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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.
Operator: Good afternoon, and welcome to Sarepta Therapeutics, Inc.'s First Quarter 2026 Earnings Results Call. As a reminder, today's program is being recorded. I would now like to turn the call over to Tamara Thornton, Sarepta Therapeutics, Inc.'s Director of Investor Relations. Please go ahead. Tamara Thornton: Thank you, Antoine, and thank you all for joining today's call. Earlier this afternoon, we released our financial results for 2026. The press release, along with our presentation slides and supplementary information, will be available on the Investors section of our company website. We plan to file our Form 10-Q for the quarter today with the SEC. Joining me on the call today are Douglas Ingram, our CEO; Louise Rodino-Klapac, President of Research and Development and Technical Operations; Patrick Moss, our Chief Commercial Officer; and Ryan Wong, our Chief Financial Officer. Additionally, joining us in the Q&A portion of the call are Ian Estepan, President and Chief Operations Officer, and Dr. James Richardson, our Chief Medical Officer. Before we begin the formal remarks, I would like to note that during this call, we will be making a number of forward-looking statements. Please refer to Slide 2 of our presentation to view the formal text of these Safe Harbor statements. These statements involve varying risks and uncertainties, many of which are beyond Sarepta Therapeutics, Inc.'s control. Actual results could materially differ from these forward-looking statements, and such risks can adversely affect our business, our results of operations, and the trading price of Sarepta Therapeutics, Inc.'s common stock. We strongly encourage all listeners to review the company's most recent SEC filings for a detailed description of these applicable risks. Sarepta Therapeutics, Inc. explicitly states that it does not undertake any obligation to publicly update or revise its forward-looking statements or financial projections based on subsequent events. Furthermore, please note that we will discuss non-GAAP financial measures during today's webcast. Complete descriptions and reconciliations of our GAAP to non-GAAP measures are included in today's press release and the accompanying slide presentation available to investors on our website. With that, I will now turn the call over to our CEO, Douglas Ingram. Doug? Douglas Ingram: Thank you, Tam. Good afternoon, everyone, and thank you for joining Sarepta Therapeutics, Inc.'s first quarter 2026 financial results conference call. We entered 2026 with a clear set of priorities: stabilize the business, restore confidence and growth, maintain financial strength, and advance a pipeline with the potential to define Sarepta Therapeutics, Inc.'s next era. In the first quarter, we made meaningful progress against each of these priorities. First, our marketed product performance has stabilized following the disruption and uncertainty of 2025. With expanded field reach, increased physician engagement, and a growing body of compelling evidence supporting the disease-modifying impact of Alevitus, we believe that therapy is positioned to return to growth. Second, Sarepta Therapeutics, Inc. remains in a strong financial position. We ended the quarter with approximately $748 million in cash and investments, delivered positive GAAP and non-GAAP earnings, generated positive cash flow excluding Arrowhead-related payments, and remain on track for positive cash flow even under our base case assumptions. The financial strength matters. It allows us to fund our pipeline without relying on the equity markets. We are fully funding our programs in DM1, FSHD, Huntington's disease, the spinocerebellar ataxias, and our preclinical and research portfolio. And third, we are making progress in what we believe is a potentially best-in-class portfolio of siRNA therapies. As Dr. Louise Rodino-Klapac will discuss shortly, we are especially encouraged by the early data from SRP-1001 in FSHD and SRP-1003 in DM1, and we look forward to additional readouts in the second half of this year. Turning to first quarter performance, total net product revenue was $331 million. That included $229 million from our PMO therapies, EXONDYS, VYONDYS, AMONDYS, and $102 million from Alevitus. Starting with the PMO franchise, we were pleased that the FDA agreed that we could submit our clinical data and real-world evidence for VYONDYS and AMONDYS. We have submitted sNDAs seeking to transition those therapies’ accelerated approvals to traditional approvals. That is an important step for patients, physicians, and, of course, the durability of this franchise. Turning to Alevitus, Patrick will provide more detail on the commercial initiatives underway and the early signs of progress we are seeing. But I want to underscore the central point. Our confidence in Alevitus is grounded in evidence, not in mere aspiration. To date, more than 1.3 thousand patients have been treated with Alevitus across clinical trials and commercial use around the world. The totality of the evidence continues to strengthen. The data show that Alevitus is protecting muscle and changing the trajectory of Duchenne. It is giving boys and young men an opportunity that until now, this disease has never afforded them. We saw this in EMBARK, the only robust double-blinded, placebo-controlled trial demonstrating the benefit of a gene therapy in Duchenne. We saw meaningful benefits at year one. We saw those benefits grow at year two. And yet again at year three, boys continue to diverge on every measure from the expected course of untreated disease. That matters because Duchenne does not wait. Muscle damage is progressive, irreversible, and cumulative. Every month of delay risks further loss. The evidence increasingly supports a simple but urgent message: physicians and families should evaluate Alevitus now before additional irreversible damage occurs. We have also seen supportive muscle MRI evidence showing that Alevitus dystrophin helps protect from damage, resulting in less muscle loss and less replacement by fat and fibrotic tissue. This is exactly the kind of biological evidence one would hope to see from a therapy intended to alter the course of Duchenne. We are confident that as physicians and families better understand the disease-modifying potential and the urgency of intervening before further decline, more patients will move toward treatment. That said, we are still in the middle of our commercial and educational efforts, and the path from consideration to infusion takes time. For that reason, we are reiterating our full-year guidance of $1.2 billion to $1.4 billion and would counsel prudence in raising estimates prematurely. Now, staying with Alevitus, we are also advancing our ENDEAVOR Cohort 8 study, which uses sirolimus as a pre-treatment. More than 25% of sites are already using sirolimus on their own initiative. In our interim analysis from the long-term real-world evidence study that we have ongoing, patients pretreated with sirolimus have shown no evidence of elevated liver enzymes to date. That gives us further confidence in Cohort 8 and in the potential, with the success of that study and the concurrence of the FDA, to resume offering Alevitus to non-ambulatory patients. Turning to the pipeline, our focus is execution. We are rapidly advancing our siRNA portfolio, including our DM1 and FSHD programs. The first data readout earlier this year showed encouraging signals that these may be differentiated, potentially best-in-class approaches for two very challenging diseases. We look forward to providing additional data later this year. We have initiated and are on track to dose our first patient in our Huntington's disease program, and we are progressing clinical trials in SCA2 and idiopathic pulmonary fibrosis. So, to summarize, the business is stabilized. Alevitus is supported by an increasingly compelling body of evidence. Our financial position is strong, and our high-value siRNA pipeline is advancing across multiple programs. We believe Sarepta Therapeutics, Inc. is well positioned in 2026 and beyond. And with that, let me turn the call over to Louise, who will provide an update on our siRNA portfolio and broader development progress. Louise? Louise Rodino-Klapac: Thanks, Doug, and good afternoon, everyone. Our diverse and advancing rare disease portfolio has always been driven by a core fundamental truth: pursue the very best science and then follow where it leads. In March, we announced positive preliminary data from our lead programs to treat FSHD and DM1, which are based on the potential of our alpha v beta 6 integrin-targeting ligand to produce best-in-class therapies in these unmet disease areas. Importantly, these integrin receptors are highly expressed in muscle in addition to other tissues. They are also actively trafficked between the cell surface and the endosome through relatively well understood pathways. Nonclinical data show that targeting these integrin receptors via small peptides leads to enhanced skeletal muscle uptake compared to using a much larger TfR1 antibody. It is also important to note that, based on data to date, our alpha v beta 6 integrin-targeting ligand provides superior muscle concentration compared to transferrin-based approaches without dose-limiting toxicity. I will now summarize the early data from our FSHD and DM1 programs. SRP-1001 is an siRNA-based treatment designed to reduce or knock down the production of DUX4 protein in skeletal muscle in patients living with FSHD1. Study 1001-101 is our combined Phase 1/2 single-ascending dose and multiple-ascending dose randomized placebo-controlled trial in participants with FSHD1 aged 16 through 70. As previously shared, we believe our preliminary data from the Phase 1/2 study support the potentially differentiated attributes of SRP-1001, including a dose-dependent increase in plasma exposure up to the highest dose cohort, superior delivery to muscle enabled by a differentiated approach with the alpha v beta 6 integrin including no saturation of drug uptake, significant suppression of DUX4-related genes, and a rapid and robust reduction in CK to support functional impact, and finally a favorable safety and tolerability profile with repeated dosing including no indication of anemia, which physicians have indicated represents an important therapeutic advantage. We look forward to sharing results from the MAD portion of this study later in the year, which we expect will include at least six months of follow-up for our 6 and 12 mg/kg MAD cohorts, which is equivalent to approximately 4 and 8 mg/kg of siRNA dosing. This will include safety, PK/PD data including circulating biomarkers and DUX4-related genes, as well as early functional data. We also plan to discuss our post–Phase 2 plans with FDA to define an optimal registrational pathway. Moving to DM1, SRP-1003 is an siRNA-based treatment designed to target and knock down DMPK mRNA in target cells. Study SRP-1003-101 is a first-in-human Phase 1/2 SAD/MAD randomized placebo-controlled clinical trial being conducted in individuals with DM1 aged 18 to 65. The early data we generated for DM1 is important for two reasons. First, preclinical models are predictive of what we would see in the clinic with respect to muscle concentration. Of note, an increase in plasma exposure has translated into enhanced dose-dependent delivery to the muscle, resulting in robust target engagement. Second, the demonstrated DMPK knockdown we observed was directional and strong. As you are aware, DM1 is driven by an expanded CUG trinucleotide repeat in DMPK transcripts, causing mutant DMPK mRNA to accumulate in the nucleus and disrupt RNA splicing. As a result, for any therapy to be therapeutically effective, it must effectively target and knock down DMPK in the target cell. SRP-1003 is being developed to achieve exactly that. We look forward to sharing results from additional SAD and MAD cohorts later in the year, which we expect will include multiple doses measuring mechanistic and functional endpoints with at least six months of follow-up for our 6 mg/kg cohort, which is equivalent to approximately 4 mg/kg siRNA. Specifically, we expect to share safety, serum and muscle PK, DMPK knockdown, CASI-20/2 splicing indices, and VHOT analyses. We will plan our IND submission for U.S. studies shortly after completing our MAD study. We believe these trials, if successful, will provide a clear path to support registration. In summary, enhanced muscle delivery, robust target engagement, and maximal knockdown are well recognized as the gold standard for FSHD and DM1, and we are excited by the potential of our therapies to reach this standard. In terms of our other siRNA pipeline programs, we are on track for first patient-in for Huntington's, and our SCA2 trial is fully enrolled. We look forward to sharing data as it becomes available. Now turning to Alevitus, we were pleased to announce in March that screening and enrollment are underway for Cohort 8 of ENDEAVOR, study SRP-9001-103. To remind you, the purpose of Cohort 8 is to assess prophylactic sirolimus treatment as part of an enhanced safety protocol during treatment with Alevitus in non-ambulatory individuals with Duchenne. Data from Cohort 8 will be used to determine whether administering sirolimus prior to and after Alevitus infusion helps reduce acute liver injury, a known risk associated with AAV gene therapy. The cohort is enrolling approximately 25 persons in the United States who are non-ambulatory, and dosing is currently underway. As a reminder, the immunosuppression regimen will include 14 days of peri-infusion sirolimus dosing prior to Alevitus administration and will continue for 12 weeks after Alevitus administration. Primary endpoints include incidence of ALI and Alevitus dystrophin expression at 12 weeks. The approach is based on preclinical data and shaped by real-world clinical experience, including guidance from independent specialists in Duchenne and liver health. As Doug mentioned, in addition to EMBARK three-year functional data also reported at MDA, caregiver-reported impressions from EMBARK through two years of follow-up offer complementary perspectives on treatment impact beyond clinician-reported and performance-based outcomes. We are pleased that our body of evidence for Alevitus continues to grow with an unprecedented number of patients dosed as well as years of follow-up. We remain steadfast in our commitment to serve the Duchenne community by generating clinical and real-world data to support understanding of long-term outcomes. This also includes our Phase 4 observational study in 45 and 53. In March, we announced that we requested a meeting with FDA to discuss submitting supplemental new drug applications, or sNDAs, seeking conversion of the accelerated approval of AMONDYS 45 and 53 to traditional approval. This request was supported by data from the ESSENCE confirmatory study, substantial published real-world evidence supporting treatment, and the favorable safety profiles of both therapies. Sarepta Therapeutics, Inc. received feedback from the agency confirming that we were