while generating claim savings for the closed block over time. We also continue to work with other insurance carriers managing closed LTC blocks to leverage the CareScout Quality Network. Integrating other LTC insurance carriers along with select affinity groups represents an important opportunity to introduce more consumers to the CareScout brand, extend our platform beyond Genworth Financial, Inc., and generate additional fee-based revenues over time. In parallel, we are scaling our fee-for-service offerings that generate recurring revenue streams and create additional pathways for CareScout's growth. Overall, we continue to expect $25 million of CareScout service revenues in 2026, and we are making steady progress towards that goal. Turning to CareScout Insurance, we continue to build out our differentiated product offerings and expand our distribution capabilities. Our new CareAssurance product is clearly differentiated in the LTC insurance market by giving customers and their families access to a more holistic aging experience through our services business, including access to the CareScout Quality Network, wellness support tools, and care planning services. We believe this integrated approach provides a distinct advantage in a market that remains fragmented and very underserved relative to the growing demand for long-term care over time. Looking ahead, we plan to launch our CareAssurance worksite product later this year. The worksite channel will broaden access through employers and associations. We are also developing additional offerings, including hybrid LTC insurance products with innovative designs that pair a minimum LTC benefit with low-cost fixed income and equity accounts designed for accumulation. Hybrid products offer a broader set of funding solutions designed to meet evolving customer needs and solve critical gaps in retirement income and retirement security in the marketplace. As the U.S. population ages, CareScout will continue to broaden its capabilities with a focus on ensuring families can more easily access the support, guidance, and resources they need to navigate the complexities of aging. Turning to our third priority, we continue to actively manage our self-sustaining, customer-centric closed block of LTC, life, and annuity products. This business is being managed with a focus on delivering high-quality policyholder experiences, maintaining capital discipline, and ensuring long-term sustainability as we position Genworth Financial, Inc. for growth through CareScout. Our multiyear rate action plan, or MYRAP, remains our most effective lever for maintaining that sustainability. In the first quarter, we secured $5 million of gross incremental premium approvals. We have built on this progress in the second quarter, already achieving another $45 million. As we enter the later stages of the MYRAP program, we expect premium approvals to be lower and benefit reductions to be higher because the future premium runway is shortened as Genworth Financial, Inc. policyholders age, as shown on Appendix Slide 20. That said, we expect full-year 2026 premium approvals and benefit reductions to be broadly in line with 2025 levels, contributing approximately $1 billion of economic value on a net present value basis. Since the program began in 2012, we have achieved approximately $34.5 billion in net present value through a combination of premium increases and benefit reductions. We remain focused on executing this program with discipline to ensure the long-term self-sustainability of the closed block. Next, I will provide a brief update on the Absa litigation. The appeal hearing is scheduled for July. We expect the Court of Appeal to reach a decision within approximately three to six months of that hearing. If the judgment is ultimately upheld and all appeals are favorably resolved, we expect to recover a total sum of approximately $750 million, subject to exchange rates at that time. We do not expect to pay taxes on this recovery. As we said previously, any potential recoveries are not factored into our capital allocation plans. If proceeds are received, we would deploy them in line with our existing priorities: investing in CareScout, returning capital to shareholders, and reducing debt. Before I turn it over to Jerome, I would like to briefly address the current macroeconomic backdrop. We continue to closely monitor an uncertain and dynamic external environment, including uneven consumer spending and the potential for higher inflation and interest rates. We believe Genworth Financial, Inc. is well positioned to navigate a range of market conditions in 2026 and beyond. Enact continues to operate from a position of strength supported by disciplined underwriting and a strong capital position and provides Genworth Financial, Inc. with strong free cash flow. We continue to integrate new technology and operational capabilities across the organization, enabled by artificial intelligence. We have several AI and generative AI initiatives underway with key partners focused on improving efficiencies in claim management, enhancing the policyholder and customer service experience, and supporting more scalable growth across CareScout. Even as we advance these capabilities, our approach remains grounded