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Operator: Hello, everyone, and welcome to Wallbox's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I would now like to turn the call over to Michael Wilhelm from Wallbox. Michael, please go ahead. Michael Wilhelm: Thank you, and good morning, and good afternoon to everyone listening in. Thank you for joining today's webcast to discuss Wallbox's first quarter 2026 results. This event is being broadcast over the web and can be accessed from the Investors section of our website at investors.wallbox.com. I am joined today by Enric Asuncion, Wallbox CEO; and Isabel Lopez Trujillo, Wallbox's CFO. Earlier today, we issued our press release announcing results from the first quarter ended March 31, 2026, which can also be found on our website. Before we begin, I would like to remind everyone that certain statements made on today's call are forward-looking that may be subject to risks and uncertainties relating to the future events and/or the future financial performance of the company. Actual results could differ materially from those anticipated. The risk factors that may affect results are detailed in the company's most recent public filings with the SEC, including the annual report on Form 20-F for the fiscal year ended December 31, 2025, filed on April 9, 2026. We will be presenting unaudited financial statements in IFRS format that reflect management's best assessment of actual results. Also, please note that we use certain non-IFRS financial measures on this call and reconciliations of these measures are included in the presentation posted on the Investors section of our website. Also, a copy of these prepared remarks can be obtained from the Investor Relations website under the Quarterly Results section, so you can more easily follow along with us today. So with that out of the way, I'll turn it over to Enric. Enric Asuncion: Thank you, Michael, and thanks, everyone, for joining us today. We will start today's call with an overview of our first quarter 2026 results, provide our perspective on the EV market and spend time discussing our operational improvement. Isabel will offer a closer look at our financial results, key financial metrics and our current financial position, including updates on the recently signed refinancing. After, I will close the conversation to highlight what we are focused on for the upcoming quarters. Q1 revenue was softer than expected. But overall, we had a solid first quarter as adjusted EBITDA improved sequentially due to continuous operational efficiency improvements. Total revenue landed at EUR 29.7 million, below guidance and down 12% compared to the previous quarter. The primary driver of the decline is DC sales, which are down 28% quarter-over-quarter. Although this is a disappointing result, customer feedback shows this is not product related, but rather the requirement to have clarity on Wallbox refinancing process. With the signing of the refinancing plan, we immediately secured EUR 11 million in interim financing and are now able to provide better long-term financial visibility to our customers, vendors and shareholders. The other business activities, AC sales and software, service and others also experienced a slowdown compared to last quarter related to the refinancing, but with a less significant impact. From a geographical perspective, the North American market due to a significant decline in EV sales, APAC and South America due to the shifting resources and priorities, all have been down sequentially. In total, during the first quarter, we delivered over 30,000 AC units and 79 DC units. It is important to note that although revenue declined quarter-over-quarter, the ratio of revenue to labor cost and operating expenses improved significantly compared to the same period last year. Gross margin was 37.3% in the first quarter, in line with the previous quarter, but landing below the 38% to 40% guided range. The main reason for the guidance miss relates to the lower-than-expected DC sales, resulting in a negative impact from the product mix. However, we have achieved another quarter with inventory improvement, which provides bill of materials cost improvement opportunities for the long term. Labor cost and operating expenses landed at EUR 17.1 million, improving 22% quarter-over-quarter and 31% compared to the same period last year. This is the result of the continuous efficiency efforts of the last quarters. It only reflects cost improvements, but also shift in resources and investment in sales and services. With optimized cost base, we believe there is opportunity to grow the top line while continuing to work on operational improvements in processes and systems. By centralizing certain activities and reducing the operational complexity, we are leaner and more flexible in responding to the volatile EV market, both to scale up in EV markets where there are opportunities and scale down in EV markets which experienced headwinds. Adjusted EBITDA loss for the first quarter of 2026 was EUR 6 million, missing our guided range, but improving 18% quarter-over-quarter. Compared to the same period last year, adjusted EBITDA loss improved by 23%. Softer-than-expected sales due to the refinancing process were the main reason for missing guidance this quarter. But considering this revenue level, the bottom line improvement is impressive. We continue to execute our plan towards profitability based on, one, continuous operational efficiency improvements; two, implementations of the restructured balance sheet for long-term financial visibility; and three, reestablishing our growth by leveraging our product portfolio with more sales and service capacity. The implementation of the refinancing is almost completed. We have made solid progress on the operational efficiency improvements and expect to see the results of our investment in sales and service soon. We have a more optimized organization with a stronger financial position and believe that operational profitability is within reach, assuming revenue improvement. For the first quarter of 2026, Europe or EMEA contributed EUR 22.6 million of consolidated revenue or 76% of total top line. This reflects an 8% decrease compared to the last quarter, which is in line with the market in the first quarter, which was down 9% in Europe after several strong quarters. In parallel, we continue to focus on recapturing market share by improving our capacity in the sales and service teams to better support our distribution partners and our end customers. We have started to see the initial effects but require more ramp-up time before we see the full impact of revenue. North America contributed EUR 6.7 million or 23% of the total revenue, reflecting a decrease of 41% compared to the same period last year. The drop can be attributed to a softer North American EV market, which was down 27% year-over-year and limited DC sales. However, we recorded a strong result in Canada, reflecting solid growth compared to last quarter. Looking ahead, we see opportunities to grow sales with Quasar 2, which is already commercially available and the CTEP certified Pulsar, which will be available soon for commercial applications. APAC and LatAm currently remain small region for Wallbox, consistent with the last quarter as attention and resources have been shifted to key markets. APAC sales were almost negligible this quarter and LatAm sales landed EUR 387,000 or approximately 1%. The shifting of resources is a conscious decision and part of our [indiscernible] improvement efforts towards profitability. We continue to sell through distribution partners, allowing us to potentially accelerate growth in this market in the future. AC sales of EUR 21.1 million, including ABL and Quasar, represented approximately 71% of our global consolidated revenue and down 8% compared to last quarter. Pulsar Max continues to be the best sold product with the Pulsar Max ABL, growing the fastest as we continue to support cross-selling. Other products, including Quasar 2 show a smaller contribution to our results than last quarter. In general, AC sales also experienced impact from the noise around the refinancing process as distributors and commercial partners stock up or less inventory that is typical. We aim to reverse this trend now we have the refinancing in place, assuming we receive required court approval and as we ramp up our efforts to complement then the strong value proposition of our products with improved sell-out support and service coverage. DC sales landed at EUR 2.5 million or 8% of sales and was down 28% compared to last quarter. In the case of DC, the refinancing process has had the largest impact as customers require long-term financial visibility and support from their suppliers. With the signing of the refinancing agreement at the beginning of April, Wallbox can now provide the required clarity and this resulted immediately in new orders. We have a strong [ DC ] charging product portfolio, which provides customers with a wide range of different and scalable charging configurations, including battery storage options. With the introduction of the Supernova PowerRing, we expand the product portfolio with a charger that can go up to 400 kilowatts per outlet. Our reliable and user-centric chargers proved to be a competitive option for charge point operators, and we believe we can establish growth in this category. Software, services and others generated EUR 6.1 million for the fourth quarter or 21% of the total revenue declined 16% quarter-over-quarter. The largest driver of the decrease was installation and service activities, which were down 19% compared to last quarter. This was compensated by a 6% quarter-over-quarter increase in software compared to the same period last year. Software, which includes the Electromaps Solutions, grew 91%. Looking forward, we expect this category to continue contributing in Italy, especially with a strong growth in software. In our addressable market, which we refinance all regions except China, 2.1 million EVs were sold during the first quarter. While this represents a 23% increase year-over-year, the market slowed down on a sequential basis, declining 2% compared to last quarter. Turning in our key markets, which are North America and Europe, we see conservative trends. In North America, the EV market remained soft due to the removal of incentive and tax credits discussed during the last quarter. Compared to the same period last year, the sales in the region decreased with 27%, but only 3% quarter-over-quarter, potentially indicating we reached a plateau. While we anticipate the North American EV market will remain challenging through the year, we are optimistic about the opportunities presented by our Quasar 2 and, particularly in states like California where vehicle electrification is continuing to grow. Growth persists within the European EV market, this quarter up by 27% compared to the same period last year. However, growth has slowed down sequentially and declined with 9%. The same trend where there is a year-over-year growth, but quarter-over-quarter slowdown was visible in almost every European country, except Ireland, Italy and the U.K., where growth remains strong across the board. The momentum in the region is expected to pick up for the remainder of the year as across the region, many countries continue to incentivize electrification and new affordable EV models are becoming available. The growth in the rest of the world, which includes APAC and LatAm was the strongest of the regions considered in our addressable market. EV sales in the region increased 79% compared to the same period last year. Considering our shifting resources to focus on our path to profitability instead of servicing all our addressable regions in the same way, we did not capture the market growth. However, we keep working with a wide range of distribution partners and key accounts. This will allow us to keep our footprint in the region and ramp up sales efforts in the future. Overall, EV transition continues to progress, but at the same time, volatility remains. The recent geopolitical tension and subsequent price spikes in oil shows again the importance, especially in Europe for energy independence and decreased reliance on fossil fuels. This provides an opportunity for Wallbox as a provider of smart charging products and energy management solutions. The future is electric. But in the meantime, it is important as an organization to remain flexible. We have made progress in creating a more lean organizational structure, which is better suited to respond to market volatility as we move towards profitability. Isabel, over to you. Isabel Trujillo: Thank you, Enric. Good morning and good afternoon to everyone. The first quarter revenue was softer than expected and landed at EUR 29.7 million, outside our guided range and down 12% sequentially. However, relative to our cost base, revenue grew both compared to last quarter and the same period last year. The main reason we missed our guidance was an unexpected slowdown in orders for both DC and AC related to the pending refinancing. We anticipated an impact on sales as we were in the process to finalizing the refinancing agreement and customers require long-term financial clarity. Although we can't provide this clarity now as the agreement recently has been signed, the impact in Q1 was larger than initially expected as DC customers postponed their orders and AC distribution partners decreased the size of their orders. We are confident that we can reverse this trend now and have already received additional DC and AC orders directly after the announcement of the signing. Gross margin for the first quarter was 37.3%. This was lower than anticipated and has a strong correlation with the slower DC sales. As our DC fast charger products have a higher gross margin, lower sales in this category results in a negative impact from the product mix. Shortly, I will comment in more detail on our continuous inventory reduction, but we have a positive impact on bill of materials costs in the long run as we rotate our existing components. Q1 labor costs and operating expenses totaled EUR 17.1 million, reflecting a 31% improvement compared to the same period last year and a 22% sequential improvement. This is a positive result and is a strong proof point that we can continue to improve our operating leverage. Also, in the upcoming quarters, we plan to continue streamlining the organization with additional efficiency measures, strategic capital allocation and introduction of the right processes. If you compare the historical development of our cost base compared to our revenue development, we believe we are on the right path to find the correct equilibrium between sales and cost. On top of that, with the shift of resources and investment in sales and service, we believe the cost base we are working towards allows for additional revenue growth, further enhancing the efficiency of the company. Consolidated adjusted EBITDA loss for the quarter was EUR 6 million, outside the guided range, but still a solid improvement considering the lower-than-expected top line result. Compared to the same period last year, the adjusted EBITDA loss improved 23% and sequentially improved with 18%. Also top line revenue growth is important to reach profitability, the Q1 result reflects the outcome of our plan to shift the focus from only growth to focusing on profitability as our core objective. We have worked hard on the disciplined transformation of the organization to improve operating efficiency. And now our focus can return to reacceleration of growth, but with the same discipline on cost. With the investment in sales and services, I believe we can improve our sales in the upcoming quarters, following our path to profitability. Now moving to key financial items. We have completed one of the most important milestones with the signing of the refinancing plan. The plan is submitted with the court for final approval. Additional large institutions such as HSBC and Citibank have now joined the plan, and we received EUR 11 million in interim financing. It has been great to be able to bring together all the stakeholders and align on a strong capital structure solution to provide financial stability for Wallbox and clarity for the upcoming years. We would like to thank our banking partners and shareholders for their continued support and recognition of the strategies ahead. Turning now to the results of the first quarter. We ended the quarter with approximately EUR 7.6 million in cash, cash equivalents and financial instruments. This is excluding the EUR 11 million of interim financing just mentioned as it was received at the beginning of Q2. Based on the operational improvements discussed, the execution of the refinancing plan and our ongoing actions to manage capital expenditures and working capital, we believe our current cash position is sufficient for our near-term needs. This assessment assumes the timely receipt of additional liquidity in upcoming quarters, including proceeds from the refinancing plan and anticipated carbon credit payments. Loans and borrowings totaled EUR 168 million, reflecting a slight increase of 2% sequentially, consisting of EUR 44 million in long-term debt and EUR 124 million in short-term debt. The increase in the debt position is related to use of working capital lines and accrued interest liabilities related to the refinancing process. Following the implementation of the renewed capital structure, long-term and short-term debt will be reclassified as a majority of the debt maturities will be pushed to 2030. CapEx was light again this quarter and landed at EUR 0.3 million, of which EUR 0.1 million was related to investments in property, plant and equipment. Consistent with the last quarters, we are limiting spending on CapEx and are focused on leveraging our existing assets. A clear example is the effort to simplify our existing product portfolio and further innovate this portfolio to continue to provide the latest technology and comply with the customer requirements in an evolving industry. Compared to the same period last year, CapEx investment decreased 55% Inventory landed at EUR 40.3 million, a reduction of 15% to last quarter and down 37% compared to the same period last year. This is consistently one of the most successful financial metrics and allows us to continue to release cash from inventories supporting the overall operations. In addition, we remain focused on our overall cash management related to working capital to better align ourselves with our suppliers and ensure our supply chain is organized efficiently. Wallbox's financial position has improved following the execution of the refinancing plan. In addition, we have made progress on operational initiatives that have contributed to a reduction in cash burn, including actions to optimize working capital and capital expenditures. Enric, I turn it back to you to provide some closing commentary. Enric Asuncion: Thank you, Isabel. Although the refinancing process impacted top line results in the first quarter of the year, we continue to execute our plan and take steps towards our objective to achieve profitability. Adjusted EBITDA result continues to improve. We have reduced our cash burn significantly, have clarity on our new capital structure and unlock significant operational efficiencies. If we look at the objective we need to complete as part of the plan for our new Wallbox, we achieved, one, the continuous operational efficiency improvements; and two, completed the refinancing plan. Now we need to move from disciplined transformation to reaccelerating growth again. We expect to see the results of our investment in sales and service in the coming quarters. It is crucial to improve Wallbox as a customer-centric organization and better support our commercial partners. If we can execute the third pillar of our plan well, there is significant growth opportunity as the new market continues to develop. With that, I would like to discuss next quarter guidance. For the second quarter of 2026, we have the following expectations: revenue in the EUR 33 million to EUR 36 million range, gross margin between 38% and 40% and negative adjusted EBITDA between EUR 5 million and EUR 3 million. Thank you for your time. Operator: Thank you, everyone. There are no questions in queue. We will be closing the call. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.
Operator: Thank you for standing by, and welcome to Cabot's Second Quarter Fiscal Year 2026 Earnings Conference Call. [Operator Instructions]. I would now like to hand the call over to Robert Rist, Vice President of Investor Relations. Please go ahead. Robert Rist: Thank you, Latif. Good morning. I'd like to welcome you to the Cabot Corporation's earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our second quarter of fiscal 2026, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available in the Investor Relations portion of our website and will be available in conjunction with the replay of this call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ending September 30, 2025, and in subsequent filings we make with the SEC, all of which are available on the company's website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measure presented should not be considered to be an alternative to a financial measure required by GAAP. Any non-GAAP financial measure referenced on this call are reconciled to the most direct comparable GAAP financial measure in a table at the end of our earnings release issued last night and available in the Investors section of our website. I will now turn the call over to Sean, who will discuss the second quarter highlights, followed by several company and business updates. Erica will review the second quarter financial highlights and the business segment results. Following this, Sean will provide closing comments on our fiscal 2026 outlook and then open the floor to questions. Sean? Sean Keohane: Thank you, Rob. Good morning, ladies and gentlemen, and welcome to our call today. I am pleased with our strong execution during the second quarter as we continue to operate at a high level in a challenging and very dynamic environment, delivering adjusted earnings per share of $1.61. While the Iran conflict introduced a new dimension of geopolitical uncertainty during the quarter, the resilience of the Cabot team and our enduring strength as a company once again served as the foundation for strong execution. Our global footprint and highly developed operating platform of commercial and operational excellence enabled us to take quick actions to support our customers' evolving needs and implement countermeasures to address rapidly rising energy and transportation costs to protect profitability. While we have an unwavering commitment to disciplined daily execution, we also remain focused on the long term, guided by our Creating for Tomorrow strategy and the pillars of grow, innovate and optimize. During these dynamic times, we continue to make important strategic choices that will strengthen the company and build long-term shareholder value. I will highlight a few of these areas of focus in my upcoming remarks, but I will first provide a bit of color on business performance in the quarter. EBIT in Reinforcement Materials segment was $93 million, down 29% from the prior year quarter and in line with our expectations. The segment's 3% higher volumes as compared to the prior year were more than offset by lower gross profit per ton driven by calendar year 2026 customer agreement outcomes and increased competitive intensity in Asia Pacific. The Performance Chemicals segment delivered a strong quarter with EBIT of $59 million, up 18% from a year ago, supported by continued momentum in our high-value battery materials and specialty carbons product lines, combined with higher gross profit per ton from an improved product mix and optimization efforts. This result was ahead of our expectation as demand levels were stronger than expected, particularly in March. Operating cash flow was again solid in the quarter. We generated $77 million in cash from operations, which allowed us to return $73 million to shareholders through a combination of dividends and share repurchases. Given the strength of our underlying cash flow generation and our confidence in the long term, earlier this week, we announced a 5% increase in our quarterly dividend. On an annualized basis, the new dividend rate will be $1.89 per share versus $1.80 per share previously. This increase is consistent with our balanced capital allocation framework where we seek to allocate cash to support long-term strategic growth and return capital to shareholders. As we did last quarter, I want to briefly highlight our Battery Materials product line, which delivered another strong quarter and continues to be an increasingly important strategic growth driver for Cabot. We remain very well positioned in this space with a differentiated portfolio of conductive additives, formulations and blends supported by deep customer relationships across the global battery value chain. While the foundation of our battery materials product line is built around our strength in conductive additives, we continue to broaden our participation in this application through our fumed metal oxide products used in cathode and separator coatings and aerogel for thermal management. Our strategy is to leverage our deep application know-how, strong customer relationships and global footprint to support customers as they build gigafactories globally. In the second quarter, Battery Materials delivered 43% revenue growth year-over-year, driven by continued growth in China as well as Europe. Trailing 12-month EBITDA margins were approximately 24%. Performance was driven by strong execution of our existing customer programs, increasing penetration in energy storage applications and the benefit of capacity that is now fully available to support customer demand. Complementing our strong revenue in Asia, we remain focused on supporting our customers in Western geographies as new gigafactory capacity comes online. The multi-year PowerCo agreement announced last quarter is a good example of this approach, reinforcing our role as a trusted partner to leading OEMs and supporting long-term growth. As a result, this business is scaling meaningfully, and we expect to generate approximately $40 million of EBITDA in fiscal year 2026. Continued investment in battery energy storage systems alongside continued EV adoption is driving robust demand for our portfolio and reinforces our confidence in the long-term trajectory of this business. Data centers are a strategic focus area for us, and I would like to highlight how Cabot's materials are supporting the build-out of data center infrastructure, particularly as AI-driven demand continues to accelerate. At the center of this ecosystem are the data centers themselves, which require highly reliable storage. Battery energy storage systems or BESS, play a critical role in data centers by providing long-duration storage, power stabilization and uninterruptible power. And our battery materials product portfolio is a key enabler of performance in these systems. Our conductive additives, formulations and blends are designed to improve battery reliability, efficiency and life cycle performance, supporting the increasingly demanding requirements of energy storage applications tied to data centers. Beyond our battery materials product line, our broader Performance Chemicals portfolio plays an important role across data center infrastructure applications. This includes materials used in power distribution cables, thermal management systems, adhesives and sealants as well as bonding paste for wind turbines that support renewable energy generation feeding into the grid. Taken together, this opportunity underscores how Cabot materials are critical across the power generation and storage value chain from renewable generation to distribution and battery storage, positioning us well as customers invest to support data center growth. Turning to our network optimization initiatives. We are taking a series of proactive countermeasures to reinforce our leadership position and sustain strong margins and cash generation in the current business environment. As a reminder, on the cost reduction front, we have been executing programs targeting $30 million in savings during fiscal '26, including procurement savings, headcount reductions in reinforcement materials and associated supporting functions and accelerated deployment of process technology to improve yield and manufacturing efficiencies. We are on track to hit this target. Furthermore, as we noted last quarter, we have reduced our capital expenditures to a range of $200 million to $230 million for the full year to align with the current environment. In addition, this quarter, we are also taking specific capacity rationalization actions to better align our manufacturing network with current demand levels and to optimize our footprint for long-term strategic value. Yesterday, we announced targeted asset rationalization actions in South America and Europe. We have ceased manufacturing operations at our Argentina reinforcing carbons facility, and we intend to cease production at multiple manufacturing lines at our Netherlands carbon black facility, subject to consultation processes. The actions in total represent approximately 120,000 metric tons of capacity, targeting an annual run rate cost benefit of approximately $22 million with full delivery of cost saving benefits targeted by the middle of calendar 2027. The expected cash cost to execute these closures is approximately $24 million over the next 2 to 3 fiscal years. Importantly, we are working with our existing customers and anticipate maintaining sales with supply from other Cabot locations across our global network. These are difficult but necessary actions, and I want to thank our employees for their significant contributions to Cabot over the years. I believe these actions will improve our operating efficiency and further enhance the competitiveness of our global network as we navigate this challenging demand environment. I will now turn it over to Erica to discuss the financial and performance results of the quarter in more detail. Erica? Erica McLaughlin: Thanks, Sean. Adjusted earnings per share for the second quarter of fiscal 2026 was $1.61 compared to $1.90 in the second quarter of fiscal 2025, a decrease of 15% year-over-year. This decline was driven primarily by lower results in our Reinforcement Materials segment, partially offset by growth in our Performance Chemicals segment. Cash flow from operations was $77 million in the quarter and discretionary free cash flow was $63 million in the quarter. The cash balance at the end of the quarter was $252 million, and our liquidity position remains strong at approximately $1.3 billion. Capex expenditures for the second quarter of fiscal 2026 were $45 million. And as Sean noted, we continue to expect $200 million to $230 million of capital spending for the full fiscal year. Additional uses of cash during the second quarter included $24 million for the payment of dividends and $49 million for share repurchases, totaling $73 million returned to shareholders during the quarter. Our debt balance was $1.3 billion, and our net debt-to-EBITDA ratio was 1.5x as of March 31. The operating tax rate for the second quarter was 28%, and we continue to anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%. Now moving to Reinforcement Materials. During the second quarter, EBIT for Reinforcement Materials was $93 million, which was a decrease of 29% as compared to the same period in the prior year. The decrease was driven primarily by lower gross profit per ton from the outcomes of our calendar year 2026 customer agreements and increased competitive intensity in Asia. These factors more than offset a 3% increase in volumes year-over-year, driven by increases in all three regions. Regionally, volumes were up 5% in Asia, 3% in Europe and up 1% in the Americas. Looking to the third quarter of fiscal 2026, we expect higher sequential EBIT from higher gross profit per ton from a favorable product mix and yield improvements from efficiency programs. We also expect a full quarter of operations with our acquired asset in Mexico. We anticipate the sequential EBIT improvement to be in the range of $5 million to $7 million. Now turning to Performance Chemicals. During the second quarter of fiscal 2026, EBIT for the segment was $59 million, an increase of 18% compared to the second quarter of fiscal 2025. The increase was driven by higher gross profit per ton, primarily due to a favorable product mix and optimization efforts. Additionally, the second quarter fiscal 2026 volumes grew year-over-year in both the Battery Materials and Specialty Carbons product lines. Looking ahead to the third quarter of fiscal 2026, we expect segment EBIT to be relatively consistent sequentially. We anticipate stable volumes and gross profit per ton sequentially. Before I turn it back over to Sean, I wanted to briefly address how recent geopolitical developments in the Middle East and energy market dynamics impact the company. First, we have limited direct exposure to the Middle East from both a revenue and a raw material sourcing standpoint. In addition, our competitive global asset footprint enables us to support customers across geographies, providing supply chain resilience even when conditions in a particular region become disruptive. In terms of recovering rising input costs, our reinforcement materials contracts are structured with raw material pass-through mechanisms, which help protect our margins from feedstock cost volatility driven by higher oil prices. Additionally, we have taken proactive pricing actions in Performance Chemicals, including a price increase of up to 20% in our Specialty Carbons and Specialty Compounds product lines implemented in March to offset rising input costs. As input costs across our product lines are impacted, we remain dynamic in our pricing actions to ensure we maintain our margins. Finally, we have continued to have strong cash flow generation and ample liquidity to fund working capital needs that are impacted by higher energy prices. With approximately $1.3 billion of liquidity as of the end of March, we have significant capacity to absorb these dynamics while continuing to invest in our business and return cash to shareholders. Our sales volumes have remained strong to date, and we've had minimal impact from customer disruptions. Thus, Cabot is well positioned to navigate these challenging conditions, and we will remain dynamic in this uncertain environment. I will now turn it back to Sean to discuss our outlook and closing remarks. Sean? Sean Keohane: Thanks, Erica. As we look ahead to the remainder of fiscal year 2026, we are reaffirming our adjusted earnings per share guidance for the full year to be in the range of $6.0 to $6.50 per share. There are several assumptions embedded across our guidance range, including expectations for energy prices and broader macroeconomic factors. Despite higher input costs, we anticipate that we will maintain stable margins as we expect pricing actions to offset higher costs across both segments. A significant variable across our guidance range is our assumption around customer demand levels, particularly as we move to the fourth quarter of the fiscal year. We exited the second quarter with encouraging momentum as volumes accelerated in March and remained strong into April. That said, the conflict in the Middle East introduces uncertainty, particularly as we move to the fourth quarter of the fiscal year. It is this area that we are monitoring closely, and our forecasted range contemplates various scenarios. If current demand levels largely hold with customers continuing to maintain order patterns despite elevated energy prices and macroeconomic uncertainty, we would expect performance to track toward the upper end of our guidance. If there is a softening in demand driven by potential supply chain disruptions or more cautious customer purchasing behavior in response to higher energy costs and broader economic uncertainty, we would expect lower volumes and performance to trend towards the lower end of our guidance range. These dynamics could be more pronounced in certain regions such as Asia, where customers rely more on the Middle East for raw materials. The midpoint of our guidance would assume a modest moderation in demand in the fourth quarter. While there are various scenarios possible, I have confidence that we will effectively navigate this dynamic environment. We will continue to make decisions that enhance our competitiveness and position the company for long-term success. The capacity rationalization actions that we announced in Argentina and intend to take in the Netherlands are designed to better align our production footprint with demand, improve efficiency and ensure the long-term competitiveness of our global network. In addition, as noted earlier, we continue to drive cost countermeasures, including procurement savings, headcount reductions and accelerated deployment of process technology to improve yield and manufacturing efficiencies. These actions are incremental to each other and should compound structural benefits over time. We continue to execute a balanced and disciplined capital allocation framework, prioritizing capital expenditures to maintain our world-class assets and invest in high confidence growth projects while also returning capital to shareholders. Year-to-date, we have executed $100 million in share repurchases and announced an increase in the dividend of 5%. Our investment-grade balance sheet with $1.3 billion of liquidity and Net Debt-to-EBITDA of 1.5x provides significant flexibility to execute our Creating for Tomorrow strategy, funding growth investments, particularly in Battery Materials, while sustaining a robust level of cash return to shareholders. In summary, I'm incredibly proud of the Cabot team. Our leaders have shown a remarkable ability to not only deliver solid financial results, but also to accelerate strategic initiatives despite market volatility. The dedication, experience, agility and operational focus of our management team give me immense confidence as we drive our Creating for Tomorrow strategy. Thank you very much for joining us today. And I will now turn the call back over for our question-and-answer session. Operator: Thankyou. [Operator Instructions]. Our first question comes from the line of John Roberts of Mizuho. Edlain Rodriguez: It's Edlain Rodriguez on behalf of John. Sean, quick question. So if you're going to start seeing any softening in consumer demand, like when does that start to manifest itself? Like how much visibility do you have? Like when would you start seeing that if it does occur? Sean Keohane: Sure. So maybe just a reminder in terms of our product portfolio and how that's distributed across end markets. I think it's a quite diverse end market exposure where we sell into the replacement market for tire, which generally ends up being quite resilient and largely nondiscretionary over time as well as significant infrastructure segments. And then finally, things that go into more consumer demand. So it's a fairly diverse portfolio. With respect to consumer demand, you would normally see some lag across our Performance Chemicals segment because the value chains end up there longer. There are often 4 or 5 steps between us and the ultimate consumer. And so you might see a lag there of a quarter or two before those impacts really show. I would say in Reinforcement Materials, weakness would tend to -- in consumer activity would tend to manifest a little bit faster. The value chains are a little more shallow. And so you would start to see that a little bit faster, generally maybe sort of within a quarter. So I would point out those differences between the two segments, which are really driven more by sort of the depth or length of the value chain. Edlain Rodriguez: Okay. Makes sense. And one last one. In terms of like the pass-through mechanism you have in reinforcement for raw materials, like how long is the gap? And like is there a lag between -- yes, how long is the lag? And also, is it the same up and down? Like do you get to keep it like longer when it's favorable to you? Or does it apply the same time frame? Sean Keohane: Sure. You might recall that we have adjusted these formula mechanisms a number of years ago so that the pass-through matches the actual flow of the raw material. So there is no lag in our contract mechanisms. And then in the spot markets where we participate, we move quickly. As Erica commented in her remarks, we move quickly on pricing to make sure that we maintain our margins, and that's, in fact, what we're doing. Operator: Our next question comes from the line of Laurence Alexander of Jefferies. Laurence Alexander: Two questions on Reinforcement Materials. One, can you give a sense for what's driving the mix tailwind into Q3 and how sustainable that should be? And secondly, can you give an update on how you're thinking about trade flows and the pressure from Asian imports into the U.S. market? Sean Keohane: Yes, Laurence, the question on mix is largely a customer mix driven phenomenon. And so we would expect that to remain. So -- but that's largely what it is. In terms of the trade flows, I think there are -- it remains still a dynamic situation. Certainly, in North America, there's been some more, I would say, somewhat positive momentum here where if you look at tire imports over the last 6 months of reported data, so this would be from the September to February period, they're down 12% as compared to the 6 months prior to that. So I think a potential positive sign seeing some evidence of moderation in the tire imports into North America. So that's good. I would say Europe remains more mixed. There are antidumping measures that are under review right now in Europe, the expectation for determination is June, so next month. And so as is often the case when there are such dynamics at play, you can have a bit of movement or excess of inventory that might get shipped in advance of tires shipped in advance of the determination of those duties. So we'll have to see how that settles out. So it remains a dynamic situation, but some positive indications certainly in North America, and we're continuing to watch this and manage it and take appropriate actions where we see there are longer term trends emerging. Certainly, that's in part, influencing our decisions around our announced capacity rationalization. Operator: Our next question comes from the line of Joshua Spector of UBS. Christopher Perrella: It's Chris Perrella on for Josh. Can you just take me through, I guess, the puts and takes of the Performance Chemicals performance in terms of mix shift? And is the 20% price increase that you guys have announced in March, is that across the entire segment? Or is that in specific value chains? And is that more about keeping up or maintaining margins? Or is there a potential for margin expansion there in the rest of the year? Sean Keohane: Sure, Chris. So I would say the outperformance in Performance Chemicals was primarily driven by better volume and product mix, particularly in Specialty Carbons and Battery Materials, along with continued progress in optimization efforts here. So I think the mix uplift in Specialty Carbons and Battery Materials, we continue to be very positive about and continuing to grow those product lines, in particular in Battery Materials. We're seeing very, very strong growth here and have a leading position serving the global battery manufacturers and the expectation is that, that will continue. If you look at market forecast for growth driven by both battery energy storage, fueled by data center build-out, but also continued growth in EVs. The compound growth rate through the end of the decade is expected to be about 16%. So we would expect that, that lift would continue. With respect to the price increase question, the Specialty Carbons business has a mix of both contract and spot business, but I would say more spot, let's say, than typically in Reinforcement Materials. And so moving quickly on pricing is, of course, something that we do as part of managing this business. And with raw materials shooting up sharply and then associated costs, whether they're transportation costs, and other derivative costs, those are all moving up. And so the expectation is that we will recover and maintain our strong margins. Operator: Our next question comes from the line of David Begleiter of Deutsche Bank. David Begleiter: Sean, nice results. So just in Battery Materials, what are your expectations for EBITDA margins this year? And as you scale the business up, how high can you go from a margin perspective in this business? Sean Keohane: Yes, sure. Thanks, David, for that comment. In Battery Materials, I commented where our trailing 12-month EBITDA margins are at about 24%, and we think those are reflective of the high quality of this business. Certainly, as we look forward, we're thinking about the growth in this business compounding driven by a few different factors. One, of course, is just the overall volume. And as I had mentioned, the volume expectation is by the -- through the end of this decade that overall battery production will grow at a compound annual growth rate of 16%, and we would expect to certainly grow at or above given our overall strong portfolio and footprint. So the volume lever is certainly one. And then how we participate both with customers and applications is an important factor here. And we're very focused on partnering with the leading customers and the advanced products that they need. And so we're always looking to upgrade the mix as part of that by being very focused on our participation with customers and applications. And then finally, as you've heard me comment before, we believe the long term, this business really bifurcates -- right now, still 75-ish or so percent of batteries are produced in China today. And while China will remain a very, very important market for us and is the lion's share of our business today, the growth outside of China as gigafactories are built there, we believe, will be a positive for our business because we believe customers will look for local supply, and we believe we've got a unique ability given our global footprint relative to competition to serve our customers and meet their needs globally. And so building out the regional western part of this portfolio will be a driver of value here over time. On top of our core conductive materials, as I mentioned in my comments, we continue to look for ways to broaden our participation in this overall application. And so we sell fumed metal oxides today into the battery application and continue to work with customers to try to grow that application, particularly for cathode and separator coatings. And then finally, aerogel and thermal management, as you may have noticed, has been picking up in terms of demand for thermal management in batteries. And so our participation here is something that we're investing in to try to enhance our position there. So all of these factors are really kind of rolling together for, I think, what's an exciting trend for us in the battery business. David Begleiter: And just in Reinforcement Materials, can you talk to the 3% volume growth for the quarter? Was there any pre-buying? And especially in Europe, what's driving that positive inflection in volumes in Europe, Middle East and Africa thankyou. Sean Keohane: Yes. So we're certainly pleased to see that volumes were up year-over-year, and they were up across all regions year-over-year. So I think that is positive. In the Reinforcement business, we really don't believe there was any real pre-buying in the quarter. There likely was a little bit of accelerated purchasing in Performance Chemicals in the quarter. But in Reinforcement Materials, we don't believe that to be the case. So in terms of the year-over-year, again, we did see growth across all three regions, which is positive, including in Europe, where we were up a few percent there. I think in some ways, there were some customer-specific opportunities that emerged where we were able to support customers and pick up some spot business. And so that was probably the largest driver. And then in North America, during the quarter, we began the production taking ownership of the New Mexico asset. And so there was some contribution from that in the quarter as that -- as we took over that asset. We'd certainly expect that to continue to ramp now that we own it fully and start to have full quarter impacts from that. Operator: [Operator Instructions]. I would now like to turn the call back over to Sean Keohane for closing remarks. Sir? Sean Keohane: Great. Thank you very much, Latif, and thank you all for joining today on our Q2 earnings call, and thank you for your support of Cabot, and we look forward to continuing our dialogue next quarter. Have a great day. Operator: And this concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the LivaNova PLC First Quarter 2026 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Briana Gotlin, LivaNova's Vice President of Investor Relations. Please go ahead. Briana Gotlin: Thank you, and welcome to our conference call and webcast discussing LivaNova's financial results for the first quarter of 2026. Joining me on today's call are Vladimir Makatsaria, our Chief Executive Officer and member of the Board of Directors; Alex Shvartsburg, our Chief Financial Officer; and Ahmet Tezel, our Chief Innovation Officer. Before we begin, I would like to remind you that the discussions during this call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings and documents furnished to the SEC including today's press release that is available on our website. We do not undertake to update any forward-looking statement. Also, the discussions will include certain non-GAAP financial measures with respect to our performance, including, but not limited to, revenue results, which will be stated on a constant currency basis. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release which is available on our website. We have also posted a presentation to our website that summarizes the points of today's call. This presentation is complementary to the other call materials and should be used as an enhanced communication tool. You can find the presentation and press release in the Investors section of our website under News Events and Presentations at investor.livanova.com. With that, I'll turn the call over to Vlad. Vladimir Makatsaria: Thank you, Briana, and thank you, everyone, for joining us today. Welcome to LivaNova's conference call for the first quarter of 2026. In the quarter, LivaNova delivered 11% revenue growth with strength across all regions, driven by durable performance in our cardiopulmonary and epilepsy businesses. Our core businesses continue to serve as both the drivers of current performance and enablers of disciplined investments in innovation. We expect these investments to fuel the long-term durability of our core performance as well as expansion into high-growth, high-margin markets to build a more sustainable financial profile for value creation over time. One such market is obstructive sleep apnea. We continue to view the OSA market as attractive, up to 1 million patients drop out of CPAP treatment annually and the AG&S penetration into that population is less than 5%, which creates a significant opportunity. We recognize that there are current challenges in the HGNS market, but view the current dynamic and ambiguity and reimbursement as temporary and the long-term effect of GLP-1s on the market as net positive. With [ PHS ], we have a clear right to win supported by rigorous clinical evidence and differentiated technology designed for broader and more complex patient population and leading neuromodulation capabilities across LivaNova. We recently achieved key regulatory and clinical milestones establishing a strong foundation for our planned entry into the OSA market next year. The first of these milestones occurred in March when LivaNova received U.S. FDA premarket approval for the aura6000 system for the treatment of adult patients with moderate to severe OSA. Notably, this is the first and only hypoglossal nerve stimulation device approved by the FDA without a complete consent to collapse, counterindication or warning. The second important OSA milestone is on the clinical evidence front, where the full 12 months results from our OSPREY randomized controlled trial were recently published in the Annals of Internal Medicine, demonstrating clinically meaningful responses and sustained improvements over time. Ahmet will share additional details later in the call on how we're leveraging these milestones to advance our OSA program. For the remainder of the call, I will discuss our first quarter segment results and provide updated top line guidance for 2026. After my comments, Ahmet will discuss key innovation updates including recent regulatory and clinical progress. Alex will then provide additional details on our results and updated 2026 guidance. I will wrap up with closing remarks before moving on to Q&A. Now turning to segment results. For the cardiopulmonary segment, revenue was $209 million in the quarter. an increase of 14% versus the first quarter of 2025. Heart-lung machine revenue grew in the high teens in the quarter, driven by an increase in essence placements on both a sequential and year-over-year basis and sustained favorable price premiums. The results for the quarter also included a modest benefit from the recapture of Essenz placements and tenders that were previously deferred from the fourth quarter of 2025. The performance was otherwise driven by underlying demand and the associated favorable price/mix effect. Cardiopulmonary consumables revenue grew in the mid-teens in the quarter, driven by the market share gains, procedure growth and price. While demand for oxygenators continues to outpace the market's ability to supply, improvements in the third-party component availability has enabled us to increase our manufacturing output. For the full year 2026, we now expect cardiopulmonary revenue to grow 8.5% to 9.5%, up from 7% to 8% previously. Our forecast reflects continued HLM growth as we drive Essenz penetration globally. We still expect Essenz to represent approximately 80% of annual HLM unit placement in 2026, up from 55% in 2025. This forecast assumes continued market share gains in consumables as we execute on our manufacturing expansion plans. Within this guidance, we expect our full year manufacturing output to increase by low double digits, driven by new manufacturing line scheduled to go live in the second half of the year. This represents a significant acceleration versus 2025 levels. Additionally, we continue to work with third-party suppliers to increase component availability, which could enable additional oxygenator output growth beyond current assumptions. Turning to epilepsy. Revenue increased 8% versus the first quarter of 2025 with growth across all regions. Epilepsy revenue in the Europe and Rest of World regions increased the combined 12% versus the prior year period. While U.S. epilepsy revenue increased 7% year-over-year. Performance was driven by total implant growth and favorable realized price, supported by impactful clinical evidence, improved reimbursement and sustained commercial excellence. Consistent with what we have shared previously, the results from our core VNS study have been well received by key opinion leaders and have become an important component of our commercial engagement and education efforts. In recent conversations in our inaugural VNS Forum, which brought together approximately 150 clinicians. Participants shared that the data is reshaping their perception of the effectiveness of VNS Therapy for epilepsy. They also indicated that the findings support broader adoption as they reevaluate their therapy's role within their treatment algorithms. Notably, over 50 leading experts have requested permission to independently present the data. Effective January 1, 2026, U.S. Medicare reimbursement for VNS therapy procedures in drug-resistant epilepsy increased meaningfully with hospital outpatient payments rising approximately 48% for new patient implants and 47% for end-of-service procedures compared to 2025 levels. These U.S. reimbursement changes improve hospital economics for VNS therapy, creating a more sustainable model for providers and supporting expanded patient access. In the U.S., there are approximately 1 million DRE patients, yet fewer than 10% receive advanced treatment. The updated reimbursement rate reduced a known barrier to procedure penetration as historic Medicare rates did not fully cover VNS therapy procedure costs. As a result, we saw improved realized pricing in the first quarter, driven by less volume discounting as well as our normal annual list price increase. For the full year 2026, we now expect epilepsy revenue growth of 6% to 7% up from 5.5% to 6.5% previously. This forecast is driven by improved growth rates in the U.S., Europe and the rest of world. The improved outlook is supported by strong global acceptance of core VNS as well as both reduced volume discounting and the strengthening of the patient funnel in the U.S. driven by improved reimbursement. In summary, LivaNova's first quarter growth was driven by healthy markets, continued success of the Essenz upgrade cycle, share gains in cardiopulmonary consumables and strong epilepsy commercial execution. We expect this driver to sustain through 2026, supported by continued execution in cardiopulmonary and the combination of compelling clinical evidence and improved reimbursement dynamics in epilepsy, which should expand patient access over time. As a result, we are now guiding full year 2026 revenue growth between 7% and 8%, up from 6% to 7% previously. This top line guidance implies performance at the high end of the 2025 to 2028 growth framework we outlined at Investor Day. Alex will provide additional details on our 2026 guidance later in the call. With that, I'll hand the call over to Ahmet to cover the strong momentum across our innovation agenda, including recent clinical, regulatory and digital advances across our portfolio. Ahmet Tezel: Thank you, Vlad. Innovation is central to LivaNova's next chapter of growth both fueling the pipeline while strengthening our core businesses. Starting with OSA. As Vlad mentioned, LivaNova recently received FDA premarket approval for the aura6000 000 system for the treatment of adult patients with moderate to severe sleep apnea. This is a transformative milestone both for the company and for patients who continue to face significant unmet needs. Importantly, FDA approval enables broader compliant engagement with clinicians through promotion, training and education and essential step to building awareness and supporting appropriate utilization over time. In parallel, we're advancing the development of a next-generation system designed to further benefit patients and support commercialization. We continue to expect to submit a PMA supplement for the commercial MRI compatible device in the second half of 2026. This would support a limited market release in the first half of '27, followed by a broader commercial launch in the second half of 2027, consistent with the time line outlined at Investor Day. Our pHGNS Therapy was rigorously evaluated for safety and effectiveness in the OSPREY randomized controlled trial with 12-month results recently published in the Annals of Internal Medicine. The study demonstrated clinically significant responses and sustained improvements over time. Notably, OSPREY is the first and only randomized controlled trial in the HGNS space, bringing gold standard scientific rigor to the field. Moreover, it is the only HGNS study to evaluate several patient-reported outcomes or PROs making the findings more comprehensive than prior pivotal FDA trials. OSPREY patients in the treatment cohort showed significant improvements in PROs, including the Epworth Sleepiness Scale, which measures daytime sleepiness and functional outcomes of sleep questionnaire, which assess the impact of fatigue on daily activities. Collectively, OSPREY's data show that for patients with moderate to severe OSA, treatment led to meaningful improvements, not only in objective of disease severity, but also in daytime sleepiness and other PROs that matter most to patients and clinicians. As previously disclosed, OSPREY did not exclude patients with complete concentric collapse with approximately 45% of the participants considered high risk. The study enrolled a challenging patient population with higher baseline AHI and BMI compared to other pivotal U.S. trials yet achieved comparable responder rates. We are proud to bring the option of pHGNS to more patients as the first and only FDA-approved HGNS therapy without CCC-related contraindication or warning and without a pre-implantation drug-induced sleep endoscopy requirements. In addition, our PolySync evaluation is progressing. PolySync is our advanced titration algorithm that fully utilizes the 6 electrode architecture of the PHS costs, enabling greater selectivity and patient-specific optimization of therapy. PolySync demonstrated ability to convert nonresponders into responders, both strengthens our competitive positioning versus existing HGNS therapy and has the potential to expand penetration in a broader range of patients. We're excited to share the complete PolySync results at the upcoming [ SLEEP ] conference in June. To date, our findings indicate that PolySync will convert over 50% of OSPREY nonresponders into responders. For context, our study originally included roughly 100 patients who are randomized into treatment and control groups and monitored until the 7-month primary end point. At that point, patients in the control group also began receiving therapy. Following the 13-month endpoint, we extended the opportunity to all nonresponders regardless of their original assignment to participate with PolySync. This approach led to a cumulative responder rate suppressing 80% across the entire OSPREY trial population. These results underscore the significant impact politic may have in improving outcomes within this patient group. As a reminder, PolySync will be available at launch enabling patients to benefit from the advanced algorithm starting with their initial titration. We continue to view OSA as a compelling derisked opportunity grounded in differentiated technology and clinical evidence as well as our established neuromodulation capabilities. Now turning to difficult-to-treat depression. We continue to believe VNS therapy is a differentiated option for this markedly ill patient population. While we remain in active engagement with CMS, we won't speculate on exact submission timing. We remain excited by the DTTD opportunity, and we'll continue to keep investors updated on material development as appropriate. In epilepsy, during the first quarter, we initiated a limited market release of our cloud-based clinician portal and application. As a reminder, this rollout is intended to validate workflows and deepen clinician engagement. The financial impact is expected to be limited this year. A full market release is planned for 2027 alongside the launch of our next-generation Bluetooth-enabled generator. This multiyear innovation road map is expected to streamline care delivery through remote titration, real-time access to patient insights and more digitally connected care pathways that remove barriers to access. At LivaNova, we have developed a unified digital health platform for our entire portfolio, allowing for a consistent technology user experience and data strategy across our different business units. For example, in epilepsy, the cloud-based clinician portal and app will enable capabilities such as remote titration. Lastly, innovation within our CP consumables portfolio continues to advance. For our next-generation oxygenator with the design finalized, we are now in the manufacturing scale-up phase of product development. In summary, we are encouraged by our recent progress across the portfolio, including regulatory and clinical evidence momentum in OSA and DTV. The rollout of our connected care platform in epilepsy and the advancement of the [indiscernible] program. Collectively, these milestones underscore the depth of our innovation pipeline and the opportunity to continue raising the standard of care. With that, I will turn the call over to Alex. Alex Shvartsburg: Thanks, Ahmet. During my portion of the call, I'll share a brief recap of the first quarter results and provide commentary on our updated full year 2026 guidance, which reflects strong performance year-to-date and improved business outlook. Turning to results. Revenue in the quarter was $362 million, an increase of 11% on a constant currency basis versus the prior year. Foreign exchange in the quarter had a favorable year-over-year impact on revenue of approximately $10 million or 3%. Adjusted gross margin as a percent of net revenue was 68% and compared to 69% in the first quarter of 2025. Higher volumes and improved pricing were offset by unfavorable currency and product mix. Adjusted SG&A expense for the first quarter was $129 million compared to $116 million in the first quarter of 2025. SG&A as a percent of net revenue was 36% as compared to 37% in the first quarter of 2025. On a year-over-year basis, the reduction as a percent of net revenue was driven by fixed cost leverage. Adjusted R&D expense in the first quarter was $47 million compared to $38 million in the first quarter of 2025. R&D as a percentage of net revenue was 13% compared to 12% in the first quarter of 2025 with the year-over-year increase primarily reflecting planned investments in OSA. Adjusted operating income was $71 million compared to $65 million in the first quarter of 2025. Adjusted operating income margin of 20% was generally in line with the prior year period, reflecting higher revenue and operating leverage, partially offset by increased OSA R&D investments and unfavorable foreign currency impacts. Adjusted effective tax rate for the quarter was 23% compared to 24% in the prior year period, reflecting a modestly more favorable geographic mix of income. Adjusted diluted earnings per share was $0.98 compared to $0.88 in the first quarter of 2025. The increase was primarily driven by higher revenue, reflecting strong growth across both the cardiopulmonary and epilepsy businesses. Moving to our cash balance at March 31. Cash was $540 million compared to $636 million at year-end 2025. Total debt at March 31 was $288 million compared to $377 million at year-end 2025. The reduction in both cash and total debt was a result of the early repayment of the outstanding term facilities of $98 million, inclusive of accrued interest. Adjusted free cash flow for the quarter was $4 million, compared to $20 million in the prior year period. The year-over-year decrease was primarily driven by increased capital spend and higher working capital requirements aligned with revenue growth. As a reminder, the first quarter results are disproportionately low, relative to our guidance due to the payout of the 2025 accrued short-term incentive bonuses. Capital spend was $14 million in the first quarter compared to $11 million in the prior year period. The year-over-year increase was driven by cardiopulmonary capacity expansion initiatives, the next-generation oxygenator manufacturing scale-up as well as investments in IT infrastructure. Now turning to our updated 2026 guidance. As Vlad mentioned, based on performance to date, we're increasing full year 2026 revenue and adjusted earnings per share while maintaining adjusted free cash flow guidance. We now forecast 2026 revenue growth between 7% and 8% on a constant currency basis, up from 6% to 7% previously. We continue to expect the impact of foreign currency to be a tailwind of approximately 1% based on current exchange rates. Consistent with our prior guidance, we estimate a tariff net impact of less than $5 million on adjusted operating income for the full year. At this point, we are not assuming a tariff refund benefit. However, we are working through the government's refund process. We believe LivaNova remains well positioned to manage the impact of tariffs. With respect to the conflict in the Middle East, we have incorporated an estimated full year impact of approximately $5 million on adjusted operating income, primarily related to higher shipping, logistics and fuel costs. As with tariffs, the situation remains dynamic, and we continue to monitor developments closely. Despite this impact, we continue to expect full year adjusted operating income margin to be in the range of 20% to 21%. Adjusted effective tax rate is still forecasted at approximately 23%. To reflect stronger operational performance, we now project adjusted diluted earnings per share in the range of $4.20 to $4.30, with adjusted diluted weighted average shares outstanding to be approximately 56 million for the full year. This EPS range represents approximately 9% growth at midpoint. Adjusted free cash flow is still expected to be in the range of $160 million to $180 million. This range includes $120 million in capital spending, a $40 million increase versus the prior year. This level of investment is consistent with our Q1 initiatives supporting cardiopulmonary capacity expansion and the next-generation oxygenator manufacturing scale-up as well as investments in IT infrastructure. In summary, we delivered strong first quarter with double-digit revenue growth, positioning us well for the balance of 2026. Our updated 2026 guidance aligns with the 2025 to 2028 framework presented at our Investor Day and reflects top line performance at the high end of our targeted mid- to high single digit revenue CAGR. We continue to target annual adjusted operating margins above 20% with EPS growth roughly in line with revenue. Our adjusted free cash flow trajectory supports achieving 80% conversion by 2028. This outlook reflects healthy core business execution and continued disciplined investment, consistent with our capital allocation framework. With that, I'll turn the call back over to Vlad. Vladimir Makatsaria: Thank you, Alex. In closing, LivaNova's strong operating model continues to generate durable growth, fueling both our performance today and our ability to invest for tomorrow. We also made important progress in OSA this quarter, achieving key regulatory and clinical milestones that position us well for entry into this high-growth, high-margin market. I want to thank our colleagues around the world for their focus and dedication to improving outcomes for patients and serving our customers. With a strong team and clear strategic priorities, LivaNova is well positioned for continued momentum in 2026 and beyond. With that, we are ready to open this call for questions. Operator: [Operator Instructions]. First question comes from Rick Wise with Stifel. Frederick Wise: It really is great to see such an excellent quarter across the board, very impressive, well done. And just to start off, maybe you could apply or wherever you want to expand on your very encouraging comments on what seems like a change a new world for -- or the beginning of a new world for the epilepsy business post the reimbursement change? I mean you know it was going to be important. It seems like it really is important, but talk to us about your commercial competitive life post this and this evident pickup in terms of selling operating, contracting and how we think about the business going forward? I mean it's hard not to believe you're being -- I mean, I know it's early, but that you're not being very conservative and talk about the guidance and the outlook there. Unknown Executive: Yes. Rick, great to hear your voice, and thank you for the question. So I'll maybe start a little bit broader to say what I'm really pleased about in terms of our performance is with the quality of our growth. If I look at it geographically, we have healthy growth across all regions across the world. If I look at it from the business growth drivers, kind of all the cylinders were firing. We continue to see really strong momentum in the upgrade of Essenz. We are accelerating in terms of share gain on oxygenators, and we see strong growth in our epilepsy business driven by 2 factors. One is improved reimbursement as of January 1 and 2, the dissemination of the clinical data that was an outcome of the Core VNS study. And now if I focus on the epilepsy front, what we expect from those 2 factors is #1 is improvement in price, and that is a short-term improvement. It's driven by the fact that we are reducing some of the volume discounts that we've given in the past. And so you kind of see that uplift in price right away. Secondly, we see an opportunity for improved penetration of VNS procedures in epilepsy, basically, the volume increase of procedures, and that is going to be driven by this changing algorithm within practice of current epileptologists that are doing already VNS procedures and potentially opening new centers that will do BNS procedures because now the economic barrier has been removed. So it's too early to kind of tell you what the long-term trends are. And as we continue to build our experience in this new world, we will update the investors on the progress. Alex Shvartsburg: Rick, I'll just add more -- a little bit more color. With the majority of the pricing changes took effect in -- on January 1. So due to the timing of the reimbursement update in '25, pricing for many of the accounts was already established for 2026. So our team will identify kind of a new tranche of customers for '27. So that will -- that element will continue. We've seen traction in new and expanded and reopened accounts to date. So in the first half, the teams are focused on reengaging with our [ HCP ] customers and really demand generation. So the volume-driven assumptions, including new expanded and reopen accounts are expected to materialize in the second half. Frederick Wise: Got you. And just as a second question, trying to cardiopulmonary. I mean strong consumable quarter up mid-teens. You've bumped up the '26 guidance continued [ HLM ] growth and as always, over the last several years, you're indicating you're continuing to work with third-party suppliers to expand oxygenator capacity. I don't know. It just sounds to me like again here just the short-term and longer-term implications of improving third-party component supply and manufacturing ramp. I don't know it just sounds better than you -- it seems better than I expected and your tone sounds more confident. Just where are we? And I mean, is there a sudden inflection or more dramatic expansion in supply ahead in the not-too-distant future? Just where are we in this whole process now? Thanks so much. Unknown Executive: Thank you, Rick. Yes, this is a critical priority for us to continue to drive our growth. We're very pleased with our recent progress in manufacturing output. And it comes from both improvements within LivaNova and improvements with third-party suppliers. One, as we said in the opening remarks, we're guiding to a low double-digit increase in output of oxygenated production this year. We have very important milestones coming in the second half of the year where we are opening additional manufacturing line within LivaNova to expand our manufacturing capacity and output even further. So it's been a positive experience for us. This is probably a source of -- like we said during the Investor Day of additional growth for LivaNova. But I think also, if I step back and talk about the market share dynamics. Over the last couple of years, we were able to improve market share from approximately 30% to approximately 40%. You don't see that very often in such a mature market. But we continue to build our strategy to use market share is a key growth lever. And so what we've guided during the Investor Day is that we will increase oxygenator capacity by 60% by 2030 and improve market share further by 800 basis points. So our work on manufacturing of for this kind of focus to execute versus the share gain. Operator: We now turn to David Rescott with Baird. David Rescott: Congrats on the strong start to the year here. Maybe from us starting on the VNS bucket, I appreciate the comments you provided on that already, and it certainly sounds like the commentary specifically around, I guess, the core data and market interest or health was more constructive maybe than we've heard in prior quarters. I know you've talked in the past about some of this limited impact maybe from [ Wiser ]. I know there's others that have seen that impact out there. So just curious, if at all, in the quarter, you saw anything there? And if so, would it be fair to assume that maybe the delta versus the reported results at all could be entirely driven by price? Or you're starting to maybe see some of these benefit from utilization as early as Q1 so far? Alex Shvartsburg: David, so let me address the [ Wiser ] question. So in the subset that we track, [ were ] any patients that have been denied access to VNS therapy. Early indications suggest that the program has had no material impact on us so far. And as we continue -- we'll continue to monitor the pilots that are ongoing across the 6 states. I'll just say one other thing kind of an anecdote. We successfully managed several wiser submissions to date and all of which have secured approval within a 48-hour window. So just kind of at the highest level, we're not seeing much impact. And then finally, as a reminder, the majority of our Medicare patients who undergo VNS therapy are enrolled in Medicare Advantage Plan. So as such, we're very familiar and already subject to the prior process. So again, we don't see much of an made. David Rescott: Okay. Perfect. Maybe on hypoglossal nerve OSA that the longer-term strategy there? I mean it sounds like maybe at this point, 2028 is period of time at which reimbursement maybe is fully ironed out. I know the prior goals have been for a launch at some point maybe back half of 2027. So curious around how you're thinking about not only the evidence generation and development of that strategy in 2026. But as you get into 2027, if at all, some of those reimbursement headwinds or overhangs will say that maybe don't get fixed until 2028, influence at all how you're thinking about more of this intermediate-term rollout. Unknown Executive: David, thank you for the question. I think maybe I'll start by saying that, I mean, we will follow and recognize that there are currently some challenges in the HGNS market. However, we view that current dynamic is temporary. And we still believe that the market is very attractive, and this is driven by large patient population, high unmet clinical need. And at the same time, we believe that we have the right to win with both our clinical and technological differentiation that we've discussed during the Investor Day and other engagement. So our view on the market has not changed, and we're learning as we are preparing for launch on how to deal with some of the challenges that we believe are mainly driven by the coding and reimbursement. And then maybe I'll turn it over to Ahmet to talk a little bit broader on our market access. Ahmet Tezel: Yes. I mean, we continue our efforts that we will use the prevailing codes at the time of the launch. And with the incumbent removal of the sensor, the 2 technologies in terms of reimbursement are very similar. So we are confident that by the time we're in the market the reimbursement issue will be settled a little bit more, and we will continue to work with AMA and other societies to ensure that we are doing this in a collaborative way. And one last thing I would say is that I do believe it is a strength of LivaNova, the reimbursement piece. I think we've demonstrated that with VNS. We have a very strong team that really understands this. So we will continue to work with that team and ensure that we pursue the appropriate codes at the time of launch. Operator: We now turn to Adam Maeder with Piper Sandler. Adam Maeder: Congrats on a nice start to the year. Two for me. I wanted to start on [ HLM ] and a really good quarter for that product line, broad-based performance by geography. Maybe you can just expand on what went well in the quarter, and then also double-click on China specifically. Curious to kind of understand how the Essenz launch is going in that geography. And as we think about China and FY '26, maybe contextualize that against the revised CP guidance? And then I had a follow-up on the Middle East. Unknown Executive: Okay. Adam, great to hear your voice. Actually, I was in China with a team earlier this year. We have a very good organization there, a great leader, and the business is doing very well. So the launch of HLM is progressing well in the first quarter. It's progressing as planned. we're the market leader there, and we continue to be very optimistic about that market for us. And in terms of [ HMM ] performance, while we don't disclose exact units sold in various countries, I'd tell you that we plan to grow Essenz penetration to 80% in 2025 as a percent of all units placed -- in 2026, sorry, up from 55% last year and China is going to play a significant role in that increase. So that's on China. And then broader on [ HLM ], we're pleased with the high teens growth in the quarter. We continue to see the success in the upgrade cycle. And what's great to see is it's -- this growth is actually driven by healthy volumes, both sequential and year-on-year basis. And secondly, I would say that -- it's good to see that customers are recognizing the clinical benefit of operating a machine that is fully loaded with optionality -- and as a consequence of that, we are able to maintain significant price upside versus the previous version. So this kind of -- this clinical value proposition gives me good confidence into the future that we will be able to maintain that price upside. Adam Maeder: Yes. Okay. That's very helpful, Vlad. I appreciate the color. And for the follow-up, Alex, I heard the commentary in the prepared remarks on Middle East. I think you said $5 million adverse impact on adjusted operating income from shipping and fuel costs. Hopefully, I heard that correct. Any color from a revenue standpoint in terms of how you're thinking about the conflict? Which of the businesses are impacted? And maybe just help us better understand kind of how you arrived at those assumptions? Alex Shvartsburg: Yes. So from a revenue perspective, Adam, Middle East is -- represents approximately 4% of our total revenue base. So not a significant impact. Look, we operate in segments that are essential for patients around the globe. And so we're going to continue to supply the market as best we can. In terms of the impact on EPS, we dialed in approximately $5 million or $0.07 EPS impact. It's really related to the increases we anticipate in terms of freight, logistics and energy costs. So to no one's surprise, and that's -- those are the challenges that all companies are seeing at this point in time. So we thought it was prudent to include that in our guidance. And I think, overall, I think we're really in a good position relatively speaking, in terms of managing through this Middle East conflict. Operator: Our next question comes from Michael Polark with Wolfe Research. Michael Polark: A follow-up question on oxygenators, I'm curious what you're seeing on the competitive landscape regarding capacity. I hear your comments loud and clear. It sounds like pedal to metal on increasing production volume. Do you think you're alone in making those investments? Or do you see evidence that competitors are trying to catch up to? Unknown Executive: We see a couple of things from the competitive landscape, and this is obviously, this is our view on it. Number one, we observed [indiscernible] that's continuing to exit from this space. They recently commented that they expect sales to decline from $27 million in 2025 to approximately $5 million in 2026. And majority of that will come from consumables, but as well as heater coolers and HLM. So that's one side. The second one is we don't see any kind of capacity expansion or investment in innovation in the space from other competitors in the space. And at this point, we are focused on not just on expanding output of current oxygenators, we're also focused on innovation, and we believe that the next-generation oxygenator will be clinically differentiated from anything on the market today. Michael Polark: Helpful. For a follow-up, I'm interested in the comment on the [ New Tech APC ] assignment for VNS for [ epilepsy 1580], as we head into the summer rulemaking season, what's your base case that the code stays in that 50 assignment? Or do you think the chances of Level 6 creation are elevated this year? Alex Shvartsburg: Mike, yes. So look, our market access team continues to work on getting to a Level 6 reimbursement code, we're going to continue into next year. We do -- as far as our assumptions go at this point, we anticipate that the 1580 will roll over into 2027. Operator: We now turn to Anthony Petrone with Mizuho. Anthony Petrone: Congrats on the quarter here. Maybe 2 parts on epilepsy. Last quarter, you kind of called out new accounts that were not performing VNS as a potential upside driver existing accounts that can -- where you can go deeper and then prior accounts that were using VNS that stepped away from it, potentially they can come back in. So -- maybe just an update on those 3 buckets, how you see that trending throughout the remainder of the year. And I'll throw the follow-up in here. Just on the generalized seizure front potentially you have some competition coming in later this year. Just how do you think about the general seizure landscape potentially with 2 neuromodulation players in it? Unknown Executive: Yes. Anthony. And I'll start with your first part of the question and then turn to Ahmet to comment on the clinical side. On the first one, is you bucketed this kind of 3 type of customers. So the current users, and I think that's where we'll start seeing an impact right away. Both in terms of -- in some accounts, potentially on reduction of discounts and in some accounts, we're already starting to see an improved pipeline for [indiscernible]. And that is due to the fact that obviously, one is the discount side, but the other side is that clinicians are starting to see VNS as a more effective therapy and changing the kind of the place of the therapy in the algorithm of their treatment. So that is already -- we start seeing good leading indicators of this happening. For the accounts that were that stopped doing VNS historically and potential new accounts. This is going to take some time, obviously, because it will take the accounts to set up some time to reopen and restart the procedure. So we are still confident that this is going to be a trend -- but that will be something that we will see in the future Unknown Executive: Yes. In terms of the generalized indication, we are anticipating in the second half that FDA will make a decision. Just to remind the scale of it, only about 1/3 of epilepsy patients are generalized, 2/3 are focal and in there, less than 50% are GTC