cleared to submit our data from ESSENCE and real-world evidence as part of the sNDAs. We are pleased to share that we successfully submitted our sNDAs in April. In summary, we have numerous value-building milestones upcoming across our Duchenne and siRNA portfolio. Thank you, and I will now turn the call over to Patrick for an update on our commercial performance. Patrick? Patrick Moss: Thank you, Louise, and good afternoon. Today, I will summarize our performance for the first quarter for our on-market therapies, provide an update on execution of our 2026 initiatives, and close with how that translates into performance for second quarter and the balance of the year. For the first quarter, total product revenue was $331 million, including net product revenue of $102 million for Alevitus and $229 million for the PMOs. For Alevitus, first quarter results reflected measured demand, which we believe was influenced by the ongoing information gap within the ambulatory population. This reflects the dynamics we outlined last quarter as we advance efforts to rebalance the discussion around safety and efficacy to support informed decision-making for Alevitus treatment. Importantly, Q1 demand fundamentals have not deteriorated. Instead, we are addressing the information gap we know exists and are building momentum around a robust label and new data following the events of 2025. The PMO franchise continued to demonstrate durability, with demand remaining stable and in line with expectations for mature therapies that are foundational for slowing the decline of Duchenne. We experienced seasonal dynamics in Q1, which contributed to the quarter-over-quarter decrease versus Q4. Our focus for 2026 and beyond remains squarely on ensuring that patients and physicians have a balanced, data-driven understanding of Alevitus’ benefit-risk profile. The treatment journey for Alevitus has multiple touch points, including patient identification, referral, evaluation, and payer review, in addition to the time and information a family needs when deciding to pursue treatment. While our commercial model supports all touch points within this treatment journey, as discussed last quarter, we are actively implementing a number of initiatives to augment our execution, including expanding the number of field resources to support referring physicians and extending our reach within sites of care. In addition, the company is deploying new educational resources and tools to support patients and families. We have increased our footprint, fielding a contract sales force to focus on physicians who may be in a position to refer patients to a site of care for gene therapy or prescribe one of our exon-skipping therapies. This team recently completed training, and deployment in the field is underway. We expect the team to be fully operational as we enter the second half of this year. Expanding our footprint with a contract sales force has enabled us to deepen our efforts at sites of care with our Sarepta Therapeutics, Inc. sales team. Our sales team will devote time to more robust interaction with prescribers at sites of care and engage with the extended care team. In addition to my team's initiatives, the company is developing more educational resources and tools to aid patients and families in their preparation for a conversation with their clinician. In an age where information online is abundant and can be difficult to navigate, having clear resources and tools available to caregivers and patients is Sarepta Therapeutics, Inc.'s response to supporting the unique and very personal journey of each patient. All these interactions with referring clinicians, prescribers, supportive care providers, families, and caregivers are grounded in clarity, repetition, and transparency as we recognize the decision to treat with Alevitus requires time and trust. To date, a growing body of empirical evidence supports that Alevitus is changing the trajectory of Duchenne. We integrated the long-term EMBARK data, including muscle MRI findings, into our educational efforts and discussions with clinicians, addressing what matters most: preservation of muscle over time. Our efforts are having an impact, and feedback from prescribers and the patient advocacy community affirms our approach. Safety must be considered within the totality of evidence, including the durable benefit of Alevitus. HCPs and the ambulatory population were directly affected by misperceptions of Alevitus, so education remains essential and is a focal point of our work. We remain confident that all these initiatives should address the needs of prescribers and patients, but I do want to set expectations very clearly. The time from enrollment form to infusion is a six-month process. Given this, it will take time to see the potential impact of my team's actions reflected in sales. Last quarter, I said we are seeing green shoots—early signals that give us confidence we are headed in the right direction—and the team is squarely focused on delivering the efficacy message to drive demand. For example, enrollment form activity is more geographically diverse. Sites that previously paused activity in 2025 are participating and submitting enrollment forms. Across the broader referral ecosystem, we are seeing more consistent HCP engagement, suggesting that awareness and understanding of the benefits of Alevitus is resonating. We expect momentum to build progressively through 2026, with greater visibility into improvement most likely to emerge in the latter part of this year and into 2027. Our efforts are substantive in responding to the needs of prescribers and patients and will improve with reach and repetition. Reestablishing momentum will lead to steady growth over time and not a sharp inflection. We believe our guidance assumptions for 2026 appropriately reflect a measured trajectory accounting both for timing dynamics and patient decision cycles. Given this reality, we are comfortable with the Q2 consensus, and as Doug stated earlier, we reiterate the full-year guidance of $1.2 billion to $1.4 billion and would counsel prudence in raising estimates prematurely. Our long-term conviction in Alevitus remains strong. As the only FDA-approved gene therapy for Duchenne muscular dystrophy, we have treated more than 1.3 thousand patients in both the clinical and commercial settings. The current and growing body of data demonstrates the disease-modifying potential of Alevitus, and as a result, we believe Alevitus has the opportunity to remain a cornerstone therapy in Duchenne for years to come. And finally, a brief update on the PMO franchise. The PMO franchise remains durable in 2026, supported by long-standing physician experience, a well understood safety profile, a continued commitment to preserving muscle function, and exceptionally high rates of adherence with our therapies. Physicians continue to view exon skipping as an important treatment, particularly for patients who are not candidates for gene therapy or for those who choose to defer treatment. The robust body of real-world evidence that demonstrates meaningful benefits in survival and cardiac function reflects more than a decade-long commitment of Sarepta Therapeutics, Inc.'s scientific investment and leadership dedicated to improving outcomes for those with Duchenne. In closing, our commercial focus in 2026 is clear: execute with discipline, educate with data-driven conversations, build momentum, and support the unique needs of each and every patient. We are encouraged by the early rebuilding signals for Alevitus, the stability of our PMO business, and the long-term opportunity to support those with Duchenne and change the trajectory of the disease. Thank you, and I will turn the call over to Ryan. Ryan? Ryan Wong: Thank you, Patrick, and good afternoon, everyone. On behalf of the Sarepta Therapeutics, Inc. team, I am pleased to report a strong quarter of financial execution to start the year, where our base business was profitable and cash-flow positive. In my brief remarks today, I will share highlights from the quarter and some perspective on how we are thinking about the rest of 2026. Starting with the P&L, first quarter total revenues were $731 million, a decrease of 2% compared to Q1 of last year. The decrease in our net product revenues year over year was driven by lower Alevitus sales and was partially offset by an increase in collaboration and other revenue. In Q1, we reported $400 million of collaboration and other revenues, and consistent with previous guidance, this included $325 million of non-cash collaboration revenue related to Roche declining a program option as well as $40 million of milestone revenue from the first commercial sale of Alevitus in Japan. Turning to gross margin, total cost of sales for the quarter was $109 million, a decrease of 21% compared to last year, driven primarily by lower sales volume. On a unit sales basis, gross margins were 82%. Moving now to OpEx, combined R&D and SG&A expenses in the first quarter were $263 million and $224 million on a GAAP and a non-GAAP basis, respectively. Both included the $50 million annual Arrowhead collaboration license fee recorded to R&D. This was a significant decrease compared to the prior-year quarter because of the cost restructuring initiatives enacted last summer, and as the prior-year quarter included the upfront transaction costs from the Arrowhead collaboration. Putting it all together, in the first quarter, we delivered a GAAP operating profit of $358 million and a non-GAAP operating profit of $398 million. These results are reflective of the strength of our underlying business and the non-cash collaboration revenue recognized during the period. Shifting to the balance sheet, we ended the first quarter with $748 million of cash and investments, a sequential decrease of $206 million driven by $250 million of payments to Arrowhead—the second D1 milestone and the annual collaboration payment I just mentioned. Also, as noted earlier, excluding these planned payments, our base business continued to generate positive cash flow. Looking ahead to the remainder of the year, we are reaffirming our prior revenue and OpEx guidance as well as our expectation of profitability and to be growing our cash balance from here. As you heard earlier on the call, we are very encouraged by the early data emerging from our FSHD and DM1 programs. And if the data continue to translate clinically as they have so far, we believe they represent significant opportunities to benefit patients with unmet needs and create long-term value for investors. In closing, I will highlight that our current operating expense outlook and medium-term planning fully contemplate advancing both programs through late-stage development. Leveraging the strength and durability of our commercial execution, we believe we are uniquely positioned to fund and execute these programs and our broader pipeline responsibly, without placing strain on the balance sheet. And with that, I will turn the call back to Doug. Doug? Douglas Ingram: Thanks, Ryan. We will now open the call for questions. Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. In the interest of time, we ask that you please limit yourself to one question each. Our first question comes from Anupam Rama from JPMorgan. Please go ahead. Anupam Rama: Hey, guys. This is Joyce on for Anupam. Thanks so much for taking our question. With your salesforce expansion and ongoing initiatives to help close some of these information gaps, I was just wondering if you could comment on feedback you have been receiving regarding your three-year EMBARK data and which parts of this data specifically have been especially resonating with physicians. Thanks so much. Douglas Ingram: I will turn this over to Patrick briefly to comment on some of the advisory boards you have had and some of the direct interactions you have had with physicians on the three-year data and other data. Patrick Moss: Thanks, Doug. We have been having multiple advisory boards and discussions with physicians—both myself, Ian, and Doug one-on-one—and the field team as they are out there engaging. What is moving the needle is the efficacy data as well as the MRI data. Once physicians see both the divergence over time from natural history of patients treated with Alevitus, tied down with the MRI data, that is moving the needle and reflects exactly what they were expecting from a therapy like Alevitus as well as what they are seeing in their clinic. Douglas Ingram: I think that is exactly right. There are a couple of reasons this is occurring. First, the data itself is really impressive. If you look at the one-year EMBARK data, on every secondary measure, every timed measure, we were statistically significant in this placebo-controlled and blinded study. Then you look at two years—on all measures, Alevitus is doing much better than untreated patients. That gap grows even more in year three, exactly what you would expect from a disease-modifying therapy that is changing the trajectory of disease. From an urgency perspective, we have muscle MRI data showing that if you get treated, you are going to save yourself from a lot of damage, the fat and fibrotic replacement that comes from that damage, and the loss of muscle. It is understandable that it is compelling when you talk to physicians about all of this data, and that is not even all the data that we have; we obviously have the five-year data from our original cohort as well. The other important point is that, due to the events last year that distracted from what the therapy was doing for patients, there is a massive information gap in both the patient and physician communities around these issues. While that is frustrating, it is also a real opportunity. With the initiatives Patrick is putting in place, we have an enormous amount of confidence for the future. We more than doubled the size of our sales force. We have a contract sales force. We have brand data now. We have much better promotional material founded on that great data. We have strong educational efforts in the patient community and the muscle MRI data that makes the point that you cannot wait—you will never catch up if you wait. There is enormous opportunity here to benefit patients and to get Alevitus moving. That said, as I noted earlier, these are long-cycle initiatives. We are reiterating our guidance of $1.2 billion to $1.4 billion and would ask you, along with us, to exercise prudence in changing estimates until these initiatives take fuller effect. The good news is that we are in a great place, even in a base-case situation, to fully fund—without the need to go to the equity markets—what is a very exciting siRNA pipeline. Operator: Our next question comes from Kostas Biliouris from Oppenheimer. Please go ahead. Kostas Biliouris: Thank you so much for taking the question. One question on AMONDYS and VYONDYS sNDAs—and sorry if I missed it—can you clarify whether you have requested or received priority review there, and when should we expect the decision from the FDA? Thank you. Douglas Ingram: These are sNDAs. We did not ask for priority review, so it is the regular time cycle. We would imagine that the PDUFA date will be