in the tech-enabled, human-centered support our policyholders rely on throughout the aging journey. In closing, we are pleased with the progress we have made in the first quarter across our strategic priorities, supported by another quarter of strong performance from Enact. As we move towards the midway point of the year, we remain focused on disciplined execution and building long-term value for our shareholders. And with that, I will turn the call over to Jerome. Jerome Upton: Thank you, Tom, and good morning, everyone. We entered 2026 with strong momentum, and as Tom highlighted, we continued to execute against our strategic priorities while enhancing our financial flexibility and positioning the company for long-term success. Enact's first quarter results reflected continued strategic and operational strength underpinned by its strong balance sheet and liquidity profile that continue to create value and fuel our capital allocation priorities. We also made further progress scaling CareScout and strengthening the self-sustainability of our closed block. I will begin with an overview of our first quarter financial results and key drivers, followed by a discussion of our investment portfolio and holding company liquidity. I will then cover our capital allocation priorities and provide an update on our guidance for 2026 before we open the call for Q&A. Starting with the financial results on Slide 9, as Tom mentioned, going forward, we are updating the presentation of our consolidated earnings to exclude results from our Closed Block segment to better align with our strategy and capital allocation framework managing the closed block on a standalone basis. We will continue to report the adjusted operating income for the closed block separately in our disclosures. First quarter adjusted operating income, excluding the closed block, was $109 million, driven by strong performance in Enact, partially offset by losses in Corporate and Other. Enact delivered another strong quarter of performance with adjusted operating income of $140 million to Genworth Financial, Inc. Results included a pretax reserve release of $39 million reflective of continued strong cure performance. Results are down versus the prior quarter reflecting a lower reserve release and up versus the prior year reflecting increased investment income and favorable expenses. In Corporate and Other, we reported an adjusted operating loss of $31 million for the quarter, reflecting continued investment in CareScout and ongoing holding company debt service. The prior quarter included a benefit from favorable tax-related items. Our Closed Block segment reported an adjusted operating loss of $32 million. This was driven by a liability remeasurement loss related to the actual variances from expected experience, or A to E, of $36 million pretax, primarily in LTC. Our results in LTC were favorably impacted by net insurance recoveries in the quarter of $65 million pretax. Mortality in both LTC and life insurance was seasonally higher sequentially but lower than the prior year. While results can vary quarter to quarter, we expect to see A to E losses in the range of approximately $300 million for the full year 2026. As a reminder, these GAAP fluctuations do not impact our cash flows, economic value, or how we manage the business. Now taking a closer look at Enact's performance underlying its strong financial results beginning on Slide 10, new insurance written of $13 billion in the quarter decreased versus the prior quarter primarily based on seasonal trends but increased versus the prior year as a result of lower interest rates early in the quarter. Primary insurance in force increased year over year to $272 billion supported by the growth in new insurance written and continued elevated persistency. Earned premiums in the quarter were $243 million, down slightly versus the prior quarter and prior year. As shown on Slide 11, Enact's favorable $39 million pretax reserve release drove a loss ratio of 15%. Enact's estimated PMIERs sufficiency ratio remains strong at 162%, or approximately $1.9 billion above requirements. Genworth Financial, Inc.'s share of Enact's book value, including AOCI, was $4.3 billion at the end of the first quarter, down slightly from $4.4 billion at year-end 2025, driven by movements in the market value of the investment portfolio as a result of increased interest rates. While maintaining its strong balance sheet, Enact has continued to deliver significant capital returns to Genworth Financial, Inc. We received $99 million from Enact in the first quarter. Looking ahead, Enact remains well positioned to navigate the current macroeconomic environment supported by its strong balance sheet and disciplined underwriting. Turning to our Closed Block segment on Slide 12, we continue to proactively manage and reduce LTC risk and improve self-sustainability through prudent in-force management, including benefit reductions and premium rate increases. As of the end of the first quarter, we had achieved approximately $34.5 billion of benefit reductions and premium increases on a net present value basis since 2012. As part of our multiyear rate action plan, we offer a suite of options to help policyholders manage premium increases while maintaining