patients. So we anticipate that the impact would be very limited. And we do not anticipate any direct effect to reimbursement when we utilize patients with generalized indication as we can do today. Operator: We now turn to Matt Taylor with Jefferies. Michael Sarcone: This is Mike Sarcone on for Matt. Just wanted to start with a clarification on what's baked in to guide on the CP side. I think you talked about increasing your manufacturing capacity low double digits going live in second half '26. But then you also mentioned you're continuing to work with third-party suppliers to improve component availability. Do you think you could frame how those conversations are going? And to the extent they're successful, what does that mean in terms of upside to guide this year? Alex Shvartsburg: So our updated guidance incorporates incremental improvements in the consumable component supply. So we've seen some of that read through in Q1, and we continue to work with our suppliers. In fact, we see that potentially could be -- could drive some incremental output as upside relative to our current assumptions. The market demand continues to outpace supply. And we're still operating in the back order situation. So as we improve component supply from third-party partners, we would like to see kind of a rebuild of some inventory levels because we're still kind of operating hand to mouth, and that's something that we're looking to improve. So we're going to continue to improve our own capacity throughout the year. We have a second line coming online in the second half of this year. And we're going to continue to partner with third-party suppliers to improve component supply. So that's what's dialed into our guide. Michael Sarcone: Got it. And then just on DTD, you mentioned you're in active engagement with CMS. Would love any more color there on how you feel about those conversations and just an update on your level of confidence that we could get this over the finish line? Unknown Executive: Yes. I mean, as you recall, we chose a very collaborative approach in the submission with CMS rather than directly submitting, we wanted to engage with them through a dress application. We continue to collaborate very well with the agency. We're looking forward to our next meeting. In terms of our confidence, I think our confidence lays behind the quality of the data, particularly the durability of treatment. As you recall, at 2 years, it's over 80% of the patients maintain their treatment versus today, if there's any standard of care, it is [indiscernible] therapy where patients lose their efficacy about 50% at 1 year. So our confidence has not changed. We are continuing to collaborate well with the agency, and we will definitely update once we have a formal application. Operator: Our next question comes from Mike Matson with Needham & Company. Michael Matson: Yes. So just with regard to the OSA launch and the investments in terms of sales force hiring and things like that, can you maybe give us an update on where things stand with that? It seems like you called out, if I remember correctly, called out an impact to R&D, but in the quarter, R&D expense, but I didn't hear anything in terms of like sales and marketing. When do you expect to hire -- start hiring salespeople and any other kind of investments you need to make there? Alex Shvartsburg: Mike. So our focus this year is squarely on product development and getting the next-gen device ready for launch in 2027. We expect a limited commercial release in the first half of '27 and a full launch in the second half of '27. So as far as our investments this year still continue to focus largely on R&D with maybe some small portion on market developments as we move -- as we progress towards launch. We'll start hiring reps probably late this year, early next year as we get ready for a full market release in the second half? Unknown Executive: Yes. Maybe just one comment. We're very pleased with the fact that [indiscernible] with our leader in OSA chose LivaNova, she joined the company and as a leader, she is now forming the leadership team, the go-to-market strategy and in the question that you asked on the commercial team that obviously will be started to get executed in 2027, but all the preparation work has been done now. Michael Matson: Okay. Got it. And then I heard you also call out some impact from spending on the ramp-up on the next-generation oxygenators. So can you just remind us on the timing on that and kind of how it will compare to the current offering and how it will be sort of phased in? Will it be more of an immediate switch over or more of a gradual change like we've seen with Essenz? Unknown Executive: Yes. In terms of the development, we're in the late-stage development. I think what we -- and what I mean by that is that we have a completed design we are now doing the manufacturing scale up. And we do anticipate that the product will launch in 2028 to oxygenator. That was the question, right? Michael Matson: Yes. Unknown Executive: So in terms of its capabilities, there's about 8 to 10 different parameters that perfusion is care about in the performance of an oxygenator, and we believe our next gen is superior equal to -- on all those parameters superior or equal to than the market leader product that we have with our Inspire oxygenators in the market. So we're very excited about it, and we continue to do the late-stage manufacturing scale-up. Operator: That's all the time we have for questions. I'll hand back to Vladimir Makatsaria for any final remarks. Vladimir Makatsaria: Well, thank you, everybody, for your engagement with LivaNova for joining us today and on behalf of the entire team, we really appreciate your support and interest in the company. Have a great day. Operator: Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Lineage's First Quarter 2026 Earnings Conference Call. [Operator Instructions]. I will now hand the conference over to Ki Bin Kim, Head of Investor Relations. Please go ahead. Ki Bin Kim: Thank you. Welcome to Lineage's discussion of its first quarter 2026 financial results. Joining me today are Greg Lehmkuhl, Lineage's President and Chief Executive Officer; and Robb LeMasters, Chief Financial Officer. Our earnings presentation, which includes supplemental financial information, can be found on our Investor Relations website at ir.onelineage.com. Following management's prepared remarks, we'll be happy to take your questions. Before we start, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our filings with the SEC. These risks could cause our actual results to differ materially from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, reference will be made to certain non-GAAP financial measures. Information regarding our use of these measures and a reconciliation of non-GAAP to GAAP measures can be found in the press release and supplemental package that was issued this morning. Unless otherwise noted, reported figures are rounded and comparisons of the first quarter of 2026 are to the first quarter of 2025. Now I would like to turn the call over to Greg. W. Lehmkuhl: Thanks, Ki Bin, and good morning, everyone. Let me walk through our agenda for this morning. First, I'll provide key highlights from Q1, then I'll share our latest view on cold storage and industry dynamics. Following my remarks, I will turn it over to Robb LeMasters, who will walk through the details of our segment performance, capital structure and expense management initiatives. I'll then return to share closing comments before we open up the line for your questions. Turning to our quarterly performance on Slide 4. Overall, the first quarter came in better than our expectations and reinforces our view that the business is stabilizing as we manage through the industry headwinds we've highlighted over the past couple of quarters, including elevated new supply and trade-related challenges. During the first quarter, total revenue was flat year-over-year and adjusted EBITDA increased by 3.3% to $314 million. Total AFFO was $201 million or $0.78 per share, representing a year-over-year decline driven primarily by the expiration of prior year interest rate hedges, consistent with our 2026 guidance. On a comparable basis, excluding this impact, AFFO per share was essentially flat. Turning to core operations. Our results were solid and better than we expected. Same-store physical occupancy sequentially declined by 290 basis points to 76.4%, in line with our expectations. Our economic occupancy of 82% also continues to track nicely at a similar spread to physical occupancy. Through a collaborative and proactive approach with customers, we've rightsized guaranteed space to appropriate levels. Stabilizing occupancy trends are consistent with our direct customer dialogue and with commentary from food producers on recent earnings calls. I will provide more color on these food industry trends in a minute. In terms of customer rate, our same-store rent, storage and blast revenue per physical pallet increased 2.2%, the fourth consecutive quarter of year-over-year increases. As a reminder, rate per pallet is impacted by mix, seasonality and FX, resulting in normal quarter-to-quarter variability. Same-store warehouse services per throughput pallet was modestly more positive than expected, driven by mix and strong performance from our international business. As an update, we continue to feel positive about realizing net price increases of 1% to 2% this year. Finally, we continue to see some softness in same-store throughput in line with both prior trends and our expectations for the first half, primarily reflecting lower import/export container volumes across seafood and other key commodities. Container volumes declined 17% year-over-year in Q1, following a 9% decline in the fourth quarter of 2025, underscoring the persistence of these headwinds. While exports were down significantly, this quarter's import decline was even more pronounced partly reflecting a difficult comp in Q1 '25, resulting from a pull ahead of imports prior to tariff actions last April. Overall, in spite of some of these factors, our 0.9% same-store NOI decline year-over-year was a welcome improvement from prior trends. Turning to our outlook. We are maintaining our 2026 guidance as we continue to expect annual same-store NOI contraction of negative 4% to negative 1% and AFFO of $2.75 to $3 per share. While we're not changing guidance, we have increased conviction in achieving the midpoint of guidance on the heels of a solid first quarter and increased stability we are seeing across our portfolio. Robb will share further guidance details later in the call. So overall, the portfolio is showing signs of stabilization with modestly better-than-expected results across most regions. While first quarter trends were encouraging, we believe additional time and consistency are required to confirm the durability of these patterns versus normal variability in customer volumes. We remain cautiously optimistic as we build on these trends through 2026, supported by disciplined execution and productivity improvements. Turning to capital investments, which is a compelling driver of upside to our medium-term growth model. In the quarter, we invested $130 million in growth capital, primarily in development projects. As a reminder, we have 22 facilities that are under construction or in the process of ramping and stabilizing, and we are pleased with their continued progress. We've already invested $1.2 billion of capital in these projects, and we expect them to deliver over $150 million of incremental EBITDA to our current run rate once stabilized, a meaningful impact to our earnings base in the future. As discussed last quarter, we continue to make solid progress on our strategic portfolio review and have increased confidence in the breadth of options available to enhance balance sheet capacity and drive shareholder value. Our early review indicates many attractive options. All options we are exploring would highlight the continued disconnect between private and public valuations for high-quality storage assets. We look forward to updating you in future quarters as we learn more. Our LinOS technology implementation now at 11 conventional facilities continues to gain momentum and is still expected to roll out to at least 20 facilities this year. Each quarter, we gain more confidence in our 3- to 5-year target we shared in December of generating $110 million of OpEx savings. Turning to Slide 5 and looking at U.S. supply and demand trends, particularly for those who are new to our story and as we've shown in past presentations, from 2021 to 2025, U.S. public refrigerated warehouse supply increased approximately 15% on a square foot basis, while consumer demand for the categories we serve grew about 5%, resulting in roughly 10% excess capacity. Despite this, Lineage delivered average physical occupancy of approximately 75% in 2025, down only 300 basis points from our 2021 level. This performance reflects the strength of our network, our commercial execution and customer preference to partner with the industry leader. As Lineage and the industry sought to digest this new capacity, on the right, you can see how those recent supply additions impacted our markets. This analysis focuses on U.S. assets held consistently since 2021, representing over $500 million in NOI. Importantly, what we've seen is that after new supply is delivered, market rents adjust fairly quickly, reaching a new equilibrium and tend to stabilize from those levels after a period of market digestion. And so you can see that approximately 85% of that U.S. asset NOI is located in markets with limited new supply growth or in markets that have had higher supply growth but earlier in the cycle where market rents have adjusted and stabilized. Markets with low supply growth, shown in green, represent more than 60% of that U.S. portfolio. These high barrier markets have remained resilient and NOI is steady after COVID destocking and other headwinds. Markets with greater than 15% new supply delivered during 2021 to 2025 are split between early and late cycle. Early supply markets shown in blue had new supply delivered in '22 and '23. After seeing NOI pressure in '23 and '24, performance stabilized in '25 and is expected to remain stable this year. These markets represent 21% of that U.S. NOI. Together, low new supply and early supply markets comprise approximately 85% of the U.S. NOI and are clearly demonstrating stabilization. Late supply markets shown in gray, saw supply delivered primarily in '24 and '25 and are experiencing near-term competitive pressure. These markets represent approximately 15% of U.S. NOI, and we expect them to show a similar pattern as early cycle markets over time. Furthermore, with new deliveries expected to decline sharply in 2026, we anticipate conditions to improve in the medium term. Looking ahead, new supply is expected to slow significantly going forward as the current environment does not support speculative development. Across the industry, we believe we will see increasing examples of asset repurposing, potential competitor exits or bankruptcies and asset obsolescence cutting into excess capacity overhang. We are also actively managing supply through selective idling, having idled 10 facilities in 2025 and planning another handful this year. On demand side, resolution of tariffs, normalizing food inflation, easing geopolitical uncertainty leading to a rebound in container volumes, expanding our customer base with new product categories like candy and flowers and lower interest rates, all represent potential upside that we have not baked into guidance, but could emerge as a welcome tailwind. In summary, we have worked through much of the new supply, and while a limited portion of our portfolio is managing a near-term supply imbalance, the vast majority of our U.S. NOI is on more stable footing. As excess capacity is absorbed and the food industry normalizes, we are well positioned for sustained growth. As a reminder, demand improvement should create additional upside given the inherent operating leverage in our business that could be further compounded by productivity and cost measures. Turning to Slide 6. To help contextualize some of the challenges we and other large food companies are navigating today, we want to share a few charts that illustrate the trends we discussed on recent calls. The chart on the left shows days of inventory outstanding across many of our key food production, distribution and retail customers in the frozen and refrigerated categories in which we participate. While the data has limitations and encompasses more than just temperature-controlled segments, it is directionally consistent with our customer dialogue that the COVID-driven inventory build and subsequent destocking cycle have largely played out. Inventory days have flattened and converged to historical norms. The middle chart illustrates U.S. food import volumes of key agricultural commodities, which historically have been a meaningful driver of warehouse services in our network. After a multi-decade period of growth, volumes have declined recently due to tariffs and geopolitical uncertainty. This dynamic helps explain why throughput remains pressured year-over-year, but we believe that in the long run, U.S. agricultural trade will once again serve as a tailwind to our industry. Importantly, incremental volume in this category is highly margin accretive, driven by strong services attachment and the operating leverage in our network. As volumes recover, we would expect meaningful flow-through to EBITDA. Finally, the chart on the right reinforces a simple point. Even through geopolitical shocks and recession, food demand has remained resilient, and it continues to support long-term growth. While we're not immune to disruptions, the food industry has proven to be among the most durable and steadily growing categories, delivering a roughly 2% CAGR in inflation-adjusted food sales over the past 25 years. Like many of you, we're closely monitoring the situation in the Middle East, and we've assessed the potential impact on our business. We have limited exposure to the Middle East, and we expect the near-term impact to be largely net neutral for both our warehouse and GIS segments. And specifically, with respect to energy costs, we are largely insulated in 2026 and 2027 through a combination of in-place hedges, surcharge mechanisms, regulated utility exposure and on-site solar generation. This reflects the strength of our approach to energy management and efficiency. Like all of you, we're hoping for a swift and peaceful resolution to the conflict. With that, let me turn it over to Robb LeMasters. Robb LeMasters: Thank you, Greg, and good morning, everyone. Starting with Slide 7. In our Global Warehousing segment, first quarter total warehouse NOI increased 1.1% year-over-year to $364 million, and same-store NOI declined 0.9% year-over-year to $347 million, both ahead of our expectations. In Q1, same-store NOI benefited by approximately 250 basis points from favorable FX year-over-year, just as we contemplated in our previously provided 2026 outlook. Looking forward, we expect FX to be a relatively minor year-over-year factor for the balance of 2026. In addition to the FX tailwind, year-over-year performance was driven by strong international NOI growth, including continued uptake of value-added services in multiple international geographies. Collectively, these results underscore the resilience of our diversified global platform. Within the same warehouse pool, rent, storage and blast revenue per physical pallet increased 2.2% year-over-year and utilization was 76.4%, down just 30 basis points from the prior year, reflecting a more consistent operating backdrop and strong commercial execution by our sales team. Throughput volumes were modestly softer, down 3.3%, although services revenue per throughput pallet increased 50 basis points. While occupancy has largely stabilized, throughput continues to reflect lower trade-related port volumes. Shifting to Slide 8. Global Integrated Solutions segment's NOI was flat versus prior year at $57 million. Our first quarter GIS NOI margin improved by 190 basis points year-over-year to 18.3%, reflecting an improved margin mix after divesting a lower-margin international transportation business last year. We are continuing to see positive momentum in our U.S. transportation and food services businesses due to the value these integrated solutions provide to our customers. This strong performance was masked by lower drayage activity associated with suppressed container volumes. As a reminder, we see solid long-term upside in the combined offerings of our GIS businesses and our Warehouse segment. Our ability to bring a global network of assets and end-to-end solutions is unique and being rewarded by our customers. Turning to Slide 9. First quarter adjusted EBITDA increased 3.3% year-over-year to $314 million and first quarter AFFO per share decreased 9.3% versus the prior year to $0.78, both ahead of our expectations. Better-than-expected results were partly driven by the timing of administrative expenses, which were a key focus in Q1 and reflected tighter oversight during our cost rationalization work, influencing near-term spending patterns. A portion of these costs were deferred into Q2 and later in the year. Thus, we expect administrative expense to normalize to approximately $120 million to $125 million per quarter for the balance of the year, consistent with our guidance and indicative of the progress we're making heading into 2027. I'll share more on that in a minute. We are pleased to see both our core operations NOI and EBITDA grow over the prior year despite operating in a challenging environment. Moving to Slide 10. We ended the quarter with total net debt of $7.9 billion and total liquidity of $1.6 billion. We have approximately $600 million of debt maturing in 2026, which we believe is very manageable. We have ample flexibility to address this through our revolver or other available sources of capital, supported by our strong access to both the U.S. and European public bond markets. As Greg noted, we continue to make progress on our previously announced strategic portfolio review. We are evaluating a range of options to increase financial flexibility and build dry powder for potential market dislocations while maintaining the ability to invest in high-return growth opportunities with our customers or to return capital to our shareholders. Over the past 15 years, we've demonstrated a consistent track record of disciplined capital allocation, and we look forward to discussing these opportunities with you in the coming months. Our adjusted net debt to transaction adjusted EBITDA, the metric we introduced last quarter stands at 5.3x. This metric is more comparable to our peers and accounts for intra-period acquisitions or dispositions and capital investments made into our development pipeline that have yet to stabilize. Keep in mind that our development projects have been significantly derisked given the majority of these projects are anchored by customers with long-term commitments. Additionally, maintaining our investment-grade balance sheet remains a key focus for our company, and we remain committed to bringing reported leverage, which currently stands at 6.0x into our targeted range of 5.0 to 5.5x. Turning to Slide 11. I wanted to provide an update on a key cost initiative consistent with our focus on controlling what we can control. As outlined on our fourth quarter call, we have identified a plan to remove $50 million or more of our administrative and indirect cost base. We have already executed several of the required actions, positioning us to realize approximately half of the savings in 2026 and the full benefit in 2027. This is not simply a cost reduction exercise. It is intended to enhance execution discipline and reinforce our culture of continuous improvement to support scalable, profitable growth. Key actions include centralizing and optimizing indirect costs, internalizing third-party activities and leveraging AI and digital transformation. The initiative requires a modest upfront investment of approximately $15 million, primarily related to technology and personnel transitions. These costs will be recorded below EBITDA in late 2026 and into 2027 as we execute our efficiency and digital initiatives to drive recurring savings. While SG&A is a key focus, the same discipline is being applied across procurement, CapEx and working capital. These efforts are expected to support same-store NOI and EBITDA and ultimately drive free cash flow and AFFO per share growth. Moving on to our outlook. We are reiterating our 2026 guidance with same-store NOI growth of minus 4% to minus 1%, total warehouse NOI growth of minus 2% to plus 1%, GIS NOI growth of 0% to 2%, adjusted EBITDA in the range of $1.25 billion to $1.30 billion and AFFO in the range of $2.75 to $3 per share. On this slide, you can also see the additional guidance detail we provided in the past. Please note that we expect a fully diluted share count of 260 million shares in Q2 and 259 million shares for the full year, which is unchanged from prior guidance. While we are encouraged by our better-than-expected first quarter results, we are maintaining our full year guidance. The majority of the outperformance was driven by 2 favorable dynamics, and we would like to see more consistent upside performance before factoring that into our outlook for the remainder of the year. First, administrative expenses were lighter in Q1, reflecting tighter controls and the timing of our $50 million cost rationalization planning. As we move through the year, we expect expenses to normalize toward a more typical run rate, consistent with the midpoint of our full year guidance. The pace at which savings are realized will depend on the timing and execution of these initiatives. And second, NOI in the quarter was supported by strong international performance, driven by a particularly favorable mix and elevated services revenue. Separately, as you think about Q2 cadence, we would point to a few items. FX is expected to be less of a benefit to same-store NOI, approximately 100 basis points in Q2 versus 250 basis points in Q1. Administrative expenses should trend back toward a more typical rate of $120 million to $125 million per quarter following the Q1 underrun. And finally, our occupancy historically shows a modest seasonal decline from Q1 to Q2. On the non-same-store front, our outlook reflects continued strong contributions from 2025 acquisitions and the ramp of new developments. The high teens millions of NOI generated in Q1 supports a progression towards an approximately $20 million quarterly run rate with further upside as assets continue to mature. On profitability, we are leaning into productivity improvements and digital enablement to refine how we operate our warehouses and allocate capital more broadly. The objective is not just efficiency, but to structurally strengthen our platform and extend our competitive advantage. A stabilizing supply and demand environment and a sharper focus on revenue growth, coupled with expense management and balance sheet optimization provide a solid foundation for 2026 and a clear path to long-term growth. W. Lehmkuhl: Thanks, Robb. We believe Lineage is well positioned to emerge from this period stronger than ever as we continue to invest in and extend the structural advantages that differentiate our platform. Allow me to close with highlighting our key strength and differentiators. First, we own and operate essential infrastructure in the global food supply chain, playing a key role in delivering food from farm to table for millions. Our business and the broader industry has proven resilient and capable of growth across cycles. Second, we are the global leader in our markets with a network of modern hard-to-replace assets strategically located near population centers and key thorough layers of commerce like ports. Third, operational excellence is a structural advantage for us. We are a leader in automation, AI-enabled operations with our proprietary LinOS platform, positioning us to drive even greater efficiency as it scales across our network. Fourth, through our global integrated solutions platform, we deliver a comprehensive end-to-end suite of value-added services, including drayage, freight forwarding, rail, e-commerce and food service, enabling us to partner more deeply with customers and enhance retention. Fifth, we have a strong track record of disciplined capital deployment, supported by a solid balance sheet. From our first acquisition in Seattle to our most recent fully automated warehouse development for Tyson, we have consistently created value through our investment decisions. And finally, our industry-leading platform is enabled by a world-class team, defined by a performance and ownership-driven culture and deep expertise in both operations and technology. While progress may not always be linear, we are seeing continued signs of stabilization in our core business. We are encouraged by our first quarter results and believe we're well positioned for long-term growth. Lastly, I want to thank our global team members for their dedication and commitment to our customers. Operator, I'd like to open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Michael Goldsmith with UBS. Michael Goldsmith: Can you dive a bit deeper into the factors that drove the earnings upside in the first quarter and if you see these as sustainable? And it seems like you're looking for more evidence that these factors can be sustained before you touch your outlook. So can you help us reconcile the upside from the first quarter to that full year guidance, which you reiterated? W. Lehmkuhl: Sure. Michael, thanks for your question. So I'll just start by saying we did deliver a strong quarter, and I'd like to just thank our global team members for servicing our customers at the highest level and doing a great job controlling expenses. The team executed exceptionally well. And as we've discussed, mix can move results in either direction from quarter-to-quarter, and there's always puts and calls. With 500 locations and 15,000 customers in 19 countries, there's a lot of things moving around all the time. And we've worked through several periods recently where the net impact of mix was a headwind. And in Q1, it was a tailwind led by great strength in our international business. And I think this quarter just reinforces the advantage of our scale and diversification across our network. So while we're certainly excited about Q1, it's just 1 quarter. And while we're working hard to build off that foundation and certainly seeing signs of the industry stabilizing, we're being prudent and just reiterating and holding our guidance for the full year and just simply saying that it just -- it gives us more confidence in hitting the midpoint of our range. I don't know, Robb, do you want to add more? Robb LeMasters: Yes. I mean I think that's right, Greg. As we outlined on the call, there's really a couple of things that we benefited from one on sort of the cost side and timing related there. And then the second one really being around international, the customer side there. So those are really the 2 impacts. And just to dive into them, Michael, as we talked about on the admin side, I would say about 1/3 of the beat came there. You know that certain expenses in that line can be uneven. Quarterly timing can move different items such as training or T&E. And so I think all the scrutiny that we expose the teams to in terms of reviewing and pacing investments ultimately probably led to some pause. And so we see those expenses coming back in Q2 and into the second half. So that's about 1/3, Greg, when I kind of did the math myself. And then the other 2/3 really comes from those issues around international. And we delved into that. And those items also can kind of come quarter-to-quarter. Really, we saw a couple of factors that are, frankly, just customer programs that materialized in the quarter in certain geographies. For instance, in Canada, we saw a short-term lift related to exports. There were some things that happened with Canada and China trade tensions that eased. So that helped a little bit there in Canada. In APAC, I saw a little bit of a handful of customers that had specific events that drove higher case pick. And then finally, in EMEA, we all know that trade flows can be disrupted. That actually led to some extra handling activity. So all these were items that we saw as discrete customer items. And so we'll evaluate. I think, Greg, you're exactly right. Those have moved in the opposite direction. So we're pleased and encouraged, but I just think that we need consistency before we kind of make any adjustments. Operator: Your next question comes from the line of Caitlin Burrows with Goldman Sachs. Caitlin Burrows: Maybe switching gears to the lockup and a few shorter questions. So could you go through what portion of the share count is the free float today? And then for the rest, what portion is company management versus other investors who may look to exit within the next, call it, 3 years? And do you expect any of that selling to start in 2026? Or has it been allowed or happened already? W. Lehmkuhl: Yes. Thanks, Caitlin. So as you know, as we went public, we floated about 30% of the company. So 70% of the company is still managed under the purview of Bay Grove. And I just want to clarify something. While that's managed under the purview of Bay Grove and often people per your question, talk about a sell-down of that. They're really managing the ultimate distribution of that. And frankly, as we discussed with them and they discussed with their investors, there's no impetus that caused them to need to sell down that 70%. The lion's share, as you mentioned, are very long-term holders, not the least of which is Bay Grove, which sits in our Board. They're extremely long term. They're a significant amount of that 70%. And then other holders in their base, frankly, are really looking to sell in the near term or even potentially in the long term. So this is not something that keeps me up at night. We're not looking for some immediate sell-down. I think that -- if I was in Bay Grove's shoes, I think they're just evaluating how share price appreciates from here. I'm sure they're focused on the public float. I'm sure they're focused on expanding for index funds and so forth. So all those factors go in, but there is no pressure to sell. And so I do not see this as a pending issue that's sort of looming over the company. Operator: Your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael Carroll: Greg, can you provide some context on how Lineage is looking to reshape its portfolio? I know you probably can't say much about the potential APAC sale, but I know in your prepared remarks, you highlighted that the company is pursuing several different opportunities. I mean, should we expect a potential larger scale deal on the horizon to kind of help you get back down to those longer-term leverage targets in the low 5s? W. Lehmkuhl: Yes. Michael, thanks for the question. So as we said in the prepared remarks, we continue to advance our strategic portfolio review. The opportunities we're looking at are broad and flexible, ranging from the potential sale of individual assets to larger portfolio transactions, as you allude to, as well as joint venture capital solutions. And proceeds from any potential transactions would just enhance our financial flexibility and create optionality across several priorities, including deleveraging the balance sheet, funding our development pipeline, which we have a very deep pipeline for and a lot of demand for, pursuing targeted acquisitions should market dislocations arise and returning capital to shareholders. So all I'll say at this point is we're encouraged by the progress to date, and we would expect to share more in coming quarters. Operator: Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I appreciate the commentary around new supply growth and the updates there. And you talked, Greg, about the lower level of new starts, but it looks like the estimate of excess capacity increased slightly to 10% from 9.5% last quarter. I'm just curious, when do you think the industry achieves peak supply growth or I guess, peak impact from new supply growth. When will the pressures start to abate? Have you seen that yet? Or do you think that, that is soon to come? W. Lehmkuhl: Yes. Todd, the 10% was just rounding effectively, we didn't see any meaningful change. As we mentioned, we expect the new supply deliveries to meaningfully slow in '26 and '27, declining below 2%. And given the current supply-demand dynamics and elevated construction costs, the incremental speculative development is just no longer economically compelling. And so I think we're past the biggest impact as we described in this quarter's prepared slides and last quarter's prepared slides, 85% of our U.S. network is on stable ground or growing even after that new supply has been delivered. And so I think it's also important to point out that we think a lot of these new operators are under pressure due to high basis of their assets. And a subset of them will continue to struggle or ultimately fail, and we're going to assess those consolidation opportunities thoughtfully as they arise. That said, we'll remain disciplined and selective, focused on only acquisitions that enhance our network and certainly meet our return thresholds. At the same time, we believe some of the new inventory that's been delivered is just structurally disadvantaged, whether that's because of local oversupply in certain markets, construction quality, location, design limitations. And ultimately, some of that new supply will become -- will be used for things other than long-term cold storage. So long story short, we think we're past the worst of the pain. We see pricing more rational than it was a couple of years ago, and the number of markets we're concerned about continues to go down every quarter. Operator: Your next question comes from the line of Michael Mueller with JPMorgan. Michael Mueller: I guess if you strip out what you saw as abnormal port activity in the quarter, where do you think the year-over-year throughput volume comp would have been compared to the down 3.3% that you reported? And I guess, how negative would that number have been still? W. Lehmkuhl: And so I'll just start by talking container volume. And if Robb, do you want to dig into throughput, that's fine. So from an import/export perspective, container volumes, as we stated, were down 17% year-over-year in the quarter, following a 9% decline in Q4, but that was largely in line with our expectations because we knew the first quarter of this year was the toughest comp from last year. And so it's always -- with so many moving pieces in the network, it's hard to take one impact out and say what would have happened without that. But stepping back and just talking about container volumes and import/export activity from a macro standpoint, global trade volumes have grown at a 5.7% annual rate for the past 25 years, well ahead of inflation. And that growth has been broad-based across our categories as supply chains have become increasingly global. And so we think this reduction in import/export activity is transitory. And as that trade volume normalizes, we would expect to benefit from both positive operating leverage and the high service revenue tied to this part of the business. So it was an impact on throughput. It wasn't all the impact. We also saw some customers with greater inventory turns have lower volumes this quarter and customers with lower inventory turns have higher volumes. And that's why occupancy stayed about the same and throughput was under a little bit of pressure. Robb LeMasters: Yes, I think that's right. On the lower returning side, Greg, and as people on the call know, I've dug into that issue. Really, there can be a positive there, right? As you have lower returning customers, that's not always a negative thing. You can actually support a lower labor. So you have a commensurate ability to reduce your labor. So as you think about throughput volumes, Greg talked about the import/export side and also talked about low turning customers. On the second one, right, you can navigate through that. So that's not always a bad thing. Operator: Your next question comes from the line of Nick Thillman with Baird. Nicholas Thillman: Maybe, Robb, you've talked about some of the strength you've seen on the international side. And Greg, I appreciate the commentary on just the power side. But with geopolitical disruptions, and I know the U.S. is a little bit more insulated from an energy cost standpoint. But I just wanted to dig in on what you're seeing from the customer side, maybe on the last 2 months or so on the international side, if there's been any material impact on flows, or just overall activity on that side of the business? Robb LeMasters: Yes. On the international side, I mean, I think I picked up a couple of examples where you don't exactly know why you pick up a little bit of services. I think there's positives and negatives from the conflict. And ultimately, this is fed into kind of the trade situation. In the U.S., that probably resulted in maybe a touch lower container volumes than even we thought. In other markets, right, you can pick up a little bit. So it's really in the noise as we evaluate that situation. The trade lanes have largely seemed to reset. Sometimes you pick up a little handling as volumes turn back around and so forth. These are small things in the grand scheme of things. So I think it's a set of positives and negatives, and we're just kind of watching the situation. W. Lehmkuhl: Yes. I mean if anything, I think we have more future upside as container volumes normalize as we spoke about because of the high service revenue associated with that volume. Operator: Your next question comes from the line of Rob Simone with Compass Point. Robert Simone: I have kind of a somewhat granular question on your development schedule on Page 22. So if I -- sorry, excuse me, Page 20, 22 was the last quarter. So Page 20, am I right in assuming that the change in in-process developments basically shifted into the 1 through 12 and then the 13- to 24-month bucket. Is that right? Robb LeMasters: Yes, that's exactly right. This is Robb. I'll take that. Yes. So basically, stuff from in-process, that moves up into the 1 to 12. And then, of course, the 1 to 12 moves up to 13 to 24. And we're seeing really good trends. Of course, you can see we're quite proud of the 25 to 36 class. The stabilized ROIC bumped up a hair there since I think the last you saw it. So that class is doing great, and all the other ones are just going to age really nicely. Operator: Your next question comes from the line of Samir Khanal with Bank of America. Samir Khanal: I guess, Greg, can you provide a bit more color on the GIS segment? I know NOI was flat, but revenue growth was down, I think it was like 10% year-over-year, which is more than we expected. I guess how are you thinking about that business going forward? W. Lehmkuhl: Yes. So it's a critical part of our offerings to customers. I mean we think we have a distinct advantage by being able to offer truly farm-to-fork solutions for customers. So we love the business. We love the leadership. We love the team. We love what they're doing worldwide. The revenue impact is simply because of a divestiture in Europe last year that was real low margin. And if you want to provide... Robb LeMasters: Yes. No, I think it's even in the queue if we haven't broken it out, but just to help you, if you actually back out that Spanish acquisition, the business grew just a little bit on the revenue side. And then I think we've said it's been neutral to actually even in Q4, it was a hair to the negative. So when you back that out, you see that the revenue growth is coming right in line with how we think about that business growing on an organic basis. And then margins are, again, if you back it out from last year, are flat ex that factor. W. Lehmkuhl: And there was a couple of factors that impacted their performance in the quarter. The first one was the transportation and food service business is extremely strong. We have a lot of demand for specifically our consolidation business, which makes our customers' deliveries to retail distribution centers more efficient, especially with the price of fuel going up, the demand for that is even being pushed higher. The downside of the quarter, the tough part of the quarter was container volumes being down 17%. And we have a robust drayage business across most of the ports in the U.S. and many around the world. And so those kind of offset to a relatively flat quarter. Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Ronald Kamdem: Greg. Just a quick 2-parter. I think in the past, you've talked about sort of maintaining inflation plus type pricing in this environment as well as occupancy starting the year may be on the lower end in building. I just -- I'd love to hear some updated thoughts on sort of pricing and the occupancy trajectory. And the second part is just a clarification on the FX impact to the same-store NOI. It sounds like 250 basis points in 1Q, 100 basis points in 2Q, if I have that correctly. Maybe can you just dimensionalize what the FX impact is? And how do you guys sort of calculate it? Are you using spot and so forth? W. Lehmkuhl: Sure. Thanks for your question. I'll take the first one and then I'll pass it to Robb. And so as we sit here today, we've secured 70% of our rate increases for the year, which gives us confidence in delivering the net full year increase of 1% to 2% across the warehousing portfolio. And while there's certainly competitive pressure, still, we are seeing more rational pricing in the marketplace than we have in the last couple of years. And our commercial team is also delivering very strong new business wins and a robust new business pipeline. And so what we're seeing is customers are gravitating or gravitating back depending on the customer towards the more established operators with larger networks, more secure businesses, sophisticated technology, automation and just broader service offerings. And so we feel really good about pricing, and we wish it was higher, of course, but it is net positive even with some excess supply in some markets. Robb LeMasters: Yes, that's right. And on FX, let me just address that. Yes, you're exactly right that it was 250 basis points to the positive on the NOI line. That also bleeds into revenue and expenses. So as you just think about all our metrics, right, back that out of both revenue and your expenses as you think about pricing metrics and so forth, revenue per throughput, right, that would be affected by that same factor. That was fully contemplated, as you know, we announced guidance sort of in late February. And if you look at the FX curves, right, you actually had seen the move up all through 2025. And so basically, it was just sitting there, a little move up into guidance. And so we actually included all that in the guidance, which again will be 250 basis points that we saw in the first quarter, and then it steps down to that 100 basis points in the second quarter and then a flatter result in Q3 and Q4 to ultimately blend 1% for the year. As it relates to how we think about that forward trajectory, yes, we take our commentary today is basically looking at the existing spot rates and then also looking at the forward curves just to make sure that if anything is actually forecasted to happen over the subsequent part of the year, we haven't seen huge moves in that. So our guidance is intact, no change. Operator: Your next question comes from the line of Alexander Goldfarb with Piper Sandler. Alexander Goldfarb: Greg, as you guys do this strategic review, clearly, you guys were a pretty rapid growth company over the past 15 years and you expanded Europe, Asia, et cetera. Now it looks like you're reassessing how the portfolio is structured and where you own assets. Is this all driven because of the oversupply in the U.S. and how the pandemic disrupted inventories? Or when you guys laid out your plan and then executed, what you found is, yes, there was the oversupply and the COVID disruption, but things didn't pan out the way you guys thought. And where I'm going with this is we hear that the international is stronger, the U.S. is the market with the issues, but yet you guys have built this massive infrastructure to support a large platform. So I'm just trying to understand if the market changed or if as you guys have grown up in the industry, you kind of realize that actually you can be a smaller company and be more profitable rather than being a global company. I'm just trying to understand. Robb LeMasters: Yes, I'll start and maybe hand it over to Greg in case he doesn't have anything. I mean, again, we're early in the portfolio review. So to be clear, it's not like we've decided to sell international at the expense of North America, right? We're evaluating that. We're seeing where there's value in the portfolio. So please don't assume anything has been determined by any stretch, right? What we're doing in the review is to look at where we believe that there is opportunity to magnify what we see as an upcoming opportunity that we could see on the dislocation of various markets, frankly, or just to be more opportunistic. We ultimately want to build balance sheet capacity. We look at our credit ratios, which I outlined, and we ultimately want to get those into a zone that maintains the strength that we've always displayed. We want to maintain our investment-grade credit rating. So the first thing we do is to say where can we build that capacity and then see ultimately if opportunities manifest. We could see opportunities with customers. We could see M&A opportunities, as you said, in North America. So we just want to get ready for that, and you'd obviously go to places that you think that you can actually magnify that value. So that's what the portfolio review. No decisions have been made. And so please don't assume that we've strategically changed our position. W. Lehmkuhl: Yes, I think that's a great commentary. And I think whatever we do, we'll highlight the large discrepancy between the private and public market valuations. And I think we want to build a fortress balance sheet to continue to grow the company. And that means investing in AI and technology, and we have customers knocking down our door for us to build around the world at really good returns. And we want to make sure that we're positioned to be the best partner to do that for them. Operator: Your next question comes from the line of Vikram Malhotra with Mizuho. Vikram Malhotra: I wanted to just clarify 2 things on the call. So I guess, one, just the pricing commentary, you sort of said the 1% to 2% benefit. I want to clarify, does that essentially mean based on your prior comment, I guess, last quarter, would we see pricing come in for the rest of the year? Because I think you had mentioned overall, it will be flat. So what was the mix shift, mix change impact? And what do you anticipate for pricing for the balance of the year? And then just given the, I guess, better-than-expected trends, do we -- does this suggest that you're being conservative on the guide? Or is the rest of the year just going to be towards the lower end to get you back to that midpoint? Robb LeMasters: Yes. Maybe I'll start with just how we frame up guidance in terms of our same-store NOI, what was included. So to be clear, there's a couple of different components of that same-store NOI. There's a volumetric component. There's, if you will, revenue/price component and then there's the margin component. You've asked about the second one, which is the revenue component. To be clear, we see a price to the market of the same storage, the same services, the same geography. We see that price up, and we continue to realize that as we move deeper into the year. We're about 70% of the way through that exercise. So we're getting deeper into that. We have very good conviction that we'll ultimately see a 1% to 2% price that we'll put out in the market. Now that blends lower because of the factors we've talked about around mix and so forth to ultimately blend to a negative revenue per whatever volume you want to think about. So yes, we had a good result in the first quarter, but we ultimately see that playing out. I would remind you that in the first quarter, we did see that FX impact. So if you just lop off that 2.5% that we saw at the NOI line from the revenue metrics, you can see that those are blending, right, ex FX, and we lose that FX impact a little bit as we move through the year. So there's no change in guidance that ultimately we see the revenue per pallet, the revenue per throughput, if you will, on the services and storage side that's ultimately blending slightly negative, which is one component of our same-store NOI. Operator: Your next question comes from the line of Craig Mailman with Citi. Craig Mailman: I know there have been a few questions here on guidance. Maybe I'll ask it another way. If you looked at today's guidance range that's maintained versus when you gave it back in February, could you give your conviction levels at the low, mid and high point today versus maybe back in February, given the stronger performance in first quarter. And now that we're almost halfway through the second quarter, maybe roll in, are you seeing a lot of these trends sustained into the second quarter? And then I guess just the last part, I know you guys are doing the strategic review here. Future asset sales acquisitions are not included in guidance. I mean, how much of -- if you guys do execute on some of this later this year, how much of it impacts '26 versus kind of the '27 run rate? And how should we think about accretion dilution given the mix of options you guys are thinking about? Robb LeMasters: Yes. I'll start on the guidance point. Look, I think I'm new to seat, I'm looking at all the numbers, and this is early in the year. We have had some impacts in the first quarter that ultimately you have to sort of review and watch as we move through. As we move into Q2, Q3, Q4, I think we highlighted that there are some factors that we benefited from. We're going to lose a little bit of FX. I'll just remind everybody that we do have wage increases that we implement on April 1. So that becomes an incremental headwind as we move through the year as you just think about our kind of 1% that we did this quarter and then we're still guiding to the minus 4% to minus 1%. So you lose a little bit of the FX, which was contemplated in the guidance. You have a little bit of more headwind from inflation. And then we've just been talking through this call that the international factors really that helped us in the first quarter, right? We're not really ready to bank that. And then finally, as you just translate that through to guidance down on EBITDA, we talked about the admin factor, which ultimately I actually see as sort of building a higher run rate going forward. So that all goes into my thinking to say it's early in the year. These are factors we still need to contend with. We feel increasing conviction as we talked about on the call that the midpoint is there, which is a good place to be. But give us time. We've seen it in the opposite direction. We've been through a challenging environment. And the world is still an uncertain place, right? So we're sitting here amid day-by-day headlines that we think we can traffic through, but we want to get deeper into the year before we make any kind of change. W. Lehmkuhl: Yes. I wouldn't say anything different on that point. On your last question on potential -- our portfolio review, we're not ready to announce the scale or timing on any of any portfolio actions, but we will say that we're not going to do anything that's dilutive period. Operator: Your next question comes from the line of Viktor Fediv with Scotiabank. Viktor Fediv: So following up on the topic of macro headwinds. So rising fertilizer and diesel costs driving the shift of crop mix. Just one example of soybeans increasingly replacing corn, which is around 7% of total cold storage inventory in the U.S. per USDA. So there is clearly a potential risk that frozen vegetable production volumes can be lower this year versus last year. So what are you hearing from customers on this front? And does this mean that we once again can see seasonally weaker inventory build in Q3 this year? W. Lehmkuhl: Yes. Good question. So on energy and diesel, we're largely insulated through everything we talked about in the prepared remarks and surcharges. On fertilizer, in general, fertilizer costs for our customers, what we're hearing from them is they're locked in from a pricing perspective for most of this year at least. And so if there is an increase that impacts their production, it's going to be a next year impact. And if those prices persist into next year, the U.S. is better from a relative cost of production perspective than the rest of the world. And given that our core business is in the U.S. and that frozen food overall is a better relative value versus other non-frozen products as prices increase, we think we're in a pretty good position. And the bottom line is people are going to eat. There's been these inflationary factors for years now. And if you look at the consumption of fresh and frozen food, it's been stable or growing for the last 5 years, and we would expect that to continue for the last multiple decades, right. Operator: Your next question comes from the line of Michael Griffin with Evercore ISI. Michael Griffin: Greg, I appreciated your comments in the prepared remarks just around inventory levels in the industry and in your portfolio writ large and as we're kind of reaching this bottoming of a bleed down from a customer perspective. But as you kind of see it right now, are we hitting the nadir in terms of that inventory bleed down this year? Can you maybe give us some insights into maybe the next 12 to 18 months if that's going to rebound? Just trying to get a sense of if this is the bottom or if we could be sitting here 6, 12 months from now and there's another shoe to drop. And I realize it's hard to forecast this business over a longer-term timeframe, but just give us a sense of sort of where we stand from a bottoming perspective as it relates to inventories. W. Lehmkuhl: Sure, sure. Great question. So I'll broaden that question a little bit and just say, over the last couple of years, the industry has been working through 3 meaningful headwinds. The first one is the one you talked about, inventory destocking. And we do believe this is largely in the rearview mirror as inventory levels have returned to normal levels and are at kind of a lean level, if you will, at this point. And that's what we're hearing from customers. And so we don't think there's another shoe to drop on the inventory side. We think our customers are being prudent with their inventories at these interest rates at these demand levels, which are fairly flat. And we think we've kind of reached the bottom from that perspective. And that is, again, what our customers are telling us. The second major impact to this industry is the new supply deliveries. And as we've noted, 85% of our U.S. business in those markets are stable or growing and our international markets are strong. And so while we -- and that said, we still face pressure in about 15% of the U.S. markets where the supply came online more recently. And the last major impact is the trade volatility driven originally by Ukraine and then tariffs now at the Iran. And we continue to navigate that. And as we said in a couple of the different questions here today, we do believe that is transitory, and it will revert back to the long-term growth we've seen over the last 2+ decades. That will just be a nice tailwind for us, given our port infrastructure and the relatively high margins of that import/export business. So put all that in the soup, take it together, we believe we're moving beyond the most challenging period in our industry's history. I think occupancy being flat year-over-year just reinforces our conviction that the industry is stabilizing and that occupancy trend is trending as expected so far this year and did in the second half of last year. Operator: This will be our last question. Your next question comes from the line of Daniel Gugliamo with Capital One Securities. Daniel Guglielmo: Can you give us an update on the 2 automated Tyson facility developments? Do you expect a step-up in CapEx over the next 1.5 years or so before those properties open? And how is the construction environment right now around cost timelines? Anything would be helpful. W. Lehmkuhl: Sure. The Tyson developments are going as planned. We've already launched in our Northeast distribution center, and we're performing exceptionally well and working in close partnership with Tyson. On the other developments that we'll be deploying for Tyson, those are obviously in our CapEx plan, and we've already locked in the construction agreements. And so we feel our returns are secure there, and we won't see -- it won't be pressured by incremental inflation. Robb LeMasters: Yes. And that's exactly right. Nothing to add other than to say those projects will ultimately not affect maintenance CapEx, of course, because they're new. Those will run through the growth CapEx line and have been contemplated as you think about our supplemental. We outlined those in our greenfield and expansion projects. So those are in the process bucket. W. Lehmkuhl: All right. Appreciate everybody's time today, and we'll talk to you next quarter. Thank you. Operator: There are no further questions at this time. Apologies if we didn't get to everyone's question. I will now turn the call back to Ki Bin Kim for closing remarks. Ki Bin Kim: Well, thank you, everyone, again for joining our first quarter conference call. Have a good week. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 DHT Holdings, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, CFO, Laila Halvorsen. Please go ahead. Laila Halvorsen: Thank you. Good morning and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings First Quarter 2026 Earnings Call. I'm joined by DHT's President and CEO, Svein Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available on our website, dhtankers.com, until May 13. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic report available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. As usual, we will start the presentation with some financial highlights. In the first quarter of 2026, we achieved revenues on TCE basis of $157 million and adjusted EBITDA of $133 million. Net income came in at $164.5 million, equal to $1.02 per share. After adjusting for the $60 million gain on sale of DHT Europe and DHT China and a non-cash fair value gain related to interest rate derivatives of $1.1 million, we had ordinary net income for the quarter of $103.4 million equal to $0.64 per share. Vessel operating expenses for the quarter were $19.1 million, which included approximately $2 million in non-recurring costs related to spares and consumables. And G&A for the quarter was $5 million. In terms of market performance, our vessels trading in the spot market earned an average of $91,700 per day, while vessels on time charters achieved $61,300 per day. The average combined TCE for the fleet in the quarter was $78,800 per day. We continue to maintain a very strong balance sheet, supported by conservative leverage and robust liquidity. At the end of the first quarter, total liquidity was $350 million, consisting of $126 million in cash and $230 million available under our two revolving credit facilities. Following the repayment of $56 million in April under the Nordea revolving credit facility, current availability under our 2 RCFs stands at $285.8 million. At quarter end, financial leverage was 16.8% based on market values for the fleet and net debt was $16.5 million per vessel, which is well below estimated residual values. Looking at our cash flow, we began the quarter with $79 million in cash. From operations, we generated $133 million in EBITDA. Debt repayment and cash interest totaled $20 million. Proceeds from sale of DHT Europe and DHT China amounted to $201 million and $66 million was distributed to shareholders through a cash dividend. $2.8 million related to investments in vessels and $160 million was deployed towards investments in vessels under construction, which included delivery of our first three new buildings. We also issued $91.5 million in long-term debt. Changes in working capital and other items amounted to $30 million, and the quarter ended with $126 million in cash. With that, I will turn the call over to Svein to go through the quarterly highlights. Svein Moxnes Harfjeld: Thank you, Laina. We are very pleased with the well-time delivery of the first three of our four new buildings in the Antelope class. The DHT Antelope delivered in January, the DHT Addax and DHT Gazelle in March. The fourth vessel, DHT Empower is expected to deliver this summer. This represents fleet renewal in conjunction with planned divestment of our three older ships built in 2007, two of which have been delivered. The last of the three, DHT Bauhinia, was sold for $51.5 million in the quarter and is expected to deliver in June, July. We expect a capital gain of $34.2 million and cash proceeds of $50.5 million from this last sale. Our planned increase of market exposure for the first half of this year had the objective not only to benefit from the spot market, but also to balance this with selective new term employment. It has been a busy period with numerous contracts secured. First, the DHT Harrier built 2016 with their existing time charter due to expire, extended the contract for 5 years from January 26 at $47,500. It has two optional years priced at $49,000 and $50,000. We then secured three new 1-year time charters. DHT Opal built 2012 for 1 year at $90,000; DHT Taiga built 2012 for 1 year at $94,000; DHT Redwood built 2011 for 1 year at $105,000. Further, one of our newbuildings delivered into a 5 to 7-year time charter with a key customer. Subsequent to the quarter end, we secured two additional 1-year time charters for DHT Sundarbans built 2012 and DHT Amazon Built 2011 with average rate of $109,000 per day. As such, our Five older ships are then out on 1-year time charter contracts averaging $101,000 per day. Back to you, Laila. Laila Halvorsen: Thank you. In line with our capital allocation policy of paying out 100% of ordinary net income as quarterly cash dividends, the Board has approved a dividend of $0.64 per share for the first quarter of 2026. This marks our 65th consecutive quarterly cash dividend. The shares will trade ex-dividend on May 21, and the dividend will be paid on May 28 to shareholders of record as of May 21. Here, we also present our estimated P&L and cash breakeven levels for the last 3 quarters of 2026. Our PLM breakeven for the period is estimated at $29,700 per day, while our cash breakeven is estimated at $23,400 per day, which reflects all through cash costs. The difference between our P&L and cash breakeven is estimated at $6,300 per day for the last 3 quarters. This discretionary cash flow will remain within the company and be allocated for general corporate purposes. On this slide, we present an update on bookings to date for the second quarter of 2026. We expect 997 time charter days covered for the second quarter at an average rate of $73,900 per day. This rate includes profit sharing for the month of April and the base rate only for the months of May and June for contracts with profit sharing structures. We also anticipate 1,025 spot days for the quarter, of which 88% have already been booked at an average rate of $168,300 per day. The spot P&L breakeven for the quarter is estimated to be less than zero as the time charter earnings are expected to exceed forecasted costs. Turning to our 2026 dry dock schedule. As shown on this slide, we have seven vessels scheduled for dry docking during 2026. DHT Lion completed its second special survey in dry dock in the first quarter, and this was completed on time and within expectations. Looking at the remainder of the program, four vessels, DHT Osprey, DHT Panther, DHT Puma and DHT Harrier are scheduled for their second special survey in dry dock. In addition, DHT Amazon and DHT Redwood are scheduled for their third special survey in dry dock. Overall, the 2026 dry dock schedule is well planned, fully incorporated into our operating and capital expenditure outlook and does not change our underlying view on fleet availability or cash flow generation. Importantly, this reflects our continued focus on maintaining a high-quality fleet while preserving operational reliability and asset value over the long term. And then I'll turn the call back to Svein. Svein Moxnes Harfjeld: Thank you, Laila. We will now spend some time on what we see as the current market pillars, the future catalysts and our strategic positioning. We will here start with the current market pillars. The VLCC market is, in our view, influenced by the following primary drivers. First, the basic supply-demand fundamentals continue to support freight rates as evidenced during the second half of 2025 when the freight market strengthened without any special events taking place. Second, we experienced strategic fleet consolidation with the market structure having been strengthened by significant consolidation activity from a private aggregator during the first quarter of 2026. This is a historical first and the fleet demographics and fragmented ownership made this truly possible. We don't see this effort as a fly by night and expect it to positively influence our market going forward. Third, risk premiums driven by regional volatilities involving Iran have introduced significant risk premiums on certain trade routes, resulting in substantial earnings differences between the various trading routes. This is not a fundamental driver, but has alert to the entire industry to how vulnerable it is to curve balls. Fourth, near-term loss in crude oil available for transportation from the Middle East Gulf is a risk. We believe, however, that this could be compensated by reduced vessel productivity through: one, increased transportation distances as refiners source barrels from further away; and two, approximately 10% of the VLCC fleet being tied up either with cargo waiting to exit the Gulf or waiting to load from Saudi Arabia's Western export facility. For the sake of good order, we have no ships inside the Gulf when the conflict broke out. We have no ships inside currently, and our fleet is fully operational. Now let's discuss the future catalysts. We believe several emerging trends warrant specific attention as they are expected to provide longer-term tailwinds for the large tanker market and our operations. Sanction relief and trade normalization. Assuming conflicts will be resolved, potential sanctions relief on Venezuelan and Iranian crude exports would likely shift volumes from the shadow fleet to compliant operators, thereby expanding the addressable market for our vessels. Fleet modernization and demolition. We anticipate that the shift toward compliant trade will deprive the aging non-compliant shadow fleet of employment, likely accelerating the retirement of substandard tonnage and further tightening global vessel supply. These two teams in combination could shrink the working fleet by 10%, maybe 15% of capacity. Energy security and inventory replenishment, a heightened focus on national energy security could trigger long-term crude oil inventory building, supporting transportation demand beyond immediate consumption needs. This team will likely change customer behavior from just in time to just in case. And finally, what is DHT's strategic positioning. Consistent with the outlook presented in our previous reports, we observed that end users are increasingly seeking to secure vessel capacity in response to tightening market conditions. As you will have noted, we positioned our fleet for the first half of the year to seize on this development, capturing spot market rewards while selectively securing term employment to reduce volatility and enhance earnings visibility. The delivery of our four VLCC newbuildings this year is proving well timed with one vessel already commencing a long-term charter with a key customer. Our disciplined capital allocation policy remains a priority, ensuring that the positive market development and our positioning will reward shareholders through quarterly cash dividends equal to 100% of ordinary net income. And with that, we open up for questions.Operator? Operator: [Operator Instructions] Our first question comes from the line of John Chappell from Evercore. Jonathan Chappell: So, starting with that last slide on strategic options, a quick 2-parter. Obviously, you signed a lot of contracts at rates that no one could blame you for. Could you just help with the Gazelle rate? It's the one that wasn't disclosed in the press release and can help with transparency. And two, I know you like to keep some spot market exposure, keeps you in the conversation, helps you understand flows. even though the rates are still somewhat elevated and generating fantastic returns. Do you think for the most part, you'd like to keep the remainder of the fleet in the spot you see in the information flow? Svein Moxnes Harfjeld: Thank you, John. As for your first question on the rate on vessel, that is the explicit agreement with the customer not to disclose the rate. So we are not at liberty to do that. I apologize for that. Secondly, for this year, we are now sort of closing in on 50% cover on time charter. Keep in mind that two of those ships have base rate with profit sharing elements on top with no ceilings. So they are partly taking part in the spot market. When it comes to adding term business, we are quite content for now, and we might revisit this sort of later on. But as of this moment, we are very satisfied with the general positioning of the company and the opportunities we see ahead. Jonathan Chappell: Okay. Great. And then for a follow-up, just kind of understanding the operational challenges and opportunities since your last conference call. Obviously, we're seeing these headline rates that are eye-watering, but they're very inconsistent depending on where the source is. When we see a headline rate, do we assume that, that's something that DHT can achieve? Or do we have to take into account maybe some theoretical elements of that? Is there more waiting time or ballast time as you're moving the fleet around to areas that are maybe safer for the crew and also taking into account bunker fuels. Just trying to understand when we see a number, is that a number that you can really get? Or is there a lot of different elements in it that maybe it's not quite the headline rate? Svein Moxnes Harfjeld: Yes. So the most referred to index and route has been what is called TD3C which is cargo loaded in Saudi Arabia and discharged in China. Obviously, that route has not really been operational in general terms of the market with some exceptions, obviously, as many shipowners were not entertaining to enter the person Gulf. So it has been produced a derivative pricing on two other sort of load ports in the region, one being Yandu, which is in the Red Sea, i.e., the Western load ports of Saudi Arabia. And secondly, Fujairah, which is outside of the strait of Hormuz, which is in the UAE. So those pricings have been below the TD3C, but certainly related to that there's many similarities to the trade. But I think it's fair to say that there's a limited number of ships that have captured what the TD3C index has referred in the market. That's just the nature of how the game has been played in the last few weeks. So on our part, we managed to keep our fleet efficient without any operational disruptions. We have not taken on any excessive ballast or cost or expenditure to keep our fleet going. We're trying to -- as good as we can to be sort of ahead of the game a bit. We've done a fair amount of business from the Atlantic, where we also have a big COA with export of oil from the Atlantic Basin to Asia. So that has sort of occupied also a few ships. So on our part, we haven't really been impaired on our earnings, if I can say it that way. Operator: Our next question comes from the line of Sherif Elmaghrabi from BTIG. Sherif Elmaghrabi: Starting with the fleet, your fleet, the sale of your oldest vessels lines up pretty nicely with the delivery of newbuilds this year. So looking ahead, I'm curious how you're thinking about continued fleet growth. It seems like there's a fair amount of on the water opportunity, but maybe that tonnage skews older. Svein Moxnes Harfjeld: Yes. So we are very happy with the fleet that we have, and there are no ships in our fleet that are planned for divestments. We have a balance sheet that is sort of able to entertain fleet growth. So we're always on the lookout for opportunities. Right now, that's been very hard to find, frankly. I wouldn't say because there's been other competing buyers for ships, but the competition has been a very healthy freight market. So potential sellers have opted to retain their ships in their operation to earn money simply. But as I said, we would like to continue to build the DHT. So at some point, hopefully, there will be opportunities for us to invest in additional ships for the fleet. Sherif Elmaghrabi: Got it. And then second question, you talked about the risk premium from the war in Iran. Obviously, that -- hopefully, that ends sooner rather than later. But whenever it does, how quickly could we see activity return to the Gulf? And -- more specifically, obviously, charters want you to go back as soon as possible. But what are some of the puts and takes there that you have to consider things like mariner risk or insurance coverage, stuff like that? Svein Moxnes Harfjeld: I think we need to see a high level of credibility to a resolution to the conflict and that we can expect whatever agreements that will be put in place will have -- they can last because in all fairness, the news flow over these last 2 weeks have been rather volatile with good news, bad news almost trading each other every second day. So we cannot sort of react, I think, to good news one day and assume we can all sort of enter in the second day and the market sort of goes back to normal. And I don't think we will be alone in consider the situation like that. So credibility to sort of a solution has to be in place. And I think that, that will take a bit longer than just a few more days, right? So I think the key action we need to see now, of course, is that all these ships that are trapped inside the Gulf that they can exit safely. That will take a while. We believe there are some 57 VLCCs inside the Gulf with cargo that is waiting to exit, plus there are a lot of other ship types and not only tankers, but also inside that are waiting to sort of resume operations. So I guess a lot of this has to be unwind, if you like, for -- to demonstrate that the passage to the strait is safe. Operator: And our next question comes from the line of Omar Nokta from Clarksons. Omar Nokta: Maybe just a follow-up a little bit on kind of the discussion points of Hormuz and risk premiums. Are you able to talk a little bit about how, from your perspective, the risk premium across the different routes for getting inside Hormuz since that's not really transacting. But outside of that, you mentioned Yanbu, Fujaira. Can you just talk a bit about how that risk premium has developed as this crisis has gone on and then also your willingness to transact in those areas? Svein Moxnes Harfjeld: Yes. So firstly, to entertain trades inside the strait of Hormuz was a non-starter for us. We think it's also a very easy decision. We have 25 on average on our employees on board the ships and to expose them to trades like this is not something we are willing to discuss. So secondly, I think initially, Yanbu, Fujairah also had at least some academic risks to these areas. As people have gotten a bit more comfortable with these areas, those freights have sort of moved differently from where sort of the person Gulf freight potentially could be. So it's now closing in to be sort of more aligned with what Atlantic trades are offering. So now -- as of now, there's not a really big delta between this. There could be some positional issues and stuff like that. But I see there's some more normalization in pricing in those two routes, i.e., Fujairah and Yanbu compared to the rest of the markets. Omar Nokta: Okay. And then how do you think, I guess, about in a reopening scenario, and let's say, things go back to normal, which clearly seemingly that seems difficult to anticipate. But just how do you think about the permanence of these new routes or at least these routes have gotten a bit more active? Do you think these are here to stay? And what do you kind of think about how that affects this market long term? Svein Moxnes Harfjeld: Yanbu in the Red Sea has the capacity to sort of super efficient operation, about 4 million barrels a day, so they can load 2Vs a day. That is not a new trade. That terminal has been there for many years, have been serving certain markets, maybe not to its full capacity though. So I think whether that route is keeping that capacity or whether some of that cargo shifted back to the Gulf doesn't really impact the general efficiency of the market because it's a very similar type of duration for those voyages. When it comes to Fujairah, I think in the near term, it's a bit hard to say. But what we would be curious to see how UAE's exit from OPEC will sort of unfold. I think they have had ambitions for quite some time to increase their quotas. And as they now become free from OPEC, they will, of course, also be free to decide how much they will produce. And whether that will go out of Fujairah only or also from the ports inside, we don't know yet exactly the ratios and how that will play out. But -- but I think we should expect there to be more cargo in the water in general. And maybe that will have a downward pressure on oil price, but which will stimulate our business in general. The next question comes from the line of Geoffrey Scott from Scott Asset Management. Geoffrey Scott: I have a question about the couple of ships that are on long-term charter with profit sharing. I've always thought that the 50-50 break for profit sharing was a very fair division of kind of risk and reward for the long-term chartering market. But it requires some estimate of what that profit sharing is. How do you get to the profit sharing number? Index? Svein Moxnes Harfjeld: Thank you for asking. So we don't disclose the details of these contracts. But the profit sharing mechanism is calculated on our ships particular specification for fuel consumption and efficiency, all of that. And it is the index-based profit calculation. So one charter has only one index as sort of at the pricing base and the other one has a mix -- so -- but none of these contracts are frustrated in any way by the call it, changes we have seen recently. And we also noted that there somebody now trying to pursue Baltic legally. -- whether that is -- whether that case has a probability of going one or the other way, I don't know. But again, the basis, which is the price mechanism in our charters are operational, and we get paid by our customer, and there's no frustration in these systems. Geoffrey Scott: There is no conflict in that conversation. Svein Moxnes Harfjeld: No. Operator: There are no further questions at this time. So I'll hand the call back to Svein for closing remarks. Svein Moxnes Harfjeld: Thank you very much to all for being interested in DHT, and wishing you all a good day ahead. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