sometime in February. Thanks. Operator: Thank you. Our next question comes from Eliana Rachel Merle from Barclays. Please go ahead. Eliana Rachel Merle: Hey, guys. Just two questions from me. You mentioned some Q1 seasonal dynamics. Can you elaborate on what you saw there and how we should think about the appropriate run rate as we head into Q2 and beyond for both the PMO franchise and Alevitus? And then a question on the Huntington program. Can you walk us through what you see as potentially differentiating versus other silencing approaches in development and what we could expect from the proof-of-biology data next year? Thanks. Douglas Ingram: Sure. I will turn the first part of the question over to Patrick, after which Louise can touch on the Huntington program. Patrick Moss: Quarter-to-quarter dynamics are noisy, reflecting a small number of patients moving between this quarter or the next. It is not something we can be extremely precise on, but we do know things like illnesses and patient or family dynamics impact those quarterly dynamics, and that is something we evaluate as we provide guidance. Douglas Ingram: One thing to remember is that Alevitus is a one-time therapy. With a chronic therapy, you build an installed base, and you are forecasting on the margin. With a one-time therapy, you are forecasting new every quarter, and with a therapy like Alevitus—net a couple of million dollars—a couple of patients catching the flu in the last week of the quarter can impact results. So, there is more variability here than you might see in a chronic therapy. And on the PMO side? Patrick Moss: There is lumpiness in the ex-U.S. business as well. At the beginning of the year, we see insurance changes, and that does impact the PMO side of the ledger. Louise Rodino-Klapac: Thank you. As you mentioned, we are very excited about the Huntington's program, and we think that we are potentially differentiating for several reasons. First is the mechanism of action—using the TfR-targeting ligand in combination with subcutaneous injection. This allows us, based on preclinical data, to get into the deep brain regions essential for Huntington's disease like the striatum. In mouse models and nonhuman primates, we have seen particularly high knockdown in these deep regions, which sets this program apart and got us excited. It is early days; we are on track for first patient-in. We will be looking for proof of biology in terms of safety and evidence of activity in terms of knockdown in the first data we see early next year. We are very much looking for differentiation based on the mechanism and the less invasive dosing relative to some other programs. Operator: Our next question comes from Andrew Tsai from Jefferies. Please go ahead. Andrew Tsai: Hey, congrats on the quarter. This is Matt Barkis on for Andrew Tsai. I just wanted to ask about what you are expecting in terms of ALI in the non-ambulatory Cohort 8 sirolimus dataset expected later this year. I think you said you wanted to see a 50% reduction in ALI rates where I think the clinical rate is around 40%. But is it different in the real world, and might ALI rates in Cohort 8 actually mimic the real-world setting? Douglas Ingram: I am going to turn this to Louise, but before I do, let me note that we do have some evidence before Cohort 8 that gives us confidence. Dr. Soslow, as you may know, has pretreated a number of patients and presented that data, I believe at World Muscle earlier this year. In that setting, pretreatment with sirolimus completely abated any increase in liver enzymes. Also, we have the real-world evidence study ENDEAVOR, and in an interim analysis there—early days, and overlapping with some of Dr. Soslow’s data—we have also seen no increases in liver enzymes so far when a patient is pretreated with sirolimus. Obviously, we need to dose more patients and get the Cohort 8 readout, but given that, along with our preclinical data and anecdotal experience from other physicians who have used sirolimus and other immunosuppression regimens, we feel significant conviction around the potential success of Cohort 8 and the ability to get back to offering this therapy to non-ambulatory patients who desperately need an option. With that, I will turn it over to Louise to talk about the clinical trial itself and the standards pursuant to the statistical analysis plan. Louise Rodino-Klapac: You are correct—we are looking for a 50% reduction in the incidence of ALI. The trial is an open-label study enrolling approximately 25 patients. We do have the ability to look at the data and enhance the N if required. Regarding the ability to reset by 50%, I will ask Dr. Richardson to comment on the clinical trial versus the real-world context. James Richardson: Thank you, Louise. You are quite right that we have seen a different incidence of ALI in the clinical trial setting versus the real-world setting. That is partly driven by the use of the research assay GLDH in the clinical trial setting. We will be using that in Cohort 8, and so our primary analysis will be to look at a reduction of 50% or more versus our historical clinical trial rates, which include GLDH. We will also be able to look at it without GLDH to make sure that there is no specific signal to that biomarker. And as Louise said, as an open-label study, should we see anything that deviates from these original assumptions, we will be able to adjust the sample size accordingly. Operator: Thank you. Our next question comes from Brian Corey Abrahams from RBC Capital Markets. Please go ahead. Brian Corey Abrahams: Hi, guys. This is Kevin on for Brian. Thank you for taking our questions. Maybe following up on the 2026 Phase 4 ENHANCE study of patients receiving Alevitus and sirolimus in the real world, just curious how that fits with your potential regulatory strategy for non-ambulatory patients—whether maybe it was required by regulators—and your considerations on potentially upsizing the current study versus running this real-world study in parallel as well. Thank you. Douglas Ingram: Louise? Louise Rodino-Klapac: I am going to turn this to Dr. Richardson in a minute, but at the highest level, the Phase 4 study gives us the ability to look at the use of sirolimus in ambulatory patients as well as looking at gene expression. These two elements are important for evaluating sirolimus in a population other than the non-ambulatory population. James, maybe you can give a few more details about the study. James Richardson: Yes, absolutely. This is a study looking at commercially dosed patients under the same sirolimus regimen as we are using in Cohort 8. It is not part of a broader regulatory strategy, but simply tests the hypothesis about mitigation of ALI in a broader Duchenne population. The data could be supportive to Cohort 8, but it is not necessary for that non-ambulatory strategy. It will simply reaffirm the current hypothesis that sirolimus is equally well tolerated across a broad range of Duchenne patients, and we would expect similar efficacy in terms of reduction of ALI. Douglas Ingram: Thank you. Operator: Our next question comes from Analyst from Morgan Stanley. Please go ahead. Analyst: It is Avi Novik on the line for Mike. Thank you for taking our questions. A quick one on guidance. I think on the prior call, you indicated that you were more comfortable with the low end of guidance, so that would be more likely. Given the positive green shoots you have seen early this year, would you be more comfortable that maybe the middle or high end of guidance might be more likely? If not, what do you need to see to get there? Thanks. Douglas Ingram: Thanks for your question. You are exactly right—we guided $1.2 billion to $1.4 billion and advised folks to think toward the lower end until we see more. The short answer is that we are making very good progress in our initiatives, but they are long-cycle initiatives. A number have already gotten underway—for example, our salesforce is doubled and out in the field talking to physicians. We have great marketing material, with additional materials coming tied to our three-year data. We have educational efforts, and our contract salesforce has been trained and is getting into the field. That said, as excited as we are and given the conviction we have about these tools, we want to speak cautiously for the time being and be thoughtful. We are not changing our guidance and would caution others to be prudent in raising internal estimates prematurely. Let us get these initiatives underway. We do see green shoots, and we see qualitatively that when this information is understood by physicians and patients, it has a meaningful impact. But it will take time, as these are all long-cycle efforts essentially resetting understanding of the evidence on both safety and efficacy. Analyst: All right. Great. Thank you for taking our question. Operator: Thank you. Our next question comes from Salveen Richter from Goldman Sachs. Please go ahead. Salveen Richter: Thanks for taking our questions. This is Tommy on for Salveen. Maybe if we could get details on patient numbers at dose levels for the siRNA data by year end, and especially how the functional measures for this data factor into how you are thinking about the registrational outlook and competitive comparisons. Thank you. Douglas Ingram: I will turn this to Louise. Louise Rodino-Klapac: Sure. For FSHD, we will have data from our 6 and 12 mg/kg MAD cohorts—our highest dose cohorts—which is equivalent to approximately 4 and 8 mg/kg siRNA. For DM1, we will have follow-up from our 6 mg/kg MAD cohort, equivalent to approximately 4 mg/kg siRNA. As mentioned, we will be looking at safety, biomarkers, and early evidence of functional outcomes. Dr. Richardson can comment on how we are thinking about the functional data, noting it is early in terms of follow-up and patient numbers. James Richardson: Primarily, safety and PD biomarkers will help us select the appropriate dose to carry forward into the Phase 3 program. We will also look at the functional data to understand the most responsive outcomes that help us select and drive our Phase 3 design. I would not expect significant movement in functional measures at six months in FSHD. In DM1, we would expect to see a signal in VHOT at this timeframe, but for other timed function tests, it is very early in this disease state and cohort size to make definitive conclusions. Operator: Thank you. Our next question comes from Tazeen Ahmad from Bank of America. Please go ahead. Tazeen Ahmad: Hi, guys. Thank you so much for taking my questions. A couple on FSHD and DM1—or rather one on those. How do you think about comparing the data that you have presented so far to products that have already shown data that might be further ahead in development? Specifically, how should we be thinking about what the right endpoints should be in order to look at? I know there is a Novartis study that is being debated as to whether or not in DM1 the right endpoint is being used. I would love to hear your thoughts on that. And secondly, as you talked to FDA about the shift to get the PMOs to traditional approval, can you talk about if there has been any change—any further change—in who you talk to in the divisions that are relevant? Just trying to get a sense of continuity of people that you might be engaging with. Douglas Ingram: Thanks. I will turn this over to Louise. Louise Rodino-Klapac: Regarding comparative data, as we mentioned, what differentiates our program is the amount of siRNA we are getting into muscle using the alpha v beta 6 targeting ligand. The more you can get into muscle, the more knockdown you can get, which leads to better biomarkers and downstream functional markers. With early data, our focus is achieving the highest level in muscle to have the most robust effect and give us the best chance of efficacy and consequent function. With regards to functional outcomes in DM1, Dr. Richardson can comment. On the PMOs, we are generally interacting with the same individuals at the agency that we have been for the PMO programs and for those sNDAs. James Richardson: In DM1, we are seeing the usual evolution in understanding of functional endpoints as developers move into the space, alongside greater investment in natural history data. For example, Nick Johnson’s group has published from the NDM1 study, building our understanding of appropriate functional outcomes. From our point of view as a sponsor, without commenting on other sponsors’ programs, we can take these natural history data internally, speak to experts like Nick Johnson and others, and combine their views with functional data from our Phase 1/2 cohorts to reach our own view on the most appropriate primary and secondary endpoints for Phase 3, and then discuss that with the FDA. Operator: Thank you. Our next question comes from Joseph Schwartz from Leerink Partners. Please go ahead. Joseph Schwartz: Thanks very much. I have a question on the siRNA programs, which will have data later this year. First, is there any data—preclinical or otherwise—which suggests that deeper reductions in DUX4 expression would be expected to translate into greater clinical benefits for your approach in FSHD compared to competitor therapies with lower knockdown profiles? And then in DM1, what specific magnitude of splicing correction would you want to see in the upcoming MAD cohorts to prove that 1003’s differentiated delivery can translate into a best-in-class clinical profile? And why would VHOT not improve fairly quickly for your approach since it has seemed to be fairly sensitive for other RNA approaches early on? Douglas Ingram: I will turn this to Louise. I will note that I think Dr. Richardson suggested that VHOT may be an appropriate measure to see a signal in the MAD, but longer-term functional endpoints require more time. Louise Rodino-Klapac: On FSHD and knockdown of DUX4: DUX4 should not be expressed in adult muscle—it is expressed early in development and then turned off. Any stochastic expression in adults is toxic, so deeper suppression is beneficial. For DM1, we are looking for increases in muscle concentration leading to improved DMPK knockdown. From preclinical data, DMPK knockdown correlates with functional improvement. Based on the data to date, we have seen dose-dependent increases in muscle exposure. We will be looking at DMPK knockdown with our MAD data later in the year. On VHOT, we would expect earlier signals, as VHOT is an early sign of function. James Richardson: I completely agree—just to distinguish between VHOT, where we do think we will see a signal at this point, and other functional outcomes, which will take longer. Operator: As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. In the interest of time, we ask that you please limit yourself to one question. Analyst: I am just curious if you could comment on the mechanistic rationale for the greater-than-linear increase in exposure observed at lower doses in FSHD, and whether in the multiple-ascending-dose part of the study you would also expect that kind of far-exceeding linear dose proportionality at the higher doses. Thanks. Louise Rodino-Klapac: We certainly saw an increase that was not linear at the lowest dose, which was not unexpected based on preclinical data. We would expect exposure to start to plateau at higher doses based on preclinical data, while still continuing to increase, though less than proportionally, at the higher dose levels. Analyst: And then just one follow-up. With regard to the study that you mentioned for sirolimus in the real world where you did not see any evidence of liver enzyme elevation, could you just expand on that in the sense that were there any cases observed?