meaningful coverage. These benefit solutions enable us to reduce our exposure to certain higher-cost features, such as 5% compound benefit inflation options and large benefit pools. Cumulatively, about 61% of policyholders offered a benefit reduction have elected to take one, lowering our long-term risk. These initiatives have helped reduce our exposure to the riskiest LTC policy features. Notably, our exposure to the 5% compound benefit inflation option has decreased below 36%, down from 57% in 2014, and the percentage of our policies with lifetime benefits has decreased to 11%. We remain committed to managing GLIC and its subsidiaries as a closed system, leveraging their existing reserves and capital to cover future claims. We will not inject capital into these companies and, given the long-tail nature of our LTC insurance policies, with peak claim years still over a decade away, we also do not expect capital returns. Turning to Slide 13, our investment portfolio remains resilient and is conservatively positioned. The majority of our assets are in investment-grade fixed maturities held to support our long-duration liabilities. New money yields continue to exceed those on sales and maturities, with cash in our life insurance companies being invested at yields of approximately 6.3% for the quarter. Our alternative assets program is largely comprised of diversified private equity investments and has targeted returns of approximately 12%. Quarterly realizations fluctuate, with first quarter transactions affected by geopolitical tensions. We remain committed to growing our alternative assets portfolio within regulatory limitations due to its robust track record of returns, diversification benefits, and natural fit with long-term liabilities. Next, turning to the holding company on Slide 14, we ended the quarter with $166 million in cash and liquid assets. When evaluating holding company liquidity for the purpose of capital allocation, and calculating the buffer to our debt service target, we excluded approximately $50 million of cash held for future obligations, including advanced cash payments from our subsidiaries. Moving to capital allocation on Slide 15, our priorities remain unchanged. We will continue to invest in long-term growth through CareScout, return cash to shareholders through our share repurchase program when our share price trades below intrinsic value, and opportunistically retire debt. During the quarter, we repurchased $66 million of shares at an average price of $8.61 per share. We repurchased an additional $19 million through April 30, 2026. We also retired approximately $5 million of principal debt in the quarter, bringing our holding company debt down to $778 million. We maintain a disciplined capital structure with a cash interest coverage ratio on debt service of approximately nine times. I will now turn to our outlook for 2026 and provide an update on the guidance we shared in February on our fourth quarter earnings call. As announced yesterday, Enact has increased its quarterly dividend and continues to expect to return approximately $500 million of capital to its shareholders in 2026. Based on our approximate 81% ownership position, we continue to expect to receive around $405 million to $450 million from Enact for the full year. Second, we continue to create value for our shareholders through our share repurchase program. For the full year 2026, we now expect to allocate between $195 million and $225 million to share repurchases. As we have said before, this range may vary depending on market conditions, business performance, holding company cash, and our share price. Third, turning to CareScout. As Tom indicated, in the services business, we continue to target approximately 7,500 matches in 2026, including matches across both home care providers and senior living communities. CareScout services generated $6 million in revenue in the first quarter, and we continue to expect revenue in this business of $25 million for the full year. We plan to invest approximately $50 million to $55 million in services in 2026 as we continue scaling the business and expanding its reach. These investments will support the continued build-out of our technology platform, the addition of new products and care settings, and growth across both consumer and B2B channels. We are also deepening carrier partnerships and enhancing operational infrastructure to support higher volumes, recurring revenue, and long-term scalability. For insurance, we currently do not expect any additional investments in 2026 following our $85 million investment to launch our inaugural product last year. As we expand our product suite, grow our distribution network and sales levels, and refine our operating platform, we will make appropriate investments in the business. We have made good progress overall with CareScout and remain confident in its continued growth in 2026. As we have noted previously, scaling these businesses and achieving breakeven will take time. In closing, we are delivering on our strategic priorities and enhancing financial flexibility while proactively managing our liabilities and risk. Our focus remains on driving durable growth through Enact and CareScout, which serve as a foundation of our long-term