Operator: Good morning, and welcome to CLEAR's Fiscal First Quarter 2026 Conference Call. We have with us today, Caryn Seidman-Becker, Founder, Chair and Chief Executive Officer; Michael Barkin, President; and Jen Hsu, Chief Financial Officer. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in the documents the company has filed and furnished with the SEC, including today's press release. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. During this call, unless otherwise stated, all comparisons will be against the comparable period of fiscal year 2025. Additionally, the company will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures are provided in today's press release and the most recently filed Form 10-Q. These items can be found on the Investor Relations section of CLEAR's website. With that, I'll turn the call over to Caryn. Caryn Seidman-Becker: The first quarter was a definitive stress test for the global identity landscape. As the physical and digital worlds collided with unprecedented speed, CLEAR met the moment. The seeds we planted to build the world's most trusted secure identity platform are maturing at exactly the right time. We are operating in an environment of structural instability where the national travel system is strained and AI-driven fraud is escalating at an exponential rate. In this world, identity is not a feature. It is the foundational infrastructure of a functioning economy. If you get identity wrong, nothing else matters. We ended this quarter with 41 million total CLEAR members, driving bookings of $292 million and free cash flow of $185 million. These record results are the direct output of our forever obsession with frictionless experiences and a fortress approach to security. We are meeting this moment by raising identity standards with the speed and urgency this environment demands. As I often say, and we're all now seeing firsthand, travel is hard and getting harder. March underscored the immense strain on our national travel system and highlighted the importance of public-private partnerships. We entered 2026 with incredible momentum in our customer experience and innovation across our travel business, which continued in the first quarter. Our home to gate strategy is transforming a fragmented series of travel hurdles into a singular seamless experience. eGates now cover over 50% of our network, and we plan to exceed 80% by the end of the second quarter. The data is irrefutable. One-step 5-second biometric entry is delighting members. Average wait time for CLEAR Plus members is now under 1 minute. NPS has reached a 3-year high, and it's not surprising that travelers who use an eGate have significantly higher NPS than non-eGate users. This is contributing to strong member adds and improved retention. Our reimagined app, which recently reached #4 in the Travel App Store, is becoming the go-to app for our travelers. By creating certainty and transparency around the day of travel, syncing calendars, travel documents, wayfinding and partner integrations, mobile app adoption has doubled for travelers. The app is becoming the control center for the day of travel, proactively organizing trips, surfacing gate and security details and unlocking CLEAR services with just one tap. Demand for CLEAR Concierge continued to increase dramatically during the quarter, and the challenges of the shutdown highlighted the value proposition of our premium product. This is a high-margin, high-touch service, and we are aggressively scaling it to major cities nationwide. Concierge turns a stressful travel day into a seamless, delightful experience with an ambassador guiding you every step of the way. I want to thank the TSA officers who worked tirelessly without pay through the shutdown. We stood with our partners supporting them and their families and over 3,500 CLEAR ambassadors worked hand in glove with the TSA to keep travelers moving pre and post security. The combination of CLEAR ambassadors, our approach to hospitality and the benefit of our eGate served as a stabilizing force. This is the power of public-private partnerships, private sector speed and innovation meeting public sector scale. Identity is trusted infrastructure. It is being woven into the fabric of securing physical, digital and agentic experiences. CLEAR is the trusted brand building the smart network of human identities. The definition of secure has been permanently altered and identity is becoming harder to solve. As AI accelerates, traditional credentials like drivers' licenses have become obsolete vulnerabilities. When identities and credentials can be simulated, the fundamental question becomes, are you who you say you are and what should you have access to? CLEAR1 is our answer. We are raising the bar for identity standards through a multilayered approach using biometrics, government-issued identification, source corroboration and device signals to confirm that you are you. This quarter, we achieved significant year-over-year growth driven by almost 2x the amount of signed deals and a record number of large multiyear enterprise contracts. Organizations now realize that identity integrity is a key protective layer. We are committed to securing the nation's digital frontline by establishing total identity integrity across high-stakes environments. Our FedRAMP milestone is the first step towards unlocking our GovTech vertical. It builds on our mission with CMS to eliminate the systemic fraud highlighted in the December GAO report, where as many as 125 insurance policies were connected to a single identity. Our work directly supports the White House's executive order on fighting fraud, waste and abuse. We are aggressively replacing vulnerable legacy systems with a high integrity layer that proactively thwarts bad actors. By ensuring taxpayer dollars and sensitive records remain shielded, CLEAR is delivering the nonnegotiable foundation for a secure functioning digital economy. This is a transformative era. With the World Cup, America 250 and record summer travel on the horizon, our mission has never been more critical. We are starting this year from a position of immense strength in innovation, and execution and in financial performance. We will continue to drive members, bookings and free cash flow with relentless intensity. I want to thank our extraordinary ambassadors and the entire CLEAR team for their unwavering commitment to our members and our partners. With that, I'll turn it over to Jen. Jennifer Hsu: Thank you, Caryn. Our first quarter results reflect step change growth, continued margin expansion and accelerating free cash flow generation. CLEAR Travel and CLEAR1 growth is compounding. In Q1, we delivered over 40% bookings growth and approximately 32% adjusted EBITDA margins while also doubling our absolute free cash flow year-over-year to $185 million. These results build on our strong momentum entering the year. And importantly, Q1 heading into the DHS shutdown was trending to exceed the 25% bookings growth that we reported in Q4 of last year. The shutdown further enhanced a strong quarter, highlighting how well positioned CLEAR is to improve the travel experience, deliver greater hospitality and drive the highest levels of security. The consistency and predictability of the CLEAR+ value proposition was evident during the shutdown, boosting member acquisition in the quarter. Revenue grew 19.7% year-over-year to $253 million. Total bookings increased 40.8% to $291.7 million and active CLEAR+ members grew to 8.2 million, up 13% year-over-year. Importantly, the investments we are making in member experience are driving improvements in retention on our growing base of CLEAR Plus members, translating the strong customer acquisition in the quarter into a durable benefit for our business. The shutdown also accelerated awareness and adoption of our Concierge offering. Starting at $99, CLEAR+ members can book an ambassador to greet you at the airport and expedite you through security for an even faster stress-free journey. We are now offering Concierge service in 32 airports and remain in the early innings of scaling Concierge across our network, driving member awareness and adoption. The products we are building around our home to gate CLEAR travel experience, whether it be our mobile app, eGates or services such as Concierge position us to drive greater member growth, strong retention and increasing levels of ARPU. CLEAR1 is an infrastructure layer for identity, akin to how digital wallets transformed the payments industry. The growing demand for CLEAR1 is reflected in our results. Total CLEAR members grew 31.3% to $41 million, and CLEAR1 bookings were approximately 5x those of Q1 last year, representing another record quarter. CLEAR1 is an enterprise business. We typically enter into multiyear contracts with partners that include minimum annual commitments, providing revenue visibility and predictability. We are prioritizing a focused set of verticals, including health care, workforce, consumer and an early but significant opportunity in government and federal relationships. The platform economies of scale in our business model have become increasingly evident. We are driving meaningful operating leverage as we scale with close to 70% adjusted EBITDA flow-through and highly attractive levels of free cash flow conversion. In Q1, we generated $62 million of operating income and $80.6 million of adjusted EBITDA, representing a 31.9% adjusted EBITDA margin and 7.2 percentage points of margin expansion year-over-year. Q1 net cash provided by operating activities was $190.4 million and free cash flow was $185.5 million, representing 103.2% year-over-year growth. Our strong performance and operating rigor position us positively as secure identity becomes increasingly complex and foundational. We are accelerating our product road map across CLEAR Travel and CLEAR1 and are leaning into marketing to drive greater brand awareness for CLEAR as the leading secure identity company. We are doing this while delivering expected adjusted EBITDA margin expansion in 2026 relative to 2025 and simultaneously increasing our free cash flow guidance for the year. We ended the quarter with $800 million of cash and marketable securities on our balance sheet, which provides us strategic flexibility while capitalizing on macro tailwinds and operating strength. Turning to guidance. For Q2, we expect revenue of $268 million to $271 million and total bookings of $280 million to $285 million, representing 22.8% and 26.7% growth at the midpoint, respectively. In light of our Q1 outperformance and confidence in our ability to sustain the momentum, we are increasing our 2026 full year free cash flow guidance from at least $440 million to at least $465 million, which would represent an increase of approximately $120 million year-over-year and at least 36% year-over-year growth. With that, we will open the call for Q&A. Operator: [Operator Instructions] Our first questions come from the line of Joshua Reilly with Needham. Joshua Reilly: All right. Congrats on an extremely impressive quarter here. So just maybe to hit on the bookings for CLEAR1 to start with. Maybe you could just explain why now after working on this for a number of years, are you seeing such impressive momentum in the CLEAR1 bookings with both not only enterprise but government use cases? And what is it that's differentiated about your platform that's helping you win this business versus competitors? Caryn Seidman-Becker: Thanks, Josh. I think that there's a few key points. For a long time, I would tell you that we were a solution looking for a problem. We said that identity is security. We said that identity is infrastructure. And then you saw the world turn over the last few years. You saw it on the cyber front. You saw it on the fraud front. You saw it on the interoperability of health care front. And so identity has become ever more important in the digital world, and there's now problems looking for our solutions. And with a trusted brand with over 41 million members on the platform, CLEAR is the company that people call to help them solve their problems. I also think that AI is accelerating the need for trusted identity, physical, digital and agentic worlds. And so I think that is another accelerant. I think identity is absolutely becoming more complex. And so verifying that you are you and connecting you to all the things that make you you has never been more important. So you think about what makes CLEAR special. First of all, a trusted brand. Second of all, a network of identities who know that they have enrolled in CLEAR, who have opted in and look for CLEAR in more places. And then total identity integrity. A driver's license is no longer true identity. So when you look at what we've done in the airport as a qualified anti-terrorism technology with next-gen identity with source corroboration with a digital footprint, ensuring true identity, think about the agentic world. It's not just knowing who you are, that's the foundational piece. Then what about the 100 agents that are connected to you and what they should have access to. Look at the physical world in security. There are events at this point on a weekly basis. You have to know who you are letting in and what they should have access to. Look at workforce with North Koreans infiltrating critical infrastructure. Look at the administration with an executive order trying to reduce fraud. While we've started in Medicare, there's Social Security, there's IRS right? There are so many places where you need to bring program integrity. And so it is the time, and we are here to meet the moment. I think we've been very public in airports for 16 years, right? Millions of people go through that every day. There was no better place to build our brand and our capabilities. And so it is a very natural transition to these other areas that have a sense of urgency right now and that we are building strong long-term partnerships with. Jennifer Hsu: And Josh, I might just add, I think the business momentum that Caryn just described is really translating across the board in our financial and operating metrics for that business. We're seeing our pipeline grow. We have a very healthy number of new partner wins, 7-figure contract deals are up, and we have very strong net retention -- net revenue retention. So overall, I think all positive signals for that business. Joshua Reilly: Awesome. And then just one follow-up. As you look at the 8.2 million active CLEAR+ members, obviously, that's a significant acceleration by any way of looking at it. Can you just help us understand what was the mix maybe of trial customers that were added in the March quarter there with the TSA shutdown versus full paying members? And any early read on how you're going to be able to keep this cohort that you added with the TSA troubles now that things have normalized? Jennifer Hsu: Sure. I guess, Josh, I would say I think we would have -- we expected to sustain and build upon our momentum heading out of Q4 and entering this year. And so I think we would have expected sustained growth from an Active CLEAR+ metric relative to Q4 of '25. From a trial perspective, I think we feel pretty good about our ability to convert those trial members from the sort of few weeks of shutdown into healthy paying customers and bookings. And you see that reflected both -- I think, both in our Q1 results, but also in our Q2 guidance. And probably most importantly, the members that we acquired during the shutdown, I think, signed up at a period of time when our value proposition was particularly evident. And so I think we feel very good about our ability to retain those members for the long term. Operator: Our next questions come from the line of Cory Carpenter with JPMorgan. Cory Carpenter: I had to -- maybe, Caryn, for you I'd be curious, just I think there's some debate in there around the broader health of the travel environment. So curious what you're seeing there in recent weeks given some of the higher oil prices and geopolitical issues. And then secondly, just, Jen, the commentary on the demand before the TSA turmoil was helpful. Curious how has demand looked kind of since the TSA wait times have normalized? Do you worry at all that there could be a bit of an air pocket after perhaps a bit of a pull forward? Caryn Seidman-Becker: So I'll go first. I think I'm going to repeat what we've always said, which is consumers love to travel and yet day of travel is really hard. I would look to the other travel companies, whether it be the airlines talking about very strong top line growth. Certainly, some of that is revenues, but it's also volume going through airports. Airport traffic has remained, I would say, steady. And I think the most important thing for us is the value proposition. So I would say it's a backdrop of fine, strong travel growth. I haven't seen a big impact yet from oil. You are seeing corporate travel strengthen. So I think that, that's really important also when you look at the type of customer there. But for us, it's really about controlling our own destiny and driving the member experience. And so we're halfway through our eGate rollout. That has just such a massive impact on the customer experience, which drives retention, gross adds, conversions, the whole thing. And so continuing to drive that over the next quarter, rolling out our concierge business, which while we're excited to be in over 30 airports today, we are still missing our biggest cities like New York and L.A. and San Francisco. So bringing those on this year will continue to drive it and continuing to have an accelerated product release cadence on our app so we can really build the home to gate experience, not to mention partnerships. So we see a lot of opportunity to continue to drive the customer experience both on our own and with partners against, I would say, a reasonable travel backdrop. So we're all watching oil. But thus far, if you look at the other travel companies, demand has remained strong. Jennifer Hsu: And Cory, to your question around sustainability of growth, I think that's reflected in our Q2 outlook, which implies 27% year-on-year growth at the midpoint and continues to accelerate relative to where we were entering the year. I also think it's important to emphasize that the strong underlying demands in our business are not masked by what was really kind of a 3-week benefit from the shutdown. Our NPS scores have been consistently at a multiyear high, and I think is representative of the work and the investments that we've made over the past few years as travel has gotten harder and become more challenging for consumers. And so overall, I think we continue to enhance our value proposition. And by the way, we think we still have a lot more to do there. We are continuing to roll out our eGates across the network. We are very early in driving brand awareness for Concierge as just a few examples. Operator: Our next questions come from the line of Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe just one big picture question, just tying into some of the comments you've made so far, Caryn. Just in terms of when you get this type of signal from the end market in terms of product adoption, is there any reordering of priorities, things that you maybe would have had on your long-term strategic or investment road map that make you want to pull those more forward? So just understanding a little bit about reordering of priorities, if any, and what implications that might mean for emphasis on growth relative to incremental margins in the business, not just in 2026, but maybe over the medium term? Caryn Seidman-Becker: Yes. Great question. So I would say the free cash flow that you saw and that we projected for the year is inclusive of accelerating investments in product, engineering, brand, marketing and security. And so we are making those investments, and those are in the numbers that we've shared today. So absolutely, we've seen the signals. We are accelerating our investment in product, in marketing, in brand awareness, right? It's very important that CLEAR is known as the trusted secure identity platform that can solve your problems for your workforce and for your consumers that we can make experiences safer and easier physically and digitally, right? And so we need to be known for that. We are telling people about that. You will see more of that. I talk a lot about product release cadence. I think becoming more AI native. The expectation is that we are releasing more products for both CLEAR1 and CLEAR Travel with higher velocity and better releases in terms of quality and customer launches. We are investing in sales. We're investing in customer success. And so -- but again, all of that is inclusive of the numbers that we have put forth. And so we're really excited to be able to lean in on these fronts and still generate very strong free cash flow. And quite frankly, have a very strong balance sheet, which creates optionality for us to continue to invest in different ways. Operator: Our next questions come from the line of Mark Kelley with Stifel. Brennan Robinson: This is Brennan on for Mark. I guess, first on CLEAR1, I think last quarter, you guys had called out that the business was doubling year-over-year, and now it's growing at 5x that rate. So it's a pretty nice acceleration there. You had a handful of announcements over the last quarter, new partners and inclusion on the FedRAMP marketplace. I was wondering if you'd be able to walk us through kind of what the typical ramp process and timing looks like for a new partner add in the CLEAR1 business. Is it just as simple as like kind of flipping on a switch to get CLEAR1 turned on? Or is there more of an integration and ramp to get CLEAR1 working across the partner's whole network? Caryn Seidman-Becker: So, I would say that it depends. We can come back to you with an average day, but it depends if we're going through a partner, at which point our partnerships with people that we've previously announced like an Okta can be very, very fast, being in the Epic identity toolbox, right? Those sorts of things are extremely fast, sometimes as quick as a few days. If it's not with a partner, it can be a little bit longer. And we continue to reduce that launch time as well. So it does depend on how they come in. I think one of the important things that we've honed that I'm proud of over the past year is less bespoke customization and more off the shelf. And I think that's been really important from a discipline perspective as well as an acceleration. We understand what our partners want and need. We've built it. We've learned from the launches that we've had so that we can not just launch faster, but sign faster, right? And I think that all of those things are accelerating, and we're measuring them closely and trying to do better every single day. But the lack of customization has been really important for the business. I think the other piece, and this goes back to an earlier question, is CLEAR has raised the bar on identity. And having total identity integrity, not just a picture of a driver's license is massively important. And so partners want to work with us. They want to get this on. They want to improve their customer experience. They want to reduce fraud. And so again, when you have a coalition of the willing, things go faster. Brennan Robinson: Great. And a quick follow-up. You guys called out the World Cup as a travel-heavy event this year. I was wondering if any of these kind of big events where a lot of people are booking travel have any impact on your marketing strategy or cadence. Are you kind of looking to reach people at the time of booking or maybe closer to the time of travel? Just wondering if you could touch on that. Caryn Seidman-Becker: So something that's been quite magical for us to communicate is the calendar sync, right? So now that we know when somebody is traveling, and we would encourage everybody to sync their calendars with the CLEAR app, we can better serve potential customers and talk to them for things like Concierge. I think there's 2 things that we think will benefit from the World Cup. One is international. So I know we've talked previously, 42 Visa waiver countries can enroll in CLEAR with their passport. They don't even have to be in person at the airport. Those international travelers have no other options in U.S. airports for an improved customer experience. So that's important, but also being able to -- and we're also, again, improving products and awareness for calendar sync, but also beyond to let people know when we're launching Concierge in their market and to talk to them ahead of their travel or after they've gone through the lane, right? We know where you're going. So we could certainly talk to you through e-mail and other ways of communication. So we're starting to take advantage of all of those. But the app really is the great unlock to communicate seamlessly with travelers about whether it be update your credit card, update your driver's license, you're not REAL ID ready, do you want a Concierge, you can add family members, the ability to personalize and customize and communicate with people in ways that they want to be communicated with. We were way too constrained to e-mail for far too long. Operator: Our next questions come from the line of Dana Telsey with Telsey Advisory Group. Dana Telsey: Congratulations on the terrific results. As you think about your network outside of travel, like Medicare, any updates on that and what you're seeing in the progress there? And then you speak about marketing, how do you think about marketing spend going forward? And also just overall on pricing and any new demographics that you're getting coming into the network? Caryn Seidman-Becker: Okay. Dana, that's not one question. That's like five. So we'll start with CMS. CMS was originally part of reducing fraud in Medicare. But I think what you're seeing in CMS is the focus there is extending, as I talked about, to other areas. Social Security and Medicare are closely connected. But you look at the rural health dollars, I think the administration has budgeted $50 billion for rural health. That's Medicaid. So taking that same concept of what we can do for Medicare to Medicaid and other places in the government. Now there's an executive order to reduce fraud. So I do think it's gone from CMS to other agencies. And that is why you've heard us talk this morning about GovTech, right? CMS is health care, but GovTech is a broader opportunity for CLEAR. And obviously, it's where we started in partnership with the Department of Homeland Security. So we feel acutely capable of this opportunity to be really good partners and continue to build public-private partnership with the administration. In terms of demographics, I think you bring up a really interesting point, and I think this ties a little bit to the marketing spend that we talked about before Jen talks about like net member growth and performance and digital marketing. I think one of the learnings is we need to be talking to Medicare patients who may not be travelers, right? And so letting them know who we are and what we do. And even if you do know us, you think, oh, well, that's a subscription in the airport that I need to buy. But in fact, it's free for you. It's a simple enrollment and CLEAR is a trusted brand that will protect your privacy and secure your data. And so that's a new messaging opportunity for us that we are investing in is really important for us. And that does expand our demographics, right? And so you are seeing demographic expansion through CLEAR1 with partners like CMS. But with partners like Home Depot, typically, and we've talked about this, typically, when we launch a new partner in CLEAR1, we might have 25% overlap with a CLEAR Traveler and then it builds over time. And that really is the power of the network. So our network is growing, our use cases are growing and our demographics are expanding. Jennifer Hsu: And Dana, I think you had a market -- just a broader marketing point. Caryn alluded to this, but that is an area that we intend to lean in given the momentum. And we expect to pursue a brand marketing campaign to really emphasize I think, CLEAR's umbrella position as the leading secure identity company across our CLEAR Travel and our CLEAR1 portfolios. So we do expect marketing to increase modestly. But obviously, we will do that in a disciplined manner in the way we've always done and while we continue to expand overall margins simultaneously. I think the other question you had was around pricing. I would start by saying, I think our first focus is always around delivering value for our members, which starts with member experience, and we've made a lot of progress there. And when we do that, we believe the opportunity to adjust pricing comes alongside that. You've heard us say in the past that we anticipate taking a more measured approach to price increases, which would be consistent with our pricing actions in 2025. And I think our philosophy there remains consistent. Michael Barkin: Yes, the one other thing that I would just add on the marketing side is that there's certainly the dollars that we invest, but then it's also how we think about how we market to our customers through the whole customer journey. And when we think about the experience that we're providing in the airport, which we think both drives the marketing that we have there as well as the experience that drives retention. And then we think about how we can use performance marketing in a very efficient way to reach our members. And increasingly, with the broader network, we have more people who we can reach through that. And so it's both what we invest directly, but then it's also how we use performance marketing and our experience to drive that for both new members and retention. Operator: Our next questions come from the line of Wyatt Swanson with D.A. Davidson. Wyatt Swanson: Could you maybe detail how you think continued strong top line growth like this is sustainable beyond the second quarter and into the second half of 2026 and 2027? And maybe talk to how average revenue per CLEAR+ member may change over the coming quarters given some changes that you've made with different partners? Jennifer Hsu: Yes. Well, I would come back to member experience. We've made a lot of progress, which has been the outcome of, I think, investments again over a multiyear period, and that is starting to show up in our flywheel, if you will, of stronger NPS scores, which drives greater member acquisition and then ultimately, member retention, which started to improve and increase in the back half of last year. And so I think again, I would point to Q2 guidance, which is a reflection of our ability to sustain the growth. I think we have confidence in the balance and the back half of the year. And we have broader levers, I think, beyond that, both from a member growth perspective, a pricing perspective and then the momentum in CLEAR1 to sustain our growth in future and outer years. Caryn Seidman-Becker: I think if I can just add to that and with a little bit more granularity, we still only cover 75% of the U.S. from a travel perspective. We think that there's network growth. So think of that as stores. And I think, again, no different than CLEAR1, a solution looking for a problem versus a problem looking for a solution. I think what you saw in March was the structural challenges and instability of the travel industry and ecosystem and CLEAR can play a massively important part, and we did. We drove efficiency. We drove throughput. We drove customer experience. And so I think more airports want that in the U.S. and then tangentially outside the U.S. And so there's opportunities for network growth. The better the customer experience, the stronger the retention. I will say that we've built a strong data analytics and business intelligence capability that not only goes to the performance marketing that Michael and Jen were talking about before, but also talks about how we serve our current members. And so there are so many opportunities, not to mention products. And so you do see ARPU opportunities based on our partnerships, but you also see it importantly based on take rates of new products, whether that be driving the family attach rate because you have a great experience, whether that be Concierge and then PreCheck and more. And so continuing to drive that creates opportunities in the travel business. It's still early days in PreCheck growth. We're really only 2 years into that program, let alone Concierge when we're at day one. And then on the CLEAR1 business, we're just getting started. And we also think that there's more products in the airport side. Again, I think identity is massively important across the airport ecosystem, not just for travelers, but for workforce. And so this is really about prioritization here, improved products, product release, brand awareness and marketing, and we're investing into that this year, and you already see that in the numbers. They're included in the numbers that we've put forth that will not only continue to fuel this year's growth, but out years growth. Wyatt Swanson: Got it. That's really helpful. And then I guess one quick follow-up. How do you think about your ability to maybe support a broader travel member network, given like the eGate rollout, maybe the ability to just support more travelers without increased wait times and maybe balancing that versus price increases for members? Caryn Seidman-Becker: Look, I think you're seeing the throughput from eGates. -- we've talked about significantly higher NPS scores from eGates versus non-eGate. We've talked about average wait times of under a minute. We've talked about verification in less than 5 seconds. That is throughput. You're seeing in some markets, if you live in New York, hopefully, in LaGuardia Terminal C, you'll see a single eGate going into a double eGate. And so, right, continuing to drive that is so important. And so we think that there's a lot of opportunities. And quite frankly, you saw low wait times even in really challenged periods in March. And so I think the efficiencies that this drives, not just for us, but for all travelers and for our partners at TSA is already evident. Operator: Thank you. We have reached the end of our question and answer session. I would now like to hand the call back over to Caryn Seidman-Becker for any closing comments. Caryn Seidman-Becker: Thank you for joining our first quarter earnings call. This quarter underscored the importance of being a trusted secure identity platform as the world needs greater security and more frictionless experiences physically and digitally. Thank you. Operator: Thank you, ladies and gentlemen. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Good morning. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to Oscar Health's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Chris Potochar, Vice President of Treasury and Investor Relations. Chris Potochar: Good morning, everyone. Thank you for joining us for our first quarter 2026 earnings call. Mark Bertolini, Oscar Health's Chief Executive Officer; and Scott Blackley, Oscar Health's Chief Financial Officer, will host this morning's call. This call can also be accessed through our Investor Relations website at ir.hioscar.com. Full details of our results and additional management commentary are available in our earnings release, which can be found on our Investor Relations website at ir.hioscar.com. Any remarks that Oscar makes about the future constitute forward-looking statements within the meaning of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our annual report on Form 10-K for the period ended December 31, 2025, filed with the Securities and Exchange Commission and other filings with the SEC, including our quarterly report on Form 10-Q for the period ended March 31, 2026, to be filed with the SEC. Such forward-looking statements are based on current expectations as of today. Oscar anticipates that subsequent events and developments may cause estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the first quarter earnings press release available on the company's Investor Relations website at ir.hioscar.com. We have not provided a quantitative reconciliation of estimated full year 2026 adjusted EBITDA as described on this call to GAAP net income because Oscar is unable without making unreasonable efforts to calculate certain reconciling items with confidence. With that, I will turn the call over to our CEO, Mark Bertolini. Mark Bertolini: Good morning. Thank you, Chris, and thank you all for joining us. Today, Oscar Health announced strong first quarter 2026 results with year-over-year improvement across all core metrics. Oscar reported revenue of $4.6 billion, an increase of 53% year-over-year. Our SG&A ratio improved 60 basis points year-over-year to 15.2%, driven by disciplined expense management, top line growth and the growing impact of AI across our operations and member services. MLR improved 490 basis points year-over-year to 70.5%, with utilization largely in line with expectations. We delivered $704 million in earnings from operations, an increase of nearly 2.5x over the same period last year. Oscar is the largest carrier fully dedicated to the individual market. Our tech-first approach, ability to efficiently scale the business and deliver measurable value to our members positions us for continued expansion. We are reaffirming our full year guidance and remain on track to deliver meaningful profitability in 2026. Before diving into our business highlights, I will share our early view on trends in the individual market. The individual market is resilient at 23 million lives and is a fundamental pillar of American health care. Consumers now expect to shop for coverage like they do for everyday products, comparing options, prices and value. The individual market has the opportunity to deliver that level of choice and transparency. We are working with federal and state policymakers to advance policies that strengthen transparency while increasing product choice and innovation with consistent quality across plans. While early in the year, initial reports show market dynamics are in line to favorable to our expectations. Wakelely's new report shows market contraction is tracking in line to favorable to our 20% to 30% estimate. We took a cautious approach to risk adjustment in the first quarter. Our reserves are built on market morbidity assumptions consistent with our pricing. We look forward to further clarity with the first 2026 Wakely report in Q2. The health care landscape is undergoing a major structural shift. The small group market is contracting and consumers are rejecting the legacy model. Oscar is shaping the individual market to meet the needs of the modern workforce, including entrepreneurs, gig workers, part-time employees and early retirees. Now I will review our business highlights. Oscar ended the first quarter with 3.2 million members, an increase of 56% year-over-year. Our innovative and affordable plan designs and superior member experience are fueling strong growth and retention. Our record membership underscores the strength of Oscar's strategic plan and positions us for sustained growth and meaningful profitability. Oscar is rapidly evolving our technology and deploying AI use cases at ever-increasing speed to drive growth, lower costs and help members make smart choices. We recently launched several new transparency tools, including a real-time drug pricing feature that predicts when costs may cause a member to abandon a prescription. The tool instantly cross-references deductible status, local supply and pricing and guides members to lower-cost pharmacies or equally efficacious alternatives in the network. We are also scaling new bilingual voice agents to support care navigation and improve speed to care. ICHRA is gaining traction as employees demand choice and flexibility and employers seek predictable health care costs. Oscar recently brought the industry together to launch ICHRA X to meet the rising demand. ICHRA X will be a plug-and-play data exchange connecting carriers, benefit brokers and ICHRA platforms to create a more consistent employee experience. States like Mississippi and Illinois are taking steps to incentivize ICHRA adoption by giving tax credits to businesses. Oscar is now working with other state legislatures and business groups to advance similar ICHRA policies that support local economies and reduce the friction of traditional employer coverage. Building on this momentum, we recently launched the Lucy Health Marketplace. Lucie is a carrier-agnostic shopping platform for consumers, brokers and employers built on 1 of 11 CMS-approved systems. Lucie brings together a wide selection of ACA plans with leading ancillary and supplemental products like Aflac. We are combining our technology capabilities with individual networks in nearly every ZIP code nationwide. This broad coverage network allows consumers and brokers to shop, bundle and build their own personalized coverage in a few clicks. We will continue to add more AI solutions and health services on the Lucie platform to bring more people into the individual market. Lucie represents a key step in our long-term strategy to build a consumer-driven health care market. In summary, Oscar Health is off to a strong start in 2026. Our innovative technology products focused on user experience and disciplined execution are delivering clear results. No one understands the individual market better than us. Our strong results in the first quarter are ahead of plan, and we are well positioned to meet or exceed our current guidance. We expect to significantly expand margins and achieve meaningful profitability in 2026. Oscar is unlocking even greater possibilities in the individual market. The entire U.S. economy is modernized except health care. It is the only major market where consumers are stripped of their purchasing power and have 0 visibility into cost or quality. Our team is arming consumers with technology that puts them in control. Today, it's about choosing the medical coverage that fits your needs. Tomorrow, it's about making all of health care shoppable. Oscar is shaping the new consumer health economy to lower costs and make health care work like every modern market. Thank you to the Oscar team for making our vision of consumer-driven health care a reality. I look forward to sharing more details on our long-term strategic plan at Oscar Health's Investor Day on September 16. I will now turn the call over to Scott. Scott? Richard Blackley: Thank you, Mark, and good morning, everyone. This morning, we reported strong first quarter results and reaffirmed our full year 2026 outlook. Net income in the first quarter was approximately $679 million or $2.07 per diluted share, the highest in the company's history. Our first quarter results position us well to meet or exceed our current full year 2026 guidance. Let me now turn to details on the first quarter performance. We ended the quarter with approximately 3.2 million members, a 56% increase year-over-year. Membership growth was driven by above-market growth during open enrollment and solid retention. We started the second quarter with approximately 3 million paid members, in line with our expectations. Payment rates are consistent year-over-year and modestly favorable to our plan despite the sunset of the enhanced premium tax credits. Looking ahead, we continue to expect gradual churn throughout the balance of the year, consistent with pre-ARPA levels. Total revenue increased 53% year-over-year to $4.6 billion in the first quarter, driven by higher membership and rate increases, partially offset by higher risk adjustment payable accrual. The first quarter medical loss ratio was 70.5%, a 490 basis point improvement year-over-year. The significant improvement was primarily driven by our disciplined pricing strategy, claims and risk adjustment seasonality from new member and metal mix and favorable prior period reserve development. The first quarter MLR was impacted by $68 million of favorable development, primarily related to claims run out from the prior year. That compares to $31 million of unfavorable development in the prior year period. Overall, utilization is largely in line with the morbidity of our book. I want to spend a moment on risk adjustment. Medical claims were seasonally low in the first quarter, and as a result, we recorded a higher risk adjustment accrual. It is early in the year, but we are encouraged by the data we are seeing on overall market contraction and market morbidity. Our claims experience, coupled with third-party data on both new and renewing members points to market morbidity tracking in line to favorable to our pricing expectations. We continue to expect risk adjustment as a percentage of direct premiums to be approximately 20% in 2026 as new members engage with their benefits and members meet their annual deductibles. Switching to administrative costs. The first quarter SG&A expense ratio of 15.2% is the lowest in the company's history. The approximately 60 basis point year-over-year improvement was driven by fixed cost leverage and disciplined expense management, including an increasing impact from technology and AI initiatives, partially offset by higher risk adjustment as a percentage of premium. Across all of our key performance metrics, we are seeing significant year-over-year improvement. We reported earnings from operations of $704 million in the first quarter, a $407 million year-over-year improvement. Operating margin was 15.2%, a 540 basis point increase year-over-year. Net income was approximately $679 million, a $404 million increase year-over-year. Adjusted EBITDA was $727 million in the quarter, an increase of approximately $398 million year-over-year. Turning to the balance sheet. Our capital position remains very strong. We ended the first quarter with approximately $8.1 billion of cash and investments, including $279 million of cash and investments at the parent. As of March 31, 2026, our insurance subsidiaries had approximately $1.7 billion of capital and surplus, including $809 million of excess capital, which was driven by our strong operating performance. Based on first quarter results, we are reaffirming all of our full year guidance metrics. Total revenues are still expected to be in the range of $18.7 billion to $19 billion in 2026. MLR remains in the range of 82.4% to 83.4%, with MLR lowest in the first quarter and highest in the fourth quarter. On administrative expenses, our SG&A expense ratio guidance is unchanged at 15.8% to 16.3%. Earnings from operations are still expected to be in the range of $250 million to $450 million. As a reminder, we expect adjusted EBITDA to be roughly $115 million higher than earnings from operations. In closing, we're off to a strong start to the year with first quarter results that exceeded our expectations. Record membership and strong financial performance reflect the actions we took last year to position the business for growth and meaningful profitability. We are well positioned to meet or exceed our full year guidance. With that, I will turn the call over to the operator for the Q&A portion of our call. Operator: [Operator Instructions] And you first question comes from the line of Jessica Tassan. Jessica Tassan: I guess my first one is just can you describe the first quarter behavior of the 200,000 or so members who fell off between 1Q and April 1? I'm curious if they were pulling utilization forward into the base period or if they just kind of didn't utilize were they not aware they have coverage? And then can you just describe the accounting for any expenses incurred by that population in your first quarter results? Richard Blackley: So I would say that for members who churned off, nothing unusual about any of the utilization patterns that we experienced in the first quarter. And those members, in general, the biggest portion of the drop-off really are people that never made a payment. And so we would not expect to see a significant amount of utilization for people that aren't using. And once that person goes into -- if a member goes into a delinquent status, we no longer pay claims that you have to pay in advance in order to be covered. And so once you go into delinquency, we wouldn't expect to cover any claims that might be incurred. So really pulling up on that, everything that we saw in terms of member transition going from 3.4 million to 3.2 million and then starting the second quarter with 3 million members proceeded exactly as we expected. Jessica Tassan: Got it. So just to clarify for that population, you'd only reflect January expenses in the 1Q MLR. And then just my follow-up is, do you all agree with the weekly assessment that market morbidity is up 2.9% to 6.5% in 2026? And then can you just describe where you think maybe Oscar's membership morbidity is trending year-over-year in '26? Richard Blackley: Yes. So on Wakely, look, I think it's a positive development that this new report is out. What that report is really trying to do is to take early information and look at the morbidity of who was retained in the marketplace, who are the new members that came in and what might the risk scores look like for the people who left. And so that's the process that Wakely used to come to build that. I would say that it's very early in the year to draw conclusions about market morbidity, but we really are encouraged about the data that we saw in that report. I would describe it as in line to favorable with our expectations. And when I look at our claims experience, kind of what we're seeing through that report and other reports, really does point to market morbidity that could be a tailwind for us this year. I would say that when I look at the risk adjustment accruals and other accruals that we booked, we have yet to take into account any of the potential favorability that is -- that we're seeing in some of these reports, and we build our accruals based on our pricing expectations. So we may have some tailwinds there as well. Operator: Your next question comes from the line of John Ransom with Raymond James. John Ransom: Just wanted to ask a question about SG&A. So your revenue was suppressed by almost 400 bps by your risk adjustment versus the 20% guide, but your G&A was 15.2%. Why would G&A go up if presumably you're going to get a revenue lift for the rest of the year with a lower risk adjustment hit to revenue? Richard Blackley: And I appreciate the question. Look, I think that we saw obviously strong revenue growth, revenue growing at 53% based on the headline numbers, higher than that, as you said, if you normalize for the risk adjustment. SG&A grew at 46% in terms of SG&A dollars. So we are clearly seeing leverage coming through. I would say the first quarter SG&A ratio is likely to be the lowest for us during the course of the year. There's a little bit of just a dynamic as we grow membership and have some open positions at the beginning of the year. There's a natural kind of flow as we normalize the business for the higher membership. So we'll see that kind of growth throughout the quarter. I would think that from here, we'll probably see membership or SG&A ratio moving sideways to slightly up. And the fourth quarter tends to be a little bit higher as we start to pick up expenses associated with OE efforts. So I continue to think that there's a lot of opportunity to continue to drive performance and improvements in SG&A even at the low levels that we achieved in Q1. Mark Bertolini: And I would add, John, that taxes and fees are pretty much fixed for us based on the level of membership. It's 9% to 10%. So we're looking at the variable piece that we can manage versus that fixed piece, which we literally is kind of a tax for being in the game. John Ransom: And just my second question. Your old guide, I think you hinted this, but just to nail you down, the membership in 2Q, I think you talked about 3 million. Is that still a good number to start with in April? Mark Bertolini: That was our number April 1. Richard Blackley: 3 million. Operator: Your next question comes from the line of Andrew Mok with Barclays. Andrew Mok: The risk adjustment transfer as a percentage of premium is tracking around 24%, but you continue to expect the full year to be 20%. Can you help us understand what's driving that higher now and why you're expecting that to moderate throughout the year? Richard Blackley: Yes. So medical claims were in the first quarter, seasonally low and were also favorable to our expectations. Given those low level of claims, we have a natural offset, which is when your claims content is suppressed, then your risk adjustment ends up being higher. So it's just -- it's a little bit of a trade-off there. We do have a higher portion of new members in bronze plans this year. That's driving some of the seasonality that we're seeing in claims. We expect that we'll get to that 20% during the course of the year as those new members and use their benefits and as members with higher deductible plans like in Bronze start to hit those deductibles. So over the course of the year, I would expect claims to normalize, and that's how we'll see the company get to the 20% that we are projecting for risk adjustment. Andrew Mok: Got it. Maybe just a follow-up to that point, like given the combination of higher Bronze mix and Silver buydowns, what are you experiencing with the Bronze mix behavior at this point? And how does that compare to historical behavior? Richard Blackley: Look, I think that the -- as we've said, the metal mix, we try to make sure that all of our metals have targeted profitability and that we're not having one perform at a really high level and others that are drags for us. So at this point, and we're talking about 15% of claims that have 14. 15.4%, Mike always reminds me. We're early, early days, but everything we're seeing, whether it's through utilization, authorizations, actual claims suggest that the risk of the membership that we have is in line to favorable with what we would have expected. And we're not seeing any patterns that cause us to believe that there's anything here that is unexpected. Operator: Your next question comes from the line of Scott Fidel with Goldman Sachs. Samuel Becker: This is Sam on for Scott. We were just wondering, what are the key swing factors remaining that could materially shift your view on 2026 EBITDA in the second quarter and then going into the second half of '26? Mark Bertolini: It's largely the weekly numbers and risk adjustment. And given if you look at the year-over-year differences between our risk adjustment at this point last year, which was 11%, Scott, and we're now at 24.5%. We've begun to accommodate for what we believe to be the risk associated with morbidity and we put that into our numbers and still generated these returns. And so from our point of view, that's the number that we wait for. And obviously, claims will develop more fully by the end of the second quarter, and we'll have a pretty good pinpoint spot on. Operator: Your next question comes from the line of Jonathan Young with UBS. Jonathan Yong: Just going back to the risk adjustment again. I guess, would you say the risk adjustment was just more a function of the claims data that you're kind of seeing so far? And just to be sure, there's no sweep or cleanup related to 2025 accruals within that? And then I guess alongside that, did the Wakely data influence how you came to the 24% about? Richard Blackley: Yes. So maybe take those 2 things separately. So the 24% risk adjustment level is explicitly being driven by our claims experience. As I mentioned, our risk adjustment reserves are still based on the market morbidity assumptions that we went into pricing with and that we set our guidance with. And so we have not made any adjustments for some of the favorability that we see in the Wakely market morbidity report. So again, that could be a tailwind to us, but we're waiting to see more signals before we lean into that. And on PPD, we did see some in the last weekly report that we got for 2025, we did see a couple of states that had adverse development there. That totaled up to about $85 million. So we reflected that in the quarter. We did have some other states that have some positive developments. We chose not to recognize those and wait for the final report. So we feel like we balanced the risk in that department. We also had favorable claims run out to a pretty significant degree of $150 million. So net-net, our PPD was favorable $68 million in the quarter. And when I look at the combination of those factors, I'm always happy to have favorable prior period development as a gift in the quarter. But I think there's also kind of a longer tailwind that comes with that because we did use those kind of risk levels and reserve levels in building our pricing for '26. So those tailwinds, we think will transition beneficially over the year. Mark Bertolini: And one note I'd make, Jonathan, on that is that the weekly report we received doesn't include experience. It really just includes some of the same demographics and things we've looked at in prior years on our own basis. So it was nice to have some outside verification of the way we view the marketplace from a morbidity standpoint. So it's not really all that tight the way we would see in a regular report on claims. It doesn't include claims. Jonathan Yong: Okay. Great. And then I guess to any emerging utilization -- well, actually, let me go back to the first quarter. Did flu or weather play any factor into kind of the beat? And was there any emerging trends that you're just kind of keeping an eye on at this point? Mark Bertolini: Flu was sort of okay. We had a worse flu quarter than we had in the fourth quarter. I haven't talked about flu in the first quarter call in like a decade. But flu was okay. The weather was fine. We didn't see anything abnormal in our results. And we looked at claims submissions and lags and the whole routine with our team and the experience has been better than we anticipated, but we have not booked all of that. Richard Blackley: Jonathan, just to add to pile on there. I think the most insightful thing about utilization patterns is the lack of interesting utilization patterns. Operator: Your next question comes from the line of Michael [ Ha ] with Baird. Olivia Miles: This is Olivia Miles on for Michael Ha. Do you expect that the outlook on risk adjustment provided in the upcoming June Wakely report should likely remain stable through the rest of the year? Or are there any other puts and takes, particularly with the increased members in bronze plans that could cause industry-wide volatility in risk adjustment in the second half to materialize differently than in historical years? Richard Blackley: I think that we sit here at this point in the year with more data than what we've had in any of the preceding years. I think the new Waco report is certainly, as Mark talked about, it's -- it gives you some level of information. Obviously, we'll all wait to see how claims performance actually develops. That will be the most important factor that will ultimately tell us what's going on with market morbidity. When we look at all of the metrics that we have at this early point in the year, and we calibrate those against external data points, I'm pleased with where we are versus market morbidity. I think almost all the signals are pointing towards favorable market morbidity development versus where we entered the year. We'll have to wait and see there. And as we all know, each sequential report that you get from likely improves your confidence and visibility into where the full year is going to settle. We think Q2 will be an important first report because it will be really the first time we'll see from a claims perspective, what is market morbidity looking like. But again, we see primarily favorable signals when we think about market morbidity. Olivia Miles: And congratulations on the recent announcement of the Lucie Health Marketplace. Looking to dive a little bit more into the financial impact of this model, both in 2026 and in future years. Can you please provide some details on if revenue or an EBIT contribution from Lucie is contemplated in 2026 guide, how you're expecting to grow and scale this platform over the next few years? And any visibility into the revenue basis or long-term targets for this new product? Mark Bertolini: So I'll go into great depth as much as we can in September, but I'll give you some sort of headlines. As we talk to employers around the country, including increasingly larger employers who are interested in NR as a solution, what we have found is that they're very concerned about the network. Now while an individual buying, and this is why we've invited all of our competitors to the platform, but an individual is buying, they want to select their network. given we're not in every market nor our competitors, it's an opportunity for us to share each other's networks by allowing the employee to select from different plans. Why does that matter? Because you're converting a whole employer. Now to the economics of it all, in converting to an all of employer, you're going to have to meet other benefit solutions. So we have companies like Allstate Health on our platform and Aflac and Guardian, others joining us so that they can provide other tools that -- which, by the way, they have been providing to ACA members who have had money that they want to buy catastrophic illness policies or whatever, critical illness policies. But the more important part is, and this is where the economics matter, and we'll dimension this more in September, is that the margin from a dollar standpoint is higher than any insured member would bring us inside the ACA for all the employees, and it's unregulated from the standpoint of having to put up any risk capital. And it's another margin opportunity for us to grow the bottom line and the top line of the organization over time. And so we're excited about that model. We're just putting it all together, but having everybody on the platform so that we can share each other's networks, our response to employers, large employers is when we say, well, we have a big PPO, our response is we have the biggest PPO at narrow network rates. So you ought to be going to us because you can't get the rates we get when you put all of our combined purchasing power together. Richard Blackley: I'd just add that any of the cost revenues of standing up that business are included in our guidance. For this year, we would expect that to be a modest effect. But as Mark talked about, we're excited about the prospects of building a fast-growing, high-margin business. Operator: Your next question comes from the line of Raj Kumar with Stephens. Raj Kumar: Maybe just on Factor VIII enrollment. Maybe any kind of market level color, any markets are doing better than worse kind of than your internal expectations or even kind of the weekly expectations? Richard Blackley: Looking at the landscape of our competitors who have reported our own performance results, I would say that effectuation rates have been pretty much as expected to modestly favorable. I think that they also line up in the same way against what Wakeley had assumed. So to me, what we've seen so far through this year has been that whether it's Oscar or competitors, our expectations of how members would ultimately roll out of the ACA have been pretty much spot on. So again, I think that is a positive sign if we're seeing stability in our ability to estimate what's happening in the market that generally portends well for the rest of the year. Raj Kumar: Got it. And then as I think about kind of this year and some of the market dynamics, large competitor exited this year, maybe just kind of any color on those dynamics in terms of that membership and how that's trending from an RA standpoint. And then as we think about maybe '27, there's another competitor with modest portfolio of members exiting the market. So how does that kind of bake into your expectations as you go into the pricing cycle for next year? Mark Bertolini: I'd like to explain that by the distribution model because I think it's hard for us to know exactly where all our members came from, but we did pick up some auto assigned members from a competitor that left the marketplace. But what we did, and I'll remind you when we did our Investor Day 2 years ago, we said we assumed that there would never be any enhanced subsidy extension. That's how we built our plan. And we started building our response to that. And that allowed us to prepare products that would ameliorate the cost increase to our members. And we built tools that allow brokers to start setting aside what they needed to do for their members to retain them because for the broker community, it's about maximizing capacity and their ability to sell and retain. And so we gave them these products and we gave them lists of our members and said, here are the people that are most affected and here are the product recommendations that we would offer. What happened is that a lot of our competitors got stuck in the middle between whether or not there are going to be enhanced subsidies or not. They didn't necessarily make the plays that we made on product. And when the brokers couldn't see those opportunities, they turned around and they brought those members to us from our competitors because we gave them a solution. It allowed them to be very productive. And when you look at our growth curve, which you obviously don't see, but we see every day on our enrollment, it was almost a straight line up over the first 3, 4 weeks when enrollment opened because our brokers were ready, already talked to their clients using some of our technology, and we're able to get them signed up and moving forward. Operator: Your next question comes from the line of Craig Jones with Bank of America. Craig Jones: So I think your member mix, when you think about like the bronze members, I think it went from a little below average in 2025 to now a little above average in 2026 versus the market. So with that mix shift towards bronze versus average, how does that impact your risk adjustment payable year-over-year? Richard Blackley: Yes. So our book is -- we've got bonds is our largest category. Silver is a close second, golds a follower, but also a significant portion of the book. So a relatively balanced book. I think when you look at risk adjustment, the entire way that risk adjustment is -- like the risk adjustment formula actually is intending to make it neutral across metal levels. So there are some coefficients that sit in that formula that basically say the claims that you're getting and the condition value for a bonds plan, you get a bit more risk score offset because in that plan, you're not -- you're getting lower premiums, and so you're expecting lower claims. And so when you do have claims, you get a bit higher risk score benefit from those claims. The inverse is true for metals that have higher amounts of benefits built into them. So in general, I would say risk adjustment really isn't driven entirely by metal mix. But what is -- what's important is for us, it is the -- number one, the products that we build, we tend to attract healthier members. It's the markets we're in. We tend to be in more urban areas versus rural. So those tend to skew healthier on average. I do think that you see healthier members in bronze than in silver, for example. And we think that across all those metals, we have an opportunity to see strong margin performance and would expect that risk adjustment is more driven by overall levels of utilization across all of those than any one metal in particular. Mark Bertolini: And I would add that even given our prior period development in this quarter, what we see in our population we cover is that we've been at or below expectations relative to utilization and costs. So if you go to last year, were it not for that risk adjustment change, we would have hit our numbers. But because of the change in the morbidity in the market, we had that offset to revenue, which drives up the MLR. So the MLR was driven up by the change in the market morbidity, not by our underlying utilization. And we're seeing that same trend in the first quarter of this year. Operator: Your next question comes from the line of Justin Lake with Wolfe Research. Unknown Analyst: This is Dylan on for Justin. Quick question about growth in historically smaller states like Arizona, North Carolina, New Jersey. Just curious on the trends you're seeing there and any early reads on economics in those states? Mark Bertolini: Too early, not enough claims, quite frankly, to have any real big differentiation. Richard Blackley: And I'd just add on membership side, we're excited about the growth that we've seen in some of these smaller and newer markets for us. We have a playbook where we kind of go into new markets, make sure that we understand the local environment in a really grounded way before we really start to look for growth at an accelerated level. And we're seeing primarily strong results in those new markets. But as Mark said, it's still early in the year. So it's too early for us to get ahead of ourselves. Operator: There are no further questions at this time. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Douglas Emmett, Inc.'s Quarterly Earnings Call. Today’s call is being recorded. At this time, all participants are in listen-only mode. After management’s prepared remarks, you will receive instructions for participating in the question-and-answer session. I will now turn the conference over to Stuart McElhinney, Vice President of Investor Relations for Douglas Emmett, Inc. Please go ahead. Stuart McElhinney: Thank you. Joining us today on the call are Jordan Kaplan, our Chairman and CEO, Kevin Crummy, our CIO, and Peter Seymour, our CFO. This call is being webcast live from our website and will be available for replay during the next 90 days. You can also find our earnings package in the Investor Relations section of our website. You can find reconciliations of non-GAAP financial measures discussed during today’s call in the earnings package. During this call, we will make forward-looking statements. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe that our assumptions are reasonable, they are not guarantees of future performance and some will prove to be incorrect. Therefore, our actual future results can be expected to differ from our expectations and those differences may be material. For a more detailed description of some potential risks, please refer to our SEC filings which can be found in the Investor Relations section of our website. When we reach the question-and-answer portion, in consideration of others, please limit yourself to one question and one follow-up. Thank you. I will now turn the call over to Jordan Kaplan. Jordan Kaplan: Good morning, and thank you for joining us. Our operating results were once again exceptional. First, we recorded approximately 100 thousand square feet of positive absorption for the second consecutive quarter. In the last six months, we delivered our best results since 2019, growing our leased rate by over 1%. Second, we executed over 450 thousand square feet of new leases, our best quarter ever for new leasing. Third, we posted record leasing to tenants over 10 thousand square feet. And fourth, we did all this while realizing meaningful straight-line rent roll up. We understand that everyone is watching our leasing for signs of a sustained recovery. While two quarters is not sufficient to call a bottom, we are becoming increasingly hopeful. We believe that this part of the cycle presents a rare opportunity to expand our portfolio at a significant discount to long-term value. Thus far, we have made two acquisitions, including an acquisition in which we and our joint venture partners paid $260 million for a portfolio of premium medical office properties located in the Beverly Hills Golden Triangle encompassing almost the entire 400 block of Bedford Drive. I am proud of the outstanding job done by our operations team and our capital markets group. These results reflect their sustained hard work. As we have discussed, we remain hyper-focused on growing our earnings through leasing, acquisitions, and the redevelopment of Studio Plaza, the Landmark Residences, and 10900 Wilshire. We have also been successful extending our debt at lower rates than are available to the broader market. Before I finish, I cannot help but mention recent referrals in the media to Jevon’s Paradox, which compares the impact of AI adoption on job growth and office demand to past transformative technologies such as personal computers, the Internet, and cloud computing. With that, I will turn the call over to Kevin. Kevin Crummy: Thanks, Jordan, and good morning. This April, a new joint venture managed by us acquired the Bedford Collection, a five-building, 246 thousand square foot medical office portfolio located in the Beverly Hills Golden Triangle. We hold a 13% stake in the joint venture’s $150 million of equity. The joint venture also borrowed $130 million secured by a nonrecourse, interest-only first trust deed loan maturing in April 2031. The loan bears interest of SOFR plus 170 basis points, which we have effectively fixed at 5.26% per annum through April 2030. The three development projects that Jordan mentioned are progressing nicely. In Brentwood, our multiyear redevelopment of the 712-unit Landmark Residences continues in full swing. At 10900 Wilshire in Westwood, we expect to commence construction this year to convert the property into a 323-unit apartment community. At Studio Plaza in Burbank, redevelopment is completed and leasing is well underway, with some tenants already taking occupancy. With that, I will turn the call over to Stuart. Stuart McElhinney: Thanks, Kevin. Good morning, everyone. During the first quarter, we signed 218 office leases totaling 909 thousand square feet, including a single-quarter record of 461 thousand square feet of new leases. We also signed 448 thousand square feet of renewal leases, and as Jordan mentioned, leasing was particularly strong from new tenants over 10 thousand square feet. Tenant retention remained strong, consistent with our historical average. Our first-quarter office demand was diversified across many industries, with legal, financial services, entertainment, real estate, and accounting representing the top five. Our leasing spreads also improved in the first quarter, as we continue to sign new leases that are more valuable than the expiring lease for the same space. The overall straight-line value of new leases we signed in the quarter increased by 5.3%. Cash spreads are lower by 7.7% as a result of our very healthy fixed 3% to 5% annual rent increases over the life of the expiring lease. First-quarter office leasing costs averaged $6.3 per square foot per year, significantly below the benchmark average for other office REITs, though slightly elevated for us due to exceptional new and larger leasing, which typically requires more tenant costs. Our residential portfolio continues to perform well, with cash same-property NOI up 4.2% compared to the first quarter of last year. Demand remains very strong across our markets; our portfolio remains over 99% leased. With that, I will turn the call over to Peter to discuss our financial results. Peter Seymour: Thanks, Stuart. Good morning, everyone. Compared to the first quarter of 2025, revenue remained essentially flat at $251 million. FFO decreased to $0.37 per share and AFFO decreased to $49 million, reflecting higher interest expense and lower interest income, partly offset by strong multifamily performance. Same-property cash NOI decreased 1.4% for the quarter. At approximately 5.4% of revenue, our G&A remains the lowest among our benchmark group. In terms of guidance, we still expect our 2026 diluted net income per common share to be between negative $0.20 and negative $0.14, and our fully diluted FFO per share to be between $1.39 and $1.45. We expect the FFO gains from the Bedford acquisition to be largely offset by higher assumed interest expense, reflecting the flattening interest rate curve. For information on assumptions underlying our guidance, please refer to the schedule in the earnings package. As usual, our guidance does not assume the impact of future property acquisitions or dispositions, common stock sales or repurchases, financings, property damage insurance recoveries, impairment charges, or other possible capital markets activities. I will now turn the call over to the operator so we can take your questions. Operator: In consideration of other participants, please limit your queries. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw, please press the corresponding key. At this time, we will pause momentarily to assemble our roster. We will now open the call for questions. Our first question comes from Steve Sakwa with Evercore ISI. Please go ahead. Steve Sakwa: Yeah. Thanks. Good morning out there. Jordan or maybe Stuart, could you guys maybe just expound a little bit on the leasing volume? Obviously, the new leasing was quite strong, and we are just trying to get our arms around whether there were any larger leases that might have kind of skewed the quarterly volume here. If you could provide any insight on how many over 10 thousand got done this quarter versus historically done, just to kind of gauge the breadth of leasing activity. Stuart McElhinney: Yes, Steve, it is Stuart. As we said, it was a record amount of leasing in that over 10 thousand category, the most we have ever had. There were a number of deals between 10 thousand and 20 thousand square feet, and there were a few deals over 20 thousand square feet. So very strong across a bunch of industries—entertainment, legal—so it was a wide variety of industries in that larger category, and it is the strongest leasing we have had of that size ever. Steve Sakwa: Okay, thanks. And then maybe a follow-up, Jordan. Can you provide any additional valuation metrics—kind of yield, return on equity, stabilized yield—on the Bedford transaction? Obviously, we can back into a price per foot, but any kind of going-in cap rates or return on equity that you could share for Douglas Emmett, Inc. would be helpful. Thanks. Jordan Kaplan: We agreed with the seller not to give out that information, although you do have the back-end of price per foot—I think they gave it to you. It is around $1,000 a foot, very high $900s. It is a portfolio that I have been trying to buy since the 1990s, and I am beyond pleased with the deal. I think that we are particularly lucky that it came up at a time when it was a good time to buy almost anything. I am very, very pleased with the deal. Steve, next time you are out here, we will walk you around it, and you will, I think, be surprised by the amount of control we have. Anything else? Steve Sakwa: Those were my two questions. Thanks. Jordan Kaplan: All right. Thanks, Steve. Operator: Our next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Alexander Goldfarb: Sure. And good morning out there. Jordan, you mentioned Jevon’s Paradox, so I had to Google that to look what that is. But are you seeing that, or were you just making that comment on its own? Do you have real anecdotes that you are seeing in the marketplace of people saying, because of AI and all the innovations going on, we actually need to hire more? I am just curious if it was just a comment that you threw out or you are actually seeing it in leasing discussions? Jordan Kaplan: Our leasing is really picking up, as you saw. I cannot say I have seen that exact thing happening. But the reason I was so thrilled to read about that is that I feel like I have been saying it now for a year or two years about AI. As AI empowers people to be more efficient and effective, I just think the result will be people will want to hire more people who can do that. Now there are some people, if they do not embrace it, who are going to feel left behind, and I am sure that will happen. But if you said to me the number of people employed—or the more direct statement that your offices are going to be empty because no one needs to hire anybody—I do not believe that one bit. And if you look back at all the technologies in the past that made that same prediction—that people were going to, whether stay home or whatever the case may be—the exact opposite has happened. I was surprised to see it show up from a guy from the 1800s talking about coal, and as things became more efficient, he thought less coal would be used, but in fact more got used. There are many examples since then. Alexander Goldfarb: Okay. And the second question is, I know I have asked you before about the South Bay, like El Segundo and those markets out to LAX, but just hearing recently about more demand for aerospace and defense and that community’s long history. As you think about acquisitions—especially since you have shown you still have a lot of JV capital that wants into the market—would you reassess and possibly consider entering some of those markets if you feel like the aerospace/defense has renewed legs over this cycle? Or is your view—or maybe Kevin’s view—that there is enough acquisition demand in your traditional markets and maybe you are not so sure how long the aerospace demand is, so you are going to stick where you are versus possibly entering some new submarkets? Jordan Kaplan: I think the problem with those other markets that you are mentioning is that people can still build, and if aerospace really picks up down there, they are going to build more facilities for them. That always worries me in a market because you do not have to just be good at getting in; you have to be really good at getting out at the right time. I am much more comfortable here where even in a period like COVID, real estate recession, etc., we have—throughout it all, and I know we have lost lease rate over the last, whatever it is, six years, for the most part due to COVID—such durable demand here and such an extreme limit on supply. I am just very comfortable buying here. I look at all the other factors—the wealth here, the homes, the people that are working here, the other drivers like universities, the industries that have focused their research here, especially medical and tech research. I just have a lot more comfort here than making a farther-out bet. And as you said, I do feel there are more deals, and we are saying that to our JV partners and so on. Everyone is focused on it. Alexander Goldfarb: Thank you. Operator: The next question will come from Anthony Paolone with JPMorgan. Please go ahead. Anthony Paolone: Thank you. Jordan, you talked about just finding bottom here, but can you maybe step back and give us your thoughts on LA in general and how that is playing into tenant behavior and desire to sign leases? Just a little bit more on-the-ground terms of what the feedback has been from prospective tenants. Jordan Kaplan: When you say LA in general, I know you are saying as opposed to another one of the gateway markets, but LA in general in many aspects just generally feels like it is coming back. You see it in the leasing. We see it in the differences of policing and attitudes in the cities that we are operating in, the way things are—people are done with the kind of permissiveness that was incubated by COVID. We see a lot of ways where things are coming back. And, of course, we are just seeing a lot more tenant demand. I hope it holds up. Anthony Paolone: Okay. And then at Studio Plaza, you said it sounds like the tenants started to take some space there. When should we think about that just being put to bed in terms of stabilized and up and running? Jordan Kaplan: We will call it stabilized when we get up into the 90s, and we are working our way towards that. The tenants are moving in. And separately, I am very pleased with the mix of tenants. While it was definitely great to have a tenant there that stayed for 30 years, it was always sort of a risk hanging out in our future. When Warner Brothers moved out, I will admit, I was frightened, and I was talking to Kevin about it. I am so happy now to see a real good mix of tenants, good demand for the building, leasing it up, and a good mix of some tenants who provide amenity to the building. The whole thing is working extremely well, and the way we redid the building—so it is one of my greatest happinesses and relief to see how it is moving now. Anthony Paolone: I mean, do you think it is another year to get to 90-plus or two years out? Stuart McElhinney: Tony, we are not going to give a specific timeline. We are pleased with the pace so far. When it is stabilized, we will move it back into the in-service portfolio, but we do not like to give individual building data. We do not want to put a timeline on ourselves. Anthony Paolone: Okay. Operator: Our next question comes from Jana Galan with Bank of America. Please go ahead. Jana Galan: Thank you. Congrats on the strong start to the year. The spread between the leased and commenced occupancy continues to widen. When you think about the expected commencements, the forward pipeline, and then the expiration schedule, does it seem like this quarter has been kind of the trough in the occupancy number? Stuart McElhinney: As Jordan said in his remarks, we are not ready to call a bottom. We are certainly pleased with the pace of leasing in the last few quarters and hope that continues. We are really pleased to see that lease-to-occupied spread widen out. Jordan Kaplan: Three and a half now. That means we have been doing a lot of leasing. Stuart McElhinney: Of course, those folks will need to move in, which will happen over the next few quarters. With the larger leases that we are signing, that takes a little longer than our typical tenant. So the commencement dates are out a little further than, you know, the 2.5 thousand-foot tenant that we can get in very quickly. But hopefully that spread stays wide. We need to do a lot of leasing, and when that spread is wide, that means that we have done a lot of leasing and those folks need to move in. Jana Galan: Thank you. And can you give us maybe just rough estimates for the under 10 thousand that would be maybe like a two-quarter lag, and then maybe the larger—or any kind of rule of thumb for us to think about in modeling? Stuart McElhinney: For the typical 2.5 thousand-foot tenant, we can get them in very quickly. We build a lot of move-in-ready spec suites; that is a program that we are very aggressive about. We try to have all of our buildings have a couple of those suites ready to go. Those can move in extremely fast. But a more typical average for that smaller tenant is a few months, so they can be moved in within a quarter or two of when we sign the lease. For the larger tenants, it really depends on the level of build-out. Studio Plaza has some significant build-outs going on, so some of those folks will be moving in next year. That is really deal-specific. Jana Galan: Thank you. Operator: Our next question comes from Seth Bergey with Citi. Please go ahead. Seth Bergey: I guess just a follow-up on some of those comments on the signed-not-commenced spread. How much of that 350 basis points is smaller tenants you can kind of get in quickly versus skewed by some of the larger leases that will take a bit longer to get those tenants moved in? Stuart McElhinney: I do not have the breakdown between small and large in that signed-not-commenced spread. I know a lot of it is still our under-10 thousand-square-foot tenants, so I suspect we will have steady move-ins throughout the rest of 2026, and then some of the larger tenants are going to take a little longer, like I said. Seth Bergey: Great. And then just as a follow-up, I know you are not ready to call bottom here, but what are you seeing in terms of tour activity or kind of the forward pipeline that gives you confidence that things will improve over the coming quarters? Stuart McElhinney: It is the good activity that we have been seeing these last six months—that has continued. The pipeline is good. Healthy activity, tours, calls—all the metrics we look at all seem very healthy. Operator: Our next question comes from Upal Rana with KeyBanc Capital Markets. Please go ahead. Upal Rana: On the Bedford acquisition, is there any kind of mark-to-market— Jordan Kaplan: Yeah, you are cutting out. Upal Rana: Can you hear me now? Jordan Kaplan: Yes. Upal Rana: Okay. On the Bedford Collection, is there a mark-to-market opportunity there or any kind of expected rent growth that you can achieve there? Jordan Kaplan: I think there is always a small mark-to-market opportunity in everything we have been doing, but not a stunning one like when you sometimes buy a building from a bank where the rent is less than half on an old lease. That is not there. We own a lot of medical office—it is not our first foray into that product type. We own probably about 1 million square feet of medical office. It is a fantastic product. We love the tenants. They are very sticky. They invest a lot of their own money in the space. So we are very pleased to add to that. Upal Rana: Okay. Great. That was helpful. And then could you maybe talk a little bit on the potential to do additional external growth opportunities that you are seeing in the market? I know you have talked about developing resi and trying to buy stabilized office, which you have been doing, but just curious what kinds of opportunities you are seeing and the depth that you are seeing out in your markets. Kevin Crummy: We are seeing a lot of activity, and more than half of it is off-market where somebody reaches out. We are feeling pretty good about the engagement that we are having with people. We just need to close the gap and come up with pricing that makes sense. And as we have said, we are focused on office. Upal Rana: Okay, great. Thank you. Operator: Up next we have John Kim with BMO Capital Markets. Please go ahead. John Kim: Good morning. With the Bedford Collection, you announced that you have a third of the Class A office space in Beverly Hills. I am wondering if you could talk about what kind of scale advantages or pricing power that provides you. Kevin Crummy: There are several advantages we get from the market control we have across our portfolio. On the operating side, there are tremendous synergies. We have looked at the last 10 or 11 acquisitions we have made, and we are able to lower operating expenses on average about 20%, so it is meaningful savings. We do that because we are so localized. We have such concentrations of buildings close to each other that we can have expensive people shared across properties. We do not have to have a manager at every single building or a very expensive engineer at every single building. We also negotiate very large contracts across our portfolio, so that gets us better pricing. Even more important than the operating side is on the leasing side: it gives us the ability to offer space to any tenant and fit them into our portfolio. If we already have them in the portfolio and they are growing or they are shrinking, we can move them across the street into one of our other buildings that has space that will work for them. Generally, with the small tenants that we have, our goal is not to rip out the space every time and spend $200 a foot rebuilding it. The spaces are built out pretty standardized, and we want to move tenants into a space that already works for them in configuration—with the conference room and the offices the way they like it—and spend a little bit of TIs, new paint, new carpet, whatever that is, get them in quickly, and not spend a lot of capital. That is why you see our leasing costs on average are so much lower than other office REITs you will look at. Having the concentration in those markets allows us to do that. Because we own 30% of the space in Beverly Hills, we are going to have an opportunity to take any requirement in that market and show them several options that should work for the amount of space they need. John Kim: So it is your intention to keep this portfolio as medical office, or are you indifferent? Kevin Crummy: If you are speaking about the Bedford Collection, it will stay medical office. John Kim: Yeah. Kevin Crummy: Bedford will stay medical. We own several medical office properties in Beverly Hills. Like I said, it is a fantastic product. But my comments about the synergies work across medical and regular office. John Kim: Got it. Okay. And then when you mentioned that you are not ready to call the bottom, is that on occupancy or leasing? I am just wondering if the midpoint of your occupancy guidance is achievable or if there is the floor to come down even further. Kevin Crummy: We definitely feel like it is achievable. That is why we left the range where it is. We are comfortable with the range on occupancy. Q1 is typically a tough occupancy quarter for us because more than their fair share of leases expire on December 31 for whatever reason. So then anybody that moves out—that occupancy dip hits Q1. It is not unusual for us to see a small decline in occupancy in Q1 and then ramp up throughout the rest of the year, which is what we expected in our own guide when we gave the range. John Kim: Got it. Okay. Thank you. Operator: Our next question comes from Dylan Burzinski with Green Street. Please go ahead. Dylan Burzinski: Hi, guys. Thanks for taking the question. Maybe touching on the various submarkets. We noticed that net absorption—or at least the percentage—increased on the Westside and in Honolulu and declined in the Valley. Any sort of discernible trends from that? I mean, should we expect the Valley to maybe lag in its recovery versus the Westside? Kevin Crummy: No, I would not expect that. I think we did some good leasing in the Valley. It is just pockets here and there that depend on whatever leases got signed that quarter, but we would expect the Valley to increase along with the Westside. We are getting good activity there. Sherman Oaks Galleria has had a lot of activity. Warner Center, which has typically been our laggard market out there, also has good tours and good activity. So no, I would not expect the Valley to continue to lag. We are working hard to increase the lease rate in all our submarkets, and we definitely think that is achievable. Dylan Burzinski: And then just touching back on the capital markets and transaction environment, given what appears to be recovering leasing backdrops, are you seeing any increased competition from other buyers—are more getting into bidding tents—as you take a look at the transactions that you have referenced? Jordan Kaplan: I think the term people are using is “office curious.” People are kicking the tires. There have not been a lot of the type of assets in our markets that we get super excited about like we did with Bedford. I believe—and you are seeing this up in San Francisco and in New York—as these markets recover, more and more people start to pay attention to it. But right now, we are trying to buy as much as we can because the prices relative to the long-term values are at a significant discount. I remember this kind of thing happening in the 1990s. One of the things with office buildings when people have been exiting it for a while is the operating platforms get denuded. As they want to come back in, they are even more nervous because it is operations and the income that people are focused on more than ever now. I think it is going to give us an edge for a little while because I have seen many operating platforms dissolve and shift to third party, which means you do not really have the people and the information you need to understand deals. The capital is there; it does not mean they are super comfortable in terms of being aggressive on deals. Dylan Burzinski: That is helpful color, guys. Thanks so much. Operator: Our next question comes from Rich Anderson with Cantor Fitzgerald. Please go ahead. Rich Anderson: Thanks. Good morning. Jordan, you said when Warner Brothers left Studio Plaza, you described yourself as frightened. I do not remember you saying that at the time, but nonetheless I get it. I am curious, when you think about the totality of your business today—obviously, things are looking great in terms of a possible bottoming—but where is work still left to be done? Where are the shortcomings of the Douglas Emmett, Inc. portfolio in your mind that still need your attention? Jordan Kaplan: First of all, I actually was frightened, but I was not frightened because I thought the building would not be able to lease up. I was frightened about how long it would take to get tenants because it was right dead center at a time when leasing was at an incredible low, and the press around entertainment was very bad. It turned out that neither of those was true with respect to this building, and the redo that was done by our operations group has been very well received and appealing. If you have a chance to come out here and see it, it is an extremely nice building, and it is attracting tenants who are voting to be there regardless of what is going on around. Today, I would say—I have a partner that runs operations, Kevin Panter—so my area that I am super focused on all the time is capital markets. Today, I am focused on finishing off our debt program. There is not a lot left to do to extend that out and right-size and get all that correct. Then finding acquisitions and getting as much capital placed as we can while—what I consider to be, and you have heard everybody here say it—an opportunity that Kevin and I have not seen for 30 years. We talk about it all the time. I want to finish the last bits of the debt work—done, done, and done—so it is nice and clean. Then I need to get out there and make sure we make some good acquisitions and keep talking to our partners and try to shake some stuff loose. As Kevin said, a lot of the stuff has become relationship-oriented, and some of the last things we have closed on have been people just phoning me that I have known for a long time. That has been an important part. Rich Anderson: Okay. Second question: Stu, you said the larger tenant leasing is a mix of all different types of industries. So then what would you say the common thread is to this happening for you guys? Because this is the second time we are hearing some optimism around larger leases. What is the communication from those entities about why they are willing to do it? Is there any theme around why you are seeing more in the way of larger lease activity? Jordan Kaplan: I think that, as I said on the last call, a lot of what we are seeing is sort of sideline fatigue. They have been holding off, holding off, holding off—trying to wait to see where things are headed. You are able to make a lot of money in this, and they finally have started breaking and saying, we are going to do deals and start expanding because we are going to get left behind. The last time I looked at the stats, our expansions were way above our contractions. And our new tenants coming into the market are rushing to set up shop and have some type of new business that makes them think they need more people. Maybe they are just tired of waiting. There was an article recently that said that people have become indifferent towards the wild fluctuations, and they are going to do business as usual and move forward. I do not know what mix of things that is, because I think a lot of it is driven by the broader economy. There definitely has been a change in attitude. Rich Anderson: Okay. Sounds good. Thanks very much. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Jordan Kaplan for any closing remarks. Jordan Kaplan: I look forward to speaking with you again next quarter. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the IAMGOLD First Quarter 2026 Operating and Financial Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Graeme Jennings, VP Business Development. and Investor Relations for IAMGOLD. Please go ahead, Mr. Jennings. Graeme Jennings: Thank you, operator, and welcome, everyone, to our conference call this morning. Joining us on the call are Renaud Adams, President and Chief Executive Officer; Martin Jason, Chief Financial Officer; Bruno Lemelin, Chief Operating Officer; Ankit Shah, Chief Strategy Officer; and Annie Katie Legacy, Chief Legal Officer. We are calling today from IAMGOLD's office, which is located on 2013 territory on the traditional lands of many nations, including the Miscageof the credit, Donabate and Hotusoni and the WindaPeoples. At HANGOLD, we believe respecting and upholding indigenous rates is founded upon relationships that foster trust, transparency and mutual respect. Please note that our remarks on today's call will include forward-looking statements and refer to non-IFRS measures. We encourage you to refer to the cautionary statements and disclosures on non-IFRS measures included in the presentation and the reconciliations of these measures in our most recent MD&A, each under the heading non-GAAP financial measures. With respect to the technical information to be discussed, please refer to the information in the presentation under the heading qualified person and technical information. The slides referenced on this call can be viewed on our website. I will now turn the call over to our President and CEO, Renaud Adams. Renaud Adams: Thank you, Graham, and good morning, everyone, and thank you for joining us today. Before I start, I'd like to welcome a will join IAMGOLD on Monday as our Chief Strategy Officer. Ankit, who many of you on the call are familiar with brings to our team nearly 20 years of strategy, corporate development and capital markets experience at a very exciting time for this company. So welcome Ankit. IAMGOLD is off to a strong start to 2026. In the first quarter, we produced 183,600 attributable ounces of gold. positioning us well to achieve our full year guidance of 720,000 to 820,000 ounces. The quarter was marked by robust financial results. with revenue exceeding $1 billion and mine-site free cash flow of $525 million. The cash flow we are generating is allowing us to execute on all fronts. As in the first quarter alone, we returned $260 million to shareholders through our share buyback program and repaid $100 million of debt on our credit facility while increasing our cash position. These results reflect the significant leverage of our business as to the current gold price environment and more importantly, the quality of the asset we have built and the teams that operate them. But what excites me most is where IAMGOLD is head. I believe we are entering 1 of the most catalyst-rich period of company's history. Over the next 12 to 18 months, we expect to deliver updated technical reports across each of our assets. Core gold, Westwood, Essakane and the Nelligan Mining Complex. These studies are expected to outline a larger, longer life production profile that we believe will redefine how the market views IAMGOLD. At Cote, the year-end technical report is expected to contemplate the significantly larger scale operations incorporating both the Cote and Gas, supported by an updated mineral resource estimate coming this quarter. At Nelligan, we are advancing 1 of the largest preproduction gold camps in Canada towards a preliminary economic assessment next year. And at Westwood and, we see meaningful potential of mine life extension and production growth. We will get into the detail on each of these through the presentation today. When I look at IAMGOLD today, with $2 billion of EBITDA generated over the last 12 months, a strengthened balance sheet and increasing production profile, catalyst that has every asset and meaningful capital being returned to shareholders. I see a company that is delivering on its promises and building something very exceptional. We are well positioned to create significant value in 2026 and beyond. and I look forward to walking you through the details. And with that, let's get into the quarter. Starting with health and safety. In the quarter, our total recordable injury rate was 0.44, a measurable improvement from the prior year period. I would like to highlight 2 big achievements in the quarter. As the Essakane mine achieved a milestone of 000 in the first quarter, and Westwood achieved its first full quarter at the 0 trip. Gold every mine side strives to reach. I want to thank our teams across our operation and in the field for the continued commitment to safe and responsible mining as safety is where it starts. for us. Looking at operation. And as I noted, IAMGOLD produced 183,600 ounces to our account in the first quarter. At -- good day, attributable production of 52,300 ounces was impacted by reduced throughput due to unplanned downtime associated with Warner on a conveyor belt as crushed ore volumes significantly increased following the commissioning of the second compressor. This belt will be replaced in May, after which we expect to operate at full capacity with an improving cost profile through the year as debottlenecking of the secondary crusher allows us to phase out the aggregate crusher. Meanwhile, Essakane and Westwood, both had a very strong start to the year, demonstrating the value of having a diversified portfolio of producing assets. Cash costs, including royalties, were $1,301 per ounce in a quarter, tracking well within our full year guidance range, including royalties, cash costs were $1,608 per ounce, and all-in sustaining costs were $2,124. It is worth highlighting that both Code and this carry significant royalty structure, which are directly linked to the gold price in a quarter where the gold price realized was nearly $4,900 an ounce. The royalty component is naturally higher than what our guidance assume at $4,000. As a reference, this worked out to around $115 per ounce increase in cash costs for $1,000 per ounce increase in the gold price from a royalty alone. Meanwhile, on the input cost, the ongoing conflict in the Middle East has introduced additional volatility to energy market, and we did see oil prices move higher towards the end of the quarter. scan in particular, has meaningful exposure given its reliance on diesel and heavy fuel oil to power both the processing and the mining fleet. On a consolidated basis, a $10 per barrel increase translates to approximately $12 per ounce increase in cash costs. We are actively monitoring energy price movement and potential supply chain impacts across all of our operations. With that, I will pass the call over to our CFO, to walk us through our financials matter. Martin? Marthinus Theunissen: Thank you, Renaud, and good morning, everyone. The current golf market and our operating results have resulted in good financial results and considerable free cash flow being generated, which is which allows us to continue to execute on our capital allocation strategy to maximize value. We produced $524.6 million of mine site free cash flow that is operating cash flow minus capital expenditure from each operation. $228.4 million of the funds was used to strengthen our balance sheet by repaying $100 million of the credit facility and we also increased cash by $128.3 million. For the shareholder return component, we purchased $260 million or $12.9 million of shares as part of the share buyback program. Subsequent to quarter end, we purchased an additional 2.1 million shares for $40 million, which brings the total shares repurchase by IAMGOLD since the start of the program last December to $350 million. or 18 million shares. In addition, we completed the debt repayment component of our plan and paid down the remaining $100 million balance of the credit facility, making the full facility available. The company tend to continue to use cash flow from Essakane to fund its share buyback program at approximately the same rate of cash generated and we parted from Essakane over the course of 2026. Naturally, the actual number of common shares that may be purchased if any, and the timing of such purchases will be determined by the company based on a number of factors, including the gold price, the company's financial performance, the availability of cash flows, consideration of uses of cash and our strategic allocation. In terms of the financial position, at the end of the quarter, IAMGOLD at $505.2 million in cash and cash equivalents with $100 million on the credit facility, resulting in liquidity at the end of March of approximately $1.1 billion. With the $400 million term loan we paid at the end of last year, and the repayment of our credit facility, IAMGOLD today is the net cash position, a significant milestone for a company that a year ago was carrying over $800 million in net debt. Within cash and cash equivalent, we note that $281.9 million was alpaca at the end of the quarter. The cash balance at this account increased during the quarter and will be used to fund tax payments in April. and the government Burkina Faso's portion of the 2026 dividend payable in June. The company uses dividends and shareholder account structure to repatriate funds in excess of working capital requirements from. Turning to our financial results. Revenues from operations totaled $1 billion from sales of 211,500 ounces. On a 100% basis, at an average realized price of $485 per ounce. The record gold price and operating results resulted in adjusted EBITDA of $666 million in the first quarter of the year. which brings the trailing 12-month EBITDA to a total of approximately $2 billion. At the bottom line, adjusted earnings per share for the quarter was $0.67. Looking at the cash flow reconciliation for the quarter, offers a good visualization of the major drivers in the quarter. We see good conversion of EBITDA into operating cash flow with $629.5 million of operating cash flow before working capital changes. As stated earlier, the significant operating cash flow allowed for the funding of our capital expenditure of $101.6 million $260 million under the share buyback program. We paid $100 million of the credit facility, while still resulting in an increase in cash of $128.3 million. As we look ahead with the debt prepayment golly, we will continue to see the share buyback flow by using cash flow from Essakane and the remaining cash going to our balance sheet. to further strengthen it as we evaluate the best use of the funds to increase value of the business. We are evaluating an appropriate time to induce a dividend that would likely be at the end of the year or early next year. It is worth reinforcing on how we think about our capital allocation framework today. The Canadian platform, consisting of Protego and Westwood is generating sufficient cash flow to fund the company's Canadian operations and corporate activities as well as our internal growth plans over the next 3 years. This is important because it means that the cash revenues account can be directed to fund our capital return to shareholders. that currently consists of the share buyback program. And we believe there is compelling logic to that. The market has historically applied the discounted cash flows generating with kinase. By repatriating those funds to Canada, and using it to repurchase our shares at current market value, we are effectively converting cash with the market discounts into full value equity for our shareholders. We continue to evaluate the program and believe that this is currently the most prudent use of capital. And with that, I will pass the call to Bruno Lemona, our Chief Operations Officer, to discuss our operating results and outlook. Bruno? Bruno Lemelin: Thank you, Martin. Starting with Cote go. Looking at the quarter, Cote produced 74,700 ounces on a 100% basis. Mining activity totaled 9.3 million tonnes of material mine with 3.6 million, representing a strip ratio of 1.6. Total tonnes mined were lower in January and February. The operation completed overburden removal activity required to open up the bid while managed seasonal winter condition. Mining activity in pre March drilling and blasting command in the pushback area. We mined in the quarter was 0.99 grams per tonne, in line with the mine plan. Net throughput in the quarter was $2.3 million as we noted in our results, was limited due to some time on the Citycon conveyor, which feeds material from the primary and secondary crushers to the screen of building. This downtime was primarily due to the increased load on the conveyor following the installation of the secondary crusher. putting additional stress on areas of the company or belts that have prime were in license. We were able to refine our repairs in early April. We then saw improved performance of the belt when the debt plant averaged 32,000 tonnes per day over the month. Later this month, we are installing a new heavier gauge belt, which will allow for the circuit to resume full operations above the -- in summary, the Citadel situation is not structural in nature, but an isolated, nonrecurring early mine item. We are seeing fewer of these as the operations stabilize margin and then we step forward versus the past 12 to 24 months. Cordis transitioning into a phase for first on operating discipline and consistent execution. Net grades for the first quarter was 1.07 gram per ton, in line with the guidance for the year of 1.1 gram per tonne with recoveries of 93% -- we continue to be very pleased with the reconciliation between reserve model, group, grade model to life and production. Production is expected to increase quarter-over-quarter as throughput increases in Q2 and on higher grades in the second half of the year. We remain on track with code-based production guidance of 390,000 to 440,000 ounces for the year. Looking at costs Coty reported first quarter cash costs, excluding real fees of $1,359 per ounce and an in sustained cost of $2,109 per ounce. We have been clear with our plan to lower our cost this year, and that 1 is still in place. Our goal is to exit the year at sub for that refund mining cost and processing cost in the mid-teens. The primary driver is to lower costs this year are fourfold. -- on increased from the mill and higher production. Second is to significantly reduce and remove the reliance on the contracted aggregate crusher. Third is with improved maintenance cycle inter-sales performance improvement and for is to realize the operational efficiencies and the fifth year of ducts. The second goad crusher is operating well, which has removed the bottleneck on this area of the secondary crushing circuit. Later this quarter, the increased capacity will allow us to phase out the usage of the aggregate crusher, which we contracted last year to allow the plant to its 2025 goal. We have already realized benefits beyond the additional volume capacity with the HPGR seeing an immediate debt reduction on where of its growers, which will translate to less rotor replacement over the course of the year. As Rene pointed out, cost at growth are affected by higher gold prices. In the first quarter, royalties accounted for $335 per ounce or 20% of cash costs. Further, and this is something that we've been asked about frequently of late is the impact of rising on price. The benefit to is that the plant in our are connected to the low-cost hydro risk. So effectively, only our mining fleet is directly impacted by fuel prices. Based on our estimates, this translates to about $7 per ounce increase in cost per $10 increase in the price of oil. With a fast forward this year to a higher production and lower costs, -- all eyes turned to what the next 2 is once. The first step is the upcoming of the mineral resources estimate, which will combine both the Coty and Galindo into a single block mall. The goal is to see additional upgrading of ounces into measured and in scale. The resource base will form the foundation of the Cote Garten expansion mine plan, which is still on track to be announced in the fourth quarter of this year. The report will envision a near-term expansion of the Cote plant to 50,000 to 55,000 tonnes per day targeting a significantly larger resurface from the updated resource. We expect the expansion to be highly accretive on a not basis as the near-term capital required for the plant expansion is relatively modest. The permitting and larger requirements for additional savings management and opening of Gardline will likely be staged out many years in the most time. Turning to S1. The mine continued its strong production proceeding 26,300 ounces of the quarter as underground activities very well with excellent marking and foisting performance. Underground mining totaled 106,000 tonnes in the quarter with an average head grade from underground of 9.85 grams per ton. Regards to compensate a lower or termed mine of 60,000 tonnes, operations prioritized waste stripping to open up access to additional or with opportunities to further extension maturity expansion. Net group in the third quarter was in line at $303,000 and turn at a blended average grade of 4.4 grams per tonne and recoveries of 92%. Together, Westwood produced $110 million of mine free cash flow in the first quarter, bringing the last 12 months of cash flow generation to $242 million. Westwood demonstrates what disciplined execution and incremental optimization can deliver safe operations stable collection, expanding optionality and strong free cash flows without step-change capital. As a result of the strong quarter, cash costs averaged $1,270 per ounce and all-in sustaining costs averaging $1,733 ounce, well below the guidance ranges for the year. We have seen a modest mining cost increases on a per unit basis associated with increased driven securities and higher explosive costs. Looking ahead, our teams are quite excited for the future of this year. This year, we are spending about $30 million on expansion capital that has been used to explore MTESthe Eastern extension of the mine, which you can see circle here on Slide 13. We are seeing the sticking of mineralization in this area -- our project teams are currently drifting into this area to come back both testing. The company plans to publish an updated technical report or westward in the second half of 2027, which is expected to extend the life of mine and highlight the potential for both mining in this Eastern zone. This approach would potentially support higher overall underground throughput, and this conceptually would allow for increased gold production at improved mining costs, allowing the mill to be filled with higher-margin material. Turning to Essakane. The mine reported record production of 111,900 ounces on a 100% base, as rates continue to benefit from the positive reconciliation as mining progresses deeper into Phase 7. As a result of the strong performance minifree cash flow from Essakane was $302.7 million in the quarter, bringing the total cash generated by Essakane the last 12 months to $803.6 million. On operation, mining totaled 11.9 million tonnes versus 2.2 million tonnes, translating to a strip ratio of 4.4:1. The higher proportion of waste was a result of the initial pushback of the DIP expansion in the now it. The mill reported in line throughput of 3.1 million tonnes, which was a good achievement as the plant completed its annatto. Head grade averaged 1.24 grams per ton coming off the record grade last quarter. Despite the positive reconciliation impact in Page 7 we are maintaining our guidance for the year of 1.1 grams per tonne additional ore from Gavin talk into the mine plan. Isaac came within guidance ranges with cash costs excluding core fees of $1,083 per ounce and all-in sustaining costs of $2,125 per ounce. Mining costs benefited in the quarter due to freely gain of the initial satellite ventures of the level pit, resulting in reduced exclusive consumption. While on a project basis, these savings were offset by higher synergy and consumable costs and the replacement of the liners. Atacand costs also have exposure to the gold price. In the first quarter, the strong oil price conflated royalties accounting for $597 per gram or 35% of cash flows. Further, Essakane heavily reliant on nice raise on the usage between living and mining, it is estimated that a $10 increase in the price of oil per barrel would equate to about $20 per ounce increase in cash costs and in all-in sustained costs respectively. At this time, our fuel supply has not been impacted by the conflict in the Middle East, to risk, the price and supply have increased. the company access effectively monitoring the situation and supplementing measures that are within its control. This account continues to be a highly cash-generative assets, delivering strong free cash flow while operating optionality to an updated mine plan for being a potential 5-year expansion of its current life of mine. In the first half of 2027, IAMGOLD going expect to release the updated plan, which would exemestane 2033. This work will also support the discussion with the government of Burkina Faso at end of license renewal in 2028. Today, this account post 4.4 million ounces of measured and indicated resources with ferro suppose by ongoing drilling. With that, I will pass it back to Renaud. Renaud Adams: Thank you, Bruno. This brings us to the Nelligan Mining Complex. The first quarter was the first full quarter that we controlled the consolidated district and our exploration teams have been drilling to expand mineralization at Filber Milligan and Monster Lake, while prioritizing targets for further discovery. This year, we will be drilling over 60,000 meters to advance the project so we can release our initial PEA study to the market in the first half of next year. The Nelligan Mining Complex already has a significant mineral inventory of over 4.3 million ounces of measured and indicated and 7.5 million ounces of inferred resources. And we believe there is meaningful upside to those numbers. Many of these deposits and targets have not had a sustained or well-funded exploration program behind them. That is changing now, and we expect the mineral inventory to continue to grow as we put capital to work across the district. We expect the study to outline a project with a central processing facility being fed from multiple ore sources within the 17-kilometer radius, considering the minerals wealth and potential for growth and the fact that IAMGOLD owns 100% of the Nelligan mining complex has the potential to be among IAMGOLD's largest mine. The Nelligan Mining Complex is already positioned as 1 of the largest preproduction gold projects in Canada. What makes truly compelling is the combination of district scale consolidation across multiple million ounces deposit. The ease of access, the combined of underground and open pit mining and the fact that is located in Quebec, 1 of the premier mining top premier mining jurisdictions in the world. Taken together, we believe this attributes positions Nelligan as a premium asset in our portfolio. and 1 where we expect to unlock significant value as we amend the project through the study process. So with that, I want to thank our shareholders for your support. We truly believe it will be an exciting year for IAMGOLD with significant value growth opportunities ahead, including the upcoming resource update at Cote, the code expansion study later this year, followed by next year where we outlined a mine life extension in face in the first half the year, an initial study wrapping economics around Milligan mining complex also in the first half of next year and a mine life extension expansion under goat Westwood in the second half of next year. So altogether, we have significant value accretion catalysts ahead. With that, I would like to pass the call back to the operator for the Q&A portion of the call. Operator? Operator: [Operator Instructions]. The first question comes from Sathish Kasinathan with Bank of America. Sathish Kasinathan: My first question is on Essakane. Are you seeing any risks in terms of potential supply disruptions for diesel or fuel oil over there? How much inventory do you currently have on site? You also talked about the direct cost impact from higher oil prices, but how should we think about the indirect inflationary pressures? Renaud Adams: So maybe, Martin, you take that. Marthinus Theunissen: Satish, we are we are derisking the fuel supply at Essakane. We have supply at site that's 5 to 6 weeks, and we try to maintain that at maximum capacity. But then what we've also done is we continue to secure additional fuel up the supply chain. So we have secured that field. So for the next 2 to 3 months, Acan has already secured sufficient fuel -- the impact, as we stated for the direct impact on the actual cost per fuel that is linked to the market price is about $20 per ounce for per barrel. There is other costs at Essakane as well there's taxes on fuel and those impacts. But we have not seen other inflationary pressures at Essakane or the other mines at this point, and it's hard to estimate those. If you look at our energy cost as a company, it's about 20% of our operating cost and our consumables is about 15% to 16%. So that's kind of like the level of our cost structure that could be impacted by inflationary pressures. But it's hard to, I think, for anyone to predict at this point. what exactly that would look like. Sathish Kasinathan: Okay. My second question is on Cote. How should we look at the quarterly guidance of production and cost, especially for the second quarter with the reduced operating capacity and the scheduled maintenance shutdown in May, should we expect the average milling rates and cost to improve versus the first quarter? Or is it more like a second half story? Marthinus Theunissen: On -- we expect that once we have completed the shutdown in middle of May, like it's meant to be on the May 20 -- we're going to be replacing the conveyor belt, we're going to be replacing also the HPGR tires that were supposed to be change earlier in the year. And -- we are going to make some adjustments in certain areas. But after that, we're going to resume to full operation and even going beyond the nameplate capacity. So it's what I did is that the expectations both on the mining side and mining side, the unit costs are expected to decrease and to have a sharp improvement in terms of gold production quarter-over-quarter. Graeme Jennings: This is Graham. And you'll note in our news release that we refined our throughput guidance for Cote for to 12 million to 13 million tonnes for the year. Sathish Kasinathan: Okay. congrats on a strong year-to-date buybacks. Operator: The next question comes from Anita Soni with CIBC. Anita Soni: I just wanted to ask a little bit about Westwood. So this quarter, a little bit lower production from the Grande deposit or from the open pit, I'm not sure if it's still granted. But how long does that -- how long do you expect to have that or I think I said into 2027? But I was just trying to figure out when it ends in sort of the ramp-up in 2026 in terms of the tonnage over the course of the year. Bruno Lemelin: It, this is Bruno. Good question. We are seeing net new from grade to be extended even beyond 2027. We have also options Phase 5 that put through even beyond till 2029. That's what we're doing right now. We are currently evaluating those options. So been like a great support for Westwood. And the moment that it will be tailing off, it would be also a great moment for the Eastern zone that I'm referring to the thicker part of the underground from at Westwood to replace that material. Renaud Adams: If I may add, Anita, -- so what I really like about the work that's been done and the drilling that took place in the last 2 years. our effort has always been to protect the production profile on the upside basis. the potential Phase Grand Duke should we be able to maintain this up to 2029, '30 followed after that by an increase of the underground in the East. So this is the focus right now. So you don't see any gap. And if anything, continue to increase profile -- it's a bit of about the same thinking, and I appreciate the kinases are different situations we monitor and so forth. -- the best, of course, would be to completely offset the gap and Ciplan can also being capable to maintain the production profile. So that's really the focus at this stage, understanding that we would be continuing to monitor the situation in the West Africa. Anita Soni: Yes. And I guess what I was driving at was on the Westwood was this quarter, you had very good cost and very lot of mining from the underground and with the Grand Duke ramping up. I'm just curious to see how the -- like the -- theoretically, the overall mining cost per ton should actually drive down more with more underground -- sorry, more of the open pit ore coming in. So I'm just trying to get a handle on, you've had a significant cost beat in the first quarter at Westwood relative to your guidance. So I'm just trying to figure out how those like how should be thinking about costs for the rest of the year. Marthinus Theunissen: It's Martin. So I agree, we had a great quarter, if you look at the dollar per tonne for the underground mine. We do expect it to maybe increase just above the 300 level again for the rest of the year that it might not be signed at that level. So it tries to do that $325 million for the full year, again, as we saw in the past. So Yes, we don't expect Q1 to be the norm for the recipe. Renaud Adams: We wish so, but we do understand that there are some zones, some areas in the mine that requires maybe more support and so forth. So you cannot really just it really depends where the guys would be where the team would be mining. But our focus is to remain at the lower cost, but I appreciate that we'll be mining out the sector as well, but higher comp. Anita Soni: Okay. And my other question on Cote on throughput was after in 1 of the other questions going above nameplate. So I'll leave it there and get back in the queue if I have any follow-up. Operator: The next question comes from Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Kreat.on,. Maybe I'll do the financial 1 first. Martin, over to you to maybe talk about the $400 million dividend after tax that you're getting in from Essakane. Should I do think that all of that now could be going to share buyback in like Q2 or Q3? How should I be thinking the payment of the $400 million over for the share buyback from a quarterly perspective? Renaud Adams: Dana. So -- we have about $200 million left on the shareholder account for last year's dividend. We expect that cash to be repatriated by June or July of this year. And then the reason why this is a bit of a slowdown is because of the tax payments we have to make in Q2 as well as the government is getting the $100 million portion of the dividend. So the cash that we bring in, we expect for the remainder of this quarter to spend EUR 40 million to EUR 50 million a month. We readied EUR 40 million in April, so kind of like getting to that EUR 400 million for the year, likely on the this share buyback, we will continue to evaluate. But that EUR 400 million that we declared in June is then a new shareholder account of EUR 400 million and then as we then repaid at cash from Isaka, we would then continue to use that to potentially fund share buybacks for the second half of the year into next year. Gold price dependent is the exact sequence of that. But we could cut vision on the next quarter setting us through the middle of the year. Tanya Jakusconek: Okay. Great. That's very helpful. And then my other financial question is just on the taxes were quite low in Q1. When I look at your guidance and what you paid significantly lower, maybe just a little bit about what's happening there and how you see the rest of the year. coming out in terms of taxes? Marthinus Theunissen: So from a cash tax perspective, we've paid about 14%, if you take our guidance, cash taxes. We still think our cash tax guidance is impact. And maybe if you look at it for how we spread over the course of the year, like 14% to 15% in Q1 and Q4 and then the remainder is spread over Q2 and Q3 and that's again driven by a cash tax payment in Q2. And the withholding tax payment on the dividend, that's normally either end of Q2 or beginning of... Tanya Jakusconek: Okay. Yes. Okay. Perfect. And then just moving to some of the technical questions. maybe Rena over to you to -- as I think about this updated resource that is coming out on Cote Osland at the end of, I think, it's this quarter or in Q2. Should I be thinking, and I think I heard that we're upgrading the measured and indicated category. So should I be thinking that, that 20 million ounces that you have outlined should I be thinking that $2 million of inferred gets moved into measured and indicated and there will be no increase to the reserves that you reported of 7 million ounces or should I also be thinking that, that $20 million overall should get bigger? Just trying to understand what to expect. Renaud Adams: No, thanks for the questions. And we've been socializing this quite a bit. If you look at our year-end mineral resource where we're sitting below the $19 million and the $18.5 plus million of measured indicated. There were still some holes to be integrated in the database. We've done some work in the saddle as well. So in short, our confidence remain, as you say that there would be additional conversion to MI to our objective of 20 million ounces of measured indicated and as you drill, as you continue to improve your inferred as well. So we would all clarify this, but the most important thing is our objective remains $20 million of measure indicated, and that will form the basis for the reserves. We will not disclose the reserve, obviously, because we'll trigger the need for the report right away. So we're going to clarify in Q2 our resource and the reserve then will be a measure of a factor of conversion of the $20 million. Obviously, we're expecting a significant increase in reserves out of the $20 million. but that will be clarified in the study as we come out at the end of the year. Tanya Jakusconek: Okay. That's what I thought was going to happen, but I just wanted to make sure -- and then just maybe on -- I know we talked a little bit about these costs coming down at Cote on both the mining and the processing. As we think about this new study that's coming out in Q4 for this complex, should I be thinking that the new study should have cost under $4 a tonne for mining and processing in that $12 to $14 a ton as a combined entity. I mean, they were quite high this quarter, as we know, for various reasons, but I'm trying to understand if going to be benchmarking on that under $4 a ton and $12 to $14 on the processing. Renaud Adams: The -- you're absolutely right. I appreciate you know that in the short term, cost has been hired. And as we highlighted in Q2 last year, the use of the Gregor plan is a big portion of it. not having the capacity and the dry and short. All this have been tested. We've been using as well some external view as well to revalidate all this. We're talking about visibility level type of studies. So we remain extremely confident. We understand and appreciate our costs are higher, but I think we have good visibility about what has to be done. So this is a focus as we partly aggregate and focus on reducing. It's not going to be all in 1 year. It's going to be spread over a couple of years to 3 years. Our are highlighted heading to the expansion. So maybe Bruno just quickly what you see as the main focus in the second half of the year in terms of customers. Bruno Lemelin: Yes, like for the mining cost, you will see those mining cost rein the second and for the rest of the year, mainly First of all, it was a volume really good thing for Q1. And as we expect volume to increase or net costs are going to go down. Second is we have also made like great improvement in drill and blast increasing our performance by 65% of late. We're also going to receive 4 additional 7 mines increasing arm. So we're putting everything in place to be successful to be below the $4 a ton before the end of the year. Same thing happened for the mining costs at the moment that you take out to remove the aggregate crusher, the contractors and demonetization of other contractors, you will see also a sharp reduction in cost. We are also making improvements here and there. The is part of the optimization phase. And as Rene pointed out, that optimization phase is going to take a good 3 years make sure that we see within a downward pressure for the cost. So we're quite confident that the 43-101 is going to be well spotted by assumptions that are realistic. Tanya Jakusconek: Okay. Understood so a basis to go forward on that. And maybe just my final question, as I thought about the rest of the year. And I know in the previous in February, the guidance has been that Essakane production would be relatively stable through the year was Westwood and then Cote would see quarter-on-quarter improvement and we saw a stronger second half. So how are we looking at the overall company for production profile for first half, second half? Bruno Lemelin: Yes. It's going to be much stronger as we mentioned for Cote, the grades are going to be overing between and -- so we have to expect as far H2. For Essakane, it's going to be quite stable. We need to -- and we mentioned that we remain within guidance as we start implementing the ore into the mine plan. Westwood is just like the only thing that we use for was what it's just been a stable operations, stable and safe operation, 1,000 -- 1,000 ounces a month on average and coupling more, we can be a. So overall, you will see much stronger H2 as opposed to H1. And I think this is what we also disclosed last quarter that H1 would be the softer to take into account the winter conditions and soften changes for the HPGR changes and confidence. So I think right now, we're being. Tanya Jakusconek: Yes. No, that's what you had that. I just wanted to make sure. Operator: The next question comes from Hamed idea with National Bank. Mohamed Sidibe: Maybe if I could maybe ask a question on the underground -- we've now seen 2 quarters a mining rate above the 1,100 tonnes per day and grades over that 9.8 grams per tonne mined. So could you maybe help me understand how to think about the next few quarters in terms of mining productivity, Integrate over the coming quarters? Renaud Adams: The oiling, the marketing is going very well. Our targets are close to 1,000 tonnes per day. And in fact, we're exceeding those metrics every day now. It's done through our optimization and better engineering, better preparation. Hosting, you know we have a 4,000-tonne capacity at Westwood. So we have plenty of capacity at Oi. So it's not constrained. Therefore, the additional gives us great hope that whatever improvement that will be done at Fort will become new mags catalysts into the gold production in the -- but overall, what we plan is we grew we've done what we do and we do work on -- so trying to make sure that we have stabilized the patient, and we improve in an increment manner the Westwood operation on OmiFixbutemeter of admin per day, meter per manship -- the drilling is doing very well also, and we have a new Simberi coming in -- so the drilling performance is also improving very well. The ability of our mining crews to a new zone or improving also with the algorithm that we have developed over time. So overall, it's going well. Marthinus Theunissen: I appreciate that you've seen like quite a significant increase. I mean, again, it's a little bit of the questions on the cost side, depends a bit where you mine as well. what we want is reliable and safe operations. Are we going to see a continued increase. The focus is really to deliver sustainable and safe operations. So we're very comfortable, really like the last quarter. But I think like being in the zone of the 1,000 to the 1,200 is a good zone, and we're going to always prioritize the safe operations, Mohamad I appreciate your question. Mohamed Sidibe: That's very helpful. And maybe if I can ask a second question on AkoteGold on the improvement on the process cost, and sorry if I missed this, but is the improvement of the maintenance time line for the HPGR already reflected in that expected cost improvement you have for the end of the year? Or is that a positive surprise following the installation of the. Renaud Adams: No, I wouldn't call a positive surprise. I would say a validations of what has been our belief since the start, again, with the short of capacity in the dry. We knew we were feeding the HPGR slightly outside of its design criteria with the course of ore, which was accelerating the wear on the machine. So since we've commissioned the second column, we've been in capacity to return to the design criteria within an automatic and overnight change. And we expect the change of the tire now to get back to the life spend that we're expecting. So yes, we're not expecting another change of tire this year, and therefore, it is built in the reductions of cost post change. Operator: The next question comes from Josh Wolfson with RBC. Joshua Wolfson: I apologize. I just want to clarify a couple of things. I'm having trouble hearing some of the data points. Just going back to some of the details on Cote. -- this comment about the plants operating above nameplate in the second half of the year and some of the tonnage numbers that was provided. -- the numbers look to imply about maybe 10% to 15% above nameplate in the second half. I just want to clarify, does that sound correct? And then -- is it reasonable to assume that those throughput levels can be sustained beyond 2026 even before the expansion takes hold? Renaud Adams: Yes. When we say that we can produce about mantras we have more than many days above 36,000 tonnes per day, even 42,000 tons per day remit. With the addition of the second on crushers and also allowing the gain-of there protecting now the HPGR, which is going to be running very efficiently. We expect to remain into that loan between the 36,000 tonnes per day and 42,000 tonnes per day in average. So that's very promising for us. We with the shutdown that we have in August and other shutdown that we have in certain areas, we are still evaluating and planning an overall average throughput of 36%. But overall, like when you have a very well run rate, it goes well. Marthinus Theunissen: What we've experienced, Josh, with the second column is we're for only a few weeks, unfortunately, before we started to have the issues on the conveyor. So the objective has always been to stabilize at the 36%. So what we've seen is effectively, of course, if you want to reach 36 when you upgrade, you need to be above. But we also had Brunel earlier talking about slightly better grade as well. So it's not just a matter of throughput. It doesn't matter that we should access as well better grade in the second half. But the priority at this stage is to demonstrate that minimum 36 average all time in the dry in the wet, as you cross finer, you will unlock more potential in the web as well. So for the first stage 1 is as soon as we change the tire, we change the bell, we parked the aggregate plan. The focus in June is to demonstrate that we actually get operated an amply then will come the optimizations on a step-by-step basis. But so far, so good for what we've seen with the crusher. Joshua Wolfson: Okay. Got it. And then your comments about the better grade, as the number was mentioned on the call, again, I apologize for nothing of it here. It was said it was 1.1 to 1.2 in the second half. Is that correct? Bruno Lemelin: Between 1 and 1.2. Marthinus Theunissen: Yes. So we did $107 million in the first quarter, and we're you could see a quarter above the $107 million. So we said $1 million to $1.2 million -- and hopefully, we'll see quarters about the 11. Joshua Wolfson: Okay. And then last question. I know it's sort of been mentioned by some of the other participants just on mining costs for Cote. I mean I wouldn't necessarily extrapolate the current quarter. And obviously, there's a lot of volatility on the energy side of things. But what is a reasonable sort of mining cost for us to assume in the second half of the year would you factor in maybe I'm not sure what sort of energy price us. I'll let you guys figure that out. But maybe just at least high level, what would be the target steady state? Renaud Adams: Martin, you can get some details, but I can say that at this stage, the focus is absolutely to bring those mining costs below the as we exit the year. Martin? Marthinus Theunissen: Just 1 thing we didn't mention earlier was that we've actually put in some price protection for oil at Cote. So for June as well as for all of Q3 9% Cote oil is hedged at a price of about $80 per barrel. So if the price goes above $80 per barrel, it doesn't impact our cost further during that period. And we still participate if the price goes below that. So that will help offset some of that cost as well to get us close to that fall. So as we exit the year, as we achieve our objective to drop our mining below the floor and get the mailing more towards the 15% as we exit. That is the main focus at this stage, knowing that there would be some more optimization to continue to take place. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Graeme Jennings for any closing remarks. Graeme Jennings: Thank you very much, operator, and thanks, everyone, for joining us this morning. As always, if you have my initial questions, please reach out to Reno or myself. Thank you all. Be safe, and have a great day. Operator: Thank you. This brings to close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day. Thank you.
Operator: Good day, and welcome to the California Resources Corporation First Quarter 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Daniel Juck, Vice President of Investor Relations. Please go ahead. Daniel Juck: Good morning, and welcome to CRC's First Quarter 2026 Conference Call. Following prepared comments, members of our leadership team will be available to take your questions. I hope you have had a chance to review our earnings release and supplemental slides. We have also provided information reconciling non-GAAP financial measures to comparable GAAP measures on our website in our earnings release. Today we'll be making forward-looking statements based on current expectations. Actual results may differ due to factors described in our earnings release and SEC filings. [Operator Instructions] I will now turn the call over to Francisco. Francisco Leon: Thanks, Dani. Good morning, everyone. We're off to a solid start in 2026 with unprecedented energy market volatility creating meaningful tailwinds and opportunities for our business. Before getting into the quarter, let me share a few thoughts on the macro environment and why CRC's business is well positioned to create value through the cycle. Events across the Middle East have reminded the world of the importance of oil and energy security. Global supply chains have shown to be vulnerable and countries have been forced to seek reliable, diversified sources of energy. While the United States has been relatively insulated due to our strong domestic production, California faces a unique and precarious position. Today over 60% of the oil consumed in California comes from foreign sources. In recent weeks, our state's inventories have been reduced by more than 20% as oil destined for California has been diverted to Asia at substantial premiums. The importance of in-state production has never been more critical, both to ensure supply and preserve affordability. As the Golden State's largest producer, CRC is positioned to be this solution. Delivering local barrels that shorten the supply chain, lower transportation costs and associated emissions, and helping keep gasoline affordable for Californians. CRC has a deep, primarily Brent-linked, high-quality inventory of oil development opportunities, and recent legislative efforts to improve permitting are proceeding as expected. Our recent mergers were well timed with transactions priced well below today's strip, and set a strong foundation for future growth. We're now deploying capital into these assets to drive disciplined long-term value. California is starting to recognize that local production is essential to affordability, reliability and the state's climate objectives. And CRC is ready to support all 3. Today we're moving decisively to accelerate development. We are increasing drilling cadence this summer by 3 rigs: 2 in California and 1 in Utah. This will allow us to return to our long-term production maintenance capital program ahead of schedule and accelerate high-return projects to unlock value. In California, we're drilling new wells and adding capital-efficient workovers that will translate quickly into production. And in Utah, our highly contiguous acreage position provides meaningful upside that we have only begun to capture. Let me spend a moment on the Uinta acreage because this opportunity is compelling. Since 2020, production in the basin is up 100%, reflecting both improved results at the well level and expanded more mature regional infrastructure. Recently drilled CRC and offset wells have substantially derisked our acreage, and we're planning to perform additional appraisal work. With over 200 gross Uteland Butte locations already in the portfolio and additional benches under consideration, we have considerable running room to support a scalable growth platform. Our planned acceleration in activity to 7 rigs will meaningfully enhance our financial outlook. For the full year, we are now targeting approximately 1% entry-to-exit gross production growth, and raising our adjusted EBITDAX guidance by over 40%, outpacing the expected rise in Brent. We're also increasing our Berry merger synergy target, which Clio will cover in detail in a moment. Our carbon management business, CTV, is on the cusp of a historic milestone. We completed the construction and commissioning of California's first commercial-scale carbon capture and store project at our Elk Hills cryogenic gas plant, and we expect to receive final notice of the termination from the EPA any day now. That approval will clear the way to first CO2 injection, marking the first time in California's history that carbon emissions are permanently stored. It will also place CRC among a small group of U.S. oil and gas companies with active CCS operations. Put simply, this is a defining moment, not just for CRC, but for California's ability to deliver on its climate objectives while preserving energy reliability and affordability. We expect carbon capture at our Elk Hills cryogenic gas plant to be the first of many more projects to come. Our storage reservoirs sit within reach of approximately 17 gigawatts of baseload power generation across California that we believe has the potential to be retrofitted for CCS. And we have submitted over 350 million metric tons of carbon storage capacity to the EPA, with additional reservoirs tracking or draft permits through 2026. Our data center conversations continue to gain momentum. As previously announced, a top-tier national data center developer is investing several million dollars to accelerate early-stage site readiness and permitting at Elk Hills, a clear vote of confidence in the opportunity. As AI transitions from training to inference and other states face mounting power constraints, tech's appetite for scaled clean power in California is growing. CRC is uniquely positioned to meet that demand. We can permit, deliver firm gas supply, offer available land adjacent to existing infrastructure and [ pair it ] all with CCS. Power is the binding constraint for AI growth, and we are one of the few platforms that can solve it. On the Reliable and Clean Power Procurement Program, or RCPPP, we expect the next major update in the second half of 2026. Natural gas with CCS is not yet eligible, but support is building and [ 3 of 5 ] CPUC commissioners have publicly endorsed inclusion. California already offers some of the highest stackable CCS incentives globally. RCPPP eligibility would make the economics even more compelling. Our enhanced 2026 outlook reflects the positive impact of these developments as well as the continued execution of our strategy. With that, I will turn it over to Clio to walk through our first quarter results and updated 2026 guidance. Clio? Clio Crespy: Thank you, Francisco, and good morning. We delivered a strong first quarter with adjusted EBITDAX of $304 million, approximately 17% above the midpoint of our guidance, and we are raising our full year guidance. The combination of disciplined execution, higher oil prices and accelerated activity has improved our outlook for 2026. In the first quarter, operating cash flow before changes in working capital was $247 million, ahead of our expectations and reflecting the stronger Brent backdrop relative to our previous guidance. Net production averaged 154,000 BOE per day, with oil at 81% of the mix and realizations at 96% of Brent pre-hedged, in line with plan. Adjusting for PSC effects, underlying production was in line with our quarterly guide. G&A for the quarter was above guidance due to the timing of legal expenses and a higher cash settled equity compensation, reflecting share price appreciation. G&A is already trending down with further reductions driven by Berry synergies, which we expect to capture in 2026. Total capital deployed in the quarter was $131 million, at the high end of guidance. The increase in spend was by design as we pulled forward pre-spud timing on development wells and accelerated facility spend to support the activity ramp Francisco outlined. Even with that accelerated capital deployment, free cash flow before changes in working capital was $116 million, a strong start to the year. In March, we priced a $350 million add-on to our 2034 notes. We upsized from $250 million with a book more than 5x oversubscribed and used the proceeds to redeem our 2029 notes. This extends our weighted average maturity to approximately 6 years, lowers our interest expense and further strengthens the balance sheet. Net debt ended the quarter at $1.3 billion, with net leverage at 1.1x last 12 months EBITDAX. We returned $46 million to shareholders during the quarter, including $36 million in dividends and $10 million in share repurchases, bringing cumulative returns since mid-2021 to more than $1.6 billion, a track record that reflects the consistency and the durability of this business. Current conditions across domestic energy markets arguably provide the most constructive backdrop for our business and the industry than we have seen in quite some time. For the second quarter, we expect net production of 149,000 BOE per day, reflecting the impact of PSC effects at higher prices and a planned short maintenance window at our Elk Hills power plant. We expect capital deployment of approximately $130 million, reflecting increased drilling activity in June, G&A of $95 million, and adjusted EBITDAX of $390 million, assuming an average Brent price of $105 per barrel. As usual, we provide both quarterly and full year sensitivities to Brent to help frame the impact of commodity price volatility. For the full year, we are raising our outlook across the board. We now expect 2026 exit gross production of 175,000 BOE per day, roughly 1% entry-to-exit growth and building momentum into 2027. To deliver this growth, we are increasing full year midpoint of total capital guidance to $540 million. [ D&C ] and workover capital is $100 million above our prior plan, reflecting a second half ramp to a peak of 7 rigs. Partially offsetting this increase is a reduction to facilities capital of $10 million, reflecting ongoing field level facilities rationalization. Allow me to pull all of this together in one important comparison. We previously forecasted that our maintenance capital framework to hold production flat required 7 rigs and approximately $485 million of D&C and workover capital. This year, and given our portfolio's flexibility, we are expecting to deliver entry-to-exit growth with an average of 5 rigs and D&C and workover capital utilization of less than $400 million. Fewer rigs, less capital, and we are now growing. The return profile on our full year 2026 capital program is compelling. At current strip prices, we expect a multiple of approximately 4.5x on invested capital, up from 3.8x previously. And IRR is approaching 70%, roughly 40% higher than our prior estimate. We now expect full year free cash flow before changes in working capital to exceed $800 million. Turning to Barry merger-related synergies. We have already implemented over 80% of our original target and are now raising that target by 12% or an additional $10 million. That's driven by field consolidation and contractor-to-crude conversion across the combined footprint. Our cumulative synergy and structural cost reduction target through 2028 now stands at upwards of $460 million. We expect full year adjusted EBITDAX at a midpoint of $1.45 billion, assuming an average Brent price of $91 per barrel. This increase reflects both higher commodity prices and underlying margin expansion. Brent is up approximately 38% while our EBITDAX outlook has increased by approximately 42%, with a positive difference driven by high-return drilling, structural cost discipline and incremental synergies, all supporting higher cash flow per share. That gap between commodity upside and EBITDAX upside reflects the value of our integrated strategy compounding, and it is the kind of outperformance we can sustain through the cycle. Cash flow per share growth, high-return reinvestment, a derisked balance sheet and structural margin expansion, that is 2026 in a nutshell. With that, I'll turn it back to you, Francisco. Francisco Leon: Thanks, Clio. Before we open the line for questions, let me share a few closing thoughts. CRC remains a different kind of energy company. And this distinction could not be more evident. Our integrated strategy is delivering on 3 fronts at once: a low-decline conventional business accelerating into a stronger price environment, California's first commercial-scale CCS project on the doorstep of CO2 injection, and a power and data center opportunity gaining traction. The path forward is clear. We're scaling activity across California and delineating the Uinta. We're converting structural margin expansion into cash flow growth. We're returning capital through a durable dividend and opportunistic buybacks. And we're advancing our leading carbon management platform. Our priorities are unchanged: develop our resource base responsibly, unlock the full value of our portfolio, maintain a premier balance sheet, and allocate capital with discipline. That is how we create durable long-term shareholder value. Operator, we're ready for questions. Operator: [Operator Instructions] The first question comes from Scott Hanold with RBC Capital Markets. Scott Hanold: Looks like you have it all coming together. You got the permit reform, you identified the inventory, now you've got the price. So this growth path, I think, looks pretty attractive. But I was wondering if you could walk us through the 2026 program as it is now, just give us a sense of when the rigs are coming on and how that translates into when the production actually shows up throughout the year. And if you can give a little bit of context too on the permits, whether or not you've got the permits in hand to execute it at this point. Francisco Leon: Scott, thanks for the question. Yes, we came into the year looking to reestablish the permitting process, showcase the inventory and then the highly capital-efficient program. We think the updated 2026 guide reflects the progress on all these objectives. Let me explain. So we're going to be drilling a total of about 357 new wells and side tracks for the year. Happy to report that we have all permits for all 7 rigs now on hand and are working on our 2027 plan. Not only that are permits flowing, but the process overall is getting better. So with the permitting process being squared away, that allows us to focus back on more dynamic capital allocation. And that's where we see an advantage versus maybe the shale peers in the rest of the country. We have a lot of flexibility to deploy capital and have very short time to market. So time to markets are very quick, from spud to production is roughly 30 days on average, although we can beat that number. And we don't have the same level of service intensity or competition for equipment and crews. So we can try to connect to a window of price opportunity and deliver incremental production that way. So we're lining the incremental rigs to be ready in the summer and start producing in the -- early in the second half of the year. So then that allows us to focus on the overall picture, which is returning production to maintenance. We talked about and showcased that we have significant running room, 24 years of inventory. Our wells are performing extremely well. We're beating the [ tight ] curve. And you can see that in the numbers that Clio highlighted. Our entry production is 174,000 BOEs per day. Our exit is estimated at the midpoint to be 175,000 BOEs per day at the midpoint of the guide, and that's on a gross production basis. Why do I mention gross production and not net? Because that's a cleaner measure of reservoir performance. Gross is unaffected by PSC cost recovery variability. We have the contract in Long Beach where it's subject to PSC mechanics. So you look at growth in terms of being able to measure that efficiency. So now you can also back out the PSC effects from net production and you get to the same shape; you're staying flat to slight growth. But the really exciting thing that we're seeing come through as our team is executing is that we're staying flat with less rigs. So the improvement on capital efficiency has been significant. So let me turn it to Clio to highlight the capital efficiency and the returns of the program as well. Clio Crespy: Scott, really on the efficiency point, the comparison here is really compelling. So on how much our program has improved relative to what we outlined just last quarter. We had talked about the 7-rig program with about $485 million of D&C and workover capital. That will be needed to hold production flat next year, so in 2027. And today what we're outlining is we're delivering that flat to modest growth with roughly 5 rigs throughout the year and under $400 million of D&C and workover capital. So that's a meaningful step up in the capital efficiency. We're getting more out of fewer rigs, less capital, and we're bringing that forward in time. And most importantly there, that improvement is also showing up in our returns profile. And so the program-level returns, you're looking at roughly 4.5x MOIC, nearly 70% IRR, that's meaningful further increase from our prior program, which was already highly attractive. I'll unpack that just a bit further. It's coming from a few places, 3 things really: well economics, cost structure and portfolio sequencing. So first, we're seeing better capital productivity at the well level, both in terms of cost and also early time performance. Second, we've structurally lowered our cost base and particularly on the field and facility side. And third, sequencing and timing here. We're simply deploying capital more efficiently across the year and across our broader portfolio. So this isn't just one lever. It's a multiple of improvements compounding at the same time. And as you think about our activity increase here, Scott, the key is that it's tightly price-gated. So we remain capital disciplined at current strip free cash flow before working cap. That is expected to come in above $800 million this year. And we're also anchored to long-term pricing rather than near-term thought. So at around $65 Brent, our 4-rig program was fully supportive and generates strong returns. And each incremental rig from there, that requires roughly $5 Brent increase and long-term pricing to maintain those returns. So what effectively does here is create a clear decision framework internally. Every step-up in activity has to meet our return threshold. So even in a stronger tape that we're seeing today, we're not chasing volumes. We're scaling only where returns justify it. And as you move towards 6 rigs in California, we're underwriting that again something closer to a $70 or $75 Brent long term, which is broadly where the strip sits today. And tying back to what Francisco was mentioning earlier, that framework, it's really enabled by the flexibility and program. We can adjust activity quickly without putting really the base at risk. So key takeaway here, Scott, is it isn't a change in strategy; it's stronger execution and better economics. Scott Hanold: Yes. I appreciate all the color. That was very helpful. My follow-up question is, is on Uinta Basin. And then maybe if you could step back for us and talk about why invest in Uinta, and how do you look at the long-term strategy of that asset? Francisco Leon: Yes, Scott. So we're still in the evaluation stage of Utah. We have 4 wells that we want to drill before the end of the year. We have -- when we acquired Berry, we booked about 200 locations in -- but as you look at the stacked acreage and the horizontal development and what offset operators are doing, there's a lot more running room to go. But ultimately, we're looking to unlock the best value. And the way to think about it going forward beyond the 4 rigs is we are considering full development, but we're also considering monetization. So I'd say we are not in a holding pattern anymore. We're going to make a decision coming up. But we see some compelling opportunities to delineate and advance the evolution and the understanding of that asset base. I wouldn't call it a core asset, our core is California, but we're still in that evaluation stage. We see the rest of the country struggling to find high-quality inventory. We think the Uinta will provide that. And the nice thing for us is we attributed very low value to Utah in the very acquisition. So that leaves us with meaningful upside to unlock that best value. So more to come. For now, 4 rigs. We're still evaluating. Sorry, 4 wells, not 4 rigs. Operator: The next question comes from Betty Jiang with Barclays. Wei Jiang: I want to start first on the upstream and maybe impact a bit on the capital efficiency improvement that you're seeing in '26 and how that's impacting 2027. 