Operator: Good day, and thank you for standing by. Welcome to the NRG Energy, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Brendan Mulhern, Head of Investor Relations. Please go ahead. Brendan Mulhern: Thank you. Good morning, and welcome to NRG Energy's First Quarter 2026 Earnings Call. This morning's call is being broadcast live over the phone and via webcast. The webcast, presentation and earnings release can be found in the Investors section of our website at www.nrg.com under Presentations & Webcasts. Please note that today's discussion may contain forward-looking statements which are based upon assumptions that we believe to be reasonable as of this date. Actual results may differ materially. We urge everyone to review the safe harbor in today's presentation as well as the risk factors in our SEC filings. We undertake no obligation to update these statements as a result of future events, except as required by law. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to our earnings release and the non-GAAP reconciliations and supplemental data file located in the Investors section of our website. With that, I will now turn the call over to Robert Gaudette, NRG's President and Chief Executive Officer. Robert Gaudette: Good morning, and thank you for joining us. I'm joined today by Bruce Chung, our CFO; and other members of the management team who are available for questions. Before we get into the quarter, I want to briefly acknowledge the CEO transition. I've been with NRG for over 2 decades and have worked across the company through multiple market cycles. That experience shapes how I think about and operate this business. I want to thank [indiscernible] for his leadership over the past several years and the impact he's had on this company. I also want to acknowledge our employees across the business. The work you do every day is what makes this company run and positions us to deliver for our customers and our shareholders. As I step into this role, I view our responsibility clearly. We are stewards of your capital. Our job is to allocate it with discipline, operate efficiently and deliver consistent long-term returns. That's how I'll run this company. I've seen this business at its best and at its most challenging. Over time, outcomes come down to how well we operate and how we put your capital to work. We've positioned the business for where the market is going, and I see a clear opportunity to build on that and drive the next phase of performance. I have a high level of confidence in where we are, and I'm excited about the opportunity in front of us. With that, let me turn to Slide 4 and walk through our key 3 messages. First, we delivered strong operational performance and are reaffirming our 2026 financial guidance and capital allocation. The business is tracking to plan. Our teams are executing and the results reflect the underlying conditions this quarter. Second, we're seeing a sustained shift in power demand outlook across our markets with the regulatory frameworks continuing to evolve in response. What matters is not just that electricity load is growing. It's the pace, the location and the duration. Near-term conditions remain variable, and that is reflected in current market signals. And third, we're positioned to capture significant value from this environment. We have built a platform for where the market is going with the flexibility to develop capacity alongside long-term demand as those opportunities evolve. Our base plan stands on its own. It does not require incremental contribution from large load or new development to hit our numbers. Those remain upside. Our job is to execute allocate capital effectively and convert the opportunity in front of us into results. Turning to Slide 5. First quarter results reflect a soft market environment. Texas was mild with heating degree days down 30% year-over-year, and the market offered limited opportunity, where storm firm drove significant price spikes across PJM in late January. We closed the LS Power transaction on January 30, after most of the storm had passed. So those assets were not part of our fleet during that period. Bruce will take you through the numbers. What I want to be clear about, none of that changes our view of the business or the year. We are reaffirming guidance, and the business is on track. Integration of the LS portfolio is underway and progressing well. The assets are performing as expected, and we're focused on I'm fully incorporating them into our operating and commercial platform. Our first Texas Energy Fund project, TH Wharton, is expected to come online in May, on time, on cost and on spec, qualifying for the TH completion bonus. Our remaining TEF projects continue to progress on schedule. At 1.5 gigawatts, these 3 projects will power roughly 300,000 Texas homes at peak demand. arriving just as the state continues to add nearly 400,000 new residents a year. Very few companies have recent experience developing new natural gas generation. We have and we're good at it. These projects were developed at well below current new build costs because we identified the opportunity and prepared the site years before the TEF program existed. When the moment came, we were ready. If we execute on what is in front of us, this capability will be one of the most important competitive advantages in our industry. This is what you should expect from NRG. We look around the corner, we prepare -- and when the opportunity is there, we bring it home on time and on budget. Turning to Slide 6 for an overview of our key markets. Demand expectations continue to increase. this quarter earnings season reinforced the scale of investment being directed toward AI infrastructure, and the implications for power demand are significant. [indiscernible] the numbers are straightforward. The system's all-time peak demand is more than 85 gigawatts. The preliminary long-term load forecast filed this month shows the pipeline of large load requests reaching over 36 gigawatts in by 2033. That is more than 4x today's record peak in under a decade. Not all of that materializes, but even if a fraction of what is in that pipeline arises on those time lines, this market looks fundamentally different from the one we're operating in today. Senate Bill 6 and the large load batch process are bringing more structure to how new demand connects to the grid, and we support those reforms. I want to specifically thank the PUCT and ERCOT teams for including bring your own generation support in the initial batch process. That's an important step in aligning new demand with new supply and supporting reliable system growth. In PJM, the reliability backstop procurement is an important step to help bring new capacity forward. and we appreciate the coordination against -- across PJM, state policymakers and the federal government in advancing these efforts. Within our existing fleet, we see up to 2 gigawatts of upgrade and conversion opportunities. This represents an incremental 1 gigawatt above the previously disclosed [indiscernible] CCGT conversion opportunity with the additional capacity coming from more traditional natural gas upgrades. We will pursue those where structures and returns support it through the procurement process or bilaterally where appropriate. We'll move forward selectively. Each opportunity must compete for capital, meet our return thresholds and be supported by long-term commitments from high-quality customers. Turning to Slide 7. I want to be specific of what -- about what makes our position in this market different because I do not think it's fully appreciated yet. We serve commercial and industrial customers at a scale, very few companies in this industry can match. That's not something you acquire. It's built over decades to relationships, credit, operational track record and the ability to structure complex agreements across multiple markets. We have that foundation and is the reasons customers come to us when problems gets hard. On flexible load, we acquired LS Power because it is the leading commercial and industrial demand response business in the country. Our Texas residential virtual power plant is targeting 1 gigawatt of capacity. And we can only operate at that scale because we have the retail electricity business and smart home technology behind it. No 1 else has both of those run inside of generation and retail platform at our size. When a [indiscernible] needs to move, we can move it. On generation, we operate a large dispatchable natural gas fleet, primarily in ERCOT and PJM. These assets run when the system needs them. they demonstrated that again this quarter, and they provide real earnings leverage as load growth materializes in our markets. On development, our TEF projects are under construction. Our partnership with GE and Kiewit gives us construction capability, equipment access and execution readiness that most companies in the space are still trying to establish. As the right opportunities emerge with the right structures, we are ready to move. In PJM, we have additional development opportunities across uprates and conversions that we will pursue through the procurement process or bilaterally or structures and return [indiscernible] Taken together, this is the platform this market is asking for. We can solve complex load problems. We know how to develop and build. We have equipment and labor access. We can move load when the grid needs it. and we have the customer relationships and scale to back it all up. I am confident in where we are going. Discussions on large load agreements are active and progressing. These are complex long-duration structures, and we're moving forward in a disciplined way. We are seeing strong engagement in the right types of opportunities, and we feel good about how these discussions are developing. Based on what I'm seeing today, I have a high level of confidence in this company's position. With that, I'll turn it over to Bruce. Bruce Chung: Thank you, Rob. Turning to Slide 9 for a discussion on our first quarter financial results. Before I go into the results, I wanted to be sure to highlight 3 items. First, we remain on track to deliver within our 2026 guidance ranges. And as such, we are reaffirming those ranges today. Second, during Winter storm Firm, our generation fleet demonstrated excellent operating and reliability performance, once again reflecting the benefits of our robust generation CapEx program over the past few years. And finally, as a reminder, the LS Power portfolio acquisition closed on January 30. As such, our first quarter 2026 results reflect approximately 2 months of earnings contribution from the recently acquired portfolio. Now on to our financials. NRG delivered adjusted EBITDA of $1.08 billion, adjusted net income of $308 million and adjusted EPS of $1.49 for the first quarter of 2026. Year-over-year adjusted EBITDA was lower by $46 million. This reflects the impact of milder weather in Texas for most of the quarter and increased supply costs in the East due to Winter Storm Fern offsetting incremental earnings from our newly acquired portfolio. It is also worth mentioning that favorable weather was a big factor in making 1Q 25 a record first quarter for NRG, thereby making the year-over-year comp for 1Q '26 more challenging. To finish on consolidated results, both adjusted EPS and adjusted net income were also lower on a year-over-year basis. The declines reflect higher interest expense and depreciation and amortization associated with the LS Power portfolio acquisition as well as the partial period contribution of the acquired assets. Turning to segment results. Texas experienced the impact of unfavorable weather on our home energy volumes as well as lower average power prices and minimal market volatility, which weighed on both our retail consumer business and commercial optimization activities. Specifically, Houston on-peak prices averaged $29 per megawatt hour, down approximately 13% from last year. Notwithstanding the general lack of weather during the quarter, our fleet was well prepared to handle any moments of extreme volatility due to weather as evidenced by fleet performance during Winter Storm Fern. Increased investment in our generation assets has been an important focus for the company over the past few years, and it is great to see that investment paying off. Our East segment results benefited from our recently acquired portfolio, reflecting the immediate contribution these assets are making to the combined platform. However, these gains were offset by higher regional power supply costs incurred during Winter Storn Fern. PJM West Hub on-peak prices for the quarter averaged $103 per megawatt hour, up approximately 72% from last year, a tailwind for our generation dispatch but a headwind for our retail supply costs since we had not closed on the acquisition at the time of Winter Storm Fern. As a reminder, we closed the LS Power acquisition late in the storm, so we did not have access to those assets for most of the event. Our West segment results benefited from higher retail power margins driven by lower supply costs and favorable customer mix and include the impact of the expiration of the Cottonwood lease, which ended in May 2025. Smart Home results reflect continued organic customer growth and expanded net service margins, supported by sustained customer demand for our connected home platform. The business ended the quarter with approximately 2.37 million customers, a year-over-year increase of 9%, well ahead of the 5% to 6% net customer growth embedded in our long-term growth plan. Moving to Slide 10 for a look at our 2026 capital allocation, which remains unchanged from what I outlined on our fourth quarter call and is fully consistent with our previously disclosed priorities. As a reminder, the waterfall on the left begins with $3.05 billion of capital available for allocation, reflecting the midpoint of our updated free cash flow before growth guidance range. As part of our ongoing commitment to a strong balance sheet, we expect to execute approximately $1 billion toward debt repayments throughout the year. On that front, I want to highlight an important balance sheet action completed subsequent to quarter end. On April 28, we closed on $3.5 billion of new financing, retiring the $1.5 billion Lightning senior secured notes and reducing revolver borrowings, a key step in our post-acquisition deleveraging plan and consistent with our 3x net leverage target. This financing paves the way for the future removal of the ring fencing we had in place when we closed on the acquisition and will result in more than $10 million of annual net interest savings. Turning to return of capital. We remain on