value creation strategy. At the same time, we are strengthening the self-sustainability of our closed block, maintaining our commitment to return capital to shareholders through share repurchases, and opportunistically retiring debt. These actions position Genworth Financial, Inc. to deliver long-term value for our shareholders. We will now open the call for questions. Now, let us open up the line for questions. Thank you. Operator: Ladies and gentlemen, we will now begin the Q&A portion of the call. As a reminder, please refrain from using cell phones, speakerphones, or headsets. Please press star 1 to ask a question. We will go first to a question from Joshua Estrach with Credit Insights. Your line is open. Please go ahead. Analyst: Hey. Good morning, folks. Thanks for taking my question. So, modest decline in the estimated RBC ratio at GLIC at quarter-end, and I know you folks have been adamant for years that no capital contributions to life entities are planned. But I am wondering if there is, like, a specific RBC ratio level at which you would either be forced or consider contributing capital, or, you know, alternatively, if there is a lever you can pull to bolster RBC in the life units to the extent it becomes necessary without a capital contribution. Tom McInerney: Thank you for your question, Josh. Our target is to have RBC at $250 million or more, and so we are very comfortable with where we are. Obviously, the RBC did go down in the first quarter because of the statutory loss, but that is why we have quite a bit of room. There is no requirement from a regulatory perspective. I mean, we are well above, at almost three times required capital, what the regulators require. Jerome Upton: Josh, good morning. Thanks for the question. Look, we felt some pressure in the first quarter, as Tom indicated, down to 2.89. That is still a good ratio. We did see mortality; it went up in the quarter, but it certainly was not at the level that we would have expected. I think that impacted LTC, but I believe that was felt across the industry as well. We also saw some life pressure from our post-level term block coming through and some reserve build. We do not expect that to continue. What I would highlight to you is we are going to continue to execute our strategy. That strategy and our statutory results are premised upon our ability to get the multiyear rate action plan, which, as Tom highlighted, has been very successful, our benefit solutions, and our Live Well, Age Well program as well as our CareScout Quality Network. We are active in achieving those benefits, and those will be key drivers of our RBC and our statutory results going forward. Operator: Thank you very much. Analyst: And if you do not mind, maybe I can sneak in one more here and pivot a little bit. I appreciate the color and the commentary you gave earlier on the investment portfolio front, but if maybe you can give a little bit more detailed color on the private credit portfolio, maybe even just at a high level, the characteristics either from a ratings or asset class or sector basis, and maybe you can just briefly tell us how you perhaps source the investments or any of the partnerships you might have to bolster your private credit capabilities. Jerome Upton: Sure. Thanks for the question. Kelly is on the call, so we will ask Kelly to comment. Kelly Saltsgeber: Yes, thanks, Josh, for the question. Private credit has been referred to in the media of late really as what we call direct lending or middle market loans, which are private loans to small companies, and we have very minimal exposure there. We have about 1% of our portfolio in middle market loans, and we access that market through a well-regarded and experienced manager through a separately managed account. Our direct lending portfolio actually has no exposure to what is classified as the software category, and so it is very different from what you are reading about with some of the BDCs. Now, we have other private investments. We have been in the private placement market for decades, and that is an investment-grade portfolio. We also have recently started accessing private asset-based finance, also primarily through external managers, and that is an investment-grade mandate with an average rating of single-A or triple-B. We also access the private equity market mainly through advisers that are very experienced in the space, including Neuberger and JPMorgan. I would say our private exposure is almost exclusively investment grade with the exception of the 1% in middle market loans that I mentioned. Analyst: Got it. Thank you very much. I appreciate everyone's time this morning. Jerome Upton: Thanks, Josh. Operator: Once again, ladies and gentlemen, it is star 1 if you have a question. It appears there are no questions at this time. Ladies and gentlemen, I will now turn the call back over to Mr. McInerney for closing comments. Tom McInerney: Thank you all very much for joining the call today and for your continued support and interest in Genworth Financial, Inc. At this point, I will turn the call back over to Jess to have her close it. Operator: Thank you, sir. Ladies and gentlemen, that will conclude the call. We thank you for your participation. You may disconnect at this time.