2026 guidance is a bit noisy just with the PSC effects, but you guys spoke to a lot of those investments is really showing up in the second half, and Uinta is not going to peak until first quarter of next year. So I'm wondering how much of the 2026 investment is going to show up in growth in 2027. And then just on the CapEx side as well, is it fair to say that if you are at 5 rigs this year growing on the lower CapEx, is maintenance CapEx now lower than the $485 million before? Francisco Leon: Yes, Betty. And yes, it's early to guide and to start locking in 2027, but I get the logic behind your question. We are definitely seeing capital efficiencies improve and lower the maintenance capital. I think that is evident in the guide today. We do see longer term 7 rigs as the table stakes for the business. What that means is that is the view we have on the forward long-term baseline at mid-cycle pricing. Have, as Clio said, a lot of flexibility and we can adapt to market conditions, but from a planning perspective, we see 7 rigs as what we want to invest in given the quality and duration of our inventory. So in terms of the investment that we're making now, yes, the -- in conventional assets, you will see the shape of the wedge that peaks -- in this year, we invest, we peak next year, right? So a lot of the investment that we're making is not for 2026 [ expected ], it's really for the benefit of 2027. And having a view towards the long-term price curve and seeing -- and also with our strong hedge book, that gives us confidence to deploy capital thinking into 2027. Ultimately, 7-rig pace also yields a very resilient free cash flow profile. That allows us to have durable returns for shareholders. Ultimately, we'll have to look at a lot of elements as we start thinking about the rig deployment in 2027. So we have a great portfolio, a different mix of wells, different commodities that we can go after. I would not assume that we would -- seeing the split of 6 in California and 1 in Utah. That's still to be determined. But a total of 7 rigs is what we think is the long-term guide on baseline investment for the business. Wei Jiang: Great. That's helpful. For my follow-up, I want to ask about the data center development. You spoke to you're working with a top-tier data center developer to find sites or develop sites in Elk Hills. Can you just speak to the scope of that partnership? Is it fair to think about the value accrued to CRC long term could be on multiple fronts from the value of surface acreage, gas supply, CCS, et cetera? And then just how are the conversations going in general to move the project forward? Francisco Leon: Yes, Betty. So we're making really good progress. We have previously discussed the concept of land now, which means land that's permitted, it's powered, shovel-ready codeveloped and, ultimately, an adjacent to our Elk Hills facility. So we're getting the site ready and our data center partner is putting real capital behind the opportunity, investing several million dollars to accelerate the early-stage work. So we see a lot of people chasing headlines trying to talk about hyperscalers and data centers. We're really focused on project delivery and accelerating durable contracted cash flows. So it's a good way to think about it as we have an integrated view on data centers, from natural gas supply, which we have at Elk Hills, to land, which we have over 200,000 net acres of surface and a lot of it is around Elk Hills, to also being able to provide power and then decarbonize those electrons. We think it's a very compelling one-stop shop opportunity. And we're focused on the delivery. So you'll see more progress on the permitting, you'll see more progress on the advancement, and that's all coming together in a very nice way. We've developed a very strong core competency in being able to kind of navigate the California regulations. We've done it with oil and gas effectively, we've done it really well with carbon capture, and now we're going to do the same thing with data centers. So our partner is adding a lot of value in that design in anticipation of what hyperscalers need. So it's a real and exciting project we're developing. And we'll be ready to announce the specifics a little bit further along, but we're seeing really good progress. Operator: The next question comes from Josh Silverstein with UBS. Joshua Silverstein: Nice update on the Berry synergy front here. And I like that you guys give the 3 different bars there to help kind of break those out, where they're coming from. Can you just talk about how these are starting to trickle in through the course of this year? Will you start to see it in 2Q? Or is it later on this year where those benefits really start to show up? Francisco Leon: Josh, so yes, the integration with Berry is going extremely well. At this point, we've captured about 80% of the targeted synergies. We increased our target by $10 million, primarily in OpEx, and trending really well towards the cumulative target of $460 million of annual synergies between [ Era ] and Berry. So the trajectory, the trend is all going very well. So why the rate in OpEx? I'll give you a couple of examples. Our team is doing a fantastic job in field consolidation. So what that means is we're merging overlapping water and oil treatment facilities and ultimately also consolidating supplier contracts by leveraging our CRC infrastructure and vendor relationships. So that's going really well, probably better than anticipated. We also have a big opportunity for automation. Both Era and CRC were much stronger in automation than Berry. So now we can integrate the legacy Berry fields into our operational control center, which creates the scale and the automation that we need in the operating model. I'll turn it to Clio talk about more of the specifics. But one thing to also note, I see a lot of oil companies talking about AI and how they're incorporating AI into operations. We're working on the same things and seen efficiencies, but those numbers -- those impacts are not quantified yet in our numbers, right? So there is some upside assuming technology advancement and implementation works, but everything else we're really doing is more physical movement and placement of facilities alongside with reductions in G&A. But I'll turn it to Clio to provide a little more context on the synergies. Clio Crespy: Josh, I'll frame it from a broader financial perspective to start really on how those synergies benchmark and then look at your timing question and unpacking that. So on the benchmarking side, while the $10 million increase we announced today on the various synergies, that might look incremental in terms of absolute terms, it's actually quite significant relative to the size of the transaction. We're now roughly at 13% of deal value, which is well above what we typically see in the sector, where most of those transactions are in the mid-single digits, and more recently, we've seen deals trend even lower. So this is clearly a differentiated outcome. And importantly, it's consistent with what we delivered on Era. So we view this as a repeatable playbook for us. On the trajectory, we're largely through a lot of the action items. So we laid out last quarter that we had already delivered roughly $300 million of structural cost reduction and that ahead of schedule. This quarter, we've captured the 80% that Francisco was mentioning of our original Berry synergy targets. So we're well on our way. And the durability of the model is really proven on the synergy capture. And that is what gives us confidence in the path forward on the longer term and our ability to get close to that $0.5 billion of cost reduction. I'd say the remaining synergies that we're looking for are less about those onetime actions now and more about continuous improvement of the business, and you could expect those to come through more steadily over time. If you put it all together, it's really a sustained structural margin expansion story that's continuing to build. And you're already seeing that in our outlook where EBITDAX is growing ahead of the commodity price rise. Joshua Silverstein: Got it. I was hoping to shift over towards the power business for you guys. And I wanted to see how you guys are thinking about the evolution of this business for you? Is it something that could grow? I know it's something being integrated with other parts of the business, but how are you thinking about this? And then maybe just kind of a broader overview of what you're seeing in the California markets. Francisco Leon: Yes. California is fascinating. We keep seeing the same message. We just need more power in the state. And it needs to be clean, it needs to be reliable, it needs to be around the clock. And we're one of the very few companies that can go from molecules in the ground to electrons on the grid to carbon back on the ground. We think that's a big differentiator, and the geology and our expertise on subsurface is what makes it really difficult to replicate. If you then look at the interconnection queues in California, it just takes longer than anywhere else in the country. And so that puts a scarcity premium, capacity that's already tied to the grid. So having those assets, it's very meaningful. We have close to 1 gigawatt of power under our portfolio. But we're seeing some regulatory improvements. So the CPUC just started the procurement process of 6 gigawatts of new clean capacity by 2032. But what we really like to see is that 1.5 gigawatts of that is clean and firm. So that's the energy that we can provide, right, always on, dispatchable, zero emissions. So these are solar and batteries can fill that, it's gas, natural gas with CCS. So in terms of the dynamics that we're seeing, we see a resource adequacy payments that are compressed today because you have a lot of this intermittent supply solar and wind that's flowing in the market. But this new clean, firm requirement creates a structural demand for what we operate. So then the resource adequacy pricing is expected to follow and it's stronger over time. So ultimately, what we see in terms of power is the future natural gas with CCS. It's very California-specific solution. You might not be seeing that in other parts of the country. And you're expecting the CPUC to address it this year and moving forward. So we're well positioned either way, but we see a significant business opportunity as we think about California power dynamics. Operator: The next question comes from Zach Parham with JPMorgan. Zachary Parham: I wanted to ask on the buyback first. Buybacks were relatively smaller in 1Q at $10 million, and you bought back around $45 per share. So those buybacks were done mostly early in the quarter. The stock's moved quite a bit higher since, but so is the commodity, so you're going to still generate quite a bit of free cash flow this year. Can you just talk about how you're thinking about the buyback going forward? Francisco Leon: Yes, Zach. So the first priority for this quarter was to get the activity production back to maintenance level. And the reason for that is that, that gets us to sustainable capital returns. And that duration is what we think the investor is really looking for. And you look at the track record, $1.6 billion of buybacks over the years. So very much a part of our portfolio to be able to distribute cash to shareholders. So we continue to be very focused on that. It's just a matter of sequencing. So getting production back on track is -- was paramount, but the framework hasn't really changed since we started, right? So we want to be the company that you can own through the cycle, and that means good returns, steady returns as we go forward. So we will have to make the next decision right now that we're able to invest into a business to keep production flat, then the next opportunity to either grow from their or buy back shares or increase the dividend or ultimately accumulate more cash for that is something that we're going to have to continue to look at as we start thinking about the setup in 2027. But maybe let me turn to Clio to recap that framework and provide a little more of the specifics. Clio Crespy: Zach, the way I'd frame it is higher prices don't really change our framework, but they do shift the mix of where capital goes with a lot of more naturally flowing towards high-return reinvestment in the base business, with us continuing to build that long-term optionality. But importantly, we're doing that within the same disciplined framework that we've held. So we're still running a sub-40% reinvestment rate on the E&P side. The business continues to generate significant free cash flow. And with our leverage that's already low, the balance sheet isn't a constraint. It gives us the flexibility to lean into those opportunities while generating meaningful excess cash. And you asked about the buybacks, and I'll take a step back and saying shareholder returns more broadly, that remains a core part of our story. We've consistently grown the dividend over the past 4 years, and that yields around 2.5%, which we think is competitive both within the sector, but also more broadly. And we'll continue to approach buybacks in a disciplined and opportunistic way. We think that's been very effective. If you look since mid-2021, we've returned via buybacks about $1.2 billion, $1.6 billion in total as Francisco was mentioning. And we executed that at a meaningful discount to the intrinsic value. So we repurchased shares at an average price of about $43.50, and that's roughly 30%, 40% discount to where you've seen trading recently. And we've been able to also keep share count relatively flat even as our production has grown about 50% over that period of time. So you've seen us lean in and be opportunistic and be effective with that tool. But even as we lean into our E&P investment, we're not stepping away from returns, we're simply delivering more. And we're really not making a trade-off here. It's a dynamic allocation. Capital flows to the highest-return opportunity, while supporting our shareholder returns and also maintaining our long-term growth options. Zachary Parham: A follow-up I wanted to ask on the cost side. As you add back some activity, are you seeing anything on the inflation side? I'm sure you're seeing higher diesel prices have some sort of impact. But anything else you would flag from an inflationary standpoint? Clio Crespy: Good question. I'd say at this point on inflation, it remains modest and really manageable for us within the business. So we saw minimal pressure in the first quarter. But you're right, as oil prices have moved much higher, we're starting to see some impact, primarily in oil-linked inputs. But in terms of magnitude, we're estimating that's roughly $6 million to $8 million impact this year or $10 million on an annualized basis, so very manageable. If you look at what's driving that, about 1/3 -- well, actually 3/4 is fuel related, so driven by higher costs across our field operations and logistics. And the balance of that, so 25% to 1/3, is oil-based products where we're seeing moderate supplier increases there. But it's important to note that our team, we've done a significant amount of proactive work on the supply chain side, consolidating vendors, improving procurement, leveraging scale. And that really mitigates a lot of the exposure. So altogether, I'd say the level of inflation is modest so far and it's more than offset by the structural margin improvement we're delivering across the business. Operator: The next question comes from Michael Furrow with Pickering. Michael Furrow: I'd like to ask about risk management. Clearly it was a volatile quarter for pricing. It looks to probably continue in the second quarter. California market dynamics only add to volatility. When you look at the business today, the balance sheet is in a much healthier position than it's been previously. So does any of the market dynamic changes alter the company's hedging strategy moving forward? Francisco Leon: Michael, so as I mentioned before, we want to build a company that the investors feel good about owning through the commodity cycle, the ups and downs of the cycle. So we see our hedging strategy as a great tool to deliver that and to ultimately lock in attractive economics so we can execute regardless of where prices go. I'll turn it to Clio for a little bit more details on the go-forward impact. Clio Crespy: So our hedging and our hedging program, it's really about being able to deploy capital with confidence. So it's about having the confidence in our returns in our capital program and our ability to really deliver through the cycle. It allows us to lock in attractive floor economics and also commit to higher levels of activity participate in the upside. Last quarter, we shared what the business generates at around $65 Brent, and that underpins how we think about both capital allocation and hedging. We did put these hedges in place in a different forward curve environment that was delivered at the time, protecting the base business, the capital program and the dividend and while retaining a lot of upside participation. And if you look at our portfolio, that's how it's structured today. So in '26, roughly 2/3 of our volumes participate to the low to mid-80s Brent, and about 1/3 remains unhedged. So while we do have downside protection, we're not fully capped. Higher prices do translate into stronger margins and free cash flow across a meaningful portion of our portfolio. And if you look beyond '26, that exposure increases. So there's about 40% in '27 and roughly 80% in '28 of our volumes that are unhedged. I'd say stepping back, that visibility is what has allowed us to commit to the activity levels and to the returns we're outlining today. And the objective of that hedging program hasn't changed. It's about protecting the downside while maintaining meaningful exposure to the upside. Michael Furrow: Staying on the topic, in the first quarter, volatility weighed on the post-hedge realized pricing, or at least [ versus ] our numbers, negatively affected our EBITDA expectations. But looking forward, is that same timing dynamic that was a headwind for the first quarter act as a tailwind for 2Q? Clio Crespy: So what you're looking at there in terms of GAAP is we're really settling our hedges on a monthly basis. And if I look at the Street, I think most analysts are doing so on a quarter basis. So an average quarterly price will not reflect what happened, for example, in Q1 where you had January and February in high-60s and then March with the high 90s. So I believe that, that's what's driven most of the delta, if not all of the delta. If you do that average quarterly price versus the month-to-month, that yields, for example, a $30 million to $40 million delta in EBITDA loan for that order. So I do think that that's something that our IR team can work to make sure that we are closely calibrated. Operator: And the last 2 questions today will come from Nate Pendleton with Texas Capital. Nathaniel Pendleton: Congrats on the great update. Francisco, I wanted to go back to the RCPPP potential briefly. Could you provide a bit more detail about what the next steps are for that to be implemented and how that could impact demand for your CTV [ floor ] space and perhaps even your end-state natural gas volumes? And if I may add one more part to that, with the potential program, are you already having conversations with companies trying to get ahead of implementation? Francisco Leon: Nate, so yes, we see RCPPP as being a game changer if it passes. It's a very unique front of the meter opportunity. It's the recalibration of a grid that has been struggling to keep up over reliance on solar, wind and batteries when you really need that firm capacity to come back into play, and a state that focuses on decarbonization and reducing the carbon footprint very few ways to go and nothing really tangible other than carbon capture. So we see this as an incredible opportunity. The policy rule-making is advancing. We saw, as I mentioned earlier, call for procurement, 1.5 gigawatts of firm and clean, which really limits the pool of opportunities that we think -- I said CCS is the most tangible one. But you look at -- you step back and you look at about -- California has about 40 gigawatts of power generated through natural gas-fired generation. I assume that not all of all them will be able to be retrofitted with CCS. So our view is about 17 -- call it, 15 to 20, 17 midpoint, gigawatts, would be good candidates for retrofit, right? So you can start scaling the magnitude of the program. So we will have the ability to participate primarily in the transport and storage of CO2. But we also have the input, which is natural gas and we can grow that and have a dedicated natural gas flow of low-methane emission, very high-caliber or natural gas going in, that ultimately all goes into the calculation around carbon intensity. So we can provide a very scalable, big offering. And then we've seen progress, as a reminder, the CO2 pipeline moratorium was lifted earlier this year. So that allows us to start thinking about that transport in a much more tangible way. And then you come back to our Elk Hills project, we're at the doorstep of getting that permit from the EPA. We look at the project management dashboard, there's no red left in that dashboard, right? We're done, commissioned, we sent the samples into the EPA. They have been checked and confirmed to be adequate. So we're just waiting for that final approval. I think that is the final signal to the market that CCS is here, that we were able to clear all permits and have been able to make it to commerciality, and we see demand follow. We are having conversations. We do see a lot of interest, as the CPUC considers CCS, we see a significant uptick in those conversations on how do we get the CO2 from the point source into reservoirs. So massive front-of-the-meter opportunity, very tailored towards a California solution, a unique business model and one we're extremely well positioned on. Nathaniel Pendleton: Perfect. And then as my follow-up on the regulatory side, it seems you have been able to navigate the regulatory and permit process extremely well with the receipt of permits for the 2026 program and already working on '27. So can you comment on how your discussions with regulators have been to open up the permitting process? And could you share your views on the ongoing governor's rate given the potential impacts to the industry more broadly? Francisco Leon: The governor's rate, okay. Yes. On the first topic, we -- it truly is an incredible team effort from our folks in State Capital in Sacramento to our permitting team in Bakersfield. And there's been incredible progress throughout. Our view towards California is different than other energy companies. We're working to establish partnerships, to provide solutions, to be innovating alongside with the state. And that's giving us an opportunity to work very constructively with regulators and the politicians. And ultimately, our track record really to deliver projects that no one else can really puts us into a place of -- or really good placement on a go-forward basis. So really proud of what the team has been able to do. And it is a core competency. It's something that we do exceptionally well, better than most, and ultimately creates an incredible market opportunity if we continue being really good at it. In terms of the governor's rate, June 2 is the [ jungle ] primary, so the top 2 candidates regardless of the party move on to a general election in November. Ultimately, it's a fascinating dynamic with a lot of candidates that could ultimately end up as governor, so fairly open. Our view is we can work with all candidates. We support some campaigns and candidates that have a little bit more in tune with rational energy policy. We really want to focus the politicians on protecting and creating local jobs. And ultimately, we can partner and solve the affordability crisis in the state. So exciting times to have an election, and we're watching it closely. And looking for leadership that will continue to collaborate and make the state better going forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Francisco Leon, for any closing remarks. Francisco Leon: Great. Thank you, everybody, for joining us today. We look forward to seeing many of you on the road at upcoming investor conferences in the coming weeks. So thank you, and have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Bioventus First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to hand the call over to Dave Crawford, Vice President of Investor Relations. Please go ahead. David Crawford: Thanks, Andrea, and good morning, everyone, and thanks for joining us. It is my pleasure to welcome you to the Bioventus 2026 First Quarter Earnings Conference Call. With me this morning are Rob Claypoole, President and CEO; and Mark Singleton, Senior Vice President and CFO. Rob will provide an update on our 2026 priorities and first quarter highlights, and then Mark will review the first quarter results and discuss our 2026 financial guidance. We will finish the call with Q&A. A presentation for today's call is available on the Investors section of our website, bioventus.com. But before we begin, I would like to remind everyone that our remarks today contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the SEC, including Item 1A Risk Factors of the company's Form 10-K for the year ended December 31, 2025, as such factors may be updated from time to time in the company's other filings made with the SEC. You are cautioned not to place undue reliance upon any forward-looking statements, which may -- which speak only as of the date made. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include reference to certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. Important disclosures about and definitions and reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investors section of our website at bioventus.com. And now I will turn the call over to Rob. Robert Claypoole: Thank you, Dave. Good morning, everyone, and thanks for joining our call today. Bioventus is off to a strong start to the year across our business as we successfully executed our plan, accelerated investment in our growth drivers and delivered another quarter of solid financial results. We continue to strengthen our commercial, operational and financial fundamentals across our company, while we help patients recover so they can live life to the fullest. For my remarks this morning, I would like to provide an update on our performance regarding the 3 priorities we outlined at the start of the year and highlight our first quarter performance. As a reminder, our 3 priorities for the year are: one, accelerate our long-term revenue growth with increased investment into our business; two, continue to increase earnings even as we significantly increase our investment into the business; and three, continue to strengthen our robust cash flow and enhance our capital allocation optionality. We are off to a good start and are progressing well across all 3 of these priorities. As a result, we are raising our full year guidance for adjusted EPS and cash from operations. Mark will provide more detail on that in a moment. Now let me expand on each priority, starting with revenue growth and acceleration of investments into our business. First quarter revenue growth of 7% was slightly ahead of our expectations as we delivered strong revenue performance across our core portfolio. These results were achieved through a combination of factors, including strong focus on growth with disciplined resource allocation, increasing awareness of the differentiated clinical and economic value we bring to our customers and effective commercial execution across geographies and channels. Regarding our investment into the business, our continued ability to deliver above-market growth from our core portfolio is generating significant operating profit for us to invest into our future growth drivers of PNS, PRP, Ultrasonics and our International segment to accelerate long-term growth. During the quarter, we increased investment across these 4 growth drivers, which included expansion of our commercial teams, stronger marketing to help raise awareness of our differentiated solutions and additional physician training programs. We also gained important data-driven insights across our growth drivers that will shape and accelerate our investments throughout the rest of the year. To provide you with some further context, let me share a few examples of the increased investments we are making in PNS as it will account for more than half of our planned investments this year. As a reminder, we possess a significant opportunity with our world-class PNS technology in a rapidly expanding market. To capitalize on the opportunity, we've started to expand the sales organization and add clinical resources to assist in pre-, intra- and postoperative patient and physician support. In addition, we're investing to support these teams with surgeon training and increased marketing to raise awareness. We also made the strategic decision to hire a dedicated general manager. I'm excited to have Megan Rosengarten join Bioventus as our General Manager for PNS. Megan brings a proven track record of launching and scaling new medical device businesses around novel technologies and has held senior leadership roles across multiple leading med tech companies. Bringing Megan on board at this early stage reflects our belief in the significant potential of our PNS business and our intention to scale the business aggressively. Turning to our second priority, increasing our earnings even as we invest in our future growth drivers. In the first quarter, we increased adjusted EBITDA by 24% and improved our adjusted EBITDA margin by well over 200 basis points. The increase in adjusted EBITDA, combined with our significant interest expense savings enabled us to generate adjusted EPS of $0.15, nearly double compared to the first quarter last year. This is a testament to our earnings power, which is generated from our durable above-market growth and our stable peer-leading gross margin. Our strong start to the year with our operating margin exceeding expectations provides us with greater flexibility to invest aggressively in opportunities we identify while delivering on our full year financial goal of increasing earnings. As we ramp up investment throughout the year, we may see some margin fluctuation from quarter-to-quarter, but our strong business model gives us the agility to invest significantly while holding our adjusted EBITDA margin around 20% for 2026. And with respect to our third priority, accelerating cash flow, we had a great start to the year following our very strong performance last year. Cash from operations increased $28 million compared to the first quarter last year and marked the largest -- our largest cash flow from operations in the first quarter since becoming a public company. Our strong cash flow gives us substantial capital deployment optionality. And as mentioned previously, at this time, we plan to continue to prioritize strengthening our balance sheet by using our free cash flow to further reduce debt. In conclusion, thanks to the solid execution of our team, we are off to a strong start, and we remain focused on building our momentum in the quarters ahead. We believe we have a powerful and differentiated combination of value drivers that sets Bioventus apart, and we are confident in our portfolio, our strategy and our investment approach as we continue our pursuit to become a $1 billion leading med tech company that delivers significant value for all of our stakeholders. Now I'll turn the call over to Mark. Mark Singleton: Thank you, Rob, and good morning, everyone. Let me begin by saying that we had a strong first quarter, and we are well positioned to increase investment in our future growth while continuing to strengthen our balance sheet with robust cash flow. I'm confident that with continued focus and disciplined execution, we will advance our business and create significant shareholder value. Turning to our headline results for the first quarter. Revenue of $132 million increased 7% compared to the prior year period, driven by solid performance across all 3 of our businesses. Adjusted EBITDA of $24 million was nearly $5 million higher than the prior year and represented an increase of 24%. Foreign currency exchange rates had a favorable impact for the quarter as we benefited by almost $2 million due to the impact from FX rate movements compared to the first quarter of last year. Adjusted EBITDA margin of 18% expanded 260 basis points compared to the first quarter last year. This was the result of higher revenue and improved gross margin, partially offset by the increase in investment that Rob highlighted. And adjusted earnings were $0.15 per diluted share for the quarter, nearly double compared to the $0.08 in the prior year period. Now let me provide some additional commentary on our quarterly revenue. In global Pain Treatments, we delivered revenue growth of 8% compared to the prior year. As Rob mentioned, our revenue growth slightly exceeded our expectations, which was driven by a favorable rebate adjustment in HA. Operationally, we experienced a slight increase in volume growth in the prior year as growth was impacted by a reduction in inventory levels as distributors, as expected. Next, Global Surgical Solutions revenue grew by 6% as we saw solid growth across the portfolio. We plan to continue to invest in marketing across the business to raise awareness through medical education to train surgeons earlier in their careers, sales force expansion in targeted areas and highlight our distinct clinical and economic value proposition. Shifting to Global Restorative Therapies. Revenue grew 5% compared to the prior year. Our EXOGEN team delivered another strong quarter, and we continue to expect revenue growth in the mid-single digits for the full year. Finally, as one of our four growth drivers, we expect to build on our International segment's double-digit growth rate from last year. International revenue growth increased 17% compared to the prior year, while on a constant currency basis, growth was 11%. We saw improved growth across Ultrasonics in Europe as we began increasing awareness of our innovative technology and opened up another source of growth for Ultrasonics. We believe our positive momentum can continue given our increased strategic focus, talent additions and improved commercial execution. Moving down the income statement. Adjusted gross margin of 76% was 110 basis points higher than the prior year period due to the favorable rebate adjustment as well as benefits from a refund of prior year tariffs. Adjusted total operating expenses and R&D expenses increased by $5 million as we increased investment to accelerate future revenue growth. Now for additional details on our bottom line financial metrics. Adjusted operating income of $20 million increased by nearly $3 million compared to the prior year. Adjusted net income of $13 million increased $7 million compared to the prior year period. This increase is the result of revenue growth, increased gross margin and lower interest expense. Now shifting down to the balance sheet and cash flow statement. Cash flow from operations totaled $9 million, representing more than a $28 million increase compared to the first quarter last year. The stronger cash flow was driven by higher profitability, lower interest expense and favorable working capital. We ended the quarter with $36 million in cash on hand and $272 million in outstanding debt. During the quarter, debt decreased $22 million as we continue to prioritize repaying the borrowing on our term loan. We are confident our projected strong cash flow and increase in adjusted EBITDA will drive our net leverage ratio below 2 by the end of the second quarter of 2026, which is ahead of schedule. We believe this reduction in our net leverage will drive additional interest expense savings and enable greater optionality for future capital deployment. Finally, as Rob highlighted, we are increasing our adjusted EPS and cash from operations guidance. We now expect adjusted earnings per share to range between $0.75 to $0.79. This represents a $0.02 increase compared to our prior year guidance of $0.73 to $0.77. For the year, we now expect cash from operations to range between $84 million and $89 million. This represents a $2 million increase compared to our prior year guidance. We are pleased to reaffirm our 2026 revenue guidance we provided on March 5 of $600 million to $610 million. In addition, we expect year-over-year growth in revenue, adjusted EBITDA and adjusted earnings per share to accelerate from the first half of 2026 to the second half of 2026 as we leverage the expected increase in revenue from our investments. Our guidance does not assume additional impact of U.S. dollar fluctuation for the year. In closing, we are off to a strong start to the year and plan to continue investing in our 4 growth drivers to accelerate revenue growth, deliver increased profitability and strengthened earnings power and generate significant free cash flow. We believe this is a powerful combination that will help us build a leading med tech company and create increased value for our shareholders. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Larry Solow, CJS Securities. Lawrence Solow: I guess just first on -- just clarification on the rebate. So I assume you guys expected this, but you didn't know the timing. Is that why you haven't changed your revenue guidance? And does this just all flow to -- is this like a net that just all kind of flows to the bottom line? Robert Claypoole: Hey Larry, this is Rob. Yes. So as mentioned, we had some favorable rebate favorability and finished slightly ahead of our expectations. And we called that out as it related to a one-time process change by one of our commercial payer partners, and we don't anticipate that a similar level of variability moving forward. So we thought it'd be best to point it out. Outside of this, delivered results consistent with our planning assumptions and expect our revenue growth to accelerate in the second half of the year as we keep executing our plan. Regarding the revenue guidance, yes, we feel really good about the first quarter and where we're headed for the year. And we're only a quarter into the year, which I mentioned because we normally wouldn't raise guidance this early. From a revenue standpoint, this is a key year for us to invest in and activate our growth drivers, which we expect to accelerate throughout the year, especially in the back half. So we're making the investments, executing our plan and analyzing our leading growth metrics very diligently, and we'll keep you updated on our progress with that over the coming quarters. But in the meantime, with cash and EPS, they're clearly ahead of schedule, and so we went ahead and raised our guidance on both of those. So overall, off to a good start, and we'll update you again next quarter on growth, cash and the profit expectations there. Lawrence Solow: No, no, absolutely. And just anecdotally, I don't know if you called out, but obviously, early days for both the PRP and the TalisMann, but any just anecdotal update there? I don't think you gave any sales numbers and they're probably modest. But just how the launches are going, how things are being received? Any thoughts there? Robert Claypoole: Yes. Thanks. Yes, we're encouraged by what we saw in the first quarter. We're, again, investing in the business and expanding, and what the first quarter entailed further validated both the market opportunity and the value of our differentiated technology. I think with the 2 of them combined, equally important is we're learning a lot about how to manage -- maximize our success with the business over the coming years. And that's exactly what this year is about, investing in and activating all 4 of our growth drivers and then diligently analyzing the performance every week, month, quarter to shape our future decisions and investments to maximize that long-term success. So I -- with both PNS, PRP and the others, I expect our learnings and our investments and our revenue growth to continue ramping up throughout the rest of the year. And just with respect to those 2 in particular, I'll also mention that we still expect what we've mentioned in the past that combined PRP and PNS will contribute 200 basis points of growth this year. So off to a good start with those. Operator: The next question comes from Chase Knickerbocker of Craig-Hallum. Chase Knickerbocker: I just maybe wanted to start on quantifying a couple of things within pain first. So maybe, Mark, if you could just quantify for us what the impact of those rebates were in pain on a year-over-year basis, if that's easiest. And then just as far as that negative impact on volumes from inventory, if you could just quantify those 2 dynamics? And then just following up on an earlier question, any sort of thoughts on what the contribution was from the new launches in Q1, just as we think about all the different moving pieces within pain? Mark Singleton: Thanks, Chase. Appreciate that. Yes. When we look at break down the pain question and we look at it, as I said in the script, from an operational perspective, really kind of focus on volume. Our volumes were slightly positive from an overall global perspective. And so I think that's easiest to talk about with that. And when you look at revenue growth, it's slightly positive overall in pain without the rebate benefit. And so overall, it's really consistent with what we talked about in our fourth quarter remarks, I'd say, without the rebate from a Bioventus perspective as well as the Pain Treatment when we look at our 2 headwinds that we had in the first quarter being 1 less selling day and the lower distributor inventory, I think that those are both worth a couple of points of growth within the HA business. And so if you add those back and kind of normalize without those headwinds, our growth would have been in the mid-single digits from an operational perspective. We get into the new products, the PRP and the PNS, just like Rob had talked about in the earlier question, I think Larry quantified it that way is we obviously, PNS already had some growth in our baseline in 2025. So we're continuing to grow there and then getting growth in our PRP business. But our expectations on that are really that, that starts to accelerate throughout the year as the investment comes in and we get more and more momentum with that in the field. So right now, it's playing out as we expected. Chase Knickerbocker: Got it. And then just on Surgical, you guys had kind of laid out your expectations by product line business segment on the previous quarterly call. That business is tracking on a year-over-year basis, a little bit below kind of what we kind of laid out expectations for '26. Can you just kind of talk us through what the kind of movements within that business were in the quarter, kind of what went better and what worse than expected? Or is that just normal kind of seasonality that you were expecting in Q1? Robert Claypoole: Yes. Chase, this is Rob. Our plan for Surgical entailed slower growth for the first quarter and then an increase in our growth rate sequentially throughout the year. And we believe we'll get to double-digit growth in the second half and even for 2026 overall as we gain additional share in BGS and see the impact from the investments we're making across Ultrasonics to train surgeons, expand our sales force and enhance awareness of our differentiated technology and clinical and economic value. So looking at a strong year for Surgical and expect that ramp up in the second half. Chase Knickerbocker: And just last for me, specifically on Ultrasonics. I mean, any specifics you can give us on the quarter just as far as capital growth versus disposables, just the kind of current health of that business would be helpful? Robert Claypoole: Yes. Well, overall, we remain very positive about Ultrasonics. We believe it's going to be a major growth driver for us. As you know, it's a big billion-dollar market. We believe we can make our technology standard of care given the exceptional precision and control it enables, time it saves and [ many ] patient benefits it delivers. And with respect to capital and disposables in any given quarter, both of those are key to the number with the majority of the revenue coming from the disposable side, and we expect those to accelerate throughout the year, as I mentioned, for Surgical overall and to get to double-digit growth for the full year for Ultrasonics as we ramp up our investments and execute our plan. Operator: The next question comes from Mike Petusky of Barrington Research. Michael Petusky: So Rob, I guess just around Ultrasonics, obviously, the lifeblood of getting that business to grow is education and training for surgeons. Can you give any detail around what you guys may be doing differently there in '26 and going forward versus previous just in terms of the effort and maybe urgency that you're trying to bring to bringing greater awareness to surgeons in terms of your technology? Robert Claypoole: Yes. Thanks, Mike. It's a great question. And like you said, it's -- when we have the technology that we have and the opportunity to become a standard of care, training surgeons is critical to that. So there's a few things. One is, as part of our strategic plan that we put in place, a much heavier focus on emphasis on and investment in the training of surgeons going forward. That includes a keen understanding of which surgeons out there we want to reach and when we want to train them in their careers in order to maximize the success of the business overall. So one, it's just a core part of our Surgical plan going forward and of our investment profile for the business. The second is -- so we've built up our medical affairs organization over the past several months, and that includes bringing on a new leader over medical education, someone who's led medical education for a number of other leading med tech companies. And he's building the team around him in that area. So it's not just from a focus standpoint and from an investment standpoint, but it's also bringing new talent on board in order to significantly ramp up the content quality, the folks that we have helping us with that training from outside, including KOLs and just the frequency of that training throughout the rest of the year. And we expect that to continue to ramp in 2027 as well. So I appreciate the question because it is absolutely a big focus for us in terms of driving the long-term growth and success of this business. Michael Petusky: Okay. And then if I could sort of do a follow-up, I guess, on key growth drivers over time and even including this year. I'm just curious, at what point and in what way might you guys start to disclose in terms of some kind of quantification, the PNS business, the progress you're making there, PRP. Like given that you have quantified, hey, this is going to add 200 basis points of growth in '26, to me, it feels like at some point and in some way, there'll come a time to start talking about this either in terms of incremental placements or revenue growth or percentage growth. Can you just talk about how you think about sort of ultimately disclosing as the year goes on? Robert Claypoole: Yes. Thanks. Another great question. So we're very interested in that as well. As we've mentioned before, we're investing and executing our plan with our growth drivers, and I'll keep emphasizing, really analyzing the data and learning a lot regarding commercial activity and the customer behavior about this and having dynamic real-time discussions across our team on what's working well and where we can do better and leveraging our small size and big ambition to make adjustments swiftly and decisively. So what we've said before is that we want to get a few quarters into this year. We're only 1 quarter into it to understand both that commercial activity and the customer behavior more or better so that we can then come out and have the kind of conversation that you're referring to there, getting more specific about the numbers behind each business and even more importantly, communicating what we expect out of those over the next 3 years or so. So as I've mentioned in other forums, Mike, I expect us to be able to have that conversation with you by the end of this year. Operator: The next question comes from Caitlin Roberts of Canaccord. Unknown Analyst: It's Michelle on for Caitlin. Congrats on a strong start to the year. First one from us is how much of the anticipated $13 million investment in growth areas that you called out on your last earnings call, have you allocated already? And maybe can you provide further breakdown or color on that spend? Mark Singleton: Caitlin, this is Mark. So we look at our $13 million of investments, really, say, 25% through the year right now and say that we've been invested slightly less than that. So when we look at it, we're really going to be accelerating the investment over the next 3 quarters. So if you look at our operating expense in the first quarter, we expect that to accelerate into second quarter and the rest of the year. So we'll see a step-up in our expense for the remainder part of the year after first quarter. The investments for that, as we've talked about in the first -- fourth quarter call and Rob referred to it a little bit today, a significant amount of that is in PNS, which is one of our main growth drivers that we're focused on and discussed a lot today. We look at what we're investing inside of that, it's bringing on and ramping up our sales force, bringing on our clinical expertise to make sure that we have the clinical resources to help us drive the demand and help our customers and physicians in that. And then just also continued resources that support that overall in sales reps and then also medical education is a big investment that we're making within that business similar to what we talked about in Ultrasonics. That also is an investment that we're making within the $13 million. So really, most all of those investments are targeted around the growth drivers, but a big portion of that is PNS and then put into Ultrasonics and PRP as well, but all around the same thing, sales resources, clinicians and medical education would be the 3 main areas. Unknown Analyst: Great. And then maybe if I can just sneak in another quick one on PNS. Have you moved out of the pilot launch? And how should we think about the current user mix? Are they primarily existing HA users? And then maybe can you talk about any early initiatives Megan has helped drive in PNS? Robert Claypoole: Michelle, it's Rob. Yes. So I think you may have mixed PNS and PRP there. So let me talk about both of them. So for PNS and PRP, we've moved out of the pilot stage and now we're ramping up. Different dynamics there. For PRP, we're leveraging our existing commercial team for HA, whereas for PNS, we're going to be building that team over the coming quarters for quite some time. So while they're both out of pilot launch, different dynamics in terms of the investment that we're putting into the business for both. And yes, as I mentioned, we're really encouraged by what we're seeing for both in Q1. We're learning a lot. And more than anything, it's validating the market opportunity for both and the strong value that our differentiated technology brings to the space. So very excited about both PNS and PRP going forward. Was there a follow-on question to that? Unknown Analyst: Yes. Yes. Can you maybe talk about any early initiatives that Megan plans to implement or has implemented so far in PNS? Robert Claypoole: Yes, sure. Thanks. Yes. So it's, again, really excited to have Megan on board. She has a track record of -- with promising differentiated technology of scaling it into big businesses. So really excited to have her on board. Really, the focus right now is on scaling the business. So it's -- again, we have this fantastic technology, a market that's growing very fast. We're getting high interest from the customers that we're going to. And now we're building the organization and our commercial efforts. Mark alluded to a number of those things. This is everything from building up the sales team to the clinical resources around that team to the medical education that we're putting in place, to the evidence that we're putting in place. And we had a good plan in place when Megan came on board, and she's doing a fantastic job executing on that plan, leading the team to execute on that plan to scale the business for the future. So again, while it's early, it's a very promising growth driver for us, and we're encouraged what we saw in the first quarter, and we're really looking forward to the path ahead. Operator: This concludes our question-and-answer session. I would like to turn the call back over to Rob Claypoole for any closing remarks. Robert Claypoole: Thank you. Thanks, everyone, for your interest in Bioventus. Once again, we delivered a solid performance throughout our business in the first quarter, and we are confident in our ability to build on our momentum to deliver above-market revenue growth, improve earnings and accelerate our cash flow to create significant shareholder value. Thanks for joining our call. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Thank you for standing by, and welcome to Ardent Health First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Dave Styblo, Senior Vice President of Investor Relations. You may begin. David Styblo: Thank you, operator. And welcome to Ardent Health's First Quarter 2026 Earnings Conference Call. Joining me today is Ardent President and Chief Executive Officer, Marty Bonick; and Chief Financial Officer, Alfred Lumsdaine. Marty and Alfred will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Marty, I want to remind everyone that today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward-looking statements. Further, this call will include a discussion of certain non-GAAP financial measures, including adjusted EBITDA and adjusted EBITDAR. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and supplemental earnings presentation, which were both issued yesterday evening after the market closed and are available at ardenthealth.com. With that, I'll turn the call over to Marty. Martin Bonick: Thank you, Dave, and good morning. We appreciate everyone joining the call and webcast. During the first quarter, we built on the positive momentum exiting 2025 to deliver strong financial results. Revenue increased 7% and adjusted EBITDA grew 26%. Both adjusted admissions and higher acuity surgical activity showed positive growth even with the transient impacts related to weather and a light flu season, which reflects the underlying demand in our markets. Importantly, our strong first quarter results underscore the resiliency of our operating model and disciplined execution amidst a challenging backdrop. Further, this performance reflects effective cost management across the organization and prudent investment decisions. Our first quarter performance is a solid start to the year, and provides increased visibility and confidence as we track towards our 2026 financial targets. To frame today's conversation, I'm going to focus my comments on 3 key areas. First, I will cover our first quarter results. Second, I will provide an update on the IMPACT program, our work to improve margins, performance, agility, and care transformation. And third, I will share updates on key 2026 focus areas. Let's start with first quarter results. We had a good quarter that included strong cost management, particularly in SWB and supplies that drove 110 basis points of adjusted EBITDA margin expansion. I'm pleased with how we navigated transient challenges in the quarter. Like many of our peers, we experienced severe winter storms in certain markets and lighter respiratory season. This resulted in fewer admissions and some disruption to our typical seasonal pattern. As conditions evolved, we acted swiftly to reschedule surgeries and adjust labor to align with volume, mitigating the impact on performance. We also have been strategically focused on surgeon recruitment and productivity as a part of our Capacity IQ strategy. Capacity IQ is our system-wide approach to managing capacity and demand strategically, aligning where we invest, how we deploy clinical talent, and how we utilize assets to drive volume, mix, and throughput across the enterprise with a focus on key service lines. Collectively, these actions helped drive first quarter total surgery growth of 1.2% year-over-year, which is a 100 basis point improvement over full year 2025 growth. Adjusted admissions increased 2%, which is in the middle of our 2026 guidance range. At the same time, labor management was strong again and the significant improvement that began in the fourth quarter persisted into the first quarter. Specifically, we reduced salaries, wages, and benefits expense per AA by 1.4% in the first quarter. Supply expense per AA growth was a modest 1.7%. Taken together, these results reflect improving execution across labor and supply costs, reinforcing our focus on consistently delivering results through the controllable aspects of our business. I now would like to shift to the 2 industry headwinds we previously discussed. First, payer denial trends were stable in the first quarter compared to fourth quarter, and we continue to work with Ensemble to drive improved denial management and recovery efforts. Secondly, professional fees were consistent with expectations in the first quarter and are tracking in line with our 2026 target. While it's early in the year, we are encouraged these headwinds are stabilizing, consistent with our expectations. Turning to our IMPACT program. We continue to be pleased with our progress against our initiatives to further optimize cost and strengthen margins. Importantly, we remain on track to deliver $55 million in savings this year. The improvements we began delivering in the fourth quarter of last year continued to manifest on the P&L in the first quarter, reflecting consistent execution and durability. Precision staffing initiatives resulted in first quarter salaries, wages, and benefits expense growth of only 0.6%. Additionally, we reduced contract labor expenses by over 40% to $15 million in the first quarter, driving a 160 basis point year-over-year improvement in contract labor as a percent of salaries, wages, and benefits expense. In addition to labor discipline, we are driving incremental supply cost efficiencies under the IMPACT program. First quarter results reflect a broader set of strategic initiatives to leverage our scale and purchasing power with vendors, including improved rebates on physician preference items by moving to a single or dual sourced vendor model. We also renegotiated key cardiovascular and med-surg distribution contracts, which are beginning to yield savings. What's also important is that these margin improvement activities are not episodic. They represent repeatable operating improvements across staffing, supply chain and throughput embedded into how we run the business. Lastly, I'll shift to an update on some key 2026 focus areas, starting with outpatient growth. We continue to advance our ambulatory strategy, expanding capacity in markets where we see strong demand and attractive returns. During the first quarter, we opened 4 urgent care centers across our Texas, New Mexico, and Idaho markets. For the remainder of the year, we expect to open 2 ASCs, 1 freestanding ED, and 1 urgent care facility. Once fully ramped, these assets should drive incremental volumes. We're also focused on using AI and digital tools in a disciplined way to support consistent execution and improve operating efficiency across the enterprise. Our approach is practical and operational, deploying technology where it helps us to transform care delivery, enabling us to better manage staffing, enhance patient safety, and use resources more effectively. For example, in February, we announced a partnership with hellocare.ai to implement an enterprise-wide AI-assisted virtual care platform across more than 2,000 patient rooms. Deployment is underway, and we expect all markets to be completed by year-end. Within this initiative, virtual patient monitoring, including virtual sitting, is already live across our markets. The centralized technology-enabled model strengthens patient safety while allowing us to deploy clinical resources more efficiently at scale. It has already demonstrated the ability to prevent harm in its early use. While our initial focus is on patient safety and care quality, these tools also support our broader labor efficiency and cost discipline objectives as we scale the platform. So to summarize, the first quarter represents a strong start to the year and managing through transient admission volume softness. Our model continues to demonstrate durability and resiliency and execution against our impact initiatives is translating into stronger operating efficiency and margin improvement. While we recognize the healthcare environment remains dynamic and certain external factors are outside our control, our focus remains squarely on the elements that we can control: Cost discipline, operational execution, and capital allocation. That discipline gives us confidence that we are on track to deliver on full year financial targets we established on our fourth quarter's earnings call. With that, I will turn the call over to Alfred. Alfred Lumsdaine: Thanks, Marty, and good morning, everyone. Building on Marty's comments, we're pleased with our first quarter performance and the momentum we've generated early in the year. Before I summarize first quarter results, I'd like to share some general context on flu and severe weather dynamics. As we've previously discussed, while flu fluctuations can impact volume metrics, they tend to be lower acuity events. As such, flu volatility typically has a less pronounced impact on earnings than on revenue, but still requires disciplined operational adjustments to flex staffing and manage costs accordingly. As for this year's winter storms, they affected Ardent markets in Texas, Oklahoma, and New Jersey. We managed through these events very well, and I commend our clinicians and leaders for their response and their commitment to patient care. With that said, first quarter revenue of $1.6 billion, represents an increase of 7% compared to the prior year. Adjusted EBITDA for the first quarter increased 26% over the prior year to $124 million, with the associated margin expanding 110 basis points to 7.7%. Similarly, pre-NCI adjusted EBITDAR margin expanded 100 basis points to 11.5%. During the first quarter, we recorded a $10.9 million pre-tax gain within other operating expenses from an increase in the carrying value of an investment option that we hold in a privately held company. Excluding this benefit, adjusted EBITDA growth was 15%. In terms of volumes, first quarter admissions decreased 1.1%. However, adjusted admissions grew 2.0%, which is right at the midpoint of our full-year guidance range of 1.5% to 2.5%. Additionally, total surgeries grew 1.2%, driven primarily by outpatient surgery growth of 1.7%. As Marty mentioned, we continue to make significant progress optimizing our labor expense. As a percent of revenue, SW&B improved 260 basis points compared to the prior year period, reflecting our focus on precision staffing and reducing reliance on contract labor. Contract labor as a percent of SW&B improved to 2.2% in the first quarter from 3.8% in the year ago quarter and 2.6% in the fourth quarter of 2025. Additionally, employee labor rates were favorable. Our average hourly rate per FTE for the first quarter of '26 was up just 1% year-over-year. As a percent of revenue, supply expense improved 50 basis points compared to the prior year, benefiting from our IMPACT program initiatives, specifically related to enhanced leverage with vendor contracts and improved rebates. Professional fees as a percent of revenue increased 100 basis points compared to the prior year period and sequential quarter growth was 2.4%. This was fully consistent with our expectations. For context, professional fees for Q1 2026 have a tough year-over-year comparison given the step-up that started in the third quarter of 2025. Moving on to cash flow and liquidity. We ended the first quarter with total cash of $610 million and total debt outstanding of $1.1 billion. Our total available liquidity at the end of the first quarter was $0.9 billion. Our strong balance sheet gives us flexibility and our capital deployment approach remains return-driven and disciplined with a clear preference for high-margin service line, ambulatory growth, and operational investments. Cash used in operating activities during the first quarter was $60 million compared to $25 million used in the first quarter of 2025, which benefited from the collection of business insurance proceeds related to our 2023 cybersecurity incident. As a reminder, the first quarter is traditionally our weakest cash flow quarter, largely due to payment timing on year-end accruals, including 401(k) matching and annual incentive payments. Capital expenditures during the first quarter were $28 million, and we expect that to ramp through the year. We finished the quarter with total net leverage of 1.0x and lease adjusted net leverage of 2.6x, an improvement from the 3.0x at the end of Q1 2025. So as we look to the rest of 2026, we continue to be mindful of various industry factors, including potential exchange disruption and macroeconomic conditions that could dampen consumer sentiment. We're very pleased with our first quarter results and the increased confidence and visibility we have towards achieving the $55 million of IMPACT program savings. At the same time, it's still early in the year, and we believe it's prudent and appropriate to maintain our full year financial guidance, including revenue and adjusted EBITDA. So with that, I'll turn the call back over to Marty for concluding remarks. Martin Bonick: Thank you, Alfred. I want to leave you with 3 key takeaways. First, our first quarter results reflect execution outperforming the environment, demonstrating the strength of our operating model and ability to deliver strong earnings even when volumes are below typical levels. Second, our IMPACT program is delivering measurable and repeatable results under Chief Operating Officer, Dave Caspers' leadership. The structural operational improvements we have put in place are strengthening performance, and we remain on track to achieve our 2026 savings commitment. Third, we remain financially strong and disciplined with a balance sheet and strategy that position us to create long-term shareholder value. The strong start to the year gives us increased confidence in our 2026 financial guidance and serves as a solid foundation to continue building momentum as the year progresses. Before I turn the call over for questions, I want to recognize our 25,000 team members and 2,000 affiliated providers across Ardent. This is a time of significant change in healthcare, and their resilience, agility, and unwavering commitment to our purpose have been critical to our progress. Every day, they continue to adapt, improve how we operate, and deliver high-quality care to the people and communities we serve. Their dedication is the foundation that allows us to navigate change and position Ardent for long-term success. With that, I will turn the call over to the operator for our question-and-answer session. Operator: [Operator Instructions] Your first question comes from the line of Jason Cassorla with Guggenheim. Jason Cassorla: Maybe to start on seasonality. Could you just help us in how we should be thinking about EBITDA progression for the rest of this year? You have a number of moving pieces with Medicaid supplemental payment timing, some of the headwinds you kind of discussed run rating, IMPACT program benefits, and the like. I guess any help with how we should think about the second quarter, including if you expect EBITDA to be roughly in line with the first quarter when excluding the onetime investment gain benefit, and then the exchange headwind remains out there? But any help around the second half in terms of EBITDA progression would be helpful. Alfred Lumsdaine: Sure. Hello, Jason, this is Alfred. Yes, happy to talk about seasonality at a high level. Typically, just to baseline on what we normally say, like many, we see a very strong Q4 seasonally as we see a lot of electives with deductibles and co-pays met and conversely the weakest quarter is typically Q1. Then historically, you might see a stronger Q2 than Q3 on a seasonal basis between those 2 as you get a lot more physician vacations and the like in the summer months. I would actually expect though that Q2 and Q3 would be more comparable to each other. As we've discussed, we'll see [indiscernible] of our impact through the year. So there'll be a little bit of an increase. So I would expect to see those quarters more in line with one another. In terms of Q1 to Q2, I would think we would see a very small, modest step-up, again, largely driven by throughput on our IMPACT programs. Now from a supplemental program standpoint, we don't have anything significant, any approvals that we're waiting on or anything like that. There's always going to be some timing dynamics involved in supplementals, but we wouldn't see anything dramatic. But when we think about that step-up that I just referred to, I'm actually excluding the gain from our -- of that $10.9 million gain from the privately held investment and really basing it off of a 113 number, and we would step up a little bit from that. Jason Cassorla: And then if I could just follow-up. I wanted to ask about payer mix trends. It would be helpful if you could give us a sense of volume growth or volume trends, I guess, by payer in the quarter relative to the 2% total volume growth? And then maybe if you could just focus specifically on commercial, excluding the exchanges, how you're seeing demand develop, if you think there's kind of any impact at this point from the macro environment or anything else kind of note on commercial, excluding exchange volume trends? Alfred Lumsdaine: Sure. This is Alfred again. Yes, from a payer mix perspective, I would say that what we saw in Q1 was relatively consistent with our expectations. We did see perhaps from just an exchange volume perspective, a little bit stronger on the exchange where we were actually up 1% or 2%. But generally speaking, on a year-over-year basis, a little bit weaker on the core commercial, excluding exchange. Perhaps there's a little bit of macroeconomic dynamic in play there. But I don't think we're seeing anything contrary to -- dramatically contrary to what our expectations were coming into the year. Operator: The next question comes from the line of Matthew Gillmor with KeyBanc. Matthew Gillmor: Maybe asking on the contract labor dynamic. Obviously, really impressive results there. Can you give us a sense for some of the initiatives that are allowing that performance? And I was curious, on a go-forward basis, how much more room do you think you have to go there? Or do you get to a point on contract labor where it actually becomes inefficient to drop it down any further? Martin Bonick: Hello, Matt, this is Marty. Yes, great question. The team has been very focused on this. And we talked last year about keeping some contract labor in, in order to be able to process the amount of transfers coming into our hospitals and making sure we can capture that demand. As we've continued to refine, one of the things that we did last year was renegotiated a key agency contract with a major vendor to improve both our rates. And then we've gone back and systemically looked across our footprint in terms of where the best utilization is, so we can still maximize the volume while making sure that we've got the right labor in place to drive the performance. We call that precision staffing. And so we're focusing on both the speed to hire, scheduling, premium pay, and overtime across our footprint so that we can reduce our limitations on outside contract labor. Where we've gotten to, we've seen a continued seasonal progression -- I'm sorry, a sequential progression downward on contract labor. And we are now in line with where we were pre-pandemic. And so I think we're stabilizing out where we would probably expect to see that land. We are just about 2.2% of SWB in Q1, which is a demonstrable improvement from 3.8% in the first quarter of 2025 and the 2.6% in Q4 of 2025. Matthew Gillmor: And then following up on some of the exchange discussion. I heard Alfred's comment about a 1% to 2% growth in exchanges. Can you just help us sort of level set in terms of the $35 million of EBITDA headwind from exchanges? How that was sort of factored into the accounting with the assumption that some of those exchange volumes you saw in the first quarter may actually end up being uninsured? Alfred Lumsdaine: Sure. This is Alfred, Matt. Yes. No, good point of clarity. I think what we saw in Q1 was relatively consistent with our expectations from the $35 million. We certainly are working with our revenue cycle partner Ensemble to capture what exposure we have for claw-backs for disenrollments that might happen non-payment of premiums after the end of the quarter. So appropriately reserved for that exposure as we ended the quarter. In addition, you saw within the exchange, while admissions were up just a little, you actually saw a big movement underneath in the metal levels, particularly out of the silver into bronze, something on the order of 12%. So -- and that carries -- those bronze levels carry significantly higher co-pays and deductibles. So the actual throughput from a revenue standpoint or an EBITDA standpoint because of the higher deductibles and co-pays is lower. So a long way to say, I think the financial throughput from our $35 million expectation was relatively consistent, perhaps just slightly better. Operator: The next question comes from the line of Scott Fidel with Goldman Sachs. Scott Fidel: Interested if you can give us an update just on how discussions may be percolating in the background around JVs and sort of what the activity level you would say, Marty, has been like there year-to-date relative to maybe the last year? I know it's been slow out of the gate here in the last couple of years on that. And maybe what you think the catalyst may be to getting a JV or 2 announced looking out the next 6 to 12 months? Martin Bonick: Scott, this is Marty. From the onset, we've had a tri-part growth strategy, the first being to continue to improve our margins on our core book of business. Second, expand our outpatient footprint within our core markets. And then third, opportunistically look for M&A. On that last point, as we've talked about, we've had, under Chris Schoeplein, our Chief Development Officer's arrival, growing conversations in that space. We continue to remain optimistic about our opportunities for either JV or outright acquisition opportunities, but we are being very conservative and prudent in terms of where we're going into. Given the macro uncertainties in healthcare, we want to make sure that as we look for new target opportunities, they either complement our existing markets or our new markets that we feel that we can go in and make a difference in terms of having the right growth characteristics. Again, our markets are growing better than the average U.S. rates. We're looking for markets we can enter with similar characteristics, and we do believe they're out there. And we're making continued progress from our perspective on how we look at that, but these are going to be strategic and methodically placed as we continue. So the pipeline still looks strong. And we're making sure that any potential M&A that we do is going to be accretive to the organization. Scott Fidel: And maybe a follow-up, maybe for Alfred around, I know you've already given us a few pieces of the volume story and with the exchanges and commercial. Maybe if you could expand that out to some of the other government lines in terms of thinking about Medicare with both fee-for-service and Medicare Advantage, what volume trends have looked like there? And then as well around Medicaid. I know some of your peers have talked about Medicaid volumes being a little lower than expected just around some of the conversions there. Just curious what you've been seeing on the Medicaid volume side as well. Alfred Lumsdaine: I'll start on the Medicare side. We saw strength in the Medicare line in Q1, particularly in the MA line compared to the traditional fee-for-service. But overall, Medicare as a percent of our revenues was up on a year-over-year basis. Medicaid was essentially flat, down just a hair. I believe it's largely from redetermination activity, but very slight, again, essentially flat on a year-over-year basis. Martin Bonick: This is Marty. From -- that was from a revenue perspective on. On admissions basis, a little bit down in both the Medicare and Medicaid line. We talked about the impact on flu and respiratory being a little bit lighter, which is typically seen in that Medicare category, a lower case mix index generally with that population. So nothing outside of the implied guidance that we gave around volumes mix. Operator: The next question comes from the line of A.J. Rice with UBS. Albert Rice: Your adjusted admission growth of 2%, that's a little better than what we saw from peers. And I wonder if you look at it, you mentioned obviously some lower intensity stuff with flu getting impacted. But what -- across geographies, across service lines, anything to call out there that -- areas of particular strength that are worth noting? Martin Bonick: A.J., this is Marty. Yes, we focused last year pretty heavily on expanding our access points, particularly on urgent cares. And we probably have a bigger disproportionate volume of clinics within our footprint. And so when you think about some of the weather impacts across the industry, and we were certainly part of that, it impacted admissions, but the strong outpatient services and access points continue to deliver for us, along with strong volumes on the ASC side. Nothing really to call out regionally, pretty evenly spread across the markets. The only caveat being where we had some weather impact, particularly in Texas, Oklahoma, and our New Jersey markets. Albert Rice: And then maybe for a follow-up. I know you mentioned that the payer denials have sort of trended in line with expectation. I wonder if I could get you to comment more broadly on what you're seeing with respect to managed care contracting generally. Any change in sort of rate update, trends, terms that they're asking for and sort of where you guys are at for contracting for this year and '27? Martin Bonick: This is Marty again. We're substantially contract -- all contracted about 89% for 2026. Still seeing headline numbers similar to what we saw in the last -- last year. To your point, we are focused on the terms within those contracts and just strengthening some of the language around denials underpayments. As you referenced, we have seen that stabilize since that spike in the second half of last year for the second straight quarter. So we're encouraged by that and really working with our Ensemble partners and internally to make sure that we're collecting every dollar for the services that we're providing. So we're encouraged about the progress we're making and still more work to do. Denials remain too high across the industry. But with the way managed care is reporting out thus far in the year, we're hopeful that they've estimated their run rates appropriately and that we'll see that pull-through come back on the other side. Alfred Lumsdaine: And this is Alfred, A.J. The only other thing I would add on the managed care contracting front is we've continued to make investments in that -- in our team and in our focus in the transparency tools and utilizing that to ensure that we're getting appropriately compensated in our client rate. So yes, as Marty noted, essentially 90% contracted for '26. We do have some open negotiations now and working very hard at those given the backdrop to be sure we get the appropriate rate increases for the markets that we're in. Operator: The next question comes from Ann Hynes with Mizuho Securities. Ann Hynes: Can you remind us from your -- what's embedded in your ACA guidance for just an increase in bad debt and deterioration of collectibles, and if that's coming in line with your expectations? And then my second question is just on professional fees. I know that you said it was in line with your expectations. Can you remind us what's embedded in guidance because some of your peers have noted that has come in worse than expectations? Alfred Lumsdaine: Sure. Hello, Ann, this is Alfred. I'll start on the first part of your question. Yes, with denials very much in line with our expectations and without any sort of material change in the trajectory, we're right on what we would have expected from a throughput from an accounts receivable and bad debt perspective. So I would say no change there. Now as you know, we embedded in our expectations not a material improvement from the step-up that we saw in the back half of 2025. And so again, we're pleased with the progress we're making on track, if not maybe just a little bit ahead of where we would have expected to be. Martin Bonick: And this is Marty. On the pro fee side, very much consistent with our expectations. Last year in the first quarter, we note that we had about a 6% increase, which included a favorable settlement. And so it's a little bit of a tough comp when you look at that first half -- that first quarter comparison. But that pro fee step-up that we experienced really started in the third quarter of 2025. So the comparison is going to be a little bit harder until we get to the back half of this year. But if we look at that sequential growth to get a better sense of the trend from Q4 to Q1, it's about 2.4% increase, which was definitely in line with our projections. So I can't speak about the other peers, but it seems like it's stabilizing where we had expected to, still growing north of basic inflation, but in line with our expectations. Alfred Lumsdaine: And this is Alfred, Ann, and to add to Marty's point. So as a consequence of seeing that step-up in the back half of 2025, we would expect the year-over-year increase to moderate once we get to the back half of this year. But as Marty said, we're right in line with our expectations entering the year. Operator: And the next question comes from the line of Kevin Fischbeck with Bank of America. Kevin Fischbeck: I think I know the answer to this, but I just want to make sure, obviously, it sounds like you guys feel very good about the quarter. You talked a lot about increased confidence. You got kind of a onetime gain in the quarter, but you reaffirmed guidance. So I just want to make sure that I understand. Is this just kind of normal course, you wouldn't expect to increase guidance with Q1, and that's all this is and you'll update normally with Q2? Or is there something more in Q1 that you're really kind of waiting to see and get more clarity on before you feel comfortable updating the outlook? Alfred Lumsdaine: I would just say as a matter of practice, we think it's appropriately prudent not to touch our guidance after just 1 quarter. Kevin Fischbeck: So this is kind of the way you would normally provide guidance in a given year. And then on the professional fee number, like the -- what do you think the year-over-year growth rate should look like in the back half of the year? Because I guess 2.5% increase sequentially is -- still kind of implies a pretty high year-over-year annualized growth rate in the back half. I just want to make sure I'm thinking about that right. Alfred Lumsdaine: Sure. This is Alfred, Kevin. I think we would expect it to moderate into single digits, high single-digit type range below the double-digit trajectory that we've been seeing. Kevin Fischbeck: Okay. Perfect. And then just maybe last question. Any color on volumes and how they progressed through the quarter? I guess it sounds like Q1 obviously impacted by storms. Was it relatively consistent through the quarter? Or was there kind of a ramp as you exited March relative to January? Martin Bonick: This is Marty. Yes, definitely you saw January impacted by volumes, some rebound in February and then sort of the normal spring break activity you would see in March and into early April. So definitely a lumpy start, but exited consistent within the range of expectations around our volume and as exhibited with our 2% AA growth, I feel like we're squarely in place to continue that trend. Operator: The next question comes from the line of Benjamin Rossi with JPMorgan. Benjamin Rossi: Just following up on the denials commentary. Across collections, how are denials underpayments and bad debt interacting in the start of the year? And then are you seeing more situations or changes in patient behavior where maybe initially insured patient accounts are ultimately behaving more like self-pay due to denials or coverage changes? Alfred Lumsdaine: This is Alfred, Ben. I would say we haven't seen any pronounced changes in that activity and working real closely with Ensemble. And candidly, our collections have been quite strong, both through the end of last year and through Q1. So yes, I would not say we've seen any difference in how those dynamics are interacting. Benjamin Rossi: And then just on the expense side regarding supply management, looked to be a bright spot following your previous supply chain initiatives and procurement and some of the increased cadence of the IMPACT program. Are there any areas of particular outperformance to call out? And how do you consider the sustainability of this performance as you pursue your broader margin improvement goals? Martin Bonick: This is Marty. Yes, our IMPACT program had a number of focuses. We talked about some of the SWB. Supply chain was definitely another target that we've been focusing on. We expect that those things will continue to ramp, as Alfred said, in the second half of the year, but we're pleased with the progress we've seen thus far. We've got a number of different initiatives that are included in there. It's a lot of different tentacles types of supply chain. But first quarter results included improvements on rebates, physician preference items, moving to either state or dual-sourced vendor models, and we'll be continuing that throughout the year. So we're pleased with the progress that we saw in the first quarter and expect that will continue to produce inside of our savings on the IMPACT program, as you mentioned. There's a number of things that were happening in focusing on cardiovascular, med-surg distribution contracts, and all of those things are starting to produce as we expected. Operator: The next question comes from the line of Craig Hettenbach with Morgan Stanley. Craig Hettenbach: Marty, so as you continue to kind of deploy and adopt AI tools, how are you thinking about kind of the tangible impact on the business just from a margin perspective and kind of reasonable timeline of that kind of flowing through to margins over time? Martin Bonick: Thanks, Greg. It's Marty. I think we're very much still in the early innings. From a platform perspective, we're fortunate to have strong partners like Ensemble from -- they're deploying over $100 million of capital into their AI and tech stack that we're benefiting by and starting to see the impacts of -- from a yield perspective, as Alfred talked about with some of the denials and recruitment and payments and cash flow. With Epic, there's a lot of embedded technology in there that's going to aid our clinicians in terms of making better decisions, but also providing better efficiency and pull-through through the organization, whether that comes from surgical scheduling, optimization, physician interactions. And then other things that we've invested in with ambient listening, some of the AI tools that we're using at the bedside are helping with both productivity, length of stay. And as we mentioned, the virtual cost -- the virtual sitting and the virtual nursing program that we're doing is improving both patient care and will lead to cost improvements. But we're in the early innings of this. Each of these are going to have small but incremental improvements to the SWB and to our efficiency across the organization. And we're very excited about the future improvements to come as we look at productivity across our physician practices, our business practices, and just clinical throughput. So I would say we're early, but we do expect this to be part of our margin progression, and this is the care transformation component of our impact initiative. Alfred Lumsdaine: And the only thing I would say is we're equally excited about the incremental access that these tools will provide in terms of improving throughput and improving patient outcome. Craig Hettenbach: And then just a follow-up on the M&A backdrop and understanding kind of the disciplined approach you're taking. Are you seeing much -- any change in terms of asset values across the space as you evaluate the pipeline? Martin Bonick: This is Marty. I think that we're seeing for the types of assets we're looking -- I mean these are not changing from sort of industry multiples. I know that there's been some headline numbers on single assets that are getting bought up by strategics, but we're going to be very disciplined in our M&A prospects to make sure that whatever we engage with on that is going to be something that we can see near-term accretion, call it, in the first year to 2 and a delevering from whatever purchase price we get into. But there's different methods that we're looking at in terms of how we might partner with different people and through that JV process, but too early to tell, but we're going to be very disciplined in terms of what we chase, and not go after things that have a high price activity. Operator: The next question comes from the line of Whit Mayo with Leerink Partners. Benjamin Mayo: I just wanted to get an update on the ambulatory strategy. Just any views in the pipeline this year, maybe how much capital you think you're going to earmark for any of that development activity? Alfred Lumsdaine: This is Alfred, Whit. I think Marty talked about what we have in the pipeline from a development perspective, and that is certainly in our expectations that we put out in the guide from a capital deployment standpoint. It's -- we believe in a very, I'd say, sustained moderate pace of development. I think you've seen the impact, though, of our ambulatory strategy flow through as you've seen the type of growth we had in our adjusted admission numbers, which, again, perhaps were a little better than some in the industry from a growth perspective. And we think that's just a reflection of the increased investment and throughput in that investment on a year-over-year basis. Martin Bonick: Hello, Whit, this is Marty. The only thing I'd add to that is we did have a small incremental step-up in our capital spend, and the majority of that is going to that growth inside of those core markets, but contemplated in the guidance that we gave out from a capital perspective. To Alfred's point, we're making sure that the investments we're making in this ambulatory space that may have some start-up cost or a small drag while they're ramping up are not dragging down the company as we're building towards those higher-margin activities in the out years. Benjamin Mayo: And maybe just a follow-up here on malpractice. I know we had a headwind last year that's nonrecurring, but just how did that mal develop within the quarter? And just any expectations, thoughts, observations would be great. Alfred Lumsdaine: Sure. No, I appreciate that question, Whit. Yes, on -- clearly, we had the nonrecurring item that we booked last year in Q3 related to -- largely related to a single physician. Now it is a tough environment from a med mal perspective, and we certainly have seen a step-up in premium primarily in the state of New Mexico. We were encouraged by the legislature taking action with putting in legislative caps this year, which they've done in the past, and those had eroded over time. And we're encouraged by the new law. It's become very difficult to recruit physicians in the state of New Mexico. So we think that will provide some relief over time from a premium perspective, but because the new law was untested on a year-over-year basis, we saw a fairly pronounced increase in our medical malpractice insurance premium. But again, we are encouraged and would expect relief going forward as the law takes hold going forward because, again, most of the pressure is in the single market in New Mexico. Operator: The next question comes from the line of Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: I appreciate all the commentary about the IMPACT program, the contract labor improvement and supply chain efforts there. I just wanted to see if there's any kind of longer-term opportunity to fold the work you're doing around denials and professional fees into the IMPACT program and work towards some longer-term targets. And to that point, is there any takeaways from the work you've done on Ensemble on kind of where DSO could go on through continuous improvement programs or where you could get margin pickup on the longer-term professional fee mitigation? Alfred Lumsdaine: Thanks for the question, Ben. This is Alfred. Yes, we're -- obviously, it's a very dynamic environment when you're talking about payer denials. But what I would say is that we do have work streams embedded in the IMPACT program associated with revenue integrity, which includes denials and collections. Those can play out over longer periods of time because of the dynamic. But we have made investments internally in -- as I mentioned, in our managed care team. And that's not so much just to isolate the negotiation of contracts. But as Marty indicated, how are we actually embedding in contractual language to improve the outcomes as it relates to denials and collections activity, so -- but again, those play out, I would say, over longer periods of time than the cost management initiatives, which have a much more near-term visibility to yield. But we absolutely do have a number of initiatives towards improving both denials, collections and recovery on the back end of denied claims. So that clearly is an important component of our IMPACT programs, but you have a longer tenure to throughput. On your question on where could DSO go, we were very -- we finished 2025 in a very strong position, saw a significant step down in DSO. We've been able to largely maintain that. I think we're pleased with where we are. You always want to do better. But in that mid-40-day range is where we think we should be, and it's right similar to where we are right now, so just focusing on maintaining and improving where we can. But from an overall DSO perspective, we're quite pleased where we are. Operator: And our last question comes from the line of Raj Kumar with Stephens. Raj Kumar: I appreciate all the puts and takes with the kind of fix volumes and the underlying dynamics between metal tiers. I guess maybe I'm just trying to figure out, since you guys have called out previously that, that population may have not been as profitable for you as your peers, but then you did some re-contracting last year in the back half. So I guess just curious on any kind of commentary around per member profitability on those claims that have been paid so far. Martin Bonick: This is Marty. Yes, there definitely has been a focus on strengthening the yield on those contracts as we go through. There's a lot of them, and we've got 6 different states to operate in. And so for right now, I'd say we're still in the early innings of seeing that improvement. And that's exacerbated by the metal changes that Alfred talked about, so where we're getting better rates. Now we're seeing some shift in that population to lower-tiered metals. And so there will be some rebalancing. This is something that we're very carefully watching and adjusting to in real time as the -- this population settles out and we get to see where things ultimately land with the effectuation of disenrollments and other things that are still projected to be coming. The good news is our states have been relatively stable in terms of reenrollment into these plans, but we have to see where they settle out and then which plans they settle into to see how the re-contracting efforts ultimately play through from a revenue growth perspective. Raj Kumar: And then as a follow-up, I know other OpEx was higher, but then the DPP comp, maybe some reserving dynamics for the exchange population and then the increased malpractice. Any way to kind of bucket that as you kind of bridge year-over-year, just kind of as we kind of better think about that cost rolling forward? Martin Bonick: Yes. I think you've hit the nail on the head in terms of the underlying drivers, which would be embedded provider taxes from supplemental programs associated with supplemental revenues and the step-up in med mal, medical malpractice premium and overall expense. So in terms of bucketing, I would say the majority is still simply provider taxes associated with supplemental revenues with the step-up in medical malpractice expense on a year-over-year basis, I think it was roughly in the $10 million, $11 million range. Operator: And we have no further questions at this time. I would like to turn it back to Martin Bonick for closing remarks. Martin Bonick: Thank you all for your participation and questions in our first quarter earnings. We've entered 2026 with operational momentum, financial strength, and strategic clarity around our -- strategic objectives. We are confident in our ability to execute, and we appreciate everybody's support. Thank you for today's time. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Ternium's conference call to discuss the results for the first quarter 2026. We would like to inform you that this event is being recorded. [Operator Instructions] We would like to remind you that this conference call is intended exclusively for investors and market analysts. We request that any questions from journalists be dedicated to the Media Relations through our website in the Press section. With this, I would like now to turn the floor over to Mr. Sebastian Marti. You may proceed. Sebastián Martí: Good morning, and thank you for joining us. My name is Sebastian Marti, and I am Ternium's Global IR and Compliance Senior Director. Yesterday, we announced our financial results for the first quarter of 2026. Today's call is intended to provide additional context to that presentation. I'm joined by Maximo Vedoya, Ternium's Chief Executive Officer; and Pablo Brizzio, the company's Chief Financial Officer, who will discuss Ternium's operating environment and performance. Following our prepared remarks, we will open up the call to your questions. Before we begin, I would like to remind you that this conference call contains forward-looking information and that actual results may vary from those expressed or implied. Factors that could affect results are contained in our filings with the Securities and Exchange Commission and on Page 2 in today's webcast presentation. You will also find any reference to non-IFRS financial measures reconciled to the most directly comparable IFRS measures in the press release issued yesterday. With that, I'll turn the call over to Mr. Vedoya. Maximo Vedoya: Thank you, Sebastian. Good morning, everyone, and thank you for joining our conference call. Earnings margin in the first quarter continued on a recovery path, reaching 12%. This improvement reflects a combination of factors: an improving market environment in Mexico, a focus on profitability over volume in Brazil, and the continued work of our teams to increase efficiency across our industrial operations. In Mexico, apparent steel consumption fell around 10% in 2025, driven by uncertainty triggered by U.S. trade actions. In 2026, however, we see an improvement. The Mexican government has been actively working to mitigate the negative effects of U.S. trade measures on the Mexican economy by defending the local industry against unfair imports from Asia. These actions not only support the continued development of the Mexican industry but are closely aligned with the U.S. government's own trade strategy. Plan Mexico is also central to this effort. It promotes industrial development, increases domestic content in manufacturing and strengthens regional supply chains. In this same line, last week, the steel industry and the Mexican government signed a landmark agreement to prioritize domestically produced steel in all public procurements, a clear sign of the opportunity ahead. Taken together, these policies support our expectation of a recovery in Mexican steel demand. In this context, we expect volumes in Mexico to continue improving in the second quarter, driven mainly by the commercial market. The significant destocking that took place across the value chain in 2025 is now giving way to a normalization of apparent demand. Beyond that, we are seeing early movements in several infrastructure projects, which could add meaningful demand in the coming quarters. Turning to our Pesqueria project in Mexico. The ramp-up curve of the cold rolling mill and the galvanizing line are running ahead of plan. We expect both lines to be operating close to a full capacity by October. The slab facility is also advancing in line with expectation. This project is central to our strategy. It will significantly increase our vertical integration in Mexico, reduce our [ resilience ] on externally sourced slabs and enhance our product capabilities across automotive, industrial and construction applications. Importantly, as the automotive USMCA rule of origin enters into effect next year, this facility will position Ternium as a key player in meeting a growing demand. In this respect, I am pleased to share that we have been granted a patent in the United States for our new electrical steelmaking process, which will enable us to produce exposed steel at scale. This innovation leverages the integration of direct reduction at the same site. In addition, innovations such as virtual stamping solution, which utilizes artificial intelligence to streamline certification process for the automotive industry, enforcing our drive for operational excellence. This commitment continues to be recognized by our customers. In February, we were honored by [ Ariston Group ] with their [ Strategic Partner ] award, the highest recognition for quality and partnership. And in April, Ternium Mexico received the 2025 John Deere Crop Award and achieved the partner level, John Deere's highest distinction for cost-effective and long-term collaboration. Brazil steel consumption remains broadly stable with some sectors showing resilience and others facing more pressure. The automotive industry continues to perform well, with production expected to grow around 4% this year. On the other hand, sectors like agribusiness has been weakened -- have seen weaker demand. A key challenge in the quarter was a significant increase in steel imports, up around 30% versus the previous quarter. Imports accelerated ahead of the government's antidumping measures on cold-rolled and coated products. This has resulted in elevated inventory levels of imported material in the market, which we expect to normalize by the second half of the year. As these trade defensive measures gain traction and inventories level normalize, we expect Usiminas' market share to improve. However, it is also worth noting that import pressure is not limited to China. Volumes from Southeast Asia, particularly South Korea and Vietnam, have increased significantly, reflecting the indirect effects of China oversupply on the region's trade flow. In March, we were honored to welcome President Lula to the official inauguration of the Roberto Rocca Technical School located near our Rio de Janeiro plant. The school provides full-funded technical education to young people from the surrounding communities, offering them access to world-class education. Built with an investment of $50 million, we expect to welcome close to 600 students by next year. In Argentina, after a 2024 record, one of the lowest steel consumption levels in 2 decades, the market began to recover in 2025. However, 2026 did not start as we had expected. Demand is growing unequally. Mining, energy and agriculture are performing well. Automotive remains at reasonable levels. Constructions remain soft. Metal, mechanical and home appliance sectors are lagging, affected by weak domestic consumption. As I bring my remarks to a close, I am pleased to share that Ternium has once again been recognized as a Sustainability Champion by the World Steel Association. This recognition is granted to companies that [ integrate ] sustainability into their core strategy, combining environmental management, safety performance, innovation and responsible community engagement. Looking ahead, we are constructive on our market and our ability to continue improving performance. In Mexico, the combination of normalizing demand, supportive industrial policies and the ramp-up of our downstream projects position us well for the quarters ahead. In Brazil, as trade defensive measures gain traction and imports inventory normalize, we expect to see a healthy competitive environment. In Argentina, we continue to monitor the recovery closely, while remaining -- maintaining our operational discipline. Across all our operations, our teams remain focused on driving efficiency and lowering cost, and we're already seeing the benefits. Overall, the recognition we continue to receive from our customers reflects the quality of what we are doing every day. We are confident in Ternium's ability to deliver even stronger performance in the periods ahead. With that, I'd like to move to a review of our quarterly performance. Pablo, please go ahead. Pablo Brizzio: Thanks, Maximo, and thanks, everybody, for participating in our call. So let's review our operational and financial performance for the first quarter of this year. Starting the webcast presentation on Page #3, we can see that the adjusted EBITDA increased sequentially by 21% in the first quarter, in line with our expectations and reflecting margin improvement. Looking ahead, we expect adjusted EBITDA margin to continue increasing, supported by higher revenue per ton, particularly in Mexico and Brazil, partially offset by higher cost per ton across our main markets. Let's move to the next slide. Net income for the first quarter of 2026 reached $372 million. This reflects improved operating performance, stronger net financial results, primarily driven by foreign exchange gain in Mexico, Argentina and Brazil, and positive deferred tax results. Deferred tax gain amounted to $122 million, driven mainly by currency fluctuations in Argentina and Brazil and inflation effects in Argentina. Net income in the quarter also included a $48 million loss from the quarterly update of the value of a provision from ongoing litigation related to the acquisition of the participation in Usiminas in 2012. Let's turn to Page 5 to review the Steel segment performance. Overall, shipments were broadly in line with the previous quarter. In Mexico, volumes increased, supported by solid commercial market activity. This was driven by more effective trade defenses against unfair imports, healthier inventory level across the value chain and a seasonal recovery in demand. In Brazil, Usiminas prioritized profitability in the face of increased cost volatility, particularly in energy and logistics, resulting in a modest sequential decline in shipments. In the Southern region, demand softened, reflecting weaker industrial activity in Argentina, alongside typical seasonal factors, leading to a sequential decrease in shipments. Looking ahead, we expect shipments to trend higher, mainly driven by Mexico and Argentina, as trade measures gain traction in Mexico and demand conditions gradually improve across both markets. Let's turn to Page 6 to review the performance of our Steel segment. Steel cash operating income improved during the period, driven by higher margins, resulting from realized prices gains, which were partially offset by higher raw material and purchased slab costs. On next slide, the Mining segment reflects a different dynamic. In this case, shipment declined sequentially due to operational disruptions in Brazil caused by an unusual intense rainfall. Finally, let's turn to the cash flow and balance sheet performance on Page 8. The company continues to generate strong cash flow from operations, although this quarter, we saw an increase in working capital, driven by an increase in trade receivables, mainly due to higher steel prices and volumes in Mexico. We anticipate that sales will grow in the second quarter of this year, likely requiring a further rise in working capital. Capital expenditures continue to reflect our progress in the expansion of our industrial center in Pesqueria, now mostly focused on the construction of the slab making facility. Finally, we ended the quarter with a net cash position of $327 million. On top of our CapEx needs, the cash position decline included a $350 million payment for acquisition of Usiminas shares from Nippon Steel, partially offset by $150 million loan collection from Techgen, our nonconsolidated energy joint venture that supplies power to our operations in Mexico. Okay. This concludes our prepared remarks for the first quarter. We will now be happy to take your questions. Thanks, and please proceed with the Q&A session. Operator: [Operator Instructions] Our first question comes from Mr. Rodolfo Angele from JPMorgan. Rodolfo De Angele: Okay. So I wanted to just hear your thoughts on 2 aspects that I think are relevant for Ternium's future performance. So first, there's been a lot of discussion on USMCA. So if you could share your thoughts on what happens there and what it means in terms of different scenarios for the company's performance? And I also wanted to hear from you a little bit about the expectations for the slab market in terms of pricing outlook for the [ remainder ] of the year, especially. And that's all. Maximo Vedoya: Thank you, Rodolfo. Let me start with the USMCA question. And as you know, there have been a lot of discussion and talks about USMCA. Look, I believe that there will be a trade -- a deal between U.S. and Mexico. And as you know, the U.S. administration through the USTR and the Mexican government through the Ministry -- or Secretary of Economy holding meetings. There is a formal meeting on the 25 of May, which is going to start formally the revision -- or the discussions of the USMCA. Most of that discussions are probably going to be on discussing mainly stricter rule of origin and some other issues that have [ arisen ]. And I think my thoughts on this is that this is going to take some time. So I am positive, there is going to be an agreement. But I don't know exactly the timeline, probably won't be by the 1st of July and probably would get most of this year. So this is, I mean, the -- my thoughts of what is happening in the USMCA. There's also some discussions going on, on the Section 232. As you know, I don't think -- my thoughts is, and I always said, there is no -- there's incomparability between Section 232 and USMCA. It doesn't make sense, makes Mexico subject to 232 in steel as the U.S. has a steel trade surplus -- a very big steel trade surplus with Mexico. I know the Mexican administration has also stated that there is a priority while the USMCA negotiate that there has to be a relief in steel and automotive Section 232. And I know they are discussing this during the following weeks. Nevertheless, I think it's important that the Mexican administration, as I said a little bit in my remarks, Rodolfo, has been very proactive in launching initiatives to strengthen the steel consumption in Mexico. While all this is going on, the Plan Mexico, the target measures against unfair competition, the imposition of tariffs for countries that don't have trade agreement with Mexico, all this -- I think it's a very active way of the Mexican government to attack the problems of the Mexican economy, while these 2 things are negotiated. So in the end, I think USMCA, as I said, is going to be renewed probably with much tougher rule of origin, which I think is a very good thing. But I'm not that certain on the timing. Probably the timing -- it takes a little bit more longer. So I hope with this large answer, I did answer your question, Rodolfo. Rodolfo De Angele: Yes, you did. Maximo Vedoya: The slab market, what did you refer with the slab market? Rodolfo De Angele: It's just a market that -- I think it's more unique overall in terms of how pricing dynamics work. So I just wanted to hear your thoughts on what do you see, especially on pricing, what do you expect for the coming quarters? Maximo Vedoya: Prices, as it has been in most of steel products, has been increasing recently. Clearly, the increase in fuel increases the logistics for slabs. And also, there has been some increase in iron ore and in other raw materials, which have made the slab market a little bit more expensive. I mean, from all our production -- our buying of slab is not as big as it used to be because most of the slabs come from our Ternium Brazil facility. But nevertheless, we are buying in the market, and we are seeing some increase in that. It's compensated probably with the increase in prices in finishing products also. Operator: Our next question comes from Mrs. Timna Tanners from Wells Fargo Securities. Timna Tanners: So I wanted to ask, if I could, about a few things. One is to follow up on the USMCA discussions. The U.S. government is more interested in granting relief on tariffs if there is a construction of production in the U.S. So just wondering if you would expand your U.S. presence. Also wondering along those same lines about -- hearing about a Mexican dumping case against U.S. galvanized imports. If you could address those? Maximo Vedoya: Timna, we are not thinking in making some production or increased production in the U.S. now. We don't have that as a plan today. And second, there is a dumping case against cold rolling products. There's no dumping case against galvanized in Mexico, at least in the U.S. There is a dumping case in galvanized against Vietnam and I think other countries. Timna Tanners: Okay. I heard that Mexico was working on one against the U.S. I thought that could be positive for your operations. So we'll stay tuned there. Second, can you expand a bit more on the mention of electrical steel -- sorry, EAF capabilities to make exposed automotive and remind us what might be the time frame for doing that? Maximo Vedoya: Yes, for sure. I mean, as you probably remember, the steel shop, it's going to start the ramp-up in the last quarter of -- between the last quarter of this year and early next year. As you know, the operation, it's -- I mean, the facility is huge. I hope all of you can one day visit it because it's worth visiting the facility. So the ramp-up facility -- the ramp-up curve should take at least all 2027. In the meantime, during all this ramp-up, we are going to work with the automotive customers to certify our products, certification process for all automotive products. Not only the exposed material, but also all the other parts of the car need certification. But we are working very close with all of them because they are very eager to accelerate the certification process. And so, we are working already with them on how to accelerate the certification process as much as possible. We have recently increased the capacity of our Ternium Lab in Pesqueria, which we are working -- certifying all the lab equipment, so we can certify part of the process they need in that site. And I mean, the capacity that this EAF is going to have to have, the capacity of producing exposed material in a sustainable way and in a continuous way is going to be unique because of the process we are doing and all the patents we are developing, especially to decrease all the nitrogen that the EAFs usually have. So this is a unique process that we are developing with our technical people and the supplier of equipment that is Tenova, some sister company of us. So I mean, again, the timing should be around next year, probably by the third and fourth quarter of next year, that we are going to supply in a sustainable way to the automotive industry. Timna Tanners: So it'll be qualified for 2028 or qualified for 2027? Maximo Vedoya: No. The idea is to qualify everything for 2028. Operator: Our next question comes from Mr. Alfonso Salazar from Scotiabank. Alfonso Salazar: A couple of questions from my end. The first one is regarding the outlook in Argentina. I want to see if you can give us more color on what's going on and what are your expectations for future demand. Also trying to understand better what's the situation regarding imports. It seems to be more problematic than in the past. And also exports from Argentina to other Latin American countries, what is the outlook there because of the same thing, imports from -- to other countries from Asia? The second question is, some comments on the decarbonization trends in Latin America, it seems that -- we always knew that it was going to take longer than Europe. But any comment on what is the outlook there as well, these trends of decarbonization and green steel? Maximo Vedoya: Yes. Thank you, Alfonso. So outlook in Argentina, I mean, in the short term, shipments in the second quarter are going to increase because, as you know, the first quarter in Argentina is always a seasonably low quarter. January and February usually are holidays in Argentina. So the demand is quite -- then further down the road, I think, some of the sectors present a good opportunity, mining, oil and gas, and agriculture. They are compensated by others like mechanical goods and like electrical and white goods, sorry. That demand is not very good in the final goods. So it's going to be a little bit better, but we don't expect a huge growth compared to 2025. Imports, although there have been a lot of talks about imports, we are not seeing imports in our products. We have seen some imports in the value chains, but these are stable today. I think the problem in our value chains is that the demand or the consumption is not very good. So that's the situation we have in Argentina. Decarbonization in Latin America, [ you're seeing ] the path is slower than in Europe. I think the pace in Europe has also decreased a lot. I mean, there's a lot of projects that have been announced in Europe that today are not going through, and they continue building up in blast furnace. In Latin America, I can say 2 things. I think one, there is increasing -- in Mexico, where you have the opportunity to change from coal to natural gas. So Mexico will continue on a path of having probably the lowest steel production emissions per ton of production of probably the world. And in Brazil, there's more difficulty to change blast furnace. So the decarbonization there is going to go through -- by small decreases by efficiency, but still working with blast furnace. Alfonso Salazar: And the outlook for other Latin American countries, demand in other countries that you source from Argentina? Maximo Vedoya: No. The regional countries, I mean, usually, they don't have a huge impact in the shipments. We continue to ship to Uruguay, Paraguay. Those are the countries that we ship from Argentina. But the consumption there is marginal. So it's not going to have a huge impact on our shipments. Operator: Our next question comes from Mr. Marcio Farid from Goldman Sachs. Marcio Farid Filho: Obviously, another follow-up on USMCA and Section 232. I think what's changed maybe this time is that obviously, Mexico has put some import barriers to steel coming into Mexico to try and reduce triangulation as well or rerouting. And I'm just wondering, right, once -- assuming Section 232 to Mexico is either removed or reduced, do you think the competitive environment would be different versus where we were a few years ago when we did not have those import barriers? And I remember well, I think in Mexico, import is about 40% of all the steel that you need. So just wondering if you can think about a structural change in terms of the competitive environment between North America, Mexico and the U.S. And second point, demand was very weak in Mexico last year. I think it was down 10%. Part of the reason was, as you mentioned, destocking, but also weak activity as companies wait for better visibility on their relationship with the U.S. You mentioned restocking helped -- has been helping pricing. I'm just wondering if you're seeing demand or activity also recovering or we need to see a final agreement with the U.S. for investments to really resume in Mexico. Those are my questions. Maximo Vedoya: Thank you, Marcio. Yes, I mean, the first question about the triangulation and the efforts that the Mexican administration is doing to control this, I think there is already a structural change. I think the Mexican administration, way before Trump was elected and all this discussion began, was very focused on increasing the value-added content of all what is produced in Mexico. I mean, Mexico was a huge exporter, but the value added of those products, the regional content of those products were not very high. The Plan Mexico, which President Sheinbaum already announced in the campaign, in her campaign, was a plan for doing exactly this, for changing this dynamic. So all the things that the Mexican administration is doing, as you mentioned, are a way of decreasing the dependency of Asian products, especially in those products that Mexico or the region is able to produce. The clear example of that is steel. So I think there is already a structural change. And probably this is going to be even better once the 232, as you said, is reduced or removed from the site between Mexico and the U.S. So clearly, you are correct in your assessment. There is a demand -- regarding the second question, Marcio, there is a demand increase in Mexico. It's not as high. We are -- well, World Steel has just [ released ] that the demand in Mexico is going to grow around 4% in the year. Considering that the demand decreased by 10%, as you said, in 2025, it's not a huge increase, but it is an increase, and we are seeing some recovery in demand. I expect that this is going to be higher once the USMCA -- or where the USMCA is going is more clear. We are seeing this increase at least in a small space, but we are seeing it today. I hope that answered the question, Marcio. Marcio Farid Filho: Yes, for sure. Operator: Our next question comes from Mr. Rafael Barcellos by Bradesco BBI. Rafael Barcellos: So first question, last week, the Mexican government signed an agreement, which I believe they called as an agreement for the promotion of the Mexican steel industry, right? And so, I just wanted to understand, I mean, when do you expect that these measures will finally translate into incremental demand for the country? And what else you think the government can promote to incentivize the sector in the short term? And as a second question, in your outlook, you mentioned a bit of the cost pressure that we have seen for all industries, and I understand that steel is not an exception. But if you can elaborate a bit more on what we can expect for cost in the third Q, for example, it could be helpful. Maximo Vedoya: Thank you, Rafael. Well, the agreement in Mexico, as I said, is an agreement between the government and the steel industry of Mexico to commit that most -- that all of the government use of steel is used -- Mexican steel is used in those infrastructure -- main infrastructure. I think it's very important because there was already a commitment to use Mexican steel. But in some cases, especially all this new infrastructure that is coming by Pemex, by CFE, that is the electricity company, that our investment -- joint investment between public and private sectors, this is going to be -- it's going to be an impact in the demand of steel, especially with all the investment in gas lines, in renewable energy, solar and wind. It has a huge consumption of steel. So it is important in that sense. I don't expect the investments to start in the next quarter or the following. But I think that by year-end, all this effort that the government is doing will have an impact in demand. Too early to say how much, but it's going to have an impact. The second question, sorry? Pablo Brizzio: Cost. Maximo Vedoya: The cost. Well, I mean, it's going to be an impact in cost. But for Ternium, it's not going to be a huge impact. The big impact is going to be in logistics and import of some slabs and some logistic costs in Brazil and probably in Argentina. But it's -- probably, that is going to compensate, as we said in the outlook, by also the price increases. I think that the real risk, let me say, of the conflict in the Middle East is that if it's not resolved quickly, it could cost more a recession. So we are thinking that, that's the real risk for us. We see a little bit increase in cost, but again, more than compensated by the increase the prices of steel are having. Rafael Barcellos: As a follow-up, sorry, can you just elaborate on what you're seeing as for cost trends in the third Q? And on the price side, I understand that prices are outpacing the cost increase. But can you just help us understand, in your view, what is the main driver for this recent good price momentum that we are seeing in Mexico? Maximo Vedoya: Well, the good momentum, I think it's everywhere. You see, in Europe, prices increasing. You see in Brazil. You even see, in China, prices increasing. So I think part of that is motivated by the increase of cost, which is bigger than increase in Southeast Asia and is bigger in Europe than it is in the Americas. So I think that's the motivation, Rafael. Operator: Our next question comes from Mr. Caio Ribeiro from Bank of America. Caio Ribeiro: So I have 2 questions linked to your investments at Pesqueria. So first off, as you complete your upstream investments this year, what are some of the investment avenues that you're contemplating right now? Where does the MUSA expansion fit in within your list of priorities? And then, secondly, assuming that you don't greenlight another investment right away or a large investment like the Pesqueria upstream, downstream investments that you've done in the past years, those CapEx figures, they should drop considerably versus your recent run rate, which, together with that earnings increase that you get from your investments, should drive significantly higher free cash flow generation in the coming years, right? So with that in mind, just wondering how you think about dividend payments going forward? Is there room in your view to boost those to cover a larger part of that positive free cash flow generation that you should have in the coming years? Those are my questions. Maximo Vedoya: Thank you, Caio. Well, yes, the upstream investment, as you know, will -- as I said before, we will start the ramp-up curve by the end of the year or early next year. But I mean, we are still -- but it's still a long way to go. Today, the big investment that, as you say, we are analyzing is the expansion of MUSA. Usiminas has continued to analyze the different alternatives we have regarding CapEx and the cost of production and the material that we can take on each one of these alternatives. And by the end of the year or early next year, we have to take a decision -- or we will have a decision on where to go on that. Those are so far the investments we are considering. I mean, we are not seeing yet a necessity or, I mean, the willingness to make another large investment so close as to bring in heavier project online. So yes, CapEx is going to decrease. As you remember, 2025, we have $2.5 billion of CapEx. This year, it's going to be lower than that -- much lower than that. Probably in 2027, it's going to be even lower, around $1.2 billion or $1 billion. So yes -- and I mean, regarding the dividend, if the numbers improve and we have generation, as you know, we have a track record that the dividend -- our dividend has a very good yield, although we decreased a little bit the dividend -- or the Board decided to decrease a little bit the dividend because of the uncertainty, which I completely agree. Still, the yield dividend with the price of Ternium's [ ADS ] today, it's around 5%. So we will probably continue with this policy of taking a good dividend. Operator: Our next question comes from Mr. Caio Greiner by UBS. Caio Greiner: Two questions. The first one on Brazil. I wanted to hear your thoughts on the strategy that the company has following the recent antidumping duties implementation for the operations that you have there, especially at Usiminas. I wanted to know if you're going to favor, over the next few quarters and maybe even years, higher prices, higher profitability, value over volume, somewhat of what we saw during the first quarter? Or if the strategy is going to be more in the sense of gaining market share, expanding volumes? And if that's the case, I wanted to know how much do you see in terms of volume gain potential over the next, again, quarters and years, and if you believe that you have enough capacity for this amount of volumes that you could increase going forward? And if you don't, what will be the strategy there? Relighting blast furnace, could it be on the pipeline? Or is that more in the sense of just purchasing more shares and raising capacity utilization? And the second one, just a follow-up to the previous capital allocation question. Maximo, you mentioned that you don't have plans of doing another large CapEx project while you still have the MUSA investment. But could you still maybe -- could it be on the pipeline to, again, perform corporate simplification measures, more bottom-up or in-house initiatives like the Usiminas stake that you acquired during the first quarter or anything related to Argentina? That would be very, very helpful. Maximo Vedoya: Thank you, Caio. The first one, I mean, if we have to choose between the 2 strategies you said, probably it's the first one. And we don't want to produce more in order to sell something that the market doesn't need. And so, we are going to start to -- we will always prefer the first strategy. It's clear that with all the measures that the Brazilian government is taking -- as I said, Brazil is kind of a little bit late. I mean, Mexico, U.S., Canada, Europe, even India are taking measures a little bit more quickly than Brazil. But nevertheless, the trade measures in Brazil, it's a very good first step in the very right direction. So if unfair trade comes down, probably it will increase also volume. But we are very -- going to be very cautious. Regarding our capital allocation, Pablo? Pablo Brizzio: Thanks for letting me answer one question. So yes, regarding capital allocation and following on what Maximo said before, we are in the middle of a huge capital allocation structure, taking into consideration the rest of the capital expenditure in the facility in Mexico with the dividend payment and with the capital -- working capital increase because of the increasing volumes and decreasing prices that we saw. This year, as you know, we will be moving from a net cash position to a net debt position. And next year, you are totally right that we will be reducing the level of CapEx, but we will be sustaining probably the other outflows of capital. This could lead to an increase on our position, our cash position, which is not bad and will prepare us for any opportunity that may appear in the market. Among these opportunities, you know that we have talked a lot in the past and we have worked a lot in order to simplify our corporate structure, and this is on our list of priorities. And if there is an opportunity to move in that direction, clearly something that we need to fully analyze and to carefully analyze because it's not that you have an opportunity and you can take it immediately. You need to do all the calculations in order to see the best way to proceed. With that, as Maximo already explained, continuing with the dividend is a policy that we have. And if there are opportunities to improve that, if the numbers reflect it, it's something that we will consider. Additionally to that, we take -- if you want some rest -- our analyzing the next CapEx plan -- internal CapEx plan because the effort that we have to put in order to take this project to work is very significant. And as Maximo explained, we need to go through the ramp-up to certification. So this takes some time. That's why usually when we have this big CapEx plan, then we take at least 1 or 2 years to design the new ones. But as also was explained here, we still believe that Ternium has opportunities to grow in all our markets, especially in Mexico and in Brazil. So there will be opportunities for us to analyze, but it will take some time for us to analyze them and present it to you. Caio Greiner: Maybe just a follow-up to the first -- actually to the second one as well. So in terms of volume gains in Brazil, Maximo, you mentioned that if the unfair trade comes down, you should be able to increase volumes as well. Do you see the current capacity that you have in Brazil as enough for the volume gain that you could have for an expected market share gain? Or could you have -- think about an alternative of, again, relighting one of your blast furnaces there, think about maybe relighting or revamping Cubatao? Maximo Vedoya: Yes, Caio, I mean, today, we have spare capacity in Brazil, especially in the Cubatao plant. As you know, it's a plant that is not working at full capacity. And we will also have slabs available from our Ternium facility in Rio once -- we don't have to ship as much slabs to Ternium Mexico because of the new mill coming -- the upstream project coming online. So I mean, yes, we have capacity in Brazil to grow. And I think it will be enough, I mean, if imports go down in Brazil. Operator: That concludes the question-and-answer session. I would like to turn it back over to Mr. Maximo Vedoya for closing remarks. Please, Mr. Maximo, you may proceed. Maximo Vedoya: Well, thank you very much all for joining us. We welcome, as usual, any feedback or additional questions that you have. In the meantime, have a great day. Bye. Operator: Ternium's conference call has now concluded. Thank you for attending today's presentation. You may now disconnect, and have a good day.
Operator: Ladies and gentlemen, thank you for standing by and welcome to CS Disco's First Quarter 2026 Conference Call. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Head of Investor Relations, Aleksey Lakchakov. Please go ahead. Aleksey Lakchakov: Good morning and thank you for joining us on today's conference call to discuss the financial results for DISCO's first quarter of fiscal year 2026. With me on today's call are Eric Friedrichsen, DISCO's Chief Executive Officer; Aaron Barfoot, DISCO's Chief Financial Officer; and Richard Crum, DISCO's Chief Product Technology and Strategy Officer. Today's call will include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 including, but not limited to, statements regarding our financial outlook and the future performance; our future capital expenditures; market opportunity, market position, product and go-to-market strategies and growth opportunities; and the benefits of our product offerings and developments in the legal technology industry. In addition to our prepared remarks, our earnings press release, SEC filings and a replay of today's call can be found on our Investor Relations website at ir.csdisco.com. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Forward-looking statements represent our management's beliefs and assumptions only as of the date made. Information on factors that could affect the company's financial results is included in its filings with the SEC from time to time, including the section titled Risk Factors in the company's annual report on Form 10-K for the year ended December 31, 2025, filed with the SEC on February 25, 2026, and the company's quarterly report on Form 10-Q for the quarter ended March 31, 2026. In addition, during today's call, we will discuss non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. Reconciliations between GAAP and non-GAAP financial measures and a discussion of the limitations of using non-GAAP measures versus the closest GAAP equivalent is available in our earnings release. And with that, I'd like to turn the call over to Eric. Eric Friedrichsen: Thank you, Aleksey. Good morning, everyone, and thank you for joining us. In the first quarter, DISCO delivered strong results across the board. With significant product momentum, continued traction with our largest customers in both software and services and strong underlying financial performance; we continue to drive accelerating and sustainable revenue growth. As AI permeates through the legal industry, law firms are looking for ways to boost their productivity, increase efficiency and deliver better outcomes in order to win more business as our corporate clients look to control litigation spend. The key to success in this environment is trust. The trust is earned through security, enterprise scale and litigation specific capabilities necessary to help lawyers win on the largest and most complex matters. This is where DISCO shines. We are in an excellent place with unique capabilities to continue to be a disruptor and leader in AI for litigation and our progress in Q1 has helped further differentiate DISCO from both general purpose legal AI tools and those in the traditional Ediscovery space. In Q1, total revenue grew 14% year-over-year to $41.9 million and software revenue grew 12% year-over-year to $34.7 million. This was the fourth consecutive quarter of accelerating growth in total revenue if you exclude the onetime contingent deal we recognized in Q3 of last year. We are very pleased to deliver strong software growth and to beat the high end of our total revenue guidance range. Adjusted EBITDA improved 32% to negative $3.5 million in Q1, also beating the high end of our guidance range. We saw strong Q1 performance in 4 key areas: first, increased wallet share among our biggest customers; second, growth of large multi-terabyte matters; third, continued adoption of our generative AI capabilities; and fourth, overall acceleration in the growth of data on our platform. Regarding improvement with our biggest customers: in Q1 we increased the number of customers that generated more than $100,000 in total revenue during the last 12 months to 347. The revenue attributable to these customers during the last 12 months totaled $124 million representing 77% of total revenue over this period and 13% year-over-year growth. We are continuing to add multi-terabyte matters as more complex litigation comes on to our platform. In Q1 we saw an acceleration in net new large matters added, which is a very promising sign given that these matters generate more revenue, expand over time and last longer on our platform. Continued adoption of our generative AI capabilities was driven by both Cecilia AI and Auto Review. DISCO is transforming high stakes litigation through an AI-native stack built on a decade of proprietary data innovation and purpose-built legal workflows. At its core, Cecilia's agentic intelligence allows legal teams to speak directly to their data, uncovering complex evidence in seconds rather than weeks. Cecilia Advanced Research is our new platform-native agentic AI capability, which is a breakthrough for Ediscovery and investigations. It is capable of much more sophisticated autonomous reasoning that extracts deeper context, makes next level connections and delivers significantly more detailed and thorough results across even the largest data sets. We're currently in testing with select customers on live case data in preparation for a broader rollout to wait-listed customers next month. The feedback is fantastic. Customers instantly grasp how much more they can accomplish and see it as a real example of what other AI providers have only been promising. Increased adoption has also extended through to our AI-powered managed services, which deliver expert-level results at software scale economics. The result is a secure enterprise-grade ecosystem that fundamentally redefines the speed and efficiency of modern discovery. DISCO Auto Review is a more accurate and leaner alternative to traditional review and an excellent example of our AI capabilities in action. As more law firms look for new revenue streams, Auto Review allows them to bring more of that work in-house rather than sending it to alternative legal service providers, moving review from a cost center to a profit center. This is a win-win-win for the client, for the law firm and for DISCO because it provides a clear ROI and better outcomes for the client while providing more differentiated revenue streams for the law firm and for DISCO. Our Auto Review capabilities continue to lead the market in terms of speed and efficacy and we believe that as more and more firms consider AI for their review needs that we are very well positioned to capture that demand. Interest in Auto Review continues to grow. We are seeing more customers engage with us to evaluate how Auto Review can help with their larger matters and it has proven to be a strong driver for our Managed Review offering, which also enjoyed a strong Q1. That's a great example of how our AI capabilities combined with our customer value proposition of With You in Every Case are bringing more customers, more matters and more revenue to DISCO. As far as overall acceleration of usage, we had a significantly better-than-expected launch of the DISCO platform in Q1. For context, the DISCO platform is our powerful industry-leading set of AI capabilities including Cecilia Q&A, auto timelines, document summaries, definitions and case builder bundled together in 1 solution with our Ediscovery capabilities on every matter. The DISCO platform gives customers everything they need to manage and win their matters for 1 competitive price. In the first 3 months, we've seen strong demand from customers with early adoption that has been much better than anticipated and we're equally pleased from a financial perspective. While it's still in the early days, we're seeing some very encouraging trends from DISCO platform adoption, including larger matters, increased committed revenue, multiyear deals and growing AI adoption. These results demonstrate how much easier we've made it to do business with DISCO, something further proven by the strong customer demand. Continuing to grow the DISCO platform is a key driver behind expanding wallet share among our existing base of large customers with large matters. I always like to highlight a couple of real-world examples to illustrate the value that DISCO is delivering to customers. These are examples of customers who have moved from important transactional relationships to strategic relationships that benefit us both. The first is Mound Cotton, a leading litigation boutique focused on insurance matters with a nearly 90-year history. Following the launch of our DISCO platform in the first quarter, Mound Cotton signed a 3-year enterprise agreement making DISCO the provider of choice for Ediscovery technology across their firm. The reasoning was simple. They wanted a strategic partner that combines secure cutting-edge AI technology with professional services and support that they need for their largest and most sensitive matters. Mound Cotton conducted a broad review of potential partners in search of a comprehensive integrated solution before selecting DISCO and noted that it quickly became clear that DISCO was the better product for their clients and better experience for their attorneys. As a firm that closely works with large global financial institutions, Mound Cotton was drawn to DISCO's reputation for security, privacy and reliability. They said we have the luxury of being able to select the best-in-class solution and the unanimous verdict was that DISCO is a dramatically better product today and that the gap will only widen in the future. As a firm with sophisticated clients that demand the best tools, DISCO is the right choice. We hear similar things from many of the top firms we work with. They need advanced secure technology paired with the expertise to help them get the most out of it to deliver results for their clients. The DISCO platform is making that easier than ever. A second example that demonstrates how we're building multiyear relationships because customers see our technology's potential is Reynolds Frizzell LLP, a generalist commercial litigation firm in Houston with a prominent energy litigation practice. Reynolds Frizzell is one of our longest relationships. They've been using DISCO since 2015 and they also recently signed a multiyear enterprise agreement to expand their use of our technology across their firm. Reynolds Frizzell has taken a considered approach to new technology in the legal tech space thoughtfully vetting AI applications and focusing on technology specifically designed for legal use cases. As they looked into legal AI applications, DISCO was a natural place to start based on a decade-long relationship built on trust and collaboration. Our Reynolds Frizzell partner said that they've used and evaluated a number of different AI legal tools and were especially impressed by DISCO Cecilia capabilities. We're excited to have it available for our cases, the partner said. This illustrates the power of our With You in Every Case value proposition. Our combination of advanced technology and expert professional services has made DISCO into an essential resource for Reynolds Frizzell and we're continuing to serve and grow this long-standing relationship into the future. The stories about Mound Cotton and Reynolds Frizzell are just 2 examples of our strategy in action and there are dozens more every quarter demonstrating our ability to develop these relationships and dramatically expand them over time. All told, Q1 was a strong quarter for DISCO with continued growth in our core business, a better-than-expected launch of the DISCO platform and great progress with AI adoption. We believe this creates significant momentum for us throughout 2026 and beyond. With that, I'll next turn it over to Richard to discuss how our recent product advancements and our product road map are shaping our longer-term view of the broader opportunity to provide powerful AI solutions for litigation. Richard? Richard Crum: Thank you, Eric. As Eric noted, we are incredibly excited about the customer response we're seeing to the DISCO platform and Cecilia Advanced Research. Both are important steps for us, but are really only the beginning of what we know is possible in litigation technology with our AI capabilities. The legal industry as a whole is in a period of significant change. Law firms face pressure to leverage new technology and consider changes to their business models. Corporate legal departments are expected to control spend while workloads are growing. And everyone is grappling with the growing volume of new complex data leading to very real data management and fact-finding challenges. The general legal AI companies and even tools from foundational model providers are offering legal workflow solutions that address a wide range of transactional legal work such as redlining contracts, drafting memos and extracting information from a set of documents. Legal tasks for efficiency and automation to speed up work is truly valuable. Litigation is an entirely different game. It is significantly more complex. Litigators are not asking for ways to work faster. They want solutions that shift the odds in their favor by delivering the crucial case intelligence that leads to victory. They need to win. And the expertise and precision required to deliver that requires scaled technology like we have developed at DISCO. Put another way, litigators need solutions that are purpose-built for the unique demands of the practice. It needs AI built for litigation. That's what we're building. At DISCO, we are continuing to extend our AI applications for our customers beyond traditional Ediscovery compliance to unlock both new strategic advantages and drive value across the litigation life cycle. Let me explain that with some more detail. There are 2 high level outputs from Ediscovery, production compliance and a detailed understanding of the facts and evidence in context. Ediscovery has traditionally focused on production compliance because it is an important court mandated step in the litigation process with real consequences if you get it wrong. But it is also a necessary tick-the-box exercise with limited strategic value on its own. Most Ediscovery tools have made production more accurate, automated and efficient; but they have not made it more strategic or independently valuable. This is where DISCO is different. Our ability to surface not just the facts, but the complete picture of context, intent and relationships between documents and data. DISCO goes beyond the required production to deliver a comprehensive set of facts and evidence organized, tagged, connected and understood in relation to the claims of the matter. The real value for litigators is in the mastery of those facts. The second piece is in the law itself and it's worth reminding everyone that DISCO holds a license for the full corporate of U.S. case law, statutes, regulations and court rules. The facts of the case and the law of the jurisdiction together in 1 platform will be a powerful combination. We will share more about our vision and how it will come together soon, but let me turn back to what we're delivering right now. Three years ago DISCO first dramatically disrupted traditional Ediscovery with Cecilia AI. Our new Cecilia Advanced Research is an agentic AI toolset that leapfrogs the capability of those many copycat Q&A tools that have followed us by helping attorneys develop winning case theories during discovery and all along the litigation life cycle as the matter advances to settlement or trial. Unlike simple Q&A tools, Cecilia Advanced Research functions as an intelligence agent performing multistep analysis across massive amounts of data to deliver defensible court-ready insights that litigators use to build winning case theory from day 1. Cecilia Advanced Research can generate work product for litigators as a case advances, build tighter and more compelling narratives with our integrated timelines functionality, streamline deposition and witness preparation and interrogate the record at trial and they do this all in 1 powerful integrated and secure platform from DISCO. We're currently in testing with select customers on live case data in preparation for this broader rollout to priority customers on our wait list later this month and the feedback is fantastic. Customers instantly grasp how much more they can accomplish and see it as a very real example of what other AI providers have only been promising. The new era of AI, both generative and agentic, opens up a treasure trove of opportunity. You don't have to know how to use complicated technology. You just have to know how to articulate the outcome you're looking for, something that lawyers are already incredibly good at. DISCO AI lets litigators focus on the output of the process, winning for their clients who hire them to deliver. We believe this means lower barriers to adoption, greater usage of our platform across the life of a matter and most importantly, better results for our customers and their clients. In the simplest of terms, at DISCO we are directly investing in our customers' competitive edge to help them win cases and grow their business. DISCO is the AI solution for litigators. With that, I'll hand it over to Aaron. Aaron Barfoot: Thank you, Richard. Q1 results were strong across all our revenue lines. We exceeded the top end of total revenue guidance in the quarter and came in above the midpoint of our guidance range in software. In Q1 2026, total revenue was $41.9 million, up 14% year-over-year while software revenue was $34.7 million, up 12% year-over-year. This was the fourth straight quarter of accelerating total revenue growth excluding the impact of onetime contingent software revenue recognized in Q3 of last year. Services revenue was $7.2 million, up 25% year-over-year. To start, I want to touch on some of the dynamics we are seeing in our software business. As Eric mentioned, we saw strong traction in Q1 with DISCO platform. We are seeing more cases start on DISCO platform with more matters and gigabytes than we had expected through Q1 as customers see the obvious benefits of bundled products and all-in-one pricing. We expect these new larger matters will be a tailwind for our business in the coming quarters, but we could see variability as customers move from sets of individual products and ingest fees to the DISCO platform. I also want to touch on our performance in services, which exceeded expectations in Q1 and was driven by growth of both professional services and our review business. We've discussed in the past the tremendous impact we believe Auto Review will have on the litigation workflow as more customers embrace AI adoption. While we have customers all along the spectrum of AI readiness, both new and existing customers are curious about Auto Review's capabilities. A further dynamic we are seeing is that as customers learn about both our traditional review and Auto Review, some choose to use traditional review as they consider broader AI implementation. That dynamic helped fuel our strong services result in Q1. Turning to profitability metrics. In discussing the remainder of the income statement, please note that unless otherwise specified, all references to our gross margin, operating expenses and net loss are on a non-GAAP basis. Adjusted EBITDA is also a non-GAAP financial measure. Our gross margin in Q1 was 75%, consistent with 75% the prior year. As we mentioned before, our gross margins fluctuate from period to period based on the nature of our customers' usage, for example the amount and types of data ingested and managed on our platform. Sales and marketing expense for Q1 was $14.8 million or 35% of revenue compared to 36% of revenue the prior year. The year-over-year dollar increase was driven by personnel costs as we invest in our go-to-market capabilities. Research and development expense for Q1 was $12.9 million or 31% of revenue compared to 33% of revenue the prior year. Research and development increased year-over-year primarily driven by higher personnel costs as our team continues to focus on AI and platform development. General and administrative expense in Q1 was $8.6 million or 21% of revenue compared to 23% of revenue in Q1 of the prior year. General and administrative expense were relatively flat year-over-year. Adjusted EBITDA was negative $3.5 million in Q1 representing an adjusted EBITDA margin of negative 8% compared to an adjusted EBITDA margin of negative 14% in Q1 of the prior year, also a 600 basis point improvement. We are pleased with this progress and the fact that adjusted EBITDA exceeded the high end of our guidance. Net loss in Q1 was $4.2 million or negative 10% of revenue compared with a net loss of $4.9 million or 14% of revenue in Q1 of the prior year. Net loss per share for Q1 was $0.07 compared to $0.08 per share for Q1 of the prior year. Turning to the balance sheet and cash flow statement. We ended Q1 with $103 million in cash and short-term investments and no debt, maintaining our strong financial position. Operating cash flow in Q1 was negative $11.7 million compared to negative $10.5 million in Q1 of the prior year. Turning to our guidance. For Q2 2026, we're providing total revenue guidance in the range of $41.5 million to $43.5 million and software revenue guidance in the range of $36.1 million to $37.1 million. We expect adjusted EBITDA to be in the range of negative $4.5 million to negative $2.5 million. For fiscal year 2026, we are increasing our total revenue guide to the range of $169.25 million to $178.75 million and software revenue guidance to the range of $146 million to $152.5 million. We expect adjusted EBITDA to be in the range of negative $8 million to negative $4 million. Now I'd like to turn the call over to the operator for Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Scott Berg with Needham. Scott Berg: Probably a question for Eric or Richard, I wanted to start off with I think the A topic in the space in the quarter. There's been a lot of questions we feel it from investors on the ability for customers within the litigation space to use some of the tools that have been released on the frontier large language models out there and you all addressed that a little bit in your prescripted remarks. But I think the question in all of that is does it actually disrupt sales cycles or maybe how your customers are using the product during the quarter as they maybe "tried" or wanted to evaluate those technologies or do you really see it maybe more as a nonevent in your operational activities? Richard Crum: Scott, this is Richard. Thanks for that question and I think it's an important dynamic to unpack a little bit. It's certainly written about a lot that generative AI has the ability to commoditize some of the simple steps that lawyers do, right, whether it's summarizing documents or running a search or drafting. But I think it also in some ways elevates the intelligence layer where DISCO, right, that's where we've invested, that's where we shine because the context that comes from the power of how DISCO's platform powers litigation brings evidence and facts to life for our customers, right? It's so much more powerful than what any large language model or a tool that's simply built on top of that large language model could ever do even with the same data. And so I think what we're seeing is our customers realizing that Ediscovery actually presents a real shift from just a simple tool to perform a job into something that with DISCO can give them a strategic advantage. Eric Friedrichsen: Yes. Scott, I'll add on to that. This is Eric. No, we haven't seen any slowdown at all in sales cycles related to these new tools that have come out. In fact if anything, it's helped us drive AI adoption because lawyers, overall law firms are much more interested to see how AI can impact them. And we've got AI that can drive incredible ROI and help provide better outcomes ultimately for customers' clients. So the short answer is no, we haven't seen any negatives at all. It's been very positive for us. Scott Berg: Excellent. And then from a follow-up perspective, you all commented that the DISCO platform I think saw better interest and adoption in Q1 than maybe what you had initially anticipated there. But in your conversations with customers so far, I guess what have you found in terms of pricing and use relative to, I don't know, a customer that was just using Ediscovery before. If you can help us understand maybe what that opportunity or journey is like to take a customer from what's historically been a single solution on the DISCO platform to the all-in opportunity there. I think that would be really helpful. Eric Friedrichsen: Really demand for AI is what drove far better-than-expected results with the DISCO platform adoption. Certainly, there was some pent-up demand from both our customers and our sales teams. They were excited for the opportunity to have Cecilia AI, Case Builder and all of our core Ediscovery capabilities integrated across all of their matters. So that's the main driver. But also as you remember, our old pricing model was hard to understand and it made some customers feel that we were much more expensive than the competition especially for larger matters when we were actually pretty similar. And so a shift to more of an apples-to-apples pricing model has really increased our consideration for new matters and for new customers and it's made a big impact already. I mean we've seen some very big and complex matters starting the DISCO platform right here out of the bat in Q1. We've seen increased revenue commitments. We've seen longer-term agreements from some of these customers. So DISCO platform is off to a great start and I'm really optimistic about the future. Operator: Our next question comes from David Hynes with Canaccord. David Hynes: Eric, I wanted to ask a big picture kind of industry implications question related to the AI-driven advancements we've seen in legal tech. Do you think it makes it so that the largest firms are able to take on more so that they own kind of more of the space or does it level the playing field so that smaller firms are able to be more competitive? And I guess what are the implications of all this perspective change for DISCO? Eric Friedrichsen: Yes, I'll get started and others can feel free to chime in. But look, I think this is an opportunity for law firms to generate more revenue. The whole legal industry right now is rethinking their business models. And what AI can do is give the opportunity for these law firms to be able to take more business in-house that they were previously sending out to alternative legal service providers. If you think about particularly when it comes to the review process, this low level, low dollar work that was fairly mundane tasks that law firms didn't really feel like fit their model for the most part in how they wanted to provide value to their customers. They were sending it out to these alternative legal service providers doing that human work and part of that was they were missing out on the revenue. The other part of it was they were losing the context of all that great work. And so now the fact that they have the opportunity to leverage much, much better technology with generative AI and products like Auto Review to be able to bring that business back in-house, add extreme value on top of it in terms of legal judgment and generative AI consulting services and keep the context in-house to really help their lawyers go drive case strategy. It's a real game changer. Ultimately, the law firm can generate more revenue. That's good for DISCO. But also the end client can save money and get better outcomes. So ultimately, I think this is a big shift and a big opportunity for each of us. David Hynes: Yes. Makes sense. Aaron, a follow-up for you. So the $100,000-plus net add number was particularly strong this quarter, but software revenue has held more or less flat the last few quarters. Can you just help me understand that dynamic? Are the customer adds a leading indicator and software revenue should follow or is the uptick in folks moving over that spend threshold just services driven? Like how should we think about this? Aaron Barfoot: I think when you look at the quarter and you look at the movement of the $100,000 customers, we're certainly happy that sequentially it grew 5% quarter-over-quarter and I would definitely characterize that as a leading indicator. And the reason for that is obviously the matter comes in, it ingests and then it expands and moves on to the platform. So that's the dynamic that happens and that's why it's a leading indicator. I'd also add though with that when you think about it as a leading indicator, there's going to be -- there's movements both ways, right? You have matters coming in, you have matters going off. And so you're always in a usage model looking at the triangulation of both. And so it is obviously having a strong quarter usually is a good leading indicator of those matters coming in, but it also depends on what's coming out and that's what goes into our models. I think when you look at the quarter, relatively speaking, one of the other elements you asked about kind of with the growth is, and I touched on this in my prepared remarks, with Auto Review. We're super happy with the traction we've seen. It's actually brought us new customers' matters. It's brought us matters from existing customers. And in bringing those in, what happens is those customers come in at varying states of AI readiness. And so as it comes in through the pipeline, we've seen a handful of those go and convert and become Managed Reviews. And so that helps drive -- so Auto Review actually helps drive part of the fee on the services line for the quarter, which is why we're very proud to come at the upper end of the range there. At the same time, we're happy that some of those came in, became Managed Reviews; but subsequently, those customers have come back to us with other matters and chosen Auto Review. So I think what you're watching, and Eric kind of alluded to this too, is law firms are becoming more and more comfortable with AI and how it plays and so we're watching that closely. Eric Friedrichsen: Yes. I think it also just speaks to in every case, customer value proposition, right? So we're with our customers in every case. And if they choose at a certain point because we're not quite ready to use Auto Review, we can leverage our AI managed services and our Managed Review to really help them in the short term. So overall, I'm incredibly pleased about the revenue, 14% revenue growth for the business this quarter. David Hynes: Yes, yes. And just so we're all perfectly clear. Auto Review falls into the software line and Managed services obviously falls in the services line. Is that correct? Richard Crum: Correct. And Auto Review actually has 2 components today. It actually has -- part of it sits in software and part of it sits in services. And the reason for that is that actually goes to some of the familiarization part of it as well. What happens is today, a customer, we might actually help engineer the prompts for them. So that's still manual work that we do as we set them up. But I think as customers become more familiar over time, that prompting will not be required and so it will become fully -- it will be truly software revenue. But today, it sits partially in software and partially in services. Operator: There are no further questions at this time. I will now turn the call back to Eric Friedrichsen, CEO, for closing remarks. Eric Friedrichsen: Yes. Thanks, everyone. Thanks for the questions. Q1 was a strong quarter for DISCO. The demand for our AI capabilities drove better-than-expected results for the launch of the DISCO platform. We're already seeing benefits from our new pricing model, which was designed to increase consideration, to improve win rates, to reduce discounts, to improve stickiness and ultimately to provide more value to our customers. I've said before and I'll say it again that I believe that DISCO can be a 20%-plus grower over time. In the first quarter, we made continued progress on the key drivers that are going to make that happen; things like increasing our share of wallet with our large customers, acquiring larger matters and accelerating AI adoption. So all 3 of those demonstrate that our strategy is working. And along with our product road map and where we're going next, DISCO is really poised to be the leader in AI for litigators. We've increasingly transformed high stake litigation through our purpose-built legal workflows. We are very much focused on litigation not general legal. And when you combine our strategy with our path to reach adjusted EBITDA profitability in Q4 of this year, we believe DISCO is on an excellent trajectory today and we're positioned for the future as our solutions become increasingly the standard to help litigators win. So thanks for your time today. We'll see you next quarter. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the TG Therapeutics First Quarter Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Jenna Bosco, Chief Communications Officer. Thank you. You may begin. Jenna Bosco: Thank you. Welcome, everyone, and thank you for joining us this morning. I'm Jenna Bosco, and with me to discuss TG Therapeutics' First Quarter 2026 Financial results are Michael Weiss, our Chairman and Chief Executive Officer; Adam Waldman, our Chief Commercial Officer; and Sean Power, our Chief Financial Officer. Following our safe harbor statement, Mike will begin with an overview of our recent corporate developments. Adam will provide an update on our commercial efforts, and Sean will review our financial results before we open the call for Q&A. Before we begin, I'd like to remind everyone that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include expectations regarding our future operating and financial performance, including sales trends, revenue guidance, projected milestones, development plans and outlook for our marketed products and our pipeline products. Please note that these statements are subject to risks and uncertainties that can cause our actual results to differ materially from those indicated. These risks are detailed in our SEC filings. Additionally, any forward-looking statements made today reflect our views only as of this date, and we disclaim any obligation to update or revise them. As a reminder, this conference call is being recorded and will be available for replay for the next 30 days on our website at www.tgtherapeutics.com. With that, I'll now turn the call over to Mike Weiss, our CEO. Michael Weiss: Thank you, Jenna, and good morning, everyone. We appreciate you joining us. The first quarter of 2026 was, in my view, exceptional, not because of any single milestone, but because of the consistency and durability we're now seeing across the business. Let me start with the commercial side. At a high level, Q1 was a record-setting quarter across nearly every metric we track. The momentum puts us in a very strong position as we move through the rest of the year. From a revenue standpoint, we delivered approximately $195 million in U.S. BRIUMVI net product revenue in quarter 1, ahead of our guidance of $185 million to $190 million. On a global basis, revenue exceeded $200 million for the quarter, marking another important milestone. And as we move toward $1 billion annualized run rate expected before year-end, we continue to believe we are still early in the BRIUMVI adoption curve, making peak revenue from the IV franchise alone still years ahead of us and multiples of where we are today. Physicians are increasingly recognizing the value of BRIUMVI, not just on efficacy, but on the overall treatment experience, thus translating into durable, repeatable growth. And importantly, the data continues to support that differentiation. Earlier this year, we were pleased to see our 5-year follow-up data from the ULTIMATE I and II open-label extension study published in JAMA Neurology, reinforcing sustained efficacy of BRIUMVI along with a consistent safety and tolerability profile over time. At AAN earlier this month, we continue to build on that story with real-world data demonstrating sustained and rapid B-cell depletion, low annualized relapse rates maintained over time and continued evidence of a favorable infusion experience and tolerability profile. And for the first time, we presented prospective data from patients who switched from a prior anti-CD20 therapy to BRIUMVI, which showed improvement in patient-reported wearing off symptoms, sometimes referred to as the clot gap after switching to BRIUMVI. Given that meaningful number of patients report this wearing off effect, the potential to address it represents a clear and differentiated use case. Turning to the pipeline. This is where we continue to invest in both strengthen and extend the franchise. First, our Phase III ENHANCE study, evaluating initiation of BRIUMVI therapy with a single 600-milligram IV infusion as compared to the currently approved schedule of 600 milligrams divided into two infusions, on day 1 and on day 15. I'm pleased to report that based on current time lines, we expect top line data from this Phase III study in the coming weeks. Assuming a positive outcome and regulatory approval, we believe this positions us to launch the consolidated dosing schedule next year. This is about simplicity, fewer infusions, same efficacy. And feedback on eliminating the day 15 infusion continues to be very positive from both patients and providers. Now turning to our subcutaneous program. We are developing a self-administered at-home version of BRIUMVI, expected to be delivered via an auto-injector and a pen-like device. This program is designed to expand optionality and importantly, expand the number of patients we can reach. The program began with a Phase I dose escalation bioavailability study, evaluating subcu dosing relative to our approved IV schedule. Based on encouraging preliminary results, we advanced directly into our Phase III program. In Phase III, we are evaluating 2 subcu dosing schedules, every 2 months and quarterly dosing with the primary endpoint being non-inferiority to IV based on drug exposure over 24 weeks. We are pleased to report in April that the study is now fully enrolled, and we expect top line data around year-end or early next year, putting us on track for a potential 2028 launch of subcu BRIUMVI, assuming a positive outcome and regulatory approval. And I know many of you have been waiting for the Phase I bioavailability data. We now expect to share those results in the coming weeks. Strategically, it's important to understand what subcu represents. This is not about incremental growth, and it's not about building a new infrastructure or entering a new indication. This is about expanding our reach within the same disease with largely the same physicians and commercial footprint, creating significant operating leverage. By enabling us to compete across both infusion and self-administered settings, we move from participating in a portion of the market to potentially participating across the entire anti-CD20 landscape. And as a result, we believe this has the potential to nearly double our addressable market with relatively limited incremental operating expense. Beyond relapsing MS, we are expanding the reach of BRIUMVI in additional autoimmune indications. We view BRIUMVI as a pipeline within a product with a long runway supported by patent protection into the 2040s. Myasthenia Gravis, we've completed our Phase I work and expect to initiate a Phase II potentially registration-directed study this quarter. We're also initiating an exploratory study in treatment-resistant schizophrenia. There is emerging evidence suggesting an autoimmune component in a subset of these patients. It's early, but have validated the implications could be significant. And finally, azer-cel, our allogeneic anti-CD19 CAR-T continues to advance in progressive MS. Importantly, trial sites are identifying more patients than we currently have slots available and additional sites continue to express interest in participating. This further highlights the unmet medical need in progressive MS. We look forward to sharing updates from this study later this year. Finally, I'd like to make a few remarks on our capital allocation. During the quarter, we expanded our relationship with Blue Owl, enhancing our financial flexibility. This gives us the ability to continue repurchasing shares and pursue strategic business development opportunities. We've been clear. We view our stock as undervalued, and we're acting on that. This quarter alone, we repurchased $100 million of our stock. At the same time, our approach to capital allocation is straightforward. We will continue to deploy capital where we see the best risk-adjusted long-term return, whether that's in the business, repurchasing shares or pursuing external opportunities or investments. With that, let me turn the call over to Adam Waldman, our Chief Commercialization Officer, for more detailed commercial update. Adam, please go ahead. Adam Waldman: Thanks, Mike, and good morning, everyone. I'll pick up on a few themes that Mike just laid out, particularly around consistency, durability and execution because that's exactly what we're seeing on the commercial side of the business. We delivered approximately $195 million in U.S. net revenue in Q1, exceeding our guidance range and growing 63% year-over-year, our 12th consecutive quarter of sequential growth since launch. We saw record new patient enrollments in the quarter, and March was our highest month ever. As a result of the strong first quarter, we're raising full year U.S. revenue guidance to $885 million to $900 million, and we're providing Q2 guidance targeting approximately $220 million in U.S. BRIUMVI net revenue. And importantly, we've now reached a meaningful milestone. More than 25,000 patients have been prescribed BRIUMVI globally. That's important because at this point, we're no longer talking about early adoption. We're talking about a growing installed base of patients being treated in the real world. At its core, this is a recurring treatment model. Patients who start BRIUMVI are typically treated every 6 months, and we continue to see strong persistence over time, stronger than what we originally modeled. That means our revenue base doesn't reset each year, it builds. Each cohort of new patients adds to an expanding base of recurring demand. As that base grows, we're developing greater visibility into underlying demand and growth becomes more predictable over time. The outperformance we saw in Q1 and the raise in guidance reflects both that growing base, including better-than-expected persistence and stronger-than-expected new patient demand. Importantly, we guide conservatively on that new patient growth layer, and we raise when the data supports it. That combination is what's driving the business today. And as we said before, the more patients that go on BRIUMVI, the more patients will go on BRIUMVI, and we're seeing that dynamic take hold. Let me be direct about the competitive environment. We compete against established products backed by large organizations, and we don't underestimate that. At the same time, in Q1, we continued to grow sequentially while outpacing both competitors and the broader MS market. We've been growing IV share consistently, and we're now the #1 CD20 by dynamic share in private practices with infusion capabilities. Why is that happening? Because we're delivering on the factors that matter most to physicians, a compelling clinical profile, operational simplicity and a consistent treatment experience. The 1-hour infusion, twice yearly dosing and long-term data all contribute to that. And when physicians put a patient on BRIUMVI and that patient has a positive outcome, that physician becomes a repeat prescriber. Since November, we've seen consistent increases in total monthly prescribers with March setting a new high. And most importantly, we're increasing uptake with treatment-naive patients, patients starting their CD20 journey on BRIUMVI, not switching to it. The share of naive patients in our mix continues to rise, which we view as the strongest leading indicator of long-term market position. The momentum we're seeing comes down to execution and doing a few things consistently well. We've reduced friction across the treatment journey, improving time to start and conversion rates. We've expanded our reach and deepened our presence across accounts. And our DTC efforts are helping to increase patient awareness with more patients entering the office already informed about BRIUMVI. This is exactly what we set out to build, a commercial engine that can deliver consistent execution, support long-term growth and scale over time. And importantly, we're doing this while still early in the life cycle. As Mike outlined, we have two programs that help explain why we believe the long-term opportunity is meaningfully larger than what is reflected today. First, ENHANCE. This is about simplifying the initiation process by eliminating the day 15 infusion. If successful, we would expect it to enhance operational efficiency and make it easier for physicians and infusion centers to get patients started on BRIUMVI. We view this as an incremental improvement to an already strong IV offering, one that can further support adoption. Second, our subcutaneous patient administered formulation. This is a much more significant strategic opportunity. Today, the subcutaneous patient-administered segment represents roughly 35% of the anti-CD20 market, a segment we are not participating in today. So this is not about taking share within our existing IV business. This is about opening up a new segment of the market. If successful, subcu BRIUMVI would allow us to reach patients who prefer or require at-home self-administration, compete directly in a large and growing segment of the market and meaningfully expand the overall addressable opportunity. And when you look at this holistically, IV plus subcu is not just incremental expansion. It has the potential to redefine the scale of the BRIUMVI franchise over time. Importantly, the current business is already performing at a high level. We don't need these programs to deliver on our near-term expectations. But over time, they have the potential to meaningfully expand both the reach and long-term value of BRIUMVI. So to summarize, we've outperformed expectations in Q1, driven by strong underlying demand. We're seeing continued expansion in both patients and prescribers. Our execution is translating into durable, increasingly predictable growth, and we're significantly raising our 2026 outlook. We now have over 25,000 patients globally, and that base continues to grow. We're approaching a $1 billion annualized run rate, supported by a model that is becoming more scalable over time. And with IV and subcu, we're building a franchise that has the potential to compete across the full spectrum of the anti-CD20 market. When you consider the size of the IV market, the portion we'll be able to access with subcutaneous and the trajectory we're seeing today, we believe the long-term opportunity for BRIUMVI is well above where consensus peak estimate sales sit today and ultimately more consistent with the leading assets in the category. Let me now turn the call over to Sean Power, our CFO, for a detailed financial update. Sean Power: Thanks, Adam. A few things to highlight on the financial side. As Mike and Adam highlighted, we came in ahead of expectations. U.S. net product revenue in Q1 was approximately $195 million, up 63% versus the same quarter last year. Total net product revenue was $201 million when including product sales to Neuroxpharm, our ex-U.S. partner. Add in $3.6 million of license, royalty and other revenue and total revenue for the quarter was $205 million. On the expense side, OpEx, which we define as R&D and SG&A, excluding stock-based comp, was approximately $117 million for the quarter. That year-over-year increase reflects continued investment across the business. On the R&D side, a milestone expense under our Precision Biosciences agreement and higher clinical costs, partially offset by lower subcutaneous manufacturing and development spend. And on the SG&A side, expanded marketing and media investment supporting BRIUMVI's continued growth. Even with that investment, revenue growth continues to outpace expense growth, and that dynamic drove operating income of $34.8 million compared to $8.6 million in Q1 of last year. One item worth flagging below the operating line was a onetime $9.2 million charge related to the refinancing of our Blue Owl facility, of which approximately 50% was noncash. All that nets to net income for the quarter of $19.8 million or $0.12 per diluted share compared to $5.1 million or $0.03 per diluted share a year ago. On the balance sheet, we ended the quarter with approximately $573 million in cash, cash equivalents and investment securities, up from roughly $200 million at year-end, reflecting primarily the proceeds from the expanded Blue Owl facility. From a capital allocation standpoint, we repurchased over 3 million shares during the quarter at an average price of roughly $30. Since launching the program, we bought back approximately 6.8 million shares at an average price of approximately $29, nearly 5% of shares outstanding, leaving us with 153 million shares outstanding today. Turning to guidance. We're raising our full year total global revenue guidance to approximately $925 million. On expenses, we continue to expect full year operating costs of approximately $350 million, excluding stock-based comp, plus approximately $100 million for subcutaneous manufacturing and secondary manufacturer start-up activities. As we've noted previously, those manufacturing costs are expensed through R&D as incurred. So if the programs are successful, the related inventory would be sold in future periods with little to no associated cost of goods. All in all, it was a strong quarter. Revenue ahead of expectations, operating income up meaningfully year-over-year and a balance sheet that gives us real flexibility going forward. With that, I'll turn the call back over to the conference operator to begin the Q&A. Operator: [Operator Instructions] First question comes from Corinne Johnson with Goldman Sachs. Corinne Jenkins: Maybe could you just speak to the market opportunity for the subcutaneous product? If you're able to bring a 12-week versus 8-week formulation to the market, do you see that as going to meaningfully different in terms of your ability to gain share in that currently untapped population? Michael Weiss: Sure. Adam, do you want to tackle that one? Adam Waldman: Sure. Yes. Thanks for the question, Corinne. As we mentioned, that segment represents about 35% of the CD20 market today. One, we do not compete in. And our perspective is this is expanding into a new patient population rather than shifting patients within our existing base. We think of these as largely distinct segments with different patients and physician preferences. And importantly, I think, as Mike mentioned, puts us in position to compete across both the IV and subcu space across the entire CD20 landscape. We think that Q3 -- to your question about dosing, we think Q3 obviously would be better than incrementally better. I think both are going to be great. But I think we subscribe to less is more. But I think both would be a very strong profile, and we feel good about the opportunity for both whichever way it works out. Operator: Next question, Brian Cheng with JPMorgan. Lut Ming Cheng: Just first, can you talk a little bit about the