track to return at least $1.4 billion of capital to shareholders in the form of share repurchases and common dividends. Through April 30, 2026, the company completed $817 million in share repurchases, inclusive of our negotiated repurchase of 1.83 million shares from LS Power. Finally, we are allocating the remaining capital to continued investments in our core portfolio with $310 million directed towards growth investments. In closing, NRG delivered solid first quarter results in a challenging weather environment, once again demonstrating the resilience of our integrated platform. Our guidance reaffirmation today reflects confidence in the full year outlook underpinned by disciplined capital allocation, prudent liability management and the growing contribution from the LS Power portfolio. With LS Power integration well underway and tracking ahead of plan, we are well positioned for the remainder of 2026. I look forward to updating you on our progress in the quarters ahead. With that, I'll turn it back to you, Rob. Robert Gaudette: Thank you, Bruce. Let me close with our priorities on Slide 12. We will run the fleet with a relentless focus on safety, reliability and performance. That's the foundation this company is built on. We will continue to serve our customers with discipline, focusing on value, retention and the integration of our retail, smart home and flexible demand capabilities to strengthen those relationships over time. We will be disciplined in how we allocate capital, maintain a strong balance sheet and continue to return capital to shareholders. We are advancing our key growth initiatives and are on track to deliver at least 14% adjusted EPS and free cash flow per share growth over the next 5 years before any contribution from large load or incremental development. As I step into this role, that's where my focus will be running this business with discipline and consistency, driving efficiency, allocating your capital with accountability and converting the opportunities in front of us into results. Operator, we're ready to open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Shahriar Pourreza from Wells Fargo. Shahriar Pourreza: Rob, big congrats on your first earnings call. I know it's going to be one of many. I know obviously, the focus is on ERCOT. But in terms of PJM and the regulatory process there, do you guys see any -- do you guys see FERC, PJM colocation rules opening up opportunities to bring both new generation and upside in existing assets in that market? I mean it looks like peers are having conversations with customers. So there is an opportunity with the asset base there as we're thinking about a tentative framework on things like new capacity versus existing capacity matching? Robert Gaudette: Yes. So great question. I believe that the PJM process and look, I applaud all the effort that's going on between the states, PJM, the White House to try to make things happen up there. I think it presents kind of 3 opportunities for NRG if you think about it. We've obviously got up to about 2 gigs what we talked about today and upgrades around existing assets that we picked up through the LS acquisition. We've had the opportunity to take the GE turbines up there if the economics make sense that a customer is willing to go there. And then the third piece, and I think this is kind of the place where is new is the potential to offer in kind of the load management side. So the BPP the team is building down in ERCOT, that's something we can use up north. And through [indiscernible], we've got a real capability around demand response. I think all of those pieces are opportunities for NRG, and I think there are also real reasons to think about how to solve the equation up in PJM. Does that answer your question? Shahriar Pourreza: Yes, totally, Rob. I appreciate that. And then in terms of the 5 gigawatt plant in Texas, do you still anticipate all the capacity to be utilized front of the meter? Or is there a higher return option with PJM deals as we've seen an increase in behind-the-meter announcements with higher implied levelized revenues in the $150 million range. Maybe any thoughts on how you're thinking about the $90 million to $95 million range that you had previously talked about. Robert Gaudette: Yes. So the $90 million to $95 million was kind of the -- where we had kind of put the top end for like a normal data center deal, depending on the structure and where we would go, the thing that we're going to capture, Shahriar, what our returns require. So the prices could go up depending on the environment. Our primary focus is front of the meter generation front of the meter data center because we believe that's the right thing for the market. But we'll look at everything. We'll look at behind-the-meter solutions. We'll look at all of it. The conversations that we have today are front of the meter conversations, and they're progressing as well as they have been over the last 12 months. We continue to push really hard to get that done. I think front of the meter is the right solution, and we're getting to a place now where we're going to get something done quickly. Shahriar Pourreza: Got it. Perfect. And just go again one more time. Just a big congrats to you on Phase 2 and just do me make sure you work Bruce a little bit harder than Larry. Operator: Our next question comes from the line of Julien Dumoulin-Smith from Jefferies LLC. Julien Dumoulin-Smith: Congratulations on the role and hang in there. I got to tell you, watch out. Well, look, let me follow up quickly on here. I mean, obviously, you talked about mild weather here in the quarter, et cetera. But how do you think about offsets for '26 and then probably more importantly here, you think about what we've seen in the power curve moves thus far? I mean, Rob, you've been watching these markets for a long time. How do you view the move forward here in ERCOT relative to any potential delays in bad 0 or any other interpretation? Maybe just transposing what we've seen in softness or to date forward or what have you? Looking back to and also hedging views around that. Robert Gaudette: Right. So I'll take in parts. Let's talk about the markets first. The markets are -- they showed up physically weaker in the quarter. That's a reflection of the supply demand and just lack of weather, right? There just wasn't any real weather in ERCOT. The traded markets tend to have a recency bias. So when people aren't excited they kind of lean out the back and you see the curves kind of trade down a little bit. And then what I would also tell you, and we've talked about this in the past. As far as out the curve, the real transaction capability are the things that are going on that are setting that curve, are the large C&I customers and what they're doing around the markets. If you think about the macroeconomic environment that we're in today, that puts question marks into our big customers and what they're thinking. And so as that cleans up, as the complex around the world, help people have a little bit better view into what their business looks like. In 5 years, that helps them get back out into the market and provide some support in the market. There's no natural buyer out there unless you're a large industrial trying to lock up your time. As far as I don't remember the second question, Julien, I'm sorry, what was it? Julien Dumoulin-Smith: Well, I mean, I was thinking about like just offsets on '26 here. Just if you think about like softness of the year, see the reaffirm. Is there anything that we should be keeping in mind there? Robert Gaudette: Well, so I think that the way our markets work is I talked about how we -- what's left in the year. You still have some here in front of you, Julien, right? We still got potential heat in Texas anytime -- and so we've got to manage through that. We've invested in it so that our plants are ready to capture it. And then we've got the retail businesses ready to serve our customers. As far as offsets going the way that we think about it, I'll turn it to Bruce. But obviously, he and I are going to work to ensure that we deliver what we told you guys we're going to deliver. Bruce Chung: Yes. Julien, look, I think it's really as simple as this is just the first quarter. As you know, our company and our business has always been sort of seasonally weighted towards the last 3 quarters anyway. So I think that's why we feel comfortable being able to reaffirm the ranges that we've put out there. And certainly, that's the case on an EBITDA basis, I'd say we're even more confident on a free cash flow basis. we see certain working capital items sort of unwinding themselves over the remainder of the year. That gives us a lot of comfort that we're still going to be able to hit the free cash flow number that we put out there. Julien Dumoulin-Smith: Nice. Rob, bigger picture question here, right? You've taken over, how do you think about the strategic direction of the company here? I just want to ask bluntly here and give you the opportunity to respond. I mean, obviously, the company is already moving towards building new gen on contract, adding duration to the overall contract portfolio. It seems like that's the direction you all are going. You are doubling down on that statement. It seems like today with yet more gen build given the increase in the opportunity in PJM here. But look, I just wanted -- if you were to define the strategy in a way with your fingerprint here, how would you add or evolve what I would describe -- what I've just described. Robert Gaudette: Yes. So Bruce, I others were all part of the transition or transformation with Larry. So it's not going to sound too different, Julien. But if there was something I was going to put my finger on the scale on, I would say, we are definitely putting more focus around contracted cash flows, looking for duration of cash flows with counterparties. That leads us to things like data center deals and new build generation. But it also leads us to thinking about the total addressable market differently, right? We have historically been kind of in the competitive markets only. I see an opportunity for us to find contracted cash flows by partnering with regulated entities that may not have the capital or the relationships or equipment or development capability that NRG has. We have a really solid platform, and we should be able to take that to address other customers' needs from the Atlantic to the Pacific. Julien Dumoulin-Smith: I don't want to put words in your mouth, but that sounds like more like a contract, a gen build strategy like a [indiscernible] than it does like [indiscernible], not to point at others. Robert Gaudette: Well, so I'm not going to try to figure out what other people are doing. I'm really focused on what we're doing. But to say it succinctly, I think that we can create value for investors by putting their capital to work in generation or other programs, right, with long-term contracts. Operator: Our next question comes from the line of Michael Sullivan from Wolfe Research. Michael Sullivan: Congrats [indiscernible] Maybe if you could just give us a little more color on what you mean by on track for the year in terms of the data center now. It seems like you've had a sense of price and economics for some time now. So what are kind of the main areas you're progressing on? And to hit the 2029 COD, what we need to do in terms of equipment procurement for this year? Robert Gaudette: Sure. So I'll answer your question in reverse. To hit '29, we've got to get something done in '26 we haven't given anything more specific than that, and I'm not going to start today. And as far as like the things that we're working through, the economics are pretty straightforward, right? We've been -- we know where we need to kind of hammer to to get our returns, and we know where our customers need to be for them to get their returns. So that's not the issue. The real conversations and the work that's still ongoing and it's probably on every project out there. is around infrastructure. So I think interconnections for gen and load and then depending on the location, sites, et cetera, what's that gas infrastructure look like too. And all things that we can manage through and I'm confident that we will -- it's just stuff that takes a little more time, and it's not as simple as just, okay, what's the number? It's a conversation with multiple parties. It's a conversation with regulated entities and we're working through those. And I have confidence that we will get that done. Michael Sullivan: Okay. Great. And then the pace of buybacks was pretty quick year-to-date. Anything to read into that? I know a chunk of it was the direct transaction with LS. But any chance you go above $1 billion? Or yes, just anything to make of being a bit ahead of pace there on the buyback. Bruce Chung: Yes. I mean, So, I think the read into that is we didn't like where our stock was trading during periods of the first quarter, and so we tried to be as opportunistic as we could. As we sit here today, the average price that we bought back shares over the course is well below what we had planned in our guidance. So on a per share basis, we certainly expect to see some potential upside on that basis. whether we would go above $1 billion right now. Right now, the plan remains $1 billion, but to the extent that we see opportunities for extra cash flow, you can probably assume that we'll be pretty laser-focused on being able to deploy it in the form of share repurchases. Operator: Our next question comes from the line of Nick Amicucci from Evercore ISI. Nicholas Amicucci: And I know Larry would want me to congratulate Bruce as well. So congrats. I wanted to kind of dig in a little bit on the residential side of the house. And just kind of thinking through that as well as kind of the opportunity now with the power guys, the LS Power folks in the door, just kind of how you can leverage kind of both the residential as well as kind of segments and business lines to -- within that kind of offering of the DPP opportunity. Robert Gaudette: Sure. It's a great question, and it's something that gives us a unique opportunity to both create value, but also help manage affordability for customers. the portfolio by having what we're doing around [indiscernible], by having the tech stack that we've got through the smart home business and by adding C-Power, which is more of a C&I play, but they do have an understanding of how to make things move. Those all set us up for success. So I'm going to let Brad talk about like kind of where -- what our kind of milestones are going to be and how we're addressing that, if that helps. Yes. On the residential side, we're really pleased with our performance. We have made some choices around kind of the quality of customers we want in and around Texas, and we've seen that pay off in terms of bad debt and kind of record churn on that front. However, there are some segments where I think we're underpenetrated. So I do anticipate returning that to growth. On the home automation side, we're seeing -- we finished 2025 with record growth, and we've continued that momentum. So really pleased not only on the acquisition side but record retention numbers for Vivint, all the while driving growth in margin and keeping acquisition cost in check. So we see a lot of opportunity there. And then we also spend a lot of time how we bring these 2 products together to create even more affordability for customers in a bundled type service. So a lot of positive momentum on the residential side. Nicholas Amicucci: Great. And then if I can just kind of follow up to on Julian's question before. When we think about -- obviously, you guys mentioned kind of what there was no weather really in ERCOT from a pricing perspective. But just any kind of color you could provide just on the impact of kind of RTC plus B initiatives and just kind of the normalization, I guess, we could say, of the ancillary costs that could be impacting that. Robert Gaudette: Yes. So I've been following that since I first started talking about it. it kind of showed up the way we expected it. Honestly, Nick, like the ERCOT market boils down to a couple of facts, right? You saw a big solar build a few -- several years ago, then you saw a battery build over the last couple of years. Both of those have kind of slowed down or will slow down in the next year or so. And then we haven't had any weather to really stick a marker out there for anybody to get excited about where those markets are, right? The goal was set -- or the peak was a couple of years ago. You get 1 hot summer with a couple of handful of days where people remember that the price can go to $5,000, and these curves change radically. That's what we're building for. That's what we're supported on and that's how we manage our portfolio. This market is going to look very different, like I said in the scripted remarks, once you start adding generation -- or sorry, load that starts to kind of eat up any marginal megawatts that were out there. Operator: Our next question comes from the line of Carly Davenport from Goldman Sachs. Carly Davenport: Maybe just to start on the LS assets. Just kind of maybe could you talk a little bit about as you're integrating those assets, kind of what the key learnings have been so far? Any opportunities for synergies that you see today that perhaps weren't contemplated in your original plans? Robert Gaudette: So when we acquired -- or after we've gotten under the hood on the assets to we closed in the middle of earn look, we -- the assets kind of came in where we expected them to, right? Our assessment during due diligence for the acquisition was pretty spot on. So no big surprises there. Where we have seen some opportunities. If you remember, when we announced the acquisition, we saw potential up rates as we continue to look at these assets. Depending on the market structure, Carly, right, you've got to get the rules right and we've got to get an opportunity in front of us, but we could take that up to 2 gigs. So that's a plus, and that's exciting. And as far as synergies go, recall the acquisition was heavy on generation facility personnel, so guys who make the plants go not a lot of synergy there. But what we're going to work through over time is how we work that into the portfolio, and that will create better opportunities for us to think about hedging, better opportunities for how we serve customers and serve in those markets. So I see an opportunity there. We just haven't put our finger on that yet. Carly Davenport: Got it. Okay. Great. We'll stay tuned there. And then maybe just on the test development, it seems like you're really close here on TH. And maybe can you just provide some detail on what is left there to get the asset online? And then just maybe a scats update on the process on [indiscernible] and [indiscernible] just as you progress those towards the 2028 in service date. Robert Gaudette: Yes. We're very happy with the TEF projects. We're extremely excited about where they are. And I'm going to let Matt give you an update on [indiscernible] and then the other 2 that come in 28. SP541324311 On TH Wharton, the kind of remaining steps between where we are in COD is just sinking the initiate grade, getting ERCOT to give us the the blessing that they show up the way we expect. So that's all on track and on schedule. And then when you pivot over to [indiscernible] and [indiscernible] of those projects are kind of in an end of 2028 COD. So there various stages of construction, but they're only been long, right, where we expect them to be at this point in time to hit that '28 COD as well. Operator: Our next question comes from the line of Moses Sutton from BNP Paribas. Moses Sutton: So we continue to see the ERCOT load pipeline rising. Slide 6, you show supply/demand, we see as kind of believable too, if not conservative. How should we size up the upside to your uneconomic gen in Texas in terawatt hours per year. Could we see 10, 15 terawatt hours upside? ERCOT thermal fleet gets called upon more and more thinking into the out years? Trying to frame the tailwind and is it fair to assume that, that incremental gen would go wholesale and not be integrated into the retail business? Or anything you can give us on that down the road tailwind? Robert Gaudette: Yes. So we -- a great question, and it's something that we we think about every day. If I was going to advise you as to how to think about it and how to kind of put your finger on that pulse. First, you're spot on, right, that incremental generation wouldn't be attributed to retail led, right? It should be open. And the reason why I say that is because we're obviously managing a position with the market curves where we are today, right? So we're going to cover that up which means that the generation, if it comes -- if prices move to the right place, that generation will become economic and that's additional megawatts. So the way I would think about how you frame it up for your clients or whomever, is think about what that supply demand was. We gave you a pretty decent graph or a slide on Slide 14 that lets you take a look at what these price curves look like. and then what those impacts to the generation are, right? So I think we've kind of given you the numbers. The thing you need to think through is what do you believe price impacts look like and what does that actually do from a overall impact to ERCOT pricing? I know it's not a answer you want, but I'm trying to point you to where you can get. Moses Sutton: No, no, it's very helpful. And I guess it's a little bit tied to this and you kind of mentioned it in one of the prior answers, like specifically on the industry battery build in Texas. The returns have been at [indiscernible] now. The pipeline kind of remains there, which is strange. So how do you think of the battery impact on the curves in particular? I know you mentioned it a bit, but do you still see multi-gigawatt build still coming even if they don't have returns? Or are these holding agreements? Like what is still coming on the battery side in Texas that might be impacting the curves? And how do you see that cadence of the decline? Because you kind of mentioned that in your solar and battery comment earlier. Robert Gaudette: Yes. So my commentary around battery build and how I think it's going to decline is based exactly on the facts you just pointed out, right? The economics just aren't working for them. And so what batteries due to as it kind of pushes the pressure point out a couple of hours when you get tight, right? Right now, you have peak demand that's around, call it, 4, 5:00 in the afternoon, but you have peak price around 7:00 or 8:00 in the evening in the summer. What batteries would do is push that out to, call it, 9 or 10, but they still have to draw. So it provides support for the markets in some parts of the day and then it would kind of discharge during the peaks. If we get even a percentage of what this data center load looks like coming into the grid between now and like I've alluded to before, this market is off to the races. You eat through all of that battery push and all of a sudden, you've got the tight market that we all know ERCOT has been and can be that we saw in '22 and '23. Operator: Our next question comes from the line of James West from Melius Research. James West: Rob, congrats again on your first conference call as CEO. And also as funded humorous site in Texas complained about mild temperatures in the first quarter for sort of results. We know it's going to get bad. We'll talk again in July and see how you go about it. But -- like I wanted to touch on kind of the large load do data center opportunities, both in ERCOT and PJM lot of regulatory kind of movements trying to kind of, I think, clear the market to speed things up to help the process, but there's also it's a free market, and you can contract without going through the auction process and certainly can contract without needing the help of regulators, particularly in tribute where are the conversations and the development process now? Are the hyperscalers are there waiting for some type of regulatory clarity before they contract? Or are things stalled because of that? Are we waiting a couple of a month or so in PJM and maybe more there in ERCOT. And I'm just going to get some clarity or some color, I guess, on kind of when we should expect to see this enormous demand because these things are being built, so they need power. When we should see some type of movement here on on contracting. Yes. So that second piece is ERCOT, I would say that the regulatory structure and where the PUCT is on putting out rules around SB 6 is pretty well developed. Like that's definitely moving. I think that the counterparties, both on the data center side, but also on the generation side. We know the rules. So we have a pretty good idea of what they're going to look like. And so I wouldn't say that, that is the the long pole in the tent on stuff in Texas. I think it's, like I said, infrastructure interconnections and working with our partners from a regulated entity perspective. And I know that everybody is working hard to deliver data centers to Texas. Every party involved one time. So let's talk about PJM. So in PJM, you've got the new long-term auction, which they're working through at the behest of the White House and it's a good solution, and it's a good answer to help get things kind of moving in over the line. What I would tell you is that in conversations with counterparties there, so our potential customers they're open to bilaterals, too, right? And we're in a unique position -- well, we -- with a couple of others, are in unique positions to offer bilateral solutions that don't need that PJM auction. The auction to me is more of a backstop for conversations that we could have, right? The auction priced right with the right rules. That's a great way to put 2 gigawatts of uprates into our fleet. But I can also have a conversation with a hyperscaler and put a gigawatt of that in the same time, right, or in the -- so we kind of have 2 levers. Most of the conversation there directly with the customer is, hey, I don't want to do a bilateral with you and then have to pay the RBA thing. And I think that stuff all gets worked out over time here. I believe that PJM is trying to do the right thing. I know they're trying to solve reliability and affordability. We support the work they're doing, and we're obviously in the middle of all of those conversations because PJM is a big part of our lives now. Okay. Okay. Very helpful. And then a quick follow-up for me because some much of this power generation is going to come from natural gas. You guys are more uniquely positioned than others given your generation is natural gas. There's a lot of -- I don't maybe call it chaos, there's a lot of midstream activity going on, the gas producers are trying to get gas from where it is being produced to where it needs to be for power generation. How do you feel that you guys are aligned with that process, so you have the security of supply because that's one thing I think maybe is getting missed in the whole conversation is, okay, you can put a turbine here and build some colocation or attached to the grid, but can you get the actual [indiscernible] Robert Gaudette: Yes. So you raised a very important point. We do have a great gas platform, right? And we've been serving C&I customers for decades. We've also been serving power plants that are ours and some that aren't ours through the gas side. So because of that, we've got really good relationships, both with the midstream guys but also the upstream guys. And so if we want to procure long-term gas, we know the right folks to call, and we'll do that if our customer wants that. But I feel really good about the platform that we have and its ability to actually create value in addition for our customers but also for our company. Operator: Our last question comes from the line of Andrew Weisel from Scotiabank. Andrew Weisel: A couple of follow-ups on [indiscernible] and a couple of interrelated questions actually. So first of all, impressive to see the pickup on the uprate potential from 1 gig to so. Am I hearing you right, most of the incremental sounds like it's coming from the LS Power assets as opposed to the legacy, I think, would you only pursue those -- great. Would you only pursue those if they're backed by a long-term contract, whether bilateral or from the auction? Or could any of those make economic sense even without a hyperscaler contract? And then also given the uncertainty around the network upgrade costs, how comfortable would you be bidding greenfield build into PJM? Or would that only be existing assets or operates and all of the new build would be in ERCOT. Robert Gaudette: So we could build new build in PJM, but you bring up 1 of the risk adjustments that we'd obviously have to make. The second point I would make is we're not going to put capital to work without contracts or long-term revenue. We've got a fleet in PJM. We're in a good place from a position perspective. But I'm not going to go put money after stuff on a merchant basis. So we could find a bilateral deal or go through the PJM auction process. to help backstop that new build, but we're not going to do it without it. And then the last piece I would say is that when you compare and contrast ERCOT from a get things done perspective. We're trying to move these turbines and this capital to get to work as soon as possible. And like I laid out earlier, ERCOT's a little bit further ahead on the regulatory process, which lends us leaning in that direction. But we can take those turbines anywhere and for the right economics with the right counterparty, that's exactly what we'll do. Andrew Weisel: Then second, more of a philosophical question, but over the years, we're seeing more and more extreme winter storm and similar weather events. At the same time, you as a company are clearly trying to derisk and increase the predictability and stability of earnings and cash flows. You've talked a little bit about this earlier, but do you think there are any additional assents you can take specifically to protect you from these weather events, whether that's hedging or insurance or something more big like M&A or other corporate actions. Robert Gaudette: So we made a big step towards derisking the portfolio for the winter by closing on the acquisition of LS, right? So what that gave us is [indiscernible] on the ground in the Eastern markets where we have exposures, and there is I can financially hedge my exposures around retail businesses, but there is no better hedge than flexible, dispatchable natural gas assets. And that's exactly what we did. Bruce and I and the team think about our risk, our hedging every day. We're thinking about how we position the portfolio because managing through those storms in the winter or managing through a heat event in the summer is what you guys pay us to do. So that's what we're working on. Operator: This concludes our Q&A session. I would like to turn it back to Robert Gaudette for closing. Robert Gaudette: Thank you, everyone, for joining us this morning and for your continued interest in NRG. I'm excited about the opportunity ahead and honored to step into this role at such an important time for the company and the industry. We've built a strong platform. We're operating from a position of strength, and I'm confident in our ability to execute and create significant long-term value for our shareholders. Thank you again for your time today. Operator: Ladies and gentlemen, thank you for joining us and participating in today's conference call. This concludes our program. You may now disconnect.