cadence of data from the ENHANCE trial and the Phase I bioavailability data? In your prepared remarks, you said both data will be coming in the coming weeks. So which one should we expect first? Are both data coming at the same time? And I have a follow-up. Michael Weiss: Yes. In terms of timing, we don't have the exact timing. We just know that things are coming in soon. So we just basically thought we'd let people know that, that data was coming. Lut Ming Cheng: Okay. Earlier during you talked about the dynamics of persistence, and you talked about how persistence is stronger than you have anticipated. Can you provide a little bit more color to that? And how much does the DTC campaign so far in driving patients coming to physician practice and asking for BRIUMVI? Michael Weiss: Thanks for the question, Brian. Adam, do you want to tackle this one? Adam Waldman: Sure. I mean on the persistent side, obviously, we're encouraged, given my remarks, we're encouraged by what we're seeing on the persistence, particularly as patients move into the second year of treatment where trends have been better than expected. And we think these patterns that we're seeing are supportive of the durability of the patient experience, which obviously reflects the tolerability and efficacy of BRIUMVI. That said, still early, and we will continue to monitor it, but we're growing in confidence as we continue to build as the data matures. And it comes down to sustainability of efficacy and tolerability. And then generally, when patients do well, they stay on therapy and that drives persistence. As far as DTC, we're encouraged. We've been putting effort into DTC over the last year or so. We've been encouraged with the markers and indicators of success. We'll continue to invest in the space. We think this is a patient driven. They do have shared decision-making in this market. And so we're going to continue to focus on it, and we are encouraged by what we're seeing so far. Operator: Next question, Tara Bancroft with TD Cowen. Gregory Wiessner: This is Greg on for Tara. So you reiterated top line Phase III data for the subcu BRIUMVI around year-end 2026 or early next year. Can you provide any additional color on the cadence from data readout to filing? And how quickly the subcu formulation become commercially available, assuming a favorable outcome? Michael Weiss: Sure. So our target is to have the subcu available sometime in 2028. In terms of the cadence of filing after the completion of that study, our goal is to get that filed as soon as we can. We've got a few other studies we'll need to do in the interim to get the filing package complete, including the bridge to the auto-injector. But yes, I mean, for '28, as soon as early as possible, '27, we're going to get that filing done. That's the goal for '28 approval. Again, it's -- the one thing we can't control is the -- about a 12-month review process. So that's the timing of that. Was there a last part of that question, I'm sorry. No, that covers my question. Operator: Next question, Roger Song with Jefferies. Cha Cha Yang: This is Cha Cha Yang on for Roger. So I was wondering if you could speak to what you think the impact of remibrutinib's potential approval in MS would be on BRIUMVI, but also on the CD20 class as a whole? Michael Weiss: Yes. Thanks for the question. So we continue to await product profiles for all the BTKs as they've come through the clinical trials. Each one in turn has had some difficulties, I would say, in producing data that is convincing of a clinical benefit over risk. We'll see how fenebrutinib does at the agency and remibrutinib is yet to come. So I think we just have to wait. I mean, overall, we've maintained our position that there's certainly a home for these drugs in certain patient populations, particularly patients who are potentially secondary -- nonactive secondary progressive where we're not labeled. So I think there's room for -- remember, there's still a big oral market. I think there's room for a BTK with the right profile to participate in that oral marketplace. But we don't think it's a drug class that will have a material impact on the CD20 class. Operator: Next question, Michael DiFiore with Evercore ISI. Michael DiFiore: Just one for me. Just given Roche's potential twice yearly home OCREVUS device and KESIMPTA's longer interval work, what dosing profile does subcu guy need to have in order to be meaningfully differentiated? Is every 2-month dosing enough? Or is quarterly dosing really the commercial bar given where we're headed? Michael Weiss: Sure. Thanks for the question, Michael. Look, as Adam mentioned, it's a competitive market. Everyone is trying to do their best to improve their product profile to meet the needs and challenges that these individuals with MS face, and we're certainly doing our part. Obviously, we've said before, we feel that -- and Adam said it earlier, the market is large. It can probably get larger on the subcu side. We'll continue to obviously have a very big presence in the IV sector, whereas I don't think the other -- I don't think OCREVUS' long-term plan is to participate much longer in the IV marketplace. And as you mentioned, they're working on their own at-home on-body device. So like I said, from the standpoint of the patient, this is all great. And as Adam mentioned earlier, every two months or every three months will be a really strong offering. Again, it's BRIUMVI still loaded into the auto-injector, which means that all the differentiation that we have on the IV side, on the molecule itself will continue to exist as we go into the marketing effort on the subcu side. So convenience is one thing. Obviously, as Adam said, quarterly is going to be incrementally better than every other month. We feel obviously very confident in our ability to deliver a quarterly product, but I think we'll let the data speak for itself as it solely comes out. But yes, I think we're going to do great. I mean we've done quite well in the IV space. Again, BRIUMVI is a molecule and the convenience factors all come together. So I think it's a package of competitive products and ours is going to be, I think, highly competitive in this marketplace. And like I said, we think we're going to do really, really well in this space. Operator: Next question, Emily Bodnar with H.C. Wainwright. Emily Bodnar: Maybe one on the updated guidance. Obviously, quite an uptick from the fourth quarter guidance. So maybe just talk a bit more on your confidence for why you think the growth you saw in Q1 might be sustained for the rest of the year? And also on operating expenses, it looks like that was up quite a bit in the first quarter. So maybe just touch on expectations for the rest of the year. Michael Weiss: Sure. Adam, do you want to start on the updated guidance? Adam Waldman: Yes, sure. Thanks for the question, Emily. Q1 performance, as I mentioned, was driven by strength across all key drivers, including record number of new patient starts and better-than-expected persistence. I think we're seeing that momentum continue into Q2. And as I outlined in my prepared remarks, the model really has two components to it. It's a growing recurring base with continued new patient demand. And so the strength of Q1 reflects both of these working together and gives us confidence in the updated full year guidance. Michael Weiss: Sean, do you want to talk about the OpEx? Sean Power: Sure. Thanks, Emily. Yes, on the OpEx front, as we said in our prepared remarks, we expect full year OpEx, again, which we define as R&D and SG&A, excluding stock-based comp, to be roughly $350 million, plus an additional $100 million for subcutaneous manufacturing work and secondary manufacturer preparation. So yes, Q1 was up a little bit higher than perhaps that range would guide, but we are still reiterating that guidance for the full year. Operator: Next question, Prakhar Agrawal with Cantor Fitzgerald. Jennifer Kim: This is Jennifer on behalf of Cantor. Congrats on the quarter. I have two quick questions. One on the capital allocation and share buyback versus meaningful BD. Since you have quite a lot of cash. What's the plan on that? And then quickly on the gross to net discount for Q1, how do you expect that for the rest of the year? Michael Weiss: Sure. Adam, why don't you or Sean handle the gross to net, and I'll talk about the use of cash. Adam Waldman: Sure. Yes. As I mentioned in the Q4 call, we did have gross to net dynamics in Q1, but these were largely in line with our expectations. As I've mentioned before, gross to net can vary from quarter-to-quarter. But for the year, we expect it to average out around 65%. Michael Weiss: And then in terms of use of cash and capital allocation and share buybacks versus BD. Look, we continue to be highly selective in our BD efforts. We've seen some interesting things. We like some stuff. We're disciplined about what we're willing to pay for programs and assets. And of course, we're always happy to buy our shares if others are not willing to value them at fair value. So we'll continue to buy back shares. I think that's -- until we see some significant price reassessment, we'll continue to be buying shares back with our cash. And like I said, yes, we're out there looking at new opportunities quite aggressively. And like I said, we've been disciplined about executing and certainly disciplined about price. Operator: Next question, William Wood with B. Riley Securities. William Wood: Just thinking about in terms of sort of apart from BRIUMVI, you've got the earlier stage Azer-cel running in your open-label in PPMS. I'm just curious with that trial readout coming up later this year, if there's anything that you could sort of provide at a top level on what you might be seeing, what gives you confidence with advancing that? And then any -- yes, I'll stop there. Michael Weiss: Appreciate it. Yes, for Azer-cel, it's still early. We are excited to be moving up in the dose escalation, but it's a challenging study logistically to get to a point where we can open up enrollment. So we'll continue to push forward. I think we're just about on the pen ultimate dose. I think we'll be able to start that in the next 1 to 2 weeks. So we're getting close. We're getting warm, but there's a significant delay between each individual patient while we strive to get to the dose that we're targeting. Safety, of course, is going to be the most important piece. Secondarily, of course, there's going to be some biomarkers of activity, whether we're deleting B cells, oligoclonal bands in the CNS. So we are hopeful to be able to present some of that data. But again, it's still early, but we're enthusiastic about it. We think the -- again, the rationale for these drugs has not subsided, and we do think that there's a real opportunity, but it's still early. Operator: I would like to turn the floor over to Michael Weiss for closing remarks. Michael Weiss: Great. Thank you, operator, and thanks again, everyone, for joining us this morning. Let me just briefly recap. We outperformed expectations commercially with strong revenue and record patient starts. We advanced two key life cycle programs, both with the near-term catalysts. We're expanding development efforts beyond MS into new indications, and we are allocating capital with discipline and intent. We've said this before, and it's worth repeating, we do not see BRIUMVI simply as a successful product. We see it as a multibillion-dollar franchise with a long runway, supported by patent protection into the 2040s. And importantly, even as we approach $1 billion run rate, we believe we're still early in realizing that full potential. We remain focused on executing the business and maximizing long-term value. I want to thank our shareholders for their continued support, our TG team for their commitment to our mission and the patients we serve and of course, to the patients and health care providers for their trust in us. We take that responsibility very seriously. Thank you all again for joining us, and have a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Greetings, and welcome to Azenta's Q2 2026 Fiscal Financial Results. [Operator Instructions] As a reminder, this conference is being recorded, Wednesday, May 6, 2026. I will now turn the conference over to Yvonne Perron, Vice President, FP&A and Investor Relations. Please go ahead. Yvonne Perron: Thank you, operator, and good morning to everyone on the line today. We would like to welcome you to our earnings conference call for the second quarter of fiscal year 2026. Our second quarter earnings press release was issued yesterday after market and is available on our Investor Relations website located at investors.azenta.com in addition to the supplementary information and PowerPoint slides that will be used during the prepared remarks today. Please note that, effective the first fiscal quarter of 2025, the results of B Medical Systems are treated as discontinued operations. I would like to remind everyone that during the course of the call, we will be making a number of forward-looking statements within the meaning of the Private Litigation Securities Act of 1995. There are many factors that may cause actual financial results or other events to differ from those identified in such forward-looking statements. I would refer you to the section of our earnings release titled Safe Harbor Statement, the safe harbor slide on the aforementioned PowerPoint presentation on our website and our various filings with the SEC, including our annual reports on Form 10-K and our quarterly reports on Form 10-Q. We make no obligation to update these statements, should future financial data or events occur that differ from the forward-looking statements presented today. We may refer to a number of non-GAAP financial measures, which are used in addition to, and in conjunction with, results presented in accordance with GAAP. We believe the non-GAAP measures provide an additional way of viewing aspects of our operations and performance, that when considered with GAAP financial results and the reconciliation of GAAP measures, they provide an even more complete understanding of the Azenta business. Non-GAAP measures should not be relied upon to the exclusion of the GAAP measures themselves. On the call with me today is our President and Chief Executive Officer, John Marotta; and our Executive Vice President and Chief Financial Officer, Lawrence Lin. We will open the call with remarks from John, then Lawrence will provide a detailed look into our financial results and our outlook for fiscal year 2026. We will then take your questions at the end of the prepared remarks. With that, I would like to turn the call over to our CEO, John Marotta. John P. Marotta: Good morning, everyone, and thank you for joining us today for our second quarter earnings call. Candidly, we are not satisfied with our second quarter results. Overall, second quarter organic revenue was down 3% and adjusted EBITDA margin of 5.4% did not meet our expectations. While our teams remain disciplined and are delivering progress in key areas, there have been execution-related shortfalls within our control, and we are addressing them with urgency. At the same time, we are operating in a more cautious prolonged demand environment, particularly in North America, where customer spending and research funding remain constrained. Within that context, we saw continued growth in Multiomics in Europe and in Asia. In addition, sample repository solutions, product services and consumables and instruments delivered sustained growth, reflecting the strength of our recurring revenue offerings. This performance reinforces the durability of these parts of our portfolio and their role in supporting more consistent results over time. Turning to specific drivers of the second quarter performance. In Multiomics, while both Europe and Asia Pacific volumes remained strong, performance was driven by softer demand across key end markets in North America and competitive pressure, resulting in lower volumes and reduced fixed cost absorption. In Sample Management Solutions, we remain pleased with sample repository solutions performance that remains strong, delivering solid growth and reinforcing the value of our recurring revenue service-based model as did product services and consumables and instruments. This was offset at the segment level by continued softness in automated and cryogenic store systems that reflected a more pronounced step-down in capital-related demand. With respect to the automated stores quality issues, there are 3 remaining stores where remediation is progressing, but is taking longer than anticipated. The scope of the quality issues has not changed, and now we expect the remaining work to be completed by the end of the third quarter. As a result of these pressures, we have revised our full year fiscal 2026 outlook and have taken a cautious approach to assessing our pipeline as order conversion remains less predictable. The life sciences funding environment remains measured with ongoing variability in academic and government-related funding flows, including NIH-related activity as well as more selective capital deployment across biotech and pharma customers. We now expect organic revenue to range from down 2% to up 1% year-over-year, reflecting a prolonged period of constrained capital deployment for larger automated stores and cryo investments, as well as continued demand softness in Multiomics in North America. Adjusted EBITDA is expected to range from down approximately 125 basis points to flat year-over-year, reflecting the impact of lower volumes. Importantly, we continue to invest in targeted growth and productivity initiatives as part of our broader transformation agenda. In a lower volume demand environment like this, operational inefficiencies and execution gaps become more visible and have a greater impact on results. We are addressing these gaps to ensure that the business is structurally efficient, scalable and positioned to deliver higher and more consistent performance over time with greater precision, stronger discipline and clear accountability. While these challenges impact our near-term results, they reinforce the need for the work already underway to transform Azenta. Since I joined the company, we've undertaken decisive steps to structurally reposition the business for improved performance. These actions include leadership changes, organizational redesign, deployment of the Azenta Business System to strengthen operational rigor and a more disciplined long-term assessment of portfolio performance and growth investments. Operational excellence remains central to how we run the business, and we're seeing tangible results from the Azenta Business System. In our consumables and instruments business, on-time delivery has improved significantly from approximately 15% to 70%, reflecting stronger execution and greater reliability for our customers. In Multiomics, we're also driving meaningful improvements in turnaround times. With our Lightning RNA-Seq offering, we've reduced turnaround time from roughly 20 days to 5 days, which is the fastest turnaround time currently available in the market and a meaningful differentiator for our customers that just launched. These gains are being driven through Kaizen in structured problem solving as well as daily management systems. ABS positions us to deliver more consistent, high-quality performance. In 2025, our focus was on reshaping Sample Management Solutions. Today, SMS has a more stable operating base and a stronger foundation for execution. In 2026, we've shifted our focus to Multiomics, where we are actively executing a comprehensive transformation of the business in addition to addressing the demand softness through targeted commercial actions. As this work has progressed, we have gained more clarity as to what is required to strengthen execution and drive sustainable performance. We are excited that Trey Martin has joined Azenta as the President of the Multiomics business to lead this transformation, advancing our gene synthesis regionalization and technology strategy, strengthening commercial discipline and driving structural improvements. Trey brings over 30 years of experience leading and scaling life sciences businesses, most recently as CEO and Board member of Maravai LifeSciences, with prior senior leadership roles at Danaher, including President of Integrated DNA Technologies, where he drove global expansion, strong commercial execution and sustained double-digit growth. Trey is exceptionally well positioned to lead the next phase of our Multiomics strategy. I'm confident in his ability to lead us forward. Trey and his team are working to accelerate progress across key initiatives. This includes reviewing our site and laboratory footprint to optimize the hub-and-spoke model and rightsize the cost structure, strengthening commercial excellence with a greater focus on high-value workflows, improving pipeline conversion and disciplined execution of commercial opportunities, driving operational productivity by accelerating ABS deployment and implementing the technology and infrastructure to strengthen our competitive positioning. This is not an incremental change, but rather a structural overhaul of the Multiomics platform. While we navigate this environment, we continue to deliver strong free cash flow and maintain a solid balance sheet with significant financial flexibility to support our strategy. Our capital allocation framework remains disciplined and unchanged. Our priorities are investing in productivity and gross margin improvement, driving organic growth through R&D and go-to-market capabilities, pursuing disciplined and strategic M&A and returning capital to shareholders when appropriate. In March, we announced the acquisition of the UK Biocentre Limited, and the integration is progressing as planned. The acquisition strengthens our ability to deliver end-to-end life cycle solutions in the U.K., a leading life sciences research epicenter, while expanding our presence in Europe by establishing the UK Biocentre as a European-wide operational hub to support pharmaceutical, biotechnology, academic and public health customers across the region. The acquisition is aligned with our biorepository expansion strategy and further strengthens our leadership in sample-based and biorepository solutions. Integration priorities include hiring key commercial resources, accreditation and operational readiness. This acquisition demonstrates our commitment to investing behind our highest conviction long-range plan initiatives. We also recently provided an update on the previously announced B Medical transaction. As of March 27, 2026, we were informed by the counterparty that it had not yet secured the required financing to complete the transaction by the expected closing date of March 31. The agreement remains in place and continues to be subject to customary closing conditions, including financing. We are actively evaluating potential paths forward while the counterparty continues its financing process. We will provide updates as appropriate. As previously announced, we continue to evaluate the timing of execution under our $250 million share repurchase authorization, reflecting our commitment to disciplined capital deployment and shareholder value creation. To close, given the guidance reset this year, we have decided to push out the long-range plan we outlined at our Investor Day in December of 2025 by 1 year from 2028 to 2029. The same financial targets remain, and we believe that the market opportunities, strategic priorities and value creation framework are strong. I want to emphasize our confidence in the long-range plan anchored in the strength of our portfolio and our ability to expand our recurring revenue base that supports more consistent and durable performance. Across the organization, we are operating with greater focus, stronger discipline and higher accountability and clear execution priorities. With that, I'll turn the call over to Lawrence to walk through the financials. Lawrence Lin: Thank you, John, and good morning. I'll begin with our Q2 2026 fiscal results and the key financial drivers, then cover segment performance, our balance sheet and updated fiscal 2026 guidance. Today's results exclude B Medical Systems, which continue to be classified as discontinued operations unless otherwise noted. During the quarter, we recorded an additional $6 million noncash loss related to assets held for sale. As communicated during the quarter, the transaction has not yet closed and remain subject to financing and customary closing conditions. In the quarter, we recorded a goodwill impairment charge. As part of our annual goodwill impairment assessment, we recorded noncash impairment charges of $112.4 million for Multiomics and $36.6 million for Sample Management Solutions, both reflected in GAAP operating expenses. This was driven by a combination of factors, including the sustained decline in our stock price, the decrease in our near-term outlook and a more uncertain macroeconomic and geopolitical environment, which together reduced the estimated fair value of the units below its carrying value. To supplement my remarks today, I will refer to the slide deck available on our website. Turning to Slide 3. Total reported revenue was $145 million, up 1%, including $1 million from UKBC. Excluding UKBC and the impact of foreign exchange, revenue was down 3% organically. Second quarter performance came in below our expectations and reflect continued divergence across our segments with softness in Multiomics driven by lower volumes in North America and a decline in Sample Management Solutions, driven primarily by lower volumes in capital-intensive automated and cryogenic store systems. This was partially offset by strong growth in sample repository solutions, reinforcing the strength of our recurring revenue offerings. Non-GAAP EPS for the second quarter was a loss of $0.04. Adjusted EBITDA margin was 5.4%, down 320 basis points year-over-year, primarily reflecting lower volumes across the portfolio and reduced fixed cost absorption leading to gross margin pressures as well as store quality rework costs and an increase in inventory reserves. Free cash flow, including B Medical, was $5 million in the quarter, driven by improvements in working capital and higher deferred revenue. We ended the quarter with $565 million in cash, cash equivalents and marketable securities. This provides continued financial flexibility to invest in the business, pursue strategic opportunities and return capital to shareholders over time. Now let's turn to Slide 4 to take a deeper look at our results in the quarter. Total revenue was $145 million, up 1% reported, and down 3% organically, with a 3% impact from foreign exchange and 1% from the UKBC acquisition. Multiomics performance reflected lower volumes driven by softer demand and increased competitive intensity in North America. Within Sample Management Solutions, results were supported by continued strength in biorepositories but was negatively impacted by ongoing softness in capital equipment demand, reflecting more cautious customer capital spending behavior. Turning to gross margin. We delivered 44.3% for the quarter, down 110 basis points versus the prior year. The decline was primarily driven by lower North America volumes, which reduced fixed cost leverage as well as a noncash inventory charge and approximately $2 million of quality costs associated with automated storage rework, which was in line with our expectations. While the quality issues are largely behind us, we expect to have some additional costs in the third quarter. We have put changes in place to improve quality and reliability. We've restructured the engineering team into 3 teams: new product development, current projects and sustaining in order to drive clear accountability in the R&D organization. As we discussed at Investor Day, we are transitioning from highly customized systems to a more modular product strategy that enables configurable and quality control solutions. In parallel, we have strengthened execution leadership by hiring an experienced project manager with a background in large-scale complex programs, bringing additional discipline, structure and visibility to execution. Adjusted EBITDA was $7.8 million or 5.4% of revenue, down 320 basis points year-over-year. The decline was primarily driven by 120 basis points of pressure in Multiomics from lower volumes and gross margin compression as well as down 360 basis points from investments in sales, product marketing and R&D to support future growth. These impacts were partially offset by 80 basis points benefit in Sample Management Solutions, reflecting additional pressure from storage quality rework and inventory reserve and lower volumes, offset by the favorable impact of an accounting adjustment. Lastly, there was a benefit of 80 basis points from other income. Importantly, while we continue to take actions to optimize and rightsize our cost structure, we are committed to our growth investments to support long-term growth and strengthen our competitive positioning. Again, non-GAAP EPS was a loss of $0.04 per share. With that, let's turn to Slide 5 for a review of our segment quarterly results, starting with Sample Management Solutions or SMS. Sample Management Solutions delivered revenue of $81 million for the quarter, up 2% on a reported basis and down 3% organically. Biorepository solutions, which is roughly 40% of the SMS segment, delivered high single-digit growth, reflecting focused commercial execution and the benefits of the strategic emphasis placed on this business over the past year. Consumables and instruments delivered modest year-over-year growth supported by steady demand across the installed base. The segment was impacted by external factors with lower capital spending, which impacted orders in automated and cryogenic store systems, resulting in a low double-digit decline in core products. Gross margin for Sample Management Solutions was 47.4%, up 40 basis points versus the prior year. The result reflected headwinds from lower volumes, store quality rework and an inventory reserve, which were more than offset by the benefit of an accounting adjustment as well as improved biorepository margin. Turning next to the Multiomics segment. Multiomics revenue for the quarter was $64 million, flat on a reported basis and down 2% organically, reflecting a decline in global Sanger and lower volumes in North America, driven by softer demand and increased competitive intensity. Next-generation sequencing grew mid-single digits and gene synthesis delivered mid-single-digit growth, supported by continued oligo demand in China. Europe and Asia Pacific continue to perform well, supported by strong execution and commercial initiatives. In North America, we are focused on improving commercial execution and driving more target engagement across key markets as we move through the remainder of the year. Multiomics non-GAAP gross margin was 40.2%, down 300 basis points year-over-year. The decline was primarily driven by lower fixed cost absorption and unfavorable regional mix, reflecting reduced volumes in North America and the resulting loss of operating leverage. This was partially offset by more stable performance in Europe and Asia, though not sufficient to fully offset the pressure from lower North America volumes. We are taking targeted cost actions to better align our cost structure. Next, let's turn to Slide 6 for a review of the balance sheet. As I mentioned, we ended the quarter with $565 million in cash, cash equivalents and marketable securities. We have no debt outstanding. Capital expenditure for the quarter was approximately $7 million, reflecting continued investment in automation, capacity expansion and technology to support scalable growth. Turning to guidance on Slide 8. We are updating our fiscal 2026 guidance to reflect first half performance trends and what we are seeing in the market. We expect the total reported revenue to be in the range of approximately $603 million to $621 million, including the contribution of UKBC. On an organic basis, we expect revenue to range from a decline of approximately 2% to a growth of up to 1% compared to the prior guidance of 3% to 5% growth. We expect adjusted EBITDA margin to range from down approximately 125 basis points to flat year-over-year compared to prior expectations of approximately 300 basis points expansion, excluding UKBC. This is driven by continued pressure due to lower volumes and the loss of fixed cost leverage. Free cash flow is expected to improve between approximately 10% to 15% year-over-year compared to prior expectations of approximately 30% improvement. The low end of the range reflects continued softness in Multiomics in North America and in the capital-intensive products within Sample Management Solutions, while the high end reflects a modest increase in demand in North America, additional order closures for stores and cryo and incremental revenue pull-through. At the segment level, we now expect Sample Management Solutions to grow approximately low single digits organically versus prior expectation of mid-single-digit growth and Multiomics to decline in mid-single digits versus prior expectations of low single-digit growth. Looking ahead to the second half of the year, I'll offer some directional color to help frame the cadence of performance. In the fiscal third quarter, we expect organic revenue to grow low single digits. For the fiscal fourth quarter, we expect organic revenue to decline low single digits. If you recall, fiscal fourth quarter of 2025 was a record revenue quarter and presents a tough comparison. From a profitability standpoint, we expect adjusted EBITDA margins to improve sequentially with margins moving into the low double-digit range in Q3 and then stepping up more meaningfully in Q4, reflecting the combined impact of volume recovery, cost actions and second half seasonality. In closing, while we are updating our full year fiscal outlook to reflect the current demand environment, we remain focused on disciplined execution and operational control across the business. We are taking the necessary actions to align our cost structure and to improve the performance across both segments. Importantly, we remain confident in the long-term fundamentals of our markets and in our ability to achieve improved performance over time, supported by the progress we continue to make across the organization. As John mentioned, given the guidance reset this year, we have decided to push out the long-range plan we outlined at our Investor Day in December 2025 by 1 year from 2028 to 2029. The same financial targets remain, and we believe that the market opportunity, strategic priorities and value creation frameworks are strong. This concludes my prepared remarks. I'll pass the call to John for a few closing remarks. John P. Marotta: To close, we are encouraged by the continued strength and resilience of the reoccurring revenue base of our portfolio. We are taking decisive actions to strengthen commercial and operational execution and drive more consistent and improved performance. We are also pleased with the progress of the UK Biocentre acquisition and look forward to the opportunities ahead of this strategic action. Finally, we remain disciplined in our capital allocation, continuing to invest to drive organic growth through R&D and go-to-market capabilities, pursuing disciplined and strategic M&A and returning capital to shareholders when appropriate. With that, operator, we're ready to open the line for questions. Operator: [Operator Instructions] The first question comes from David Saxon with Needham. David Saxon: Maybe I'll just ask one on fiscal second quarter. So I would love to understand kind of the cadence you saw throughout the quarter? Like how did things start off? How they progressed? Were there any meaningful orders or customers that got slipped or pushed out? Just trying to understand the exit velocity as we go into the fiscal second half. Lawrence Lin: Yes. David, good to hear from you. Maybe why don't we kind of start with what we saw in Q1 really quickly and then walk to Q2, right? So in Multiomics, what we saw in Q1 was bookings were slow in North America. As a reminder, Multiomics in North America is roughly 50% of the revenue for the segment. This was attributable to the October shutdown and the NIH funding delay. We had key sales leaders and sales reps that are no longer in the company that created a bit of a commercial gap. Now Europe and APAC performed well, and we thought these were transitory events. So now let's step into Q2 for Multiomics. We expected several dynamics to improve as the quarter progressed. In North America, the first 2 months, we saw improved bookings demand. Our month 3 spike seasonality just did not materialize. Usually, you see a pretty big hockey stick in terms of demand. On a commercial execution perspective, we saw rep productivity, but we still saw gaps. As you know, we brought in several new reps, but there were still commercial execution challenges. When you look at the competitive dynamic, particularly in North America, it really did intensify in the quarter, particularly in gene synthesis. Now on the bright side, as I mentioned earlier, Europe and APAC continue to perform, and this is really isolated to a North America issue in Multiomics, okay? Now let me pivot to SMS. So what did we see in Q1? We saw slow bookings in stores and cryo. A lot of these capital-intensive products, we were seeing pushouts. Positive note, biorepository were high single-digit growth. C&I was low single-digit growth in the quarter. When we move into the second quarter, while we had really good visibility in our capital equipment pipeline by opportunity, we did not see these order conversions in the quarter. Let me give you a couple of examples. One, we had a multimillion dollar cryo deal with a biotech firm that got pushed out. Secondly, we had a multimillion dollar automated governance store that got pushed out. We haven't lost these orders, but they're just now delayed. Timing issues such as these -- funding delays or site readiness has really caused us to get these items pushed out through the balance of the year. But again, positively in the quarter, biorepositories were high single-digit growth. C&I was low single-digit growth. We just really had some challenges around our capital-intensive products. And as I mentioned earlier, these lower volumes I just described really create this loss leverage with our existing cost infrastructure. So hopefully, that provides enough -- the color you're looking for, David. David Saxon: Yes. That was helpful. And then I guess just in terms of some of the initiatives you've already put in place, like pricing in SRS, I think you have some pricing coming through in C&I after that backlog is kind of worked through. You have -- moving to more modular systems on the storage side. Like, I guess the question is when do we start to see the benefit of that? And as you think about the cadence over the fiscal '29 LRP now, zooming out, like how should we think about the trajectory over that period? John P. Marotta: Yes, David, thank you for the question. Let me start with the '29 LRP and kind of get us back anchored into our IR Day. If you look at the total SAM, you're talking about a $6 billion SAM. Let's go kind of strategic vector by strategic vector and get us kind of anchored back into that. So in our biorepository business, it's nearly about $1 billion business at mid- to high single digit. We're well positioned there because there's a number of growth drivers there. So ultracold, you've got good research volumes coming out in terms of the sheer volume of samples. There's a lot of emphasis around productivity, more therapeutics coming out and those sorts of things. That's a key market driver, and we're well positioned there. We're going to continue to invest behind that. So that gives us some confidence around our LRP certainly. Second is around gene synthesis. So that's north of $1 billion. That market is growing double digit in certain areas. And this is an area that we are investing behind, clearly with bringing Trey in. We certainly have to do a little more work on the cost side to get this business better positioned. Now what's driving that double-digit growth? Cell and gene therapy. A lot more research and therapeutics are driving the gene synthesis market, and we're investing behind that. And thirdly is our automated solutions. So that's north of $1 billion, growing at mid- to high single digits. We are investing clearly around small stores and modules. Well, what's the growth driver in that end market as well? Everything is moving to ultracold and cold. We're well positioned there. The number of assets that are in the field right now going from thousands to millions, people want to automate that. And so the stores, automated stores and automated cryo units are kind of the epicenter of all of that. There is a clear push for productivity and a clear push around cell and gene therapy and the investments behind that. That gives us the confidence around our LRP because we're holding our growth investments in there specifically. We could dramatically improve our margins today if we came off of some of those growth investments. And I realize also we've got some room to improve forecasting, both internally and externally here. But I've got some confidence around this, specifically around our LRP, hopefully, you're going to see some more detail coming out around our external -- around how we're looking at things externally in terms of the earnings supplement that was put out, that's going to continue here. And then internally, we've got our GMs in place. And certainly, we've got our finance leads in place in each of the businesses as well. So there's people waking up every day to drive performance in these businesses in these strategic areas, and they've got the finance leads that are in place as well. David Saxon: Yes, that earnings supplement is super helpful. So looking forward to that going forward. John P. Marotta: Thank you for the feedback. Operator: The next question comes from Matt Stanton with Jefferies. Matthew Stanton: Maybe a 2-parter on the reset. So Multiomics going from low singles to down mid-singles. Maybe just talk a little bit more about what you saw. I think you talked about competitive pressure. I think you guys have been hiring 20, 25 people on the commercial side. Are you saying those are no longer a tailwind for the back half of the year? I guess, what changed, to help us bridge the guide down on Multiomics here? And then maybe, John, just stepping back on the LRP reset. I mean, if you're going to touch that less than 6 months later from the Investor Day, why not maybe revisit the numbers to derisk those if you're going to push it out here? Was there any consideration to move any of the numbers either on the margin or the growth side to help derisk that bridge from, call it, flat growth this year to high singles now in '29? John P. Marotta: You bet, Matt. Thanks for the question. So both Lawrence and I will give you some color here. So let's talk about Multiomics. I mean we had clearly kind of a human capital reboot in North America right now in North America sales. We had some folks that left and then BD. We've added headcount in all of the regions right now. And where you can see there are bright spots right now from a growth perspective and double-digit growth is clearly in Europe and China right now. So those teams are performing well. Where we've got -- where we're kind of going back at things in North America is, in fact, we think there's still a tailwind there in NGS. We've got to do a little more work around gene synthesis in North America. There's some competitive dynamics that are going out on there that Trey is going to be coming in and we're going to be solving for. And then lastly, in the North America business, we've talked about this is from a structural point of view. We've got 14 labs. We're going to be rethinking that business, I can tell you, specifically around Sanger and how we drive performance going forward. Regarding the -- I'll touch on the LRP, then I'm going to hand it over to Lawrence here. Regarding the LRP, we did think about -- clearly think about what the revenue profile looks like over time. And we really went into the plan detail by detail, looking at the waterfall of the plan, the phasing by years. We've kept nearly $20 million of growth investments in the business right now. And that's where we're coming down. It was one of the reasons I wanted to share kind of how we view the market in biorepository, gene synthesis and automated solutions. Those are mid- to double-digit growers across all 3 of those right now. We're holding our growth investments, and we've got conviction around that plan over the 3 years that we outlined. And more importantly, seeing those growth investments through gives us the confidence around this phase shift in the program right now. The opportunity is clearly still in front of us. And we've got to go get that. I mean I think it's one of the things that I continue when I say were guiding us annually. That's what I mean by that, is this opportunity is still in front of us, and we're investing behind that with the numbers that I just shared with you. Lawrence, do you want to talk about some of the numbers around Multiomics? Lawrence Lin: Yes. In terms of guidance, Matt, when you look at the overall guide, right, as I mentioned earlier, the low end of the range of down 2% on revenue really just going to reflect the greater softness in Multiomics in North America. And then really, when you look at the plus 1% is we reflect a slight pickup in overall Multiomics North America bookings. Again, Europe and APAC continues to be strong for us in the Multiomics business. Certainly, there's -- to John's point, there's a bit of a reset around the commercial engine in North America, and we've accounted for that in our low-end guide to derisk it. Matthew Stanton: And then maybe just a little bit of cleanup. So B Medical, I appreciate the update. I mean, how do we think about the scenarios from here? So the time line was the end of March, that you guys are continuing to work through it. I mean, do we expect a resolution sooner rather than later? And then, Lawrence, can you just help us -- how long can you keep this in discontinued ops in the scenario where it needs to come back into continuing ops? Any chance you can kind of remind us of what the margin profile of that asset is today? John P. Marotta: Sure. I'll take the first part of the question, and Lawrence can take the second. So right now, where we sit, we feel pretty good about where we are. We're getting weekly updates from the team right now. Yes, there was a financing delay, it's certainly outside of our control. A lot of things going on in that part of the world right now, specifically in some of the end markets that they serve. And so I think the team is back on track. We've had direct conversations with the banks, and we've got more conviction on that close right now. Lawrence Lin: Yes, Matt, in terms of if there is a need to reconsolidate, that would happen at the next quarter point, June 30. Matthew Stanton: And anything you'd say on just margins if that does happen in that scenario? Lawrence Lin: Yes, we'll evaluate that, and we'll provide an update if that happens. But like John says, we feel confident that this will close. Operator: The next question comes from Mac Etoch with Stephens. Steven Etoch: Maybe just to start, following up on some of the Multiomics conversation that you've already had. Margins have been under pressure, growth expectations are coming down for this fiscal year. But can you just unpack how much of the margin pressure is really driven by those temporary factors like utilization versus the more structural dynamics and how that informs your confidence in the recovery and in the LRP as well? Lawrence Lin: Yes, Mac, thanks for the question. So as we look at the overall guide for the year around Multiomics, around leverage, for the year, it's about $14 million in terms of loss leverage. 80% of that is related to Multiomics. Now what I will say is we've taken actions in the second quarter, and we've done partial restructuring that will yield $7 million of annualized savings and $3 million in year. As John mentioned earlier, we're also evaluating currently the rooftops in labs. So let me give you a little bit more color. When we look at the overall fixed cost in the business, there's just too much cost. There is 14 labs that were built to support a much larger Sanger footprint than the demand environment supports today. So with the sustained lower volumes, this has really created pressure on profitability. Steven Etoch: Appreciate that. I guess just a follow-up on that. How is the -- how are these efforts kind of factored into your updated LRP? I know you're just pushing it out by a year, and there's not really any update between the different segments. But in terms of -- anything in terms of like a gating factor between the year or FY '26, '27, '28 might be helpful for our context. Lawrence Lin: Yes. I think it's a great question. Certainly, when we look at the overall confidence in LRP, right, that's why we're kind of holding to those targets. John P. Marotta: Mac, it's all contemplated in the phase shift to the LRP. Operator: The next question comes from Vijay Kumar with Evercore. Vijay Kumar: I guess my first one is, big picture, when you look at rest of life science tools space, we've generally seen stable [ A&G ] end markets, stable capital environment. So when you talk about end markets, when you talk about capital constraints, bookings in North America for gene synthesis, right, there seems to be a disconnect between what we're hearing from peers versus trends Azenta is seeing. How much of this is Azenta company-specific versus market issues in your mind? And when you think about back half, what is the guide assuming? Are you assuming current market environment that Azenta is facing sustains in the back half? Or are you assuming further deterioration in your end markets? John P. Marotta: Sure. It's a fair question, Vijay, and thank you for that. So let's unpack it first from an end market perspective. If you look at our North America GENEWIZ business, really, the headwinds we've seen is we had a commercial reboot. That's on us in terms of the human capital side. And so that's first thing there. Second thing is we did make some commercial investments, and we've got some execution shortfalls in that. Again, that's on us. Around the end market and what we're seeing in our pharma, biotech and academic customers, a lot of the performance issues we're seeing is really based on what's called this [ PC&S ] business. Think about that as a specialty CRO. And so it's large project-related revenue. It's very similar to our POC business in stores and our capital equipment business in cryo. So we've got -- there is a funnel -- a weaker funnel than we had because of some of the human capital turnover that I've talked about. The biggest driver in North America is, of course, related to Azenta-specific, and that is our Sanger business. I mean that is declining 17%. It's been a big issue for us internally. We are going to be solving for that. And so on balance, I would say, of the number of items I've talked about, I would say, on balance, about 60% to 70% are Azenta-specific, Vijay, and we're going to be solving for those. We've got plans in place. One of the things we've got with Trey coming in, we're very excited about his grip on the business just 4 weeks into the business here today. So that's the way I would think about GENEWIZ specifically in North America. If we unpack stores and cryo business, these are big-ticket items. I mean there's this -- right now, we're seeing pharma and biotech kind of investing in small pockets here and there. But remember, these are big-ticket CapEx. And so that is -- right now, I mean, when we review the funnel, we're looking at that, and we've got a good grip on that funnel. We've got a good grip in terms of the competitive dynamics. We're not seeing any share loss here. This is just a pushout. It's -- our interpretation of that is there is -- is pharma going to continue to invest? Where are they going in bioprocessing? They're clearly doing that. With this reshoring thing, are they going to move more dollars over there? Or are they going to put that into R&D and some of these large stores? It's a bit of a mixed bag right now. And I think that is really around end markets. I don't view our performance in stores as an Azenta-specific issue at this point in time, if we're just calling it down the middle as we see it, Vijay. Cryo, we had some new salespeople. We had some commercial reboot in North America. I think we were clear when Joe came in, he's got to rebuild our North America sales organization. He's done that. So on balance, Vijay, I would call it, on cryo, a bit of a 60-40, 60 being an end market, meaning a lot of the funnel, and we go project by project on these large CapEx deals. A lot of that's been pushed out. 40%, I would say, is this commercial reboot when Joe was coming in and rebuilding our North America business. So on balance, that's how I would look at unpacking the big issues in the business, and specifically, what is Azenta-related and what is end market-related. Do you want to talk about forecast, Lawrence? Lawrence Lin: Look, Vijay, when we contemplated the overall guide, the low end of the revenue range, we believe the plan is largely derisked, right? Importantly, we've really taken a conservative posture to the outlook and paired it with cost actions and operational discipline that John talked about. And that's why we believe that the revised guidance is appropriately balanced with realism and execution focus. Vijay Kumar: Understood. And maybe, John, on some of those comments you made on human capital, sales force issues. What is the plan for fixing these issues, right? Do you have the personnel in place? Or do you need to hire people? And how do you track productivity? Is that like 6 months from now where we should see a turn in some of these businesses? John P. Marotta: Yes. So on the human capital side, we have a North America leader in GENEWIZ, with Trey coming on board, he's going to be bringing in a leader for North America and Multiomics. And we're excited to bring about new talent into the business and with Trey being here and his -- very clearly his grip on the gene synthesis business. He spent many, many years there. And so we're excited about bringing in the right talent to go drive performance there. That was a gap for us for, basically, Q1 and Q2. That's on us. We've got really good sales reps in place right now. We've got really good regional managers in place right now. And so we're driving performance there. We track productivity clearly. Ramp time is 6 to 9 months in that business right now. I think there's some room for improvement around -- specifically around NGS. I think we're more confident in that area. We're building more capabilities in our gene synthesis business, and we've got to go solve for cost issues in Sanger. And we've got the right people now with Trey in place to go do that. I hope that helps, Vijay. Operator: The next question comes from Paul Knight with KeyBanc. Paul Knight: John, you were talking about the reorg of the automated stores group into 3 groups. And did I read it correctly that the automated stores technology is kind of a new footprint, a more reliable footprint? It seems to have always had some issues before you even. So is that -- what I understood there is, is this a new kind of way of producing and selling and servicing the stores product? John P. Marotta: Yes. So let me pull us back and discuss how we're thinking about stores in general. Let me just touch on the quality side of it first and how that's informing us in terms of what you're talking about in terms of restructuring, how we restructured that business in general. So when we came into the business, we had 18 stores quality issues, 18 of those stores did not work in the field. We're down to 3 right now -- 2 customers, 3 stores. And nothing's changed in terms of the quality issues that we've got to remediate and more importantly, the time frame to go do that. We're going to be lapping that this next quarter here in terms of trend and how we're more attacking the general dynamics around quality and the bespoke nature of our current portfolio there. So we -- when we came into the business, there was over 100-and-some quality tickets. I would -- I'm very pleased with the fact that the team -- and these are minor issues, but the team is down to around a handful, meaning 20-some. And so part of the bespoke nature of this is you've got some service gaps that were occurring in the business. I'm very pleased with the team in terms of how we've addressed these. More importantly, our customers are thrilled about that. It's been a good investment for the company. Okay. So what are we going to do about it going forward here? Customers clearly want these products. We don't see share loss with any of these quality issues at all, bluntly. And secondly, it's what do we want to go do going forward? When you're in a mid- to high single-digit business, there was a gap -- there's a gap in our portfolio. What's the gap? Small modulated stores, one; two, these larger stores that are highly configurable, meaning you've got standard modules that are off the shelf right now. That goes to the point around restructuring our R&D group, which was to your question, Paul, and that is that R&D group now is waking up every day -- one part of that group wakes up on new product innovation. The second part of that group wakes up every day and they work on the POC part of that business. And then the third one is sustaining engineering, and they're working around existing quality issues in the field, what we call PPV, price performance variance, which is around procurement and then value-add value engineering. That's what they're waking up every day and doing. Now let's talk about the timing of this, okay? The timing of implementing all of this was Q1. We put our general managers in the business in Q1 in automated stores and cryo. That's Jeff. We put Michael in C&I in that business to drive performance there. And then Alex in the biorepository business. All of those general managers came in, in that November-December time frame. So they're getting more clarity around the business clearly. And then our financial leads are coming in there, too. So we think we're going to have more of a grip on the business just from an execution of the road map, but more importantly, how we're driving forecasting in the business. I know we've got a little work to do internally forecasting and more importantly, externally forecasting here. So all of that to say, structurally, Paul, I think we're in a much better place in how we're driving that going forward in automated stores. Thanks for the question. Paul Knight: Sure. And then last, on Multiomics. Is Sanger -- obviously, you want to change the roof -- the rubber roofs. But is Sanger moving into other next-gen techniques that are longer read length? Is that -- does it imply less Sanger in the future, more next-gen in the future? John P. Marotta: Sure. What is going on in the Sanger business is you've got technology disintermediation, okay? Is Sanger ever going to go away? No. But there's a shift, a clear shift to the ONT Oxford Nanopore Technology, which we also offer, okay? We've got thousands of dropboxes globally. We've got a big commercial footprint here. Bluntly, we were on our heels in terms of bringing the new technology into GENEWIZ. We're now on our front feet in doing that. I think with Trey coming on board, we're going to get more aggressive in this technology conversion. That lends us to the fact that we've got to then rightsize the Sanger business, but also meeting our customer needs with the right balance of Sanger. If you look at a Multiomics business competitively differentiated, having gene synthesis on the writing side of genes and then next-gen sequencing, including Sanger and Oxford Nanopore is strategic. And so we need the right balance of having NGS, Sanger and ONT in the business to drive a synthesis strategy here. Trey is the one that is really well positioned to do that. And all of that right now, Paul, we're on our front feet to go do. Operator: The next question comes from Brendan Smith with TD Cowen. Brendan Smith: I appreciate all the color here on North America versus other regions. And maybe just following up kind of on that last question. I guess even really from a priority basis, you mentioned some of the GENEWIZ dynamics in North America, but I know we've even seen, for example, some AI-driven demand for some of these tools from biotech and pharma starting to crop up here. So I guess I'm really just wondering how you kind of see Azenta's competitive opportunity in sequencing versus synthesis and maybe if one ultimately makes more sense to kind of really lean into first, just kind of order of operations from here over the next few months. John P. Marotta: Sure. I mean if you look at what we talked about in IR Day in terms of you've got gene synthesis north of $1 billion end market growing double digit, very high margins, we have that in our hands today, and we're executing well, specifically in that in Europe and in China. Where we think that there is room to improve in our strategy is up-indexing us from a technology perspective, specifically in North America and kind of what we outlined in our strategy is this decentralized up-indexing from a technology perspective. We think there's a lot of room there. The evidence of that, Brendan, is clearly in bringing Trey in. In order to execute our strategy, you got to have the right person to do it. He's a clear expert here. And so, for our strategy, we need to have both in terms of reading and writing of genes. Going to your question around AI, this is an area that I think you're going to hear more from us in as the strategy starts to evolve around gene synthesis up-indexing us from a technology and a double-digit growth perspective and getting us more on our front foot there. We're pretty excited about that. We do have bioinformatics internally. We do -- we are investing in that specifically. I mean, that's in our hands today. I think you're going to see some more partnerships and some more things around our inorganic activities around that specifically. But I hope that helps, Brendan. Operator: We have reached the end of the question-and-answer session. And I will now turn the call over to John Marotta for closing remarks. Please go ahead. John P. Marotta: Very good. Thank you, operator. To close, I want to recap on a few things. First, I want to emphasize our confidence in the strategic priorities as outlined in our Investor Day: scaling our biorepositories, advancing our gene synthesis technology and our new product innovation and automated solutions. We're really focused on getting the portfolio centered around those 3 areas and increasing our recurring revenue focus. As I've stated, we're not satisfied with our results, and we have some work to do to transform Multiomics and stabilize our performance. I'm confident on our team's ability to do so and the new leadership we brought in to help us do that. I want to thank our employees and our shareholders for their support and their commitment to Azenta. Thank you very much. Operator: Thank you. This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.
Operator: Hello, and welcome to the Astec Industries First Quarter 2026 Earnings Call. As a reminder, this conference call is being recorded. It is my pleasure to introduce your host, Steve Anderson, Senior Vice President of Administration and Investor Relations. Mr. Anderson, you may begin. Stephen C. Anderson: Thank you, and good morning. Joining me on today's call are Jaco van der Merwe, our Chief Executive Officer; and Brian Harris, our Chief Financial Officer. In just a moment, I'll turn the call over to Jaco to provide his comments, then Brian will summarize our financial results. For your convenience, a copy of our press release and presentation have been posted on our website under the Investor Relations tab at www.astecindustries.com. Turning to Slide 2. I'll remind you that our discussion this morning may contain forward-looking statements that relate to the future performance of the company, and these statements are intended to qualify for the safe harbor liability established by the Private Securities Litigation Reform Act. Factors that can influence our results are highlighted in today's financial news release and others are contained in our filings with the U.S. Securities and Exchange Commission. We also refer to various U.S. GAAP and non-GAAP financial measures, which management believes provide useful information to investors. These non-GAAP measures have no standardized meaning prescribed by U.S. GAAP and are, therefore, unlikely to be comparable to the calculation of similar measures of other companies. We do not intend these items to be considered in isolation or as a substitute to the related GAAP measures. A reconciliation of GAAP to non-GAAP results are included in our news release and the appendix of our slide presentation. And now turning to Slide 3. I will turn the call over to Jaco. Jaco van der Merwe: Thank you, Steve. Good morning, everyone, and thank you for joining us. On Slide 4, we highlight our first quarter and trailing 12-month performance. Net sales for the quarter increased 20.3% and stood at approximately $1.47 billion on a trailing 12-month basis from a combination of organic growth and inorganic contributions. Adjusted EBITDA for the quarter was $30.3 million with an adjusted EBITDA margin of 7.6%. On a trailing 12-month basis, adjusted EBITDA and adjusted EBITDA margin were $136 million and 9.2%, respectively. Positive free cash flow afford us opportunity to invest in organic and inorganic growth opportunities. And in the first quarter, we generated $32.6 million of free cash flow. Our Infrastructure Solutions segment continues to see healthy demand for asphalt plants and concrete plants and the outlook remains positive. Challenging markets for forestry and mobile paving equipment persisted. However, we are pleased to see a recent uptick in backlog for these products. The total segment backlog increased $37 million, including $17 million contributed by CWMF, which joined Astec on January 1. The backlog for Materials Solutions increased $110 million or 87% from a balance of organic and inorganic contributions. Given the stability of federal funding, healthy state budgets and incremental business from data centers and onshoring activities, we expect positive multiyear demand for Astec products in both segments. Parts and service sales increased $24 million or 19.7% versus the first quarter prior year and remained at approximately 37% as a percentage of total sales for both periods. Q1 profitability was lower than planned, reflecting a combination of timing effects and near-term cost pressures from tariffs, freight and sales mix. Overall expenses were also impacted by the ConExpo trade show that occurs once every 3 years. We are, however, encouraged by increased backlog in each segment, and we expect better quarters ahead. As such, we are maintaining our full year 2026 adjusted EBITDA guidance range of $170 million to $190 million. On Slide 5, we reiterate our dedication to creating value for all stakeholders by delivering consistency, profitability and growth. Driven by our Astec Build to Connect way of doing business, we create consistency through our constant interaction with customers, execution of our operational excellence initiatives and the delivery of superior products to our customers. As our historical adjusted EBITDA margin in the middle column shows, we have increased profitability in each of the last 3 years. Growth provides scale and scale enhances profitability. We are making strides in growing aftermarket parts and service sales, consummating acquisitions, developing new products and leveraging the technology and digital connectivity we bring to the market. Our plans to grow are well underway, and we are excited about our future. On Slide 6, we provide an update on the integration of our most recent acquired companies. On July 1, 2025, we acquired TerraSource, which boasts the flagship brands of Gundlach, Jeffrey Rader, Pennsylvania Crusher and Elgin. And effective January 1, 2026, we welcomed the dedicated employees of CWMF to the Astec family. Both organizations are highly respected and are strong culture fits for Astec. We are off to a great start. Many integration processes are now complete, including the seamless addition of new employees to our payroll, benefits and e-mail systems. We have successfully integrated all finance functions and have aligned all sales territories. Additional implementations completed or in process include product branding and the identification of cross-selling and procurement opportunities. We are also assessing manufacturing optimization and sharing of best practices and product designs. Our joint teams work well together, and we anticipate many benefits in 2026. Please turn to Slide 7. As you know, Astec is well positioned to capitalize on the robust road construction and aggregate sectors across the United States, where approximately 80% of our revenues are generated. Steady federal funding for U.S. infrastructure provides stability for our customers and in turn, Astec and our stakeholders. In 2022, Congress passed the 5-year infrastructure bill valued at $347.5 billion. According to the American Road and Transportation Builders Association, $261 billion or 75% of those funds have been allocated as of February 28, 2026. These formula funds for highways and bridges have enabled more than 116 and 500 new products across our country. Additionally, the total value of state and local government transportation contract awards was 152.2 billion in 2025, which was up from $132.2 billion in 2024. This was a new record. The existing 5-year bill is set to expire on September 30, 2026. The renewal of the bill has bipartisan support. This is evidenced by the stance of key members of the House Transportation and Infrastructure and the Senate Environment and Public Work Committees. Transportation Secretary, Sean Duffy summarized it well when he said, it is one of the unique spaces in government where we work together because safety is not red or blue issue, it's an American issue. Congress has recently finalized transportation funding legislation for the rest of fiscal year 2026 and is focused on passing a timely, comprehensive surface transportation reauthorization bill. Sector developments such as these benefit Astec, a company dedicated to the rock to road industry. Continued improvements in infrastructure supports ongoing demand for our equipment, parts and digital solutions. Our strong reputation in aggregates as well as road and bridge construction drive steady growth. On Slide 8, we show first quarter implied orders and book to bill ratios. Organic results exclude the impact of the CWMF acquisition and orders prior to the first quarter of 2025 exclude the impacts of the TerraSource acquisition. Implied orders of $397 million compared to a strong fourth quarter of $465 million. On a year-over-year basis, implied orders increased $85 million or 27.2% from a combination of organic and inorganic contributions. Book to bill ratios in each segment exceeded 100%. On Slide 9, we are pleased to report that our backlog grew to $549 million compared to $403 million for the same period in 2025. This was an overall increase of $146 million or 36%. The backlog in Infrastructure Solutions segment increased $37 million or 13%, primarily due to increases in asphalt plants, mobile paving and forestry equipment and a $17 million contribution from the newly acquired CWMF. Backlog in the Materials Solutions segment increased $110 million or 87% over the same period the prior year from a combination of legacy and inorganic contributions. To recap, our backlog is the total amount of confirmed orders supported by signed contracts. We are pleased with the order activity in both of our segments. And now I will turn the call over to our Chief Financial Officer, Brian Harris. Brian Harris: Thank you, Jaco, and good morning. I'll now discuss our consolidated results for the first quarter, provide segment-specific details and review our liquidity and leverage. Our financial performance for the first quarter and on a trailing 12-month basis is presented on Slide 11. Consolidated net sales for the quarter increased 20.3% compared to the same quarter the prior year and grew 11.5% on a trailing 12-month basis. Most of the growth was attributable to the legacy Materials Solutions business and inorganic growth in both segments. Parts and service represented 36.9% of net sales, which compared to 37.1% in the first quarter of 2025. As Jaco mentioned, first quarter expenses from the ConExpo trade show and freight, duty and tariff expenses impacted first quarter profitability and margins. As a result, operating adjusted EBITDA declined $4.9 million versus the same period the prior year. For the trailing 12 months, adjusted EBITDA grew $7.7 million or 6%. Adjusted EBITDA margins for the quarter and trailing month period declined by 310 basis points and 50 basis points, respectively. Based on the aforementioned factors, adjusted earnings per share for the quarter were $0.54 compared to $0.91 in the first quarter of 2025, while down only slightly on a trailing 12-month basis. Moving to our Infrastructure Solutions on Slide 12. Net sales in this segment were $237 million for the first quarter of 2026 compared to $236 million for the same period in 2025. Our newly acquired business performed as expected, while their contributions were partially offset by legacy equipment volumes that measured to a strong performance in the prior year and shortfalls related to timing differences. For the trailing 12-month period, net sales of $858.4 million were down 1.5% compared to the prior year. Segment operating adjusted EBITDA for the Infrastructure Solutions segment was $34.8 million for the first quarter of 2026 compared to a strong same quarter comparison in 2025. The $8.1 million difference resulted primarily from higher exhibits and promotional costs, along with increases in freight, duty and tariffs. For the trailing 12-month period, the difference in segment adjusted EBITDA was $12.6 million for a decline of 9.1%. Adjusted EBITDA margin stood at 14.7% for the quarter and the 12-month periods, respectively. Our Materials Solutions segment is shown on Slide 13. We were pleased to see the continued resurgence of our Materials Solutions legacy products during the first quarter. Net sales included organic and inorganic contributions and combined for an increase of $65.9 million or 70.6% over the first quarter in 2025. For the trailing 12-month period, net sales increased $164.8 million or 36.3%. Segment operating adjusted EBITDA for the Materials Solutions segment was $8.9 million for the first quarter of 2026 compared to $5.2 million for the same period in 2025. This is an increase of $3.7 million or 71.2%. For the trailing 12 months, operating adjusted EBITDA increased $22.1 million or 59.6%. Increases were primarily due to the impact of net favorable volume and mix and favorable pricing. As with the Infrastructure Solutions segment, higher exhibit and promotional costs, freight, duty and tariffs were partial offsets. Adjusted EBITDA margin remained at 5.6% for the first quarters of 2025 and 2026, respectively, and grew 140 basis points to 9.6% on a trailing 12-month basis. Moving to Slide 14. Our balance sheet remains strong and is supported by substantial liquidity. At quarter end, we had $73.4 million in cash and cash equivalents, along with $194.1 million in available credit, resulting in total available liquidity of $267.5 million. Including a draw on our revolving credit facility of approximately $70 million for the purchase of CWMF, net debt to adjusted EBITDA stood at approximately 2.3x and is within our target range of 1.5x to 2.5x. We have the capacity for continued organic and inorganic growth. As we have previously stated, our 2026 outlook entails the following anticipated full year ranges: adjusted EBITDA of $170 million to $190 million, an effective tax rate between 25% and 28% capital expenditures between $40 million and $50 million, depreciation and amortization of $55 million to $65 million and the following quarterly ranges: adjusted SG&A of $70 million to $80 million; interest expense, approximately $7 million. I will now hand the call back to Jaco. Jaco van der Merwe: Slide 15 provides an overview of the key investment highlights for Astec. Astec has earned a reputation as a reliable provider of internationally recognized brands and high-quality solutions for our customers, and we take pride in this legacy. Our team maintains strong engagement with customers. From recent discussions, we've observed that customers remain optimistic about ongoing activity in the construction market. We are pleased our commitment to operational excellence is delivering results, and we anticipate further improvement going forward. We are confident our initiatives in manufacturing and procurement are boosting efficiency, which will lead to ongoing gains in adjusted EBITDA. Several exciting opportunities are fueling our growth, including the expansion of our recurring aftermarket parts and service business, which remains a key focus for the Astec team, the development of strong pipeline for innovative products, stability associated with the multiyear federal highway program, along with strong state and local funding for infrastructure projects in the U.S. market. opportunities for growth in both established and emerging international markets and strong inorganic growth opportunities consistent with our financial objectives. As Brian noted, our strong balance sheet gives us flexibility to invest in growth initiatives and manage our leverage efficiently. Moving on to Slide 16. We are excited about our 2026 Investor Day to be held on May 13, 2026. We invite you to join us for this virtual event, which will begin at 8:00 a.m. Eastern Daylight Time. During the presentation, we will share more about who we are, our next era of growth, industry megatrends, our Build to Connect way of doing business, reasons to invest and our 2030 financial targets. With that, operator, we are ready for questions. Operator: [Operator Instructions] And your first question comes from the line of Steve Ferazani with Sidoti. Steve Ferazani: Jaco, I guess when I look through the numbers, and we obviously expected the higher costs related to ConExpo. But I mean, the surprising number to me was the gross margin. You covered a couple of reasons for it, and it was particularly saw in the Infrastructure Solutions side. can you sort of give us the buckets on how much of it was inflationary freight pressures versus mix versus timing, et cetera? Or were there any efficiency letdowns in the quarter? Jaco van der Merwe: For IS, we definitely saw a different mix this quarter compared to what we saw as a very strong Q1 last year. We did see a lower asphalt plants and parts business during the quarter, which obviously pulled down margins a little bit. When we look at this business, and we've talked about this a lot, in the past that if you have 1 or 2 plants move out from 1 quarter to the next, it can make a pretty big difference. So if you take a breakdown there, capital and parts, we saw a reduction in both of those. Now tariffs did affect them a little bit to a lesser extent than what we've seen on the MS group. So we are managing that going forward. I think I mentioned in prior calls that we moved really quickly when it came to pricing when all the tariffs and those came to light. So some of that is maybe just timing catching up. to the pricing. We also have additional pricing that is in the pipeline that should mitigate this in the quarters to come. Steve Ferazani: Because -- yes, that's -- I mean, probably just the follow-up question, which is given the numbers in Q1, your confidence level to hit those full year targets given the year-over-year difference. If it's pure mix and the timing is you're going to be more plants and parts heavy in 2Q and you got the pricing in, I get it. I'm just trying to see if there's anything else here that should be caused for concern. Jaco van der Merwe: No, look, I mean, look at backlog, we're very encouraged by strong backlog. We have another positive book-to-bill quarter, which is always nice. And we have definitely additional pricing in the pipeline. We're continuously evaluating the cost that's coming from these macro trends. And we are also very encouraged about the work our teams are doing to improve our quality cost and our operational efforts. So Steve, we're obviously still confident. That's why we kept the guidance for the full year. And with that strong backlog, we feel that we have the opportunity to achieve that. Steve Ferazani: So given the -- I mean, we saw the -- how much of the order shift sequentially was seasonality? Jaco van der Merwe: From an invoicing point of view or a bookings. Steve Ferazani: The implied orders, the reported implied orders, if you will, that just seasonality and timing. Jaco van der Merwe: Yes. I mean if you look at implied orders for IS, quarter-over-quarter, it was pretty flat. Obviously, we have CWMF in that number now. And on MS quarter-over-quarter, that's where we saw the biggest variance. Now those came on top of Q4, which is typically our strongest bookings quarter. But overall backlog, if you look at the backlog and the book-to-bill ratio, both positive in MS and in IS. So that's why we like to give the annual guidance and not try to guide on a quarterly basis. We know we're going to have these quarterly fluctuations. Steve Ferazani: And if you could just touch on synergy realization and where you are with integration of the acquisitions and potential synergy realization over the next multiple quarters? Jaco van der Merwe: Yes. We are very happy with the way the integrations are going. From a synergy point of view, the realization is coming through the pipeline now pretty quickly. I will say the synergies on the CWMF acquisition is coming in faster than what we saw on PSG just because it's so close to home. We do business with a lot of the same suppliers. So we're pretty positive there. But the number that we gave the Street for synergies on PSG, we're very confident that over the next 12 months, we're going to realize those. Steve Ferazani: And if I could get one more in, in terms of, obviously, you've been generating much stronger parts and aftermarket numbers. Some of that's from the acquisitions. But I know that was a priority when you became CEO, Jaco. Where are you in that progress? And is there a lot more to go? Or do you feel like you've achieved a lot of what you wanted to? Jaco van der Merwe: Yes. No, in my mind, there's a lot more to go. During Q1, which is typically a strong parts quarter for us, we were close to 37% parts and service. Next week, we're going to have our Investor Day where we're going to talk about our aspirations there. But we still see significant opportunity to improve that mix. Operator: Your next question comes from the line of Steven Ramsey with Thompson Research Group. Steven Ramsey: I wanted to start with, obviously, the topic of the day, demand data centers. You cited strong demand from this market. I'm curious if you could ballpark how much of a contributor that was in the quarter and maybe compare that to last year? And then maybe go through your success here, if it's following your customers versus intentional initiatives to capture this demand? Jaco van der Merwe: Yes, Steve, good question. The data center demand and actually some of the other demand around chip factories and things like that is obviously something that we are keeping a very close eye on. If you look at our backlog for the MS group, it's up significantly year-over-year and even during the quarter, it increased nicely. So Stephen, we see the benefit from that. It is a little bit difficult for us to track it specifically just for data centers or other onshoring. What I will say is, obviously, our customers that provides aggregates to these markets are very close to these markets. They typically enjoy the business if they were in a 30 or 50-mile radius from where the construction goes. And we enjoy business with all of those customers. So we see cases where customers need to increase output, some cases, as much as 10x what they did in prior years just to deal with the demand that's coming from these data centers. so we don't have a specific number there, Steven. We are looking at a way to try to track that. But I think if you look at the big aggregate suppliers, they are very outspoken about the effect this have. And obviously, we do business with all of those companies, and that's where we see the benefit. We have seen some uptick in our industrial heating space that is in the infrastructure group, also supplying to data centers, but to a much lesser extent than what we've seen on the Material Solutions side. Steven Ramsey: Okay. That's very helpful. And I wanted to think about order activity from the perspective of market share and how your orders are comparing to the marketplace? Do you feel like you're tracking the market? Or do you feel like you're gaining share overall or just any pockets of strength within orders? Jaco van der Merwe: Yes. So I will say we don't feel that we're losing market share anywhere. Obviously, we have various product lines that is in our portfolio. We feel very good about our product portfolio that we have. And I mean, you joined us on the stage for ConExpo. We were very encouraged by the reaction from the market on all the new products that we showcased at ConExpo. And when you have new products, the positive flow-through typically result in you taking some market share. We have, over the last year or 2 in the Material Solutions side, put a renewed focus on large system sales. And we are definitely seeing the positive momentum from that product line, and we believe that will continue. Maybe one last comment. The work that we're doing on our digital platform, we are definitely seeing positive reaction from our customer base. We are talking and growing that business significantly through especially our major customers transitioning to one platform. And in various examples, they've chosen us to be that platform provider. So, and that will have a positive effect in the future on equipment sales. It will have a positive effect on our parts and service sales. Steven Ramsey: Okay. That's great. And then last one for me. You had very strong free cash flow in the quarter. It appears like much of that was working capital driven. If you zoom out and look forward, can you give a general view on free cash flow conversion out of EBITDA... Brian Harris: Yes, Steve, it's Brian here. Thanks for the question. Yes. Look, I think that's going to continue to be pretty strong. You're right that in the quarter, we did benefit from working capital movement. Our inventory was actually down quite a bit from the year-end position. A lot of that is in raw material, but raw material and finished goods were both down. We had, Q4 is always a big sales quarter. So we had some good cash collections in Q1 as well. And I think that trend there's a bit of seasonality in the business. So working capital will move up and down during the course of the year. But I think the underlying efficiency of our working capital, our working capital turns certainly improved in the quarter, and we'd expect to see that continue. We have a pretty strong operating cash flow in the quarter and in the balance of the year. So I think conversion ratio will be good. Operator: [Operator Instructions] your next question comes from the line of David MacGregor with Longbow Research. David S. MacGregor: I guess my first question was for Brian. And I just wanted to go back to the whole discussion around price cost. And you, I think, were very clear in your prepared remarks about the timing of price traction versus the emerging cost inflation. You use FIFO cost on your balance sheet. So you've got some pretty good visibility, I guess, on what's coming up here over the next couple of quarters. Can you just talk about what you see coming in the backlog versus the pricing initiatives you have in the marketplace today and how that should play into 2Q or second half? And obviously, you've left the guidance unchanged. So you're expecting some kind of recovery. I'm just trying to get some sense of cadence or timing around those margin dynamics. Brian Harris: Yes. Look, I think if you go back to that Q1 of 2025, we had a gross margin of over 28%. If anything, that was a little bit of an outlier when you look at Q1 historically. And that was because we got ahead of the game, we talked about this before on pricing. And so the tariff situation cost didn't really begin to materialize until April and beyond. So we had a strong comp in Q1 of 2025. Tariffs kicked in this quarter to a greater extent. We did, we felt cover a lot of the underlying inflation outside of tariffs with our pricing initiatives. we've got more pricing that we can implement here in the balance of the year. And we're very careful about making sure that we try to anticipate those costs when we quote and the price that we quote that's in our backlog should accommodate our anticipated inflation and tariff increases that are coming. Obviously, freight and duties related to higher diesel and hydrocarbon costs are another factor that's certainly affecting things in the short term and have a little bit of uncertainty in the balance of the year, but we're trying very hard to make sure that when we price our products in the market that we're taking that into account. David S. MacGregor: Right. So just to try to summarize on this, is this something where we're still going to see some year-over-year margin pressure in 2Q before it's fully normalized in the second half? Brian Harris: It's possible, but I think Q2, we're going to emerge with stronger margins in the second quarter than we saw in the first. David S. MacGregor: Okay. Good. I guess second question, maybe for Jaco. How much of a catalyst do you think a highway bill reauthorization will be to just order releases? And I'm just trying to get a sense of from your conversations with your counterparts in the marketplace, if you sense that people are maybe holding off on purchase orders until there is a bill in place. Jaco van der Merwe: Yes, David, I mean I will tell you, obviously, everybody knows that there's a lot going on in the world right now. Our industry has been hit with inflationary pressures around, like Brian just said, fuel prices, tariffs, obviously is something. But a highway bill, I will say, for smaller players in the market, typically a highway bill gives a lot of confidence because if you're going to buy an asphalt plant, you want to know that there's going to be 3 to 5 years of good funding available. Our industry has gone through significant customer consolidation, as you guys know. And I think our bigger customers are better managing their CapEx through different cycles and are maybe less prone to cut spend without the clarity of an infrastructure bill. Now what I will say is we are very involved with our trade organizations. We're very involved talking to the respective people involved in creating the highway bill. Just this morning, actually, I received a note from our team at NAPA, the National Asphalt Paving Association. And they think that the first language around the bill could be published as early as the 18th of May. So we're looking forward to that. We know that there's discussions taking place right now. We know that like we said in the prepared remarks, this is something where government actually works together very well on. So we're positive that we're going to see a bill. Hopefully, it comes sooner than later. The good thing is that funding is available for the full year this year. So our customers are busy. They have a lot of work. A highway bill that's focused on roads and bridges, I think, will be a nice injection for '27 and beyond. David S. MacGregor: Right. That's great color. Next question I just wanted to ask you around the whole notion of price analytics. And you've been investing in price analytics here. I'm just trying to get a sense of where we are in that journey from a margin development standpoint. Do you feel like you're still in the early innings of the kind of the efficacy of that investment? And I guess, at a point in time where we're really trying to sort of wrestle through price cost here, this is a pretty big part of the story. So I'm just trying to get a sense of where you are in... Jaco van der Merwe: I will say from a process point of view, we're probably in the best state that Astec has been in for many years. Now on the flip side is, obviously, the variability right now is big. So our teams are continuously looking at movement in prices that we buy versus what we sell for. Our procurement team is very actively renegotiating as tariffs change. I mean, as you guys know, there's actually some of the tariffs that should start to lower over coming periods. And getting that thing back from suppliers is a key focus for us. So David, yes, we feel that we have a good process in place. But the amount of variability that's happening on a daily basis is definitely challenging for the team. But at least we have a team, we have a process and it gives us much better outlook than what we had before. David S. MacGregor: Okay. Good. I wanted to ask you about Astec Signal. You talked about ConExpo. It was a good reaction there to the new product rollout. Just trying to get a sense of what kind of reaction you got specifically to the Signal platform. And from that reaction, what's your sense of sort of the ability of that technology to accelerate placement cycles? Jaco van der Merwe: Yes. We're very excited about that, David. I mean we are investing significantly in further developing the platform. We're investing in additional manufacturing capability. Next time when in Chattanooga, we'll show you that. We think that this is just starting. We have a really good platform. It's going to provide a lot of benefits both to us and our customers in the future. So overall, reception has been really positive. So we'll talk quite a bit more about Signal during our Investor Day next week as well. David S. MacGregor: Great. Great. And then last question, Brian, where do you see the balance sheet leverage at year-end based on the guidance you've got right now? Brian Harris: Yes. David, I think if you take the midpoint of the guidance, we should end somewhere around about 1.7 times. Operator: And now I'll turn the call over to Steve Anderson, Senior Vice President of Investor Relations. Stephen C. Anderson: Thank you, Rebecca. We appreciate everyone's participation in our conference call this morning, and thank you for your interest in Astec. As today's news release states, the conference call has been recorded. A replay of this conference call will be available through May 20, 2026, an archived webcast will be available for 90 days. The transcript will be available under the Investor Relations section of the Astec Industries website within the next 5 business days. This concludes our call. But as always, feel free to contact me with any additional questions. Thank you. Have a good day. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the NerdWallet, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Robb Ferris. Please go ahead. Thank you, operator. Robb Ferris: Welcome to the NerdWallet, Inc. Q1 2026 Earnings Call. Joining us today are Co-Founder and Chief Executive Officer, Tim Chen, and Chief Financial Officer, John Lee. Our press release and shareholder letter are available on our Investor Relations website; a replay of this update will also be available following the conclusion of today's call. We intend to use our Investor Relations website as a means to disclosing certain material information and complying with disclosure obligations under SEC Regulation FD from time to time. As a reminder, today's call is being webcast live and recorded. Before we begin today's remarks and question-and-answer session, I would like to remind you that certain statements made during this call may relate to future events and expectations and, as such, constitute forward-looking statements. Actual results and performance may differ from those expressed or implied by these forward-looking statements as a result of various risks and uncertainties, including the risk factors discussed in reports filed or to be filed with the SEC. We urge you to consider these risk factors and remind you that we undertake no obligation to update the information provided on this call to reflect subsequent events or circumstances. You should be aware that these statements should not be considered a guarantee of future performance. Furthermore, during this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, except where we are unable, without reasonable efforts, to calculate certain reconciling items in confidence. With that, I will now turn it over to Tim Chen. Tim Chen: Thanks, Robb. We reported revenue of 222 million for the first quarter, up 6% year over year. Within our consumer vertical, we saw continued year-over-year growth in banking, driven by robust demand for savings accounts. Personal loans revenue was also significantly higher in Q1 year over year. These positives were partially offset by a year-over-year decline in credit cards. Within our SMB vertical, we saw year-over-year declines driven by organic search headwinds. Non-GAAP operating income of 34 million and adjusted EBITDA of 45 million set new Q1 records, driven by strong operating leverage on our fixed cost base and lower other marketing spend. As we look ahead, we are affirming the high end of our full-year NGOI guidance range but taking a more conservative view on the lower end of the range to reflect two dynamics that are adding uncertainty to near-term results. First, in auto insurance, monetization from one of our large partners started running below our expectations, which impacted our Q1 results and is expected to have a greater impact in Q2. While this business can be volatile on a quarter-to-quarter basis, we are encouraged by the strong macro outlook for auto insurance customer acquisition spend. Against this healthy backdrop, we are deepening our technology integrations with several auto insurance carriers and expanding our offering with agent-centric carrier partners through phone-based referrals. We are also investing to build out our branded agency, NerdWallet, Inc. Insurance Experts. We believe that these investments will create a more diversified and resilient base from which we will grow in the future. Second, we have decided to be more aggressive in placing our long-term bets. We believe our brand and distribution moats represent a growing advantage as less powerful brands struggle to reach consumers efficiently, while AI simultaneously reduces the cost of offering financial products. This is creating a unique investment window for NerdWallet, Inc. While this environment is increasingly challenging for newer entrants and single-product companies, our trusted brand leaves us in a strong position to capitalize on our massive consumer reach and distribution network. Whether we are evaluating corp dev opportunities or building offerings like NerdWallet, Inc. Insurance Experts, we believe we are in a sweet spot to generate attractive long-term returns on these investments. And now I will pass it over to John Lee to cover our financial results in more detail. John Lee: Thanks, Tim. Before I walk through the results in detail, a quick reminder on the reporting we discussed last quarter, which took effect today. Beginning this quarter, we are presenting revenue in two categories: consumer and SMB. Consumer combines what we previously reported as insurance, credit cards, loans, and emerging verticals. SMB remains unchanged. Prior-period amounts have been restated under this new presentation. Turning to the top line, total revenue in Q1 was 222 million, up 6% year over year. Consumer revenue was 198 million, up 10% year over year, driven by banking and personal loans and partially offset by consumer credit cards, primarily due to organic search headwinds. SMB revenue was 25 million, down 15% year over year, driven primarily by organic search revenue declines in SMB products, partially offset by revenue growth in loan originations. Moving to profitability, Q1 GAAP operating income was 27 million, compared to 1 million in the prior-year quarter. NGOI was 34 million at a 15% margin, up from 9 million at a 4% margin in Q1 2025 and above our guidance range of 28 million to 32 million. The year-over-year improvement was primarily driven by lower other marketing expenses on lower brand spend, partially offset by higher performance marketing spend. Recall that we did not repeat a Super Bowl ad this year, which was the primary cause of the decline in our other marketing spend year over year. As we have seen in the past quarters, brand spend tends to fluctuate quarter over quarter and is dependent on timing of brand campaigns and market conditions. Q1 adjusted EBITDA was 45 million. Turning to cash flow and capital allocation, we ended the quarter with 56 million of cash and cash equivalents, down from 98 million at year-end 2025. During the quarter, we generated 40 million of adjusted free cash flow, offset by 17 million of cash consideration for the College Finance acquisition that closed in February 2026, as well as 66 million of share repurchases in the quarter. Please note that the contributions from College Finance were not material to first-quarter revenue or operating income. Our trailing twelve-month adjusted free cash flow of $1.31 was up 125% year over year, a testament to the strong cash flow characteristics of our business model. Our diluted weighted average share count was down 9% year over year due to our share repurchase activity, and we will continue to evaluate share repurchases alongside other uses of capital. As of March 31, 2026, we had 90 million remaining under our share repurchase authorization. Turning to guidance, we expect to deliver second-quarter revenue in the range of 186 million to 2[inaudible] million, up 4% year over year at the midpoint. In terms of profitability, we expect non-GAAP operating income in the range of 6 million to 14 million. As a reminder, Q2 is typically our seasonally softest quarter, and our guidance reflects this as well as our deliberate increase in vertical integration investments to drive long-term growth. For the full year, we are guiding to an NGOI between 85 million and 110 million. We are reaffirming the upper end of our previously issued guidance range with the expectation that we will continue to grow revenue year over year in each of the remaining quarters of 2026, supported by continued performance marketing-led growth in banking, personal loans, and other products, resulting in full-year revenue growth in the mid- to high-single digits year over year. In addition to top-line growth, we expect NGOI to be supported by ongoing corporate G&A expense discipline. However, we are reducing the low end of the range, which now reflects planned investments to accelerate our vertical integration strategy, and reflects uncertainty as it relates to monetization with one of our large auto insurance partners. As Tim mentioned, we are increasingly confident that these investments not only have the potential to accelerate our growth and generate attractive returns for our shareholders, but to create a more diversified and resilient NerdWallet, Inc. over time. We will now open the call for questions. Operator: As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Justin Patterson with KeyBanc Capital Markets. Go ahead. Your line is open. Analyst: Great. Thank you. This is Miles Jakubiak on for Justin. I wanted to dive deeper on the acceleration of investments in the vertical integration. Could you give more context around what you saw or what changed that led you to want to push the pedal on more investment in these areas? And then any more context you can provide around where these dollars are going within the vertical integration strategy would be helpful. Thank you. Tim Chen: Thanks for the question, Miles. High level, the cost of launching financial products is decreasing rapidly, as everything from software to call centers to capital markets is getting more efficient. Meanwhile, the cost of distribution is going up. That means now more than ever, distribution is king. As a result, a lot of bright entrepreneurs, whether internal to NerdWallet, Inc. or external, are seeing NerdWallet, Inc. as a great place to build. So we have a really unique investment window. From the corp dev side, we are seeing a lot of people coming to us who value our distribution and who have built great products. We are also considering building a lot of things ourselves as well. Robb Ferris: Great. Thank you. Operator: Stand by for our next question. The next question comes from the line of Michael Aravante with Morgan Stanley. Analyst: Hey, two ones for me. I will ask them both at the same time. Are you able to parse how much of the full-year low-end NGOI reduction is driven by the monetization dynamics versus the incremental investments? And then, Tim, on the incremental investment—you obviously gave some commentary there—we are in the middle of a significant structural profitability change in the business with the mix shift towards performance marketing. Can you walk us through the work that you have done internally to get comfortable with the returns that you intend to deliver here? Thank you. John Lee: Thank you for the question. On the full-year NGOI guidance, we are reaffirming the upper end of our previously issued guidance range with the expectation that we will continue to grow revenue year over year in each of the remaining quarters. In terms of the low end of the range, we assume that we are not able to offset the insurance weakness for the entire year and we continue to invest further into our vertical integration strategy, whereas the high end of the range represents that we are able to offset the insurance weakness in the second half of the year while identifying fewer investment opportunities in our vertical integration strategy. Tim Chen: I will take the second part of that, and I will give a little more color on insurance as well. One of our large carriers pulled back in March, and we have a lot of concentration towards a few carriers currently and a few channels. Taking a step back, even after growing our insurance business several fold over the past few years, we are still a relatively new player in this market and have a pretty high concentration. We are investing in growing additional carriers, and we are also starting to sell directly to agents. That is a new business for us. That rounds out our core click offerings with calls and leads, and it enables us to open up additional channels. In terms of the IRR analysis, we obviously want to exceed our cost of capital when we are doing things like vertical integration—and our cost of capital is pretty high. If you look at our free cash flow yield versus our market cap and our growth rate, that is a pretty high hurdle to get over. What is unique for us is we have that big top of funnel. When we are looking at things from a corp dev perspective, we can do commercial testing with partners and get a pretty good sense of how that is going to shake out. When we are building internally, with all the new tools and infrastructure that are available now, you can do incredible stuff with pretty small teams. Both of those are affecting the cost side of the IRR calculation. Analyst: Helpful. Thanks, guys. Operator: One moment for the next question. Our next question comes from Ralph Schackart with William Blair. Go ahead. Your line is open. Analyst: Maybe piggybacking off that last question on insurance, can you give us a better understanding of the investment needed in terms of the dollars and the duration of this investment? Is this going to be a multi-quarter cycle, or something that you think could be quickly built to add that additional carrier capacity? And then maybe just an update on the LLM traffic—what you have observed or learned since the last call. Any sense how cannibalistic this is or how that traffic is shaking out? Thank you. Tim Chen: On the insurance buildout, we are definitely talking multi-quarters. We are standing up a system where we are routing calls to agents—both independent agents as well as captive agents. That takes time. We have to build that out from both an operational side as well as a BD side, demonstrate our value, and follow the playbook over time. I would expect more of a slower ramp there. We are going to try to do it efficiently, but that is an incremental investment. In terms of LLM traffic, it is pretty much the same story as last quarter. We are dominant when it comes to LLM share in financial services or money questions based on the third-party data we have seen. We do see people coming through, and we see high conversion rates. It is just a very small piece of our overall pie right now from a revenue perspective. Analyst: Great. Thanks, Tim. Robb Ferris: Thank you. Operator: I am showing no further questions at this time. I will now turn it back to management for closing remarks. Tim Chen: Thanks, everyone, for your questions today. This quarter we made meaningful progress against our strategic pillars. I am proud of what the Nerds delivered and remain confident in where we are headed. Our focus is clear: making NerdWallet, Inc. the first place consumers turn to for financial products. Thank you. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Greetings. Welcome to the Core Scientific, Inc. Fiscal First Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Jon Charbonneau, SVP, Investor Relations. Please go ahead, sir. Jon Charbonneau: Great. Thank you. Good afternoon, and welcome to Core Scientific, Inc.'s first quarter 2026 earnings call. Before we begin, I need to remind you that statements made on this call other than historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are based on our current expectations. Words such as “anticipates,” “estimates,” “expects,” “intends,” and “believes” and similar words and expressions are intended to identify forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ substantially. For further information on these risks and uncertainties, we encourage you to review the risk factors discussed in the company's reports on Form 10-Q and 8-Ks filed today with the SEC and the press release and slide presentation contained therein. The forward-looking statements we make today speak as of today, 05/06/2026, and we do not undertake any obligation to update any such statement to reflect events or circumstances occurring after today. Today’s presentation is available on our website investors.corescientific.com. The content of this conference call contains information that is accurate as of today, 05/06/2026. Joining me today from Core Scientific, Inc. are our CEO, Adam Sullivan, Chief Operating Officer, Matt Brown, and Chief Financial Officer, Jim Nygaard. We will conduct a question and answer session after management’s remarks. We will now begin with remarks from Adam. Adam Sullivan: Good afternoon, everyone, and thank you for joining a platform designed to support the most demanding compute workloads in the market. Over the past year, we have translated that strategy into execution, delivering high-density capacity at scale across multiple states. Those sites were an important starting point; our first customer was never Core Scientific, Inc.’s full story. Delivering these initial sites enhances our operating credibility and provides a significant capital foundation we need to scale meaningfully from here. We have shown clearly our ability to deliver at scale. Across five sites, we are now developing one of the largest multisite AI infrastructure buildouts in the market. We are now earning revenue on approximately 245 megawatts, with another 200 megawatts expected to be earning revenue in the coming months. Our execution, combined with the favorable structure of our CoreWeave contracts, has enabled our next phase of growth. Today, we closed on a $3.3 billion capital raise supported by that contract, with the proceeds to be used for future growth and the development of projects for other customers. The fact that we have five facilities fully leased and financed by our tenant is a meaningful differentiator. We have the ability to push the next phase of development in a disciplined way by securing the land, labor, and equipment to protect timelines and accelerate delivery. As these new projects are leased, we expect opportunities for further financing to continue the cycle of our forward development go-to-market strategy. Our next phase of development has already begun. In late last year, we committed existing cash on hand to purchase equipment for our other existing sites. With the new secured financing, we are now accelerating development activity across multiple sites including Pecos, Muskogee, Hunt, Dalton Phase III, and Auburn. This positions us differently in the market. We are not waiting for deal negotiations to conclude before advancing sites. With capital in place, we can move early, bringing RFS timelines within the 12 to 14 month time frame that customers are actively trying to solve for. We are also scaling our campuses in a repeatable way. Today, we announced a path to approximately 1.5 gigawatts at Muskogee, closely following a similar plan. A key enabler of that scale is our power strategy. Customers are increasingly focused on solutions beyond existing grid capacity, including behind-the-meter options. We are proactively positioning our sites to support those needs, including efforts to secure natural gas infrastructure where appropriate to enable future expansion. Pecos is a clear example. We are actively converting the site from Bitcoin mining to high-density colocation with construction already underway and a pathway to RFS within 12 months. Muskogee is another. We see a path to 1.5 gigawatts of gross power supported by grid expansion, the Polaris acquisition, and behind-the-meter solutions, and we expect to deliver additional data center capacity outside of our current contract in late 2027. Stepping back, we are executing a repeatable model: secure strategic sites, invest ahead of contracts where appropriate, and create assets that are increasingly compelling as they approach readiness. That brings me to our commercial progress. We are engaging customers from a position of strength. Because development is already underway, our timelines are not dependent on contract timing—an important distinction in this market. As we previously discussed, we are engaged in an exclusivity process with a hyperscaler across Pecos and Muskogee. That exclusivity is now expired. However, three hyperscalers immediately engaged on those same sites. We are now in active discussions. This reinforced both the strategic value of these assets and the depth of demand for large-scale, high-density capacity. It also informed how we approach exclusivity going forward. While it likely remains a necessary part of some deal negotiations, it must also include clear milestones. In a market like this, we will not keep high-value assets off the market longer than necessary. More broadly, our conversations with potential customers have increased significantly since the beginning of the year. Hyperscalers remain our primary focus and we are also seeing growing engagement from chip makers, AI labs, and Neo Cloud providers. These emerging customer segments represent meaningful opportunity, though they often require additional credit support. We are actively working with customers and financing partners on structures that can support long-term financeable commitments. Stepping back, our position is clear. We are building a scaled, high-density digital infrastructure platform with a diversified site portfolio. We are deploying capital to secure timelines and accelerate delivery. We are also seeing strong customer demand. Based on our execution, capital position, and commercial momentum, we are confident in our ability to continue expanding and creating long-term value for our customers and our shareholders. With that, I will turn the call over to Matt Brown to provide more details on our operations and development progress. Matt? Matt Brown: Thanks, Adam. As we reflect on the first quarter, our operational priorities remain clear: execute on our existing build pipeline, bring capacity online efficiently, and position the business for the next phase of large-scale expansion. Demand for high performance compute infrastructure remains strong, and we have focused on aligning our delivery timelines, supply chain readiness, and power strategies to meet that demand. I will begin with an update on our CoreWeave dedicated facilities, where we continue to execute at pace and at scale. Today, I am pleased to announce that we have delivered 243 megawatts of billable capacity to CoreWeave. This includes a milestone with a full turnover of both our Marble, North Carolina and Dalton, Georgia Phase I data centers. At Marble, we completed construction and successfully transitioned the entire facility into operations, bringing 65 megawatts of billable capacity online. At Dalton Phase I, we likewise achieved full site handover and delivered 30 megawatts into service. These milestones reflect the team’s ability to execute efficiently at scale, transition assets seamlessly from construction to revenue generation, and consistently align to customer timelines—all of which remain critical as we continue to move forward. Across our remaining contracted sites, we will continue delivering billable megawatts over the coming months while scaling execution on the CoreWeave contract, positioning us to deliver more than 450 megawatts billable by the end of the summer, while remaining on track to deliver the full 590 megawatts by early 2027. Now turning to our non-CoreWeave developments, where we are advancing our development strategy. Our Pecos, Texas campus is one of our most significant development opportunities, with a plan to scale from 300 megawatts to 1.5 gigawatts through a multipronged expansion strategy. At the core is our power roadmap. We have secured an additional 300 megawatts and are advancing a mix of grid-connected and behind-the-meter solutions to support long-term growth. The behind-the-meter strategy leverages low-emission generation and includes the construction of a linear gas pipeline to the campus. Together, these efforts are designed to accelerate time to power, enhance resilience, and reduce supply chain risk while enabling us to meet hyperscale demand. In parallel, construction of our initial 431 thousand square foot, 185 megawatt facility is progressing from civil work into foundation phases, with precast walls arriving for vertical construction. All the long-lead items and equipment have been secured, helping reduce execution risk and support timelines. We are also advancing infrastructure for high-density colocation, including redundant fiber capacity and a new regional interconnect point in Midland, Texas, linking back to the Pecos campus. At our Muskogee, Oklahoma campus, today we announced plans for the expansion of the site to 1.5 gigawatts of gross power, or approximately 1 gigawatt of leasable capacity. Similar to Pecos, this expansion will leverage a combination of behind-the-meter infrastructure and utility-supplied power, including the roughly 440 megawatts acquired through the Polaris transaction. With our general contractor already secured on-site, we have begun development of the first 82.5 megawatt building with initial delivery expected in the second half of 2027. And finally, turning to other development sites: Hunt County, Texas; Dalton, Georgia Phase III; and Auburn, Alabama each continue to advance through preconstruction milestones and remain on track to meet their initial delivery timelines. In closing, as we look ahead, we remain confident in our ability to execute against our commitments and capture the opportunities in front of us. The combination of strong demand, a growing portfolio of scale developments, and continued progress on our power infrastructure strategies position us well for the quarters ahead. With that, I will turn it over to Jim. Jim Nygaard: Thanks, Myles. During the first quarter, we reached an important inflection point as our colocation revenue scaled to a level sufficient to cover operating costs and began expanding margins. This marks a meaningful milestone in our transition, with colocation now becoming an important driver of our overall financial profile. Today, we are billing for 243 megawatts, which equates to more than $350 million of annualized colocation GAAP revenue, with significant additional capacity expected to begin billing over the next several months. As a reminder, under GAAP, revenue from the CoreWeave contract is recognized on a straight-line basis over the 12-year lease term, effectively pulling escalators forward. From a Bitcoin mining perspective, we remain focused on optimization and are running that business to help offset contractual power costs as we continue the transition toward high-density colocation. Going forward, we expect mining activity to continue winding down over the course of the year, with a meaningful step down in miners online in the second half. Earlier this year, we monetized a significant portion of our Bitcoin holdings and currently retain only a modest amount of Bitcoin on the balance sheet. Moving on to costs, first quarter SG&A on a cash basis was just over $30 million. While we are not providing explicit SG&A guidance, we believe this level represents a reasonable baseline for corporate expenses going forward, with the potential for opportunistic investments to support growth over the next few years. Separately, you may have noticed that we increased our target cash gross profit range for the CoreWeave contract to 80% to 85%, up from our original target of 75% to 80%. We first introduced that target roughly two years ago, and today we have much greater visibility into the associated cost structure given we are now billing for a meaningful portion of the contracted megawatts. With that operating backdrop, let me turn to capital formation, where today marked another major milestone for Core Scientific, Inc. We closed our previously announced $3.3 billion CoreWeave project bond financing at a 7.75% interest rate, which we view as a highly attractive cost of capital for a financing of this scale. After closing costs and funding the required debt service reserve account, net proceeds were approximately $2.9 billion. For additional context, the bonds include a lockbox structure, which is a cash control mechanism where project revenues are paid directly into a designated account and then applied through the indenture-defined cash waterfall—first to operating expenses, then to debt service, and finally to other uses permitted by the indenture. Unlike a traditional project finance structure, where a lockbox is created to fund a specific project under development, our structure enables the distribution of the vast majority of offering proceeds up to the corporate level to facilitate investments in a variety of new projects outside the box. Going forward, the lockbox will service the debt secured by CoreWeave contracted site assets and cash flows. From this perspective, the transaction significantly strengthens our consolidated capital position, validates the quality and predictability of our contracted cash flows, and gives us the ability to execute the next phase of our growth plan with greater flexibility, speed, and certainty. We expect to deploy roughly $2 billion of total capital expenditures in 2026. This includes approximately $700 million for both the Hunt County, Texas site acquisition, which closed yesterday, and the Polaris acquisition at our Muskogee, Oklahoma site announced earlier today, as well as expenditures to begin pre-seeding approximately 1 gigawatt of new billable capacity. This includes long-lead-time equipment procurement and various site development and utility support activities across multiple project locations. We are strategically positioning the business to sign attractive new customer contracts with capacity outside of CoreWeave available for delivery starting in early 2027. The platform we are building, together with cost-effective capital we have secured for new project equity investments, is differentiated in the market, and we believe it positions Core Scientific, Inc. to create meaningful long-term shareholder value. Lastly, we recently welcomed Jorge Rey as our Chief Accounting Officer, further strengthening our finance and accounting team. Jorge brings valuable accounting and public company reporting experience, and his leadership will be important as we continue to scale the business and support our next phase of growth. I will now turn the call over to the operator for questions. Thank you. Operator: We will now open the call for questions. Our first question will come from Brett Knoblauch with Cantor Fitzgerald. Brett Knoblauch: Hi, thanks for taking my question and congrats on the site expansion at Pecos and Muskogee. I guess maybe just on the hyperscale exclusivity that expired—clearly, there is demand with additional tenants kind of backfilling that—but could you maybe shed light on why it expired, why it did not progress? Is there anything that maybe the sites were not of interest or that they were not interested in, or just give some more color around that dynamic? Adam Sullivan: Yes, absolutely. And thank you, Brett. Those sites, as you mentioned, are incredibly attractive—both Pecos and Muskogee, given their ability to scale, represent tremendous opportunity for a hyperscaler. As we noted in prepared remarks, three hyperscalers immediately engaged. They are incredibly attractive sites. With the one that we were under exclusivity with, it is hard to determine the exact reasons why, but for us, we got to the end of the exclusivity and we thought this is the best time for us to bring these back to market. Hyperscalers were knocking at the door and asking questions about the sites. We knew we could have an opportunity to bring another hyperscaler into the fray. So we feel great about our position today, given the competitive dynamic. Brett Knoblauch: Perfect. And maybe just one follow-up. It seems like the AI pendulum is swinging into full bull mode here, and you guys do have a lot of capacity available to the kind of RFS by early 2027. Do we think we are closer to maybe a second tenant today than we were when you guys reported 4Q in early March? Adam Sullivan: Yes. When you look across our site portfolio, we have five sites with first data halls RFSing in 2027. It is an incredibly unique position, given the different size and scale and geography spread that we have inside our portfolio. We are in conversations with all of the hyperscalers, chip makers, AI labs, Neo Clouds. We are in a unique position here just given the asset spread that we have, and so I would say definitely across the entire site portfolio, we are closer than we were before. Operator: Our next question will come from John Todaro with Needham and Company. John Todaro: Congrats on the expansion of power. Two from me. Going to the other three hyperscalers you are now in conversation with—if we frame it up, was there already some dialogue at some point? It is a limited universe. Should we be thinking it is kind of starting the process anew with them, or there has already been some dialogue along the way and you are pretty far along, and we could get something maybe a bit sooner than necessarily restarting the process? Adam Sullivan: Thanks, John. Our relationship with these groups is not new. We are engaged with them on other sites. This was just really bringing both Pecos and Muskogee back to the table, and that is really why we were able to immediately reengage with those customers. John Todaro: Got it. Understood. That is very helpful. And then you mentioned starting some of the process on building out some of these assets before a lease gets done at some of them. Is there any guardrail on how much CapEx you would start putting forward before getting a lease? Adam Sullivan: Yes. The way we are thinking about it right now is we want to take the first data hall to full RFS. As part of that, that means we are securing the labor, securing the trades, securing long-lead equipment, and putting ourselves in a position where, if a customer signs any time leading up to the RFS of the first data hall, we can just continue to extend all of that labor that we have secured on-site. That is our guardrail right now. We feel very confident in the strategy, and the ability to show the progress that we are making across each of these sites to customers is really what is forcing the engagement here, because everyone is incredibly interested in capacity that is getting delivered in 2027 right now. Operator: And we will go next to Analyst with Oppenheimer. Analyst: Do you have a rough idea when you might sign a contract? And can you maybe just talk about the pricing trends at a high level? Adam Sullivan: I would just say we are actively engaged right now across every major group, and we feel very confident based on where we sit today versus where we sat three months ago. The only thing that has changed is our assets have continued to build more value, we have continued to deploy more capital, and we have continued to get closer to the RFS state. So we have high confidence in the customer conversations that we are having today. If you could just remind me, what was your second question? Analyst: What are you seeing in the pricing trends? With the pricing of the new contracts, do you expect— Adam Sullivan: I think you are going to expect to see pricing continue to firm up. Really, that is the result of both labor and equipment continuing to inflate, and so you are seeing a similar move in pricing. Analyst: And then just lastly, behind-the-meter power—can you give us a sense of the lead time on that? And ultimately, how will your costs for build-your-own versus the grid compare? Adam Sullivan: Right now, what we are looking at is deploying behind-the-meter solutions anywhere from about 12 to 14 months. The great part for us is these are opportunities, given the locations that we have available to us, that really represent great opportunity for continuing to expand at those sites. The other site that we have not talked about—Hunt—has the opportunity to potentially bring behind-the-meter, but that is something that we are still in the evaluation phase today. We have not necessarily done as much of the due diligence that we have done across Pecos and Muskogee in the work that is currently being performed there. Analyst: And is the ultimate cost to a customer about the same as grid, or a little bit more? Adam Sullivan: It is about the same. The economics for us as developer look very similar, so the cost to the end tenant too, on a blended basis for power rate, is not materially different. Operator: And Michael Donovan with Compass Point has our next question. Michael Donovan: Hi, guys. Thanks for taking my question. So, another question on behind-the-meter. The Muskogee announcement this morning referenced Oklahoma’s behind-the-meter legislation. Can you explain what that legislation changes for Core Scientific, Inc.’s ability to develop and whether it gives Muskogee a timing or cost advantage versus opportunities in Texas? Adam Sullivan: Governor Stitt has been a big advocate of bringing behind-the-meter opportunities to the state of Oklahoma. You saw Governor Stitt’s quote in the press release today. Oklahoma is focused on figuring out how to bring more generation to the state. Our ability to execute in Oklahoma is not necessarily any easier or any more difficult than our site in Pecos, but we definitely have the support of the government there to continue to bring more generation to the state. Michael Donovan: Great. Thanks. And one follow-up, if I may. Have you contemplated owning the generation assets, or would you be solely partnering with a power developer? And then how are you thinking about redundancy? Adam Sullivan: I will take the first part of that question and then I will hand it over to Matt to take the question about redundancy. As we evaluate the behind-the-meter solutions, there are potentially some solutions that we would own ourselves, and there are others that we would work through a third party that would provide us a PPA, which would be included in the power price over time. There are a few different methods we could go down. It really just comes down to the economics question as well as who the behind-the-meter solution is from. Matt, do you want to talk about redundancy? Matt Brown: Yes. To include in that is the maintenance and operation of the behind-the-meter generation, which would come along with that PPA agreement as well. From a redundancy standpoint, when we are building behind-the-meter, redundancy becomes much more critical for high-availability services. We need to be able to support the full load of the portion of the campus that we are powering from behind-the-meter under maintenance conditions—meaning we need to be able to take some of that equipment offline for maintenance, maintain full load, and have redundant capacity still online and available in the event of a failure. You can almost think about that as at minimum an N+1 configuration—maybe an N+2 or an N+20% or N+30% type of redundancy scheme. Operator: Moving on to Joseph Vafi with Canaccord. Joseph Vafi: Hey, guys. Good afternoon. Congrats on the progress. Thanks for taking the question. Just wondering how you are managing the labor side of the builds here. I am not quite sure if you are employing a few large GCs on the build, or are you looking at construction labor as any constraint in the market right now? Thank you. Matt Brown: Great question. Labor is one of the primary constraints of the market, depending on which market we are talking about. Nationally, labor is a big issue. It is one of the reasons why we think we have an advantage by being able to proactively invest in development of these sites—being able to secure and tie up the labor through our projected RFS and scaling beyond that. In terms of how we are doing that, we have a couple large GCs executing our sites’ development today, and those GCs have a lot of leverage in the marketplace, being able to secure electrical contractors, mechanical contractors, civil, etc. All of those—except for probably one site—are already fully mobilized and executing our development as we speak. Operator: We will go to Paul Golding with Macquarie Capital. Paul Golding: Thanks so much and congrats on the progress. I wanted to ask on these behind-the-meter opportunities that you have been discussing. You mentioned you might partner with someone who would give you a PPA or you might look at an opportunity to do it yourself behind-the-meter in terms of generation. How is the air quality component of that structured, or how do you see that potentially being structured? Do you have to still go to market and apply for those emissions permits, or would a partner that you are speaking with already have that in hand? And then I have a follow-up. Thank you. Matt Brown: Yes, great question. As we mentioned in our prepared remarks, the technologies that we are going to get behind and support for all of our behind-the-meter sites will be technologies that are low emissions generally. That gives you a little bit of insight as to what we are not thinking about from that standpoint. On the permitting standpoint, yes, we will certainly have to go and apply for air quality permits for many of these deployments. In some cases, that will be in participation with the behind-the-meter operator or supplier, and in other cases, we will be doing that on our own. In both Pecos and Muskogee, we are already far down the path of our air quality studies for the implementation of those solutions. Paul Golding: Got it. Thanks so much. And I was just hoping you could also give a little more detail around some of the puts and takes that enabled you to raise the run-rate margin profile on the existing energized and billable capacity from that 75% to 80% to 80% to 85%. Thank you. Adam Sullivan: Two years ago, when we signed the original CoreWeave contract, we had a scope of service contemplated in that deal, and we had an element of conservatism knowing that we had not broken ground on the project at that point and that we were going to be deploying over a fairly lengthy period. Once you are two years after the fact and into it, we have more experience under our belt on the number of actual heads that are going to be devoted to the activities and the contractors that we are using and have actually deployed on-site. It is really just a true-up of that experience. We feel good that we are at a margin level that we can deliver today, and we felt more confident that we could be a bit more prescriptive on where we think we are going to end. Operator: And our next question comes from George Sutton with Craig-Hallum. George Sutton: Thank you. As you begin to market to the chip makers and the NeoClouds, I am just curious—do you have a bifurcated sales portfolio where some of the sites and maybe even parts of locations are being marketed to those folks versus the hyperscalers? How is that working through the system? Adam Sullivan: We are showing both chip makers, Neo Clouds, and labs the same sites that we are also showing to hyperscalers. As we work through these processes, oftentimes they are migrating to one or another site, but in reality, we are showing our entire portfolio to each of the customers that come through our door. George Sutton: And one other question relative to executing ahead of the contracts. How does the negotiation get altered with some of these potential customers when you have secured the supply chain and you are moving forward? Does that accelerate discussions? Does that keep them more engaged? Can you walk through that thought process? Adam Sullivan: It definitely keeps them more engaged. They rarely see sites that come across their desks with an RFS timeline within 18 months, and even less than that. For us, being able to show photos and videos of sites with active construction going on and the list of equipment that is on order changes the dynamic of the discussions, because this is not just a photo of a piece of land. This is an active construction site actively progressing towards building a data center. Operator: We will go next to John Hickman with Ladenburg Thalmann. John Hickman: Hi. Thanks for taking my question. This is a little bit esoteric, but now that you are well into your buildout for CoreWeave, could you comment on the experience—what was harder than you thought, what was easier, and where do you think you have a competitive advantage now that you have put that many megawatts into production? Matt Brown: It is a great question. Reflecting on that, the thing that was much more difficult than we gave it credit for was executing on brownfield conversions, which is why everything you see that we are doing forward is actually a greenfield site with a highly standardized basis design. That allows us to get leverage over our supply chain and be super predictable in terms of our delivery dates. Brownfield sites are highly unpredictable, require a lot of customization, and it is a lot of effort to try to retrofit an existing building. While sometimes that can be faster, it comes with a lot more complexity. That is probably one of our biggest lessons learned. John Hickman: Okay. And competitively, now that you have learned that, where do you think you are versus other people that are trying to build data centers? Matt Brown: The great part is that we have had five sites to practice on, and we have been executing these high-density builds across all the CoreWeave locations. We have been able to iterate on those designs—we have executed more than 150 design changes along the way across the portfolio—and that gives us a bit of a head start in terms of what does not work and what works well. All those learnings have culminated into a go-forward build strategy. We have the advantage of learning those lessons firsthand in real time, so we will not make those mistakes going forward. Operator: And our next question comes from Henry Hearle with B. Riley Securities, on for Nick Giles. Henry Hearle: Thank you, operator. I wanted to ask about the change in your approach to exclusivity. In what scenarios would you go into it? And then you also mentioned being in contact with several counterparties. Would you expect to announce exclusivity if you were to enter into one? Thanks. Adam Sullivan: Thanks, Henry. I would not say that we would expect to announce in the interim between quarters. What we have migrated to is moving to a milestone arrangement method, which allows us to ensure that the cadence is moving at the pace that we would expect in a deal that would move towards closing. That allows us to bring a site back on market if we do not feel like the pace and cadence is where we would like it to be. We have migrated to this strategy, we are on it now, and we feel like it gives us the best shot on goal given the demand that we are seeing in the market today. Henry Hearle: Understood. Thanks for that. And then on winding down your Bitcoin mining operations in the coming quarters, do you have a definitive target date to be fully out of that business, or will it act as a small hedge going forward? Thanks. Adam Sullivan: Over the course of the remainder of this year, the Bitcoin mining business is going to continue to migrate lower, and by the end of this year, we will only have one or potentially two sites operating Bitcoin mining. Operator: Moving on to Steven Glagola with KBW. Steven Glagola: Hey, thanks for the question. Adam, I just wanted to touch base again on the challenges on securing the leasing commitments at Pecos and Muskogee. From my standpoint, it would seem like you have strong leverage there—the sites have near-term power, you can point to your execution in the CoreWeave buildout to date. Are you seeing hyperscalers become more selective in their choice of development partners, and if so, how is that influencing demand or deal timing? Adam Sullivan: The exclusivity that expired—the customer is still at the table and still interested in those sites. Broadly across the market, you are seeing repeat deals across some of the developers, especially on the private side, so I would agree with that. They are also looking for experience in the development of this type of infrastructure. This is different than traditional data center infrastructure. Given the experience that we have and our ability to show them five sites that we built, plus 590 megawatts in progress of critical IT load, that is a differentiator and puts us in a different bucket. As you mentioned, we have great experience building, we have sites under construction, and it really puts us into a pretty unique category in this industry. Operator: Thank you. This now concludes our question and answer session. Ladies and gentlemen, thank you for your participation. This does conclude today’s call. You may disconnect your lines and have a wonderful day.
Operator: Good afternoon, and welcome to Mirum Pharmaceuticals, Inc. First Quarter 2026 earnings conference call. My name is Tracy, and I will be your operator today. All lines are currently in a listen-only mode, and there will be an opportunity for Q&A after management's prepared remarks. I would now like to hand the conference over to Andrew McKibben, SVP of Strategic Finance and Investor Relations. Please go ahead. Andrew McKibben: Thank you, Tracy, and good afternoon, everyone. I would like to welcome you to Mirum Pharmaceuticals, Inc. first quarter 2026 earnings conference call. For our prepared remarks, I am joined today by our Chief Executive Officer, Christopher Peetz, our President and Chief Operating Officer, Peter Radovich, and Eric H. Bjerkholt, our Chief Financial Officer. Our Chief Medical Officer, Joanne M. Quan, will be joining us for Q&A. Earlier this afternoon, Mirum Pharmaceuticals, Inc. issued a press release reporting our first quarter 2026 financial results. Copies of the press release and our SEC filings are available in the Investors section of our website. Before we start, I would like to remind you that during the course of this conference call, we will be making certain forward-looking statements based on management's current expectations, including statements regarding Mirum Pharmaceuticals, Inc.'s programs and market opportunities for its approved medicines and product candidates and financial guidance. These statements represent our judgment and knowledge of events as of today and inherently involve risks and uncertainties that may cause actual results to differ materially from the results discussed. We are under no duty to update these statements. Please refer to the risk factors in our latest Form 10-Q and subsequent filings for more information about these risks and uncertainties. With that said, I would like to turn the call over to Chris. Christopher Peetz: Thanks, Andrew, and good afternoon, everyone. We have a number of important updates to cover today, but I would like to start by grounding in the vision we set when we founded Mirum Pharmaceuticals, Inc. in 2018: building a company focused on bringing forward medicines for overlooked rare diseases. This quarter reflects the progress we have made in turning that vision into a durable, growing business. Our start was based on Lipmarly, and today, we are a broader rare disease company with three approved medicines and a pipeline positioned to deliver multiple new therapies over the next two years. These high-impact programs are grouped across two focus areas: rare liver disease, where we have built clear leadership, and rare genetic disease, where we are establishing a second growth platform, each with distinct commercial capabilities. Across both, we have built a financially self-sustaining business that can support continued investment in the portfolio. Our strategy is driving compelling results. Starting with rare liver disease, uptake of Libmarli remains strong, driven in part by performance in PFIC, which continues to exceed expectations. Based on that demand and continued performance across all brands, we are raising our full-year revenue guidance to $660 million to $680 million. More importantly, we are now seeing the next phase of our rare liver disease business take shape. Our recent clinical readouts in PSC and hepatitis delta represent important potential expansions for this business, extending beyond our pediatric foundation into larger patient populations with significant unmet need. In PSC, the VISTA study of elixirat showed a significant improvement in pruritus, reinforcing the potential for elixirat to play an important role for these patients who currently have no approved medicines. This is a major advance in PSC research and positions vilixibat as a potential first approved medicine for patients in the U.S. And in hepatitis delta, results from the Phase 2b portion of the AZURE-1 study further support the potential for berlivatig in a patient population where treatment options are extremely limited. We look forward to the upcoming late-breaking presentations for both VISTA and AZURE at EASL later this month. Now in parallel to this expansion of our rare liver disease business, today, we are announcing another step in building out our rare genetic disease business, with the addition of zolergosertib, recently licensed from Incyte. Zolergosertib is a once-daily oral inhibitor in development for fibrodysplasia ossificans progressiva, or FOP, an ultra-rare progressive condition where patients develop bone in soft tissues. This accumulation of excess bone leads to profound physical immobilization, with most FOP patients becoming wheelchair dependent by early adulthood, and severely impacts life expectancy. Based on the strength of zolergosertib’s PROGRESS study, conducted by Incyte, an NDA has been accepted with priority review, with a PDUFA date of September 26, 2026. If approved, we expect to launch by year-end. This is a strong strategic fit aligning with our capabilities in rare genetic disease where care is concentrated in a small number of specialized centers and requires deep engagement with patients, caregivers, and physicians. Stepping back, we have built a company with multiple commercial growth drivers, a pipeline of meaningful upcoming catalysts, and the financial strength to advance our portfolio independently. This foundation is translating directly into high-impact medicines for patients and into value creation as we deliver on our strategy. With that, I will turn the call over to Peter to walk through the commercial portfolio and preparation for the upcoming potential launches. Peter Radovich: Thank you, Chris. The first quarter was another period of strong commercial execution, with total net product sales of approximately $160 million. This included Lemarle net product sales of $84 million in the U.S., and $30 million internationally, with the bile acid medicines contributing $46 million. Robust adoption in PFIC, particularly in adult patients, continues to be a strong point for us, as education to increase awareness and recognition of genetic cholestasis among adult liver providers continues to be successful. Additionally, we saw stronger than expected performance in Q1 international Lugmarley sales, as well as continued new patient adds in Alagille worldwide. The bile acid medicines grew in a manner consistent with their cadence over the last several quarters, highlighted by our rare genetics team continuing to identify undiagnosed patients with CTX. Overall, we expect these dynamics to continue and, as a result, are raising our full-year 2026 net product sales guidance to $660 million to $680 million. And as Chris mentioned, we are also beginning to see the next phase of growth in our rare liver disease business take shape. The recent results from the VISTA study of meloxicimab in PSC and the AZURE-1 study of berlobotib in hepatitis delta represent important steps in extending our presence into larger, primarily adult liver settings where patients have limited or no approved treatment options. These programs build directly on a global commercialization platform we have established for Lumarli, Cetexly, and Cobalt, heavily leveraging our existing technologies, people, and infrastructure. We plan to expand our U.S. and international teams starting later this year to reach liver health care providers in adult settings, including GI liver providers who manage PSC patients and hepatitis delta, as well as other care settings like infectious disease and selected primary care providers where we believe we can increase the number of diagnosed hepatitis delta patients. In the U.S., our current 20-person liver field commercial team reaches about 1,500 health care providers, with current focus on pediatric liver providers and some higher volume adult providers. After our planned expansion to approximately 60 U.S. field commercial personnel, we anticipate being able to reach over 4,000 liver health care professionals, representing the vast majority of potential prescribers for our rare liver business. Turning to our rare genetic disease business, we are very excited by the addition of zolergocertib for the treatment of FOP, where there remains a desperate need for additional treatment options. FOP is a devastating, relentlessly progressive condition in which soft tissues such as muscles, tendons, and ligaments gradually turn into a second skeleton, leading to cumulative loss of mobility and severe disability in early childhood. FOP is a highly concentrated, ultra-rare disease with an estimated prevalence of about one per million, which translates to approximately 300 patients in the United States and around 900 patients globally. Patients with FOP are largely managed by specialized tertiary centers, with most of these centers also [inaudible]. Eric H. Bjerkholt: Thanks, Peter. Good afternoon, everyone. We remain disciplined behind our pipeline, which remains on track across all programs. Today, I will walk you through the financials for the quarter, including an overview of the impacts of the Bluejay acquisition and the zolergosertib transaction. Net product sales for the first quarter were $160 million compared to net product sales of $112 million in the first quarter of last year. Cash, cash equivalents, and investments as of March 31 were $421 million compared with $391 million at the beginning of the year. In the first quarter, the cash contribution margin from our commercial business was in the mid-50% range, and cash flow from operations was about $2 million. First quarter financials were significantly impacted by one-time expenses related to the acquisition of Bluejay Therapeutics, which closed in January. The total net cash out related to this acquisition was $253 million, which was offset through net financing proceeds of $260 million. Total operating expense for the quarter ended March 31 was $949 million, which includes $761 million in expense associated with the acquisition of Bluejay, R&D expense of $98 million, SG&A expense of $96 million, and cost of sales of $29 million. Expenses for the quarter included stock-based compensation, intangible amortization, and other noncash expenses of $64 million, including $35 million of stock-based compensation expense associated with the acquisition of Bluejay. The intangible amortization and other noncash item expense are largely reflected in our [inaudible]. As Chris and Peter mentioned, we recently entered into an exclusive license agreement with Incyte. In return for worldwide rights to zilogisertib, Incyte received an upfront payment of $16 million and is eligible to receive additional development and regulatory milestone payments, including $25 million upon U.S. FDA approval for FOP, ownership of a rare pediatric disease priority review voucher, if awarded, as well as sales-based milestones and shared royalties on worldwide net sales in the mid- to high-single-digits percent range. As we have discussed previously, we expect R&D expense to step up in 2026 as we invest behind berlobitur ahead of the anticipated BLA submission next year. For example, R&D expense in the first quarter included $21 million related to the development of berlobitide. Importantly, this expected increase is fully funded. We are continuing to scale the business with discipline, balancing investment in growth with a strong balance sheet and financial independence. This approach positions us to advance our pipeline and execute on upcoming milestones without compromising our long-term financial strength. I will now turn the call back to Chris for closing remarks. Christopher Peetz: Mirum Pharmaceuticals, Inc. is in a strong position after a very busy start to the year. What is most encouraging about the quarter is not just the number of positive updates, but how clearly they fit together. We continue to grow our commercial medicines, we are expanding our rare liver business into larger indications, and we have added what we believe is a transformational medicine to our rare genetic business. Importantly, this is all coming together within a high-impact, scalable business model. We are excited about the progress ahead as we approach multiple pivotal readouts, potential regulatory submissions, and potential new product launches. I would also like to thank the entire Mirum Pharmaceuticals, Inc. team for all the hard work in getting us where we are today. Your dedication brings new treatment options to patients around the world. With that, operator, please open the call for questions. Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Gavin Clark-Gartner with Evercore ISI. Your line is open. Please go ahead. Analyst: Hi. This is Yatra on for Gavin. I just had one on FOP. Wondering your current view on the number of diagnosed FOP patients in the U.S. based on claims, patient advocacy, and provider research, and then how many of those patients will immediately be treatable at launch? And then I have one follow-up on with Marley. Peter Radovich: Yes, thanks for the questions. We point towards approximately 300 identified patients in the U.S., coming from patient group IFOPA. In terms of addressable patients, the main feature there is the NDA application Incyte filed is for age 12 and over, so that would be the majority of the patient population at launch. Analyst: And then in terms of Lezmarli specifically on the guidance raise, wondering what is driving the bulk of the increase? Is it due to the ex-U.S. expansion or the continued PFIC ramp? And within PFIC, is the contribution skewing towards those older patients? Peter Radovich: Thanks for the question. Certainly, Live Marley U.S. PFIC was the biggest driver. We continue to see both pediatric and adult patients come to treatment. I think the older adolescents and adults really are the major driver, although we are still in early innings. We have made good progress educating adult providers on genetic testing, but probably still the minority of them are actually doing that. I think there are more adult patients to find out there who could potentially benefit. Eric H. Bjerkholt: And just on the international piece, Q1 historically has had a bit more seasonality and a little bit of a softer number in Q1, and that just was not as much of a factor this year, somewhat also in part due to not only additional countries performing, but also PFIC starting to show up in that international number. Peter Radovich: Thank you. Operator: Your next call comes from the line of Joshua Schimmer with Cantor. Your line is open. Please go ahead. Joshua Schimmer: Great. Thanks so much for taking the questions. Also on the zolergosertib, how are you thinking about its differentiation versus maybe some of the other programs in development? Garetosmav, if I am pronouncing that right, and sohonos? That is number one. Number two, are you planning to explore the program in other ossification indications or disorders? And then number three, I think I heard you say peak sales for the asset of $200 million. Is that global or U.S.? Thank you. Peter Radovich: Thanks, Josh, for the questions. Just to clarify, the “$200 plus” is a global number for us. Christopher Peetz: In terms of positioning here, the programs that you mentioned are the ones we are tracking, with Sohonos being approved and the other program being in the registration phase. For Sohonos, the data coming out of the PROGRESS study here for zolergosertib is a real step forward in terms of the overall activity profile and tolerability and safety profile. So we see the clinical data here as a quite meaningful advance on what is currently available in the market, which has quite a few limitations to it. And compared to the pipeline, this is an oral, which we see as a big advantage, particularly in a setting where you can potentially drive ossifications from injections and some of these other interventions. So having an oral, we see as a nice differentiator for the program. Joshua Schimmer: Got it. And then plans for other ossification disorders? Peter Radovich: Early days in thinking about it. At this point, we want to stay very focused on getting this launched for FOP, but it is certainly something we will consider as we get further down the road. Operator: Your next call comes from the line of Jonathan Wolleben with Citizens. Your line is open. Please go ahead. Jonathan Wolleben: Hey. Thanks for taking the question. A little unusual having something under review where we have not seen any of the data. Just wondering what you guys have been privy to, to make you comfortable with this acquisition. And then, what would be the forum for it to make sense to get this out into a public domain? And will you guys be eligible for a review voucher if approved? Christopher Peetz: Thanks for the question, Jonathan. I fully appreciate the unique nature of the situation. In our review—this is a conversation that has been going on for quite some time, typical for a license transaction like this—we have had full access to clinical data, to the regulatory correspondence, and the NDA. So we feel quite confident in the profile for zoligosertib and where they are at in the regulatory process. From the Incyte side, they have done a fantastic job putting together this program and saw it fitting better in a rare disease company like Mirum Pharmaceuticals, Inc., but the work they have done on it is quite strong. They want to have the data presented first at a medical meeting, so we are hopeful that is happening relatively soon. Once we get that presented, we will be able to share more on the pivotal data and overall product profile. As for a review voucher, we do expect this to be eligible for a voucher. Under the terms of the agreement, Incyte will keep that voucher, and we will launch the product. Operationally, Incyte, given they are mid-stride with the filing and review, will complete the primary role through approval, and then we will take over sponsorship at the point of U.S. approval. Peter Radovich: Yep. Thanks for the questions. Operator: Your next question comes from the line of Michael Eric Ulz with Morgan Stanley. Your line is open. Please go ahead. Rohit Bhasin: Hi. This is Rohit on for Mike. Thanks for taking our questions. With the recent pipeline acquisitions, can you talk about how you are thinking about BD moving forward? And then also, can you talk about how you are thinking about pricing in FOP? Thanks. Christopher Peetz: I can start and I will hand it over to Peter. As you have seen now for Mirum Pharmaceuticals, Inc. over the history of the company, we see a priority in staying active on the BD front. That is how you find unique opportunities that fit and add value to the company. So we will continue to work to find good programs to bring into the team. Peter Radovich: On zolergosertib pricing, we will make a decision and communicate that closer to approval. For thinking about the U.S., you can look at the Niemann-Pick C products and other ultra-rare settings like that where you have a strong value proposition. Similar epi is probably in the ballpark. Operator: Your next question comes from the line of James Condulis with Stifel. Your line is open. Please go ahead. James Condulis: Hey. Thanks for taking my question, and congrats on the quarter. Maybe one follow-up on HDV. I think we have heard a couple questions about the 900 mg monthly arm, specifically as it relates to the TND virologic response and maybe a little bit of an outlier relative to some of your prior data and the rest of your dataset. Curious about your perspectives here. And as you think about the commercial setting, for docs in the real world, what do you think is the most important measure for evaluating efficacy for these different drugs? Is it that TND response, other measures of virologic response, the composite? Thanks. Christopher Peetz: Thanks for the question. I will make a couple of comments and have Joanne speak to some of the data that we are seeing out of the AZURE-1 Phase IIb portion. In terms of what we are focused on and what we think is most relevant for ultimate use and driving adoption here, it is that composite of virologic response and ALT normalization. Those two factors are what is pointed to in the FDA guidance and show that you are not only addressing the viral load, but you are also addressing the liver inflammation that is part of the disease. Seeing both of those move means you are going after both components—for both the infection and the liver. Joanne M. Quan: Yes, and to Chris’s point on the composites, all very true. When we look at the curves in terms of the virologic response, we do see declines in everyone. When you stretch to the endpoint, if you do not meet a certain point by week 24, then you are on one side of the line or the other, but we do see decreases in all of the patients. There is certainly no evidence of lack of response or resistance or anything like that. Partly, it is an artifact of time. We do see deepening response with continued treatment. And again, this is a numerically fairly small group. We will have a lot more information with the full AZURE-1 and AZURE-4 Phase 3 datasets to make a final call on that. James Condulis: Makes sense. Thank you. Peter Radovich: Thanks for the questions, James. Operator: Your next question comes from the line of Brian Skorney with Baird. Your line is open. Please go ahead. Brian Skorney: Hey. Good afternoon, guys. Thanks for taking my question, and great quarter. I would love to also ask a question on FOP. It seems like you are doubling down on making it your corporate nemesis. I am wondering if you could give broad thoughts on where you think Sohonos’ profile leaves an opening for another entrant and compare and contrast how zolergosertib might address these. And the timeline would put us right around mid-cycle review with the FDA right now. Has that already happened or is it still pending? Eric H. Bjerkholt: Thanks for the question. On the review, yes, that has happened, and I would just say things are tracking as expected. Peter Radovich: In terms of positioning, the feedback we have heard from stakeholders—patients, caregivers, physicians—regarding the available therapy in the market today is that there is a lot to be desired in terms of both efficacy and safety. We will be able to get into more details once we have the PROGRESS data presented at an upcoming medical conference, but from what we have seen in our review of the zolergosertib profile, it is really exciting what it can mean for these patients, both efficacy-wise as well as a convenient oral and well-tolerated regimen. Operator: Your next question comes from the line of Lisa Walter with RBC Capital. Your line is open. Please go ahead. Lisa Walter: Thanks so much for taking our questions. Maybe just some more detail, if you can share, on the FOP opportunity. Are there any overlaps with your current call points? And did you disclose the deal terms with Incyte? And given the recent positive results in HDV and PSC, has this impacted your thinking on when you could become a profitable company? Peter Radovich: Great overlap with our existing team—our rare genetics team that is focused on texlecobalt. We mentioned that a significant majority of FOP patients are cared for in centers that also prescribe Cetaxley and Colbomb. Different prescribers most of the time—some overlap with medical genetics. For FOP, the biggest prescribers will be endocrinologists, so that is a new physician target, but the center overlap is really high with our existing rare genetics business. We are excited about adding this product to that team. Eric H. Bjerkholt: On the financials, we disclosed the upfront license fee was $16 million, and the next milestone would be $25 million upon FDA approval. There are some other commercial milestones, and a royalty in the mid- to high-single-digits range. We expect after launch that this product will be accretive very, very quickly. On the path to profitability, that is much more driven by brelovitag and voxibat, as well as our current commercial business. We are spending a lot on R&D this year for both of those products, so profitability will be pushed out probably until 2028 on a GAAP basis. We reiterate that we expect to be operating cash flow positive next year. Operator: Your next question comes from the line of Jessica Fye with JPMorgan. Your line is open. Please go ahead. Jessica Fye: Hey, guys. Good afternoon. Thanks for taking my question. Can you estimate the contribution in the first quarter of LiveMarly sales from Alagille versus PFIC? And then another one on FOP—just thinking about that market, what do you see as the penetration for palovarotene, and would you envision the ALK inhibitor being used in combination with that drug? Christopher Peetz: Thanks for the question. Briefly on Livmarli, we typically are not breaking out by indication, but we can say both Alagille and PFIC are growing, and PFIC is the bigger growth driver. Peter Radovich: On FOP, in the U.S. market where this medicine is available, palovarotene—based on pharmacy claims data and what we have heard in physician and caregiver interviews—it is probably a minority of diagnosed patients that are currently receiving it. It can be tried; it can often be difficult to tolerate and stay on. Operator: Next question comes from the line of Ryan Deschner with Leerink Partners. Your line is open. Please go ahead. Ryan Phillip Deschner: Hey, guys. I have Ryan on for Mani. Thanks for taking our question, and congrats on the quarter. Circling back to FOP, what is the latest thinking on an OUS filing and when you would expect to launch there? And then on the peak sales of $200 million, is that in the 12+ age group that you would get approved in the upcoming filing? How should we think about upcoming data for the younger age groups that are being tested? Thanks. Christopher Peetz: Thanks for the questions, Ryan. On ex-U.S. strategy, a European filing is upcoming. We could still have that in this quarter. Incyte is still driving those activities, and their team is doing a great job. In terms of the overall peak estimate, the $200 million-plus is the full brand in FOP over the lifecycle. For the younger age patients, we do expect that the label would launch at 12 and older. There are two other cohorts in the study that are ongoing that would support potentially taking that age lower over the near term. Those are ongoing and enrolling now, so they are not too far out. Ryan Phillip Deschner: Awesome. Thanks. Operator: Your next question comes from the line of Ryan Deschner with Raymond James. Your line is open. Please go ahead. Ryan Phillip Deschner: Thanks for the question. A couple for me. What is your strategy for identifying FOP patients in the U.S. and abroad, addressing the relatively high misdiagnosis rate for FOP? Do you anticipate any early line of sight into a substantial group of patients from Incyte’s prior clinical studies or maybe a compassionate use program or something like that in FOP? And I have a follow-up. Peter Radovich: Thanks for the question, Ryan. FOP patients often have a longer diagnostic odyssey than they should. There are patients who get diagnosed at birth, but the literature says the average age of diagnosis is seven years, and obviously some wait longer. That is improving with the availability of genetic testing, and we see an opportunity to continue to raise awareness—just like in all of our rare genetic diseases—to shorten that diagnostic odyssey as much as we can. In the U.S., we think a substantial majority of patients are identified; it is probably a different story in some middle- and lower-income countries. Ryan Phillip Deschner: Thanks. Just wondering if there was anything notable so far in the business extension in terms of rollover, discontinuation rates, pruritus, or other patient metrics that might take a little longer to modulate over time. Peter Radovich: Incyte’s PROGRESS study is enrolling well. We will be able to disclose more about what they have seen at the upcoming medical conference. We have certainly seen a lot of physician and patient interest. Eric H. Bjerkholt: Great. Thanks for the question. Operator: Your next question comes from the line of Joseph Thome with TD Cowen. Your line is open. Please go ahead. Joseph Thome: Good afternoon. Thank you for taking my questions. One on FOP: the level of ALK2 inhibition you are seeing with the therapy—do you think that could be enhanced by garetuzumab, Regeneron’s Activin A drug, or are these largely going to be competitive therapeutics in the landscape? And second, when we think about the potential expansion opportunity for Livmarli and the basket trial that is going to be reading out later this year, how should we think about that in your overall projection for Livmarli? How much is this basket population? Christopher Peetz: On garetuzumab positioning, it is probably best to get into more detail after our data is presented so we can give a more complete picture. We think the profile for zolugosertib and its clinical positioning is really strong as a convenient oral single agent, and we are excited about bringing that forward. Peter Radovich: On EXPAND, we have talked about that indication being about a third of at least a $1 billion peak sales opportunity for Livmarli, and we reiterate that. Operator: Your next question comes from the line of Charles Wallace with HCW. Your line is open. Please go ahead. Charles Wallace: Hi. This is Charles on for RK. Thanks for taking my question. For FOP, how many patients from the PROGRESS study—I think there were 63 in that study—do you expect could come on after launch? And do you expect to have some sort of bridging program? Christopher Peetz: Thanks for the question, Charles. Given the nature of the relationship here, we are going to wait until we have the data presented to give specifics. Overall, we think it is a really compelling profile, and the feedback has been positive, but we do not want to get into specifics ahead of having the data presented. Charles Wallace: That is fair. And then another question on the salesforce expansion. You are growing it to 60 in the field. When do you expect the team to be fully on board and fully functional? Peter Radovich: As noted in prepared remarks, we are starting later this year. I think by early next year we will be fully on board, and that team will cover both pediatric and adult settings where not just adult PFIC can be found, but also PSC and HDV. By early next year, they would be active in all those areas. Of course, with the pipeline products, the activity would really start upon potential FDA approval. Charles Wallace: Great. Thanks for taking my questions, and congrats on a great quarter. Peter Radovich: Thanks for the questions. Operator: There are no further questions at this time. I would now like to turn the call back to Chris Peetz for closing remarks. Christopher Peetz: Thank you all for joining us today and for all the support and a great start to 2026. Have a great afternoon. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.