Operator: Good day, and welcome to InMode's First Quarter 2026 Earnings Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Miri Segal, CEO of MS-IR. Please go ahead. Miri Segal-Scharia: Thank you, operator, and everyone, for joining us today. Welcome to InMode's conference call. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the safe harbor statements outlined in today's earnings release also pertains to this call. If you have not received a copy of the release, please go to the Investor Relations section of the company's website. Changes in business, competitive, technological, regulatory and other factors could cause actual results to differ materially from those expressed by the forward-looking statements made today. Our historical results are not necessarily indicative of future performance. As such, we can give no assurance as to the accuracy of our forward-looking statements and assume no obligation to update them, except as required by law. With that, I'd like to pass the call over to Moshe Mizrahy, CEO. Moshe, please go ahead. Moshe Mizrahy: Thank you, Miri, and to everyone for joining us. With me today are Dr. Michael Kreindel, our Co-Founder and Chief Technology Officer; Yair Malca, our Chief Financial Officer; and Mr. Moshe Itskovitz, our Senior VP of Finance. Following our prepared remarks, we will be available to answer your questions. We executed in line with our expectations in Q1 2026. In addition, we are seeing early sign of stabilization, particularly in the U.S. and believe that this quarter reinforce our confidence that 2026 is moving in the right direction. I would like to start by reviewing InMode's progress in North America. As you know, we brought in new leadership at the end of Q3 2025, including new North American President and Vice President. While it's still early, the energy and cultural shift are already having a positive impact. We have transitioned from our long-standing East-West structure to unified North American model, bringing Canada and Gulf Coast under the same organization. This is driving better coordination and clearer accountability. We also implemented a key structure change in January 1, 2026. The Envision team, our ophthalmology and optometry sales force now operate independently. This creates more focused model that we believe will support stronger execution over time. March delivered particularly strong progress, reinforcing our confidence that this change are beginning to bear fruit. That said, we are looking for sustained consistency before calling it a long-term trend. On the international market, we continued to operate in over 100 countries with most of our businesses driven by our direct sales to local offices and supported by distributor partnerships. Europe remains a strong region for us with solid performance and meaningful room for continued growth. In Asia, performance is more mixed, consistent with what we saw last year, though we are making progress in key markets, including China, where we see significant long-term potential. Onto laser, the Pico and the CO2 laser performed well, recently introduced were meaningful contribution to our Q1 revenue performance and are strategically important for our long-term growth. They extended the range of procedures our physicians can offer and to enable combination of treatment, which are increasingly in demand. Physicians are looking for comprehensive solutions from a single partner, and these platforms support a one-stop shop office. They may put pressure on our gross margin, but they play a critical role in strengthening our competitive position and deepening our customers' relationship. on the broader market environment, we are seeing sign of stabilization. Demand for aesthetic procedures was again pressured in the first quarter of 2026 by macroeconomic headwinds. But as we have said many times before, we believe that the demand for aesthetic procedure will not go away. It may be deferred, but it will return. Now let me turn the call over to Yair, the Chief Financial Officer, who will talk you -- walk you through financial numbers. Yair? Yair Malca: Thanks, Moshe, and hello, everyone. Thank you for joining us. As announced earlier this morning, I will step down as CFO and remain with the company as a consultant for the next 6 months to support a smooth transition. After 9 years with the company, I am proud to have been part of its journey from driving growth and supporting our expansion to helping lead our transition to the public markets. It's been a privilege to work closely with our dedicated employees and build a foundation of financial discipline and transparency. Even during recent macroeconomic headwinds, the company's strong financial position and resilience have enabled us to navigate challenges, including the global pandemic, while consistently prioritizing stability and our people. As I look ahead to new endeavors, I am confident that this discipline and long-term approach will continue to guide the company's success. With that said, let's get to the Q1 results. Starting with total revenue, InMode generated $82 million in the first quarter of 2026, up 5% from $77.9 million in the same quarter last year. Growth in Q1 was led by strong performance in the U.S. market. Moving to our international operations. Sales outside the U.S. totaled $38.7 million in Q1, representing 48% of total sales and an increase of 2.65% compared to Q1 of last year. Gross margin in the first quarter of 2026 was 75% on a GAAP basis compared to 78% in the first quarter of 2025. Non-GAAP gross margins were 75% in the first quarter of 2026 compared to 79% in the first quarter of 2025. In Q1 2026, our minimally invasive technology platform accounted for 77% of total revenues. To support our operations and growth, we currently have a sales team of more than 298 direct reps and 73 distributors worldwide. GAAP operating expenses in the first quarter were $51.5 million, a 13.7% increase year-over-year. GAAP sales and marketing expenses increased to $42.9 million in the first quarter compared to $39.7 million in the same period last year. The year-over-year increase was primarily driven by increased sales expenses tied to the restructuring of the North America sales organization and headcount expansion from 2025 subsidiary build-outs, along with higher commission expense in line with a stronger sales performance. Next, we look at share-based compensation, which increased to $2.7 million in the first quarter of 2026. On a non-GAAP basis, operating expenses were $47.8 million in the first quarter compared to a total of $43.1 million in the same quarter of 2025, representing an 11.1% increase. GAAP operating margin for Q1 was 12%. Non-GAAP operating margin for the first quarter of 2026 was 17% compared to 23% for the same -- for the first quarter of 2025. This decrease was primarily attributable to the increase in cost of goods and, as mentioned before, the new structure of the North America sales team implemented towards the end of 2025 and subsidiary establishments in the later part of 2025. GAAP diluted earnings per share for the first quarter were $0.18 compared to $0.26 per diluted share in Q1 of 2025. Non-GAAP diluted earnings per share for this quarter were $0.25 compared to $0.31 per diluted share in the first quarter of 2025. As of March 31, 2026, the company had cash and cash equivalents, marketable securities and deposits of $537.2 million. We also returned meaningful capital to shareholders, repurchasing shares in the amount of $127.4 million during 2025 and $52.7 million year-to-date under our new 2026 repurchase program, representing 3.86 million shares this year. With this flexibility, we remain well positioned to pursue a full range of capital allocation opportunities. This quarter, InMode generated $15.4 million from operating activities. Before I turn the call back to Moshe, I'd like to reiterate our guidance for 2026. Revenues between $365 million to $375 million; non-GAAP gross margin between 74% and 76%; non-GAAP income from operations between $73 million and $78 million; non-GAAP earnings per diluted share between $1.33 to $1.38. I will now turn over the call back to Moshe. Moshe Mizrahy: Thank you, Yair. Thank you very much. Operator, we're ready for Q&A. Operator: [Operator Instructions] The first question comes from Mike Matson with Needham. Joseph Conway: This is Joseph on for Mike. And Yair, I wish you the best in your next ventures. Maybe just a question on the next laser launch, I believe the Erbium laser. Can you remind us of the time line of that? Was that end of the year? And just comparing to the Pico and the CO2 laser, is this product more just filling a gap that can do a different procedure versus the Pico or CO2? Or is it -- maybe it's much more differentiated? Just wondering how we should think about that. And then, under the assumption that this launches at the end of the year, should we expect further impact to gross margin in 2027 from this increased mix of laser platforms? Moshe Mizrahy: Okay. You asked 3 questions about 3 different lasers. First, the laser that we introduced to the market in the beginning of this year, sometime in February was not Erbium, it was Pico laser. The Erbium laser is still under development. And we hope to finalize the development of the Erbium, which is developed in Israel and get into the FDA clearance sometime in the next month or 2. So basically, we hope that by the end of this year, we will have it cleared by the FDA, and we can introduce it to the market. Now the third laser that you mentioned, the CO2, the one that we're having today and selling today, which called the Solaria, it's a CO2 laser that we buy from U.S. manufacturer with several modifications that we made it to be -- looks like and with the software of InMode. And we sell it quite nicely throughout U.S., not in Canada because they don't have Health Canada clearance to sell it [ in the U.S. ]. So this product is being sold only in the U.S. At the same time, we are developing our own CO2, which will enable us to expand the market and the territories to almost everywhere, but that will take time because regulation today, it's a long process, mainly in Europe when you have to clear it through the MDR and not the MDD process that recently changed. Anything else about those lasers? Joseph Conway: No, I think that's all good and clear. Appreciate that. Maybe just one more follow-up question. Just wondering how your newer direct subsidiaries, I think Thailand and Argentina were established in 2025. How have those been growing? And then could you also remind us on the time line for China? I believe that was maybe one of the next targets for this year. So maybe just what products you're targeting to get into China and then the time line of when that could happen? Moshe Mizrahy: Okay, let's start with Argentina. Argentina was established late 2025. It took us some time, 2 months to get all the clearances from the regulatory body in Argentina under our name in our subsidiary. Now everything is almost ready. We have an office. We have 1 or 2 salespeople. We have a clinical trainer. We have a manager. And hopefully, Q2 in 2026, we will see some results. Until now, it was more like a setup organizing all the regulatory clearances. Hopefully, Q2 in this year, they will start delivering sales as well. Argentina is not very big country compared to Brazil and others, but we believe that there is a market there. There are major changes in the macroeconomics in Argentina recently. And we felt that this is the best time to establish a subsidiary there and go direct. Regarding China. In China, we continue to work on the medical field with our distributors. But we have decided -- I don't know if everybody knows, but during the COVID, we have established a company in Guangzhou, which was a sleeping company for all the time until today. And we decided right now to use this company, which is fully owned by us to become the spa and aesthetic arm of InMode in China. We hired a manager and -- who is well acquainted with the spa and the aesthetic -- not aesthetic, I would say the cosmetic more or less in China, and we're developing right now special products to distinguish the product line from the medical in order to penetrate this segment of the market in China. But it's not in full operation yet. Operator: [Operator Instructions] Our next question comes from Matt Miksic with Barclays. Matthew Miksic: So, on ophthalmology, I was wondering if you could -- and I've been hopping around a few call, so apologies if it's already been covered, but maybe an update on how the U.S. sales reorg and management structure is driving that growth, what your plans are there? Maybe what some of the early results you've seen there and some of the upcoming milestones? And I have one quick follow-up. Moshe Mizrahy: Yes. Well, I'm sure everybody knows that we have a platform, which is called the Envision for the ophthalmology and optometry. By the way, 95% of the customers are not ophthalmologists, they are more optometrists, which are doing treatment to relieve dry eye. We're working on the study for the FDA to get clearance. And therefore, right now, we don't market it under dry eye treatment, but rather on what we have the clearance. And this is increased blood circulation and build some collagen, which we know that also help for dry eye. The team is 30 salespeople and a manager. The manager is a director level. He reports to the President of North America. It's part of the North American team. It's not totally separate company. It's not even a division. And they cover the entire U.S. They are not territory based. They cover the entire U.S. and also supporting sales of Envision in Canada. This is the first time that we separate the product and the first quarter that we have a special team selling one product from our portfolio. We hope that this model will be successful because if -- yes, we might do it on other products as well in the future. But I believe it's very early to judge. It's only 3 months. So far, it seems like there are -- it seems like that the concept is working. And although to be responsible for the entire U.S. and Canada with 30 people, it's a little bit big territory, but we did it. And we'll see. Let's see the results throughout the year, and then we'll decide if that's successful or not. Matthew Miksic: That's great. And just a question on -- and again, I'll make the same apology if you'd covered this. The plans to repurchase shares, use of cash. You've done a good job of putting that cash back to work, giving back to shareholders as volumes were slowing and the market was kind of troughing here. How does that strategy play out this year? How are you thinking about capital allocation at this point? Yair Malca: So this is Yair. We started -- as you know, we announced a buyback plan earlier this year, and we started executing on that. So far, we purchased over $3.8 million under that plan. Moshe Mizrahy: 8 million shares. Yair Malca: And 8 million shares, sorry -- 3.8 million shares under the plan, and we continue to -- we plan to continue to execute on the plan. Other than that, Moshe, do you want to elaborate about capital allocations? I think all the options are on the table. Moshe Mizrahy: Well, we always say the same thing, all the options on the table. We will -- we are allowed to do 10% of the outstanding shares every year without paying dividend tax, and we're doing it year-over-year. So far, I would say once we completed this 6.5 million shares, I believe it's another 2.5 million that we have to buy. We already did that 6 years, 6x, and we returned $600 million to the shareholders. If you ask me if that helped the share price, so far not. And therefore, it's always a question mark, whether to continue or not to return capital to the shareholders with this type of operation only by buyback. Hopefully, now when the company continue to be a public company, I'm sure everybody knows that the last year, 2025 was a very tough year for InMode because of the failed project that tried to sell the company without success. And we remain public. I believe it's important also to the team and to the people who felt unsecured during a very long time. And now maybe we will consider other ways to allocate capital to the shareholders; M&A, dividends and others. Everything is on the table and everything is open. Operator: The next question comes from Sam Eiber with BTIG. Sam Eiber: Yair, I just want to say thank you for all the access over the years. It was really nice getting to work together. Hopping between a few calls this morning, so apologies if this question already got asked. But maybe just following back up on capital allocation and maybe diving a bit deeper in terms of appetite for M&A. I know it's something that you guys have always been considering, but haven't seen any kind of deals over the last several years. I guess is that something that considering where markets are at this moment, willing to reevaluate? Or is it really more focused on still buybacks here? Moshe Mizrahy: Well, I cannot say more than what I did. Yes, M&A opportunities are being explored. We have nothing that are in any stage, but we're always checking because we believe that we did a lot of buyback. And if we have a candidate or a company to acquire in order to synergize either on the product level or the technology level or the customer level, we will explore. The only problem is right now, private company prices are very high and unfortunately, we were unable to acquire. We did 2 attempts, as you know, to buy an injectable company and to buy a toxin company, but we gave price which was probably not the best for this company's shareholders. Therefore, it was not accepted, but we will continue to try. Operator: The next question comes from Michael Toomey with Jefferies. Michael Toomey: This is Michael Toomey jumping on for Matt at Jefferies. I just had a question on what you're seeing on the broader aesthetics market, not just the energy-based side, but you mentioned the interest in injectables, but how is the broader aesthetic market growing today? And any difference there between broad aesthetics injectables and kind of energy-based devices? Moshe Mizrahy: Well, I believe that there are a few injectable companies which are public companies. And if you look at them, you will realize that in the last -- in 2025, they didn't do that good, but they see some sign of momentum in 2026. One thing I want to say, I mean, the energy-based device companies are competing on the same marginal dollar that people has for aesthetic. And on the other side, other than energy-based devices, GLP-1 took a lot of money from this industry, a lot of money. And all the new product, boosters, biosimulator, exosomes are also competing very toughly with energy-based devices, and some of them are doing very well. Now that means that in the future, and that's what we thought when we gave an offer to injectable companies, energy-based devices will need either strategically cooperation or M&A or mergers with other type of aesthetic solution in order to be a one-stop shop. As of now, we know that several companies like Alma signed a distribution agreement with fillers. I know that there was another Spanish company, Sinclair that actually closed all the EBD operation and stayed only with the injectables. But I didn't see yet a major company that actually offer both energy-based device treatment and all the other, I would say, injectables, exosome, biosimulator and other stuff that also compete on the same dollar on -- which are the same -- what I call aesthetic dollar. And the reason for that, the main reason for that is that it's 2 different operations. You don't have an engineer that knows how to develop EBD or a pharma product, and you don't have a salesman who knows how to sell energy-based device for $100,000 and at the same time, to sell fillers or toxin for $100. Should need to be 2 separate operations. And in the future, I do believe that it will come. Michael Toomey: Okay. That's great. And just a follow-up as well. With the gross margin new guides, anything you can comment on the phasing through the year? Moshe Mizrahy: On the what, phasing? Phasing throughout the quarter. Michael Toomey: For the gross margin? Moshe Mizrahy: We believe it will stay the same, like 74%, 75%. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Moshe Mizrahy, InMode's CEO, for any closing remarks. Moshe Mizrahy: Okay. Thank you, everybody. Thank you for being with us today. Before I close the call, I want to thank to our Chairman, Dr. Michael Anghel, who worked with us for, I would say, 8 years as a Director and as a Chairman. We enjoyed him very much. He is leaving, and I want to wish him success in the future. He was very helpful and very -- he contributed a lot to InMode. And the second guy that I want to thank personally and on behalf of the company is Yair Malca, our Chief Financial Officer for 9 years now, even before the IPO, correct, isn't it? Even before the IPO, we hired him. He did a great job taking this company into an IPO and then maintaining everything that we need to do as a public company with all the reporting, talking with investors, talking with analysts. So thank you, Yair, for everything you did for us and all the contributions that you brought to this company. And I wish you success in your new career. Yair Malca: Thank you very much. Moshe Mizrahy: Hopefully, the war in Israel will end and everybody will go back to a normal life, including us, and we will continue to do our best. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
James Kelly: Good morning, and thank you for joining us today to discuss our first quarter 2026 financial results and operational highlights. A press release announcing our results is available on our website at novavax.com, and an audio archive of this conference call will be available on our website later today. Please turn to Slide 2. Before we begin with prepared remarks, I need to remind you that this presentation includes forward-looking statements, including, but not limited to, statements related to Novavax's corporate strategy and operating plans, its strategic priorities, its partnerships and expectations with respect to potential royalties, milestones, cost reimbursements, the current macro and regulatory environment, the development of Novavax's clinical and preclinical product candidates, the timing and results of clinical trials, timing of regulatory filings and actions, its APA agreements and related negotiations, projected market opportunity, full year 2026 financial guidance and revenue framework and Novavax's future financial or business performance, including long-term growth, cost savings and profitability targets. Each forward-looking statement contained in this presentation 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 Cautionary Note regarding forward-looking statements in the presentation we issued this morning and under the heading Risk Factors in our most recent Form 10-K and subsequent Form 10-Qs filed with the Securities and Exchange Commission available at www.sec.gov and on our website at www.novavax.com. The forward-looking statements in this presentation are only as of the original date of this presentation, and we undertake no obligation to update or revise any of these statements. Please turn to Slide 3. This presentation also includes references to non-GAAP financial measures, including total adjusted revenue and combined R&D and SG&A expenses, less partner reimbursements and non-GAAP profitability. Please turn to Slide 4. Joining me today is John Jacobs, our President and CEO; Elaine O'Hara, Chief Strategy Officer; and Bob Walker, Head of R&D. Please turn to Slide 5. I would now like to hand the call over to John. John Jacobs: Thank you, Jim. I'm excited to be here today with members of our executive team to share our first quarter 2026 financial results and operational highlights. Novavax ended the first quarter having made significant progress against our top priorities and growth strategy, which is designed to deliver value via 3 key strategic pillars, partnering our technology, capital-efficient R&D innovation and a lean and efficient operating model supporting our efforts. Please turn to Slide 6. Our ambition is clear, to build the future Novavax with multiple partners, both large global pharmaceutical companies and smaller, highly innovative biotechs using our technology platform to develop and commercialize multiple vaccines across a wide array of infectious disease and oncology targets. And we intend to build upon the business from our current base of existing partners that includes near-term milestone and royalty opportunities from Sanofi related to Nuvaxovid and their CIC programs, royalties from Takeda and potential milestones from our new partnership with Pfizer. As we advance this strategy, the opportunity is vast. We are targeting the combined global market for infectious disease and oncology vaccines and immunotherapeutics, which is projected to grow to over $100 billion by the early 2030s. I'm pleased to say that, since we launched our new strategy in 2025, we are seeing significant progress, and we continue building on that momentum. In January, we announced a new partnership with Pfizer for a nonexclusive license to utilize Matrix-M in 2 infectious disease areas with one already named. Our partnerships with Sanofi and Pfizer have the potential on their own, to generate billions in revenue from milestone and royalty opportunities. Specific to Sanofi, to date, our partnership has delivered over $800 million in revenue, while enabling us to remove the cost burden of maintaining a global commercial infrastructure. In the last week, we signed a new MTA with another top 10 pharma company who is also a global leader in oncology to explore Matrix-M in a broad array of oncology targets as well as antibiotic-resistant bacterial infections and other infectious diseases. And beyond this exciting new collaboration, we also deepened 2 of our relationships with current Matrix-M licensees, resulting in, one; a new MTA to enable access to Matrix-M for preclinical testing in up to 9 additional identified infectious disease areas; and two, an expanded MTA collaboration to explore an additional field. And finally, we signed a new MTA with a small innovative oncology company earlier in the quarter. We now have either licensing partnerships or MTA collaborations, with 4 of the top 10 global pharma companies and several other innovative companies, who collectively have the rights to explore over 30 unique indications or fields across both infectious diseases and oncology. Together, these partnerships target diseases that make up more than half of the projected $100 billion combined infectious disease and oncology vaccines and immunotherapeutics market. Given the breadth of the near-term opportunities before us with Sanofi and Pfizer, and the potential additional opportunities currently being contemplated by our partners, and via our many MTA collaborations, we believe our business model has the potential to deliver billions of dollars in revenue over time. One of the things that makes this strategy compelling in our opinion, is its capital efficiency. Rather than maintaining our own costly infrastructure, we leverage the scale and investment of world-class partners in oncology and infectious disease, while potentially generating cash flow earlier for Novavax through upfront payments and development milestones, well ahead of what a traditional development to launch path would enable. And of course, our third pillar is to execute this strategy with a lean operating model that retains our core capabilities in R&D. This R&D work will be led by Dr. Bob Walker, who is, as we announced recently, our new Head of R&D. Bob most recently served as Novavax's Chief Medical Officer, and we are confident that he's the right leader for our R&D efforts. As we look further into 2026, we remain focused on several key priorities. First, executing on existing partnerships, including supporting Sanofi's efforts for the fall season, and supporting Pfizer's efforts to advance their first field to clinical readiness. Second, pulling through progress on MTA collaborations into potential future licensing agreements. Third, advancing capital-efficient R&D innovation as an engine for future partnerships, and fourth, continuing to drive down our costs while maintaining key capabilities. We believe the future is bright for Novavax as we continue to execute on our strategy. And with that, I'll turn it over to Elaine to talk more about our partnering efforts. Elaine? Elaine O'Hara: So thank you, John. Please turn to Slide 7. We've made significant progress this year, leveraging our business model to advance additional business development opportunities. Please turn to Slide 8. As John mentioned, we signed 4 new material transfer agreements for Matrix-M. We're very excited about the new MTA with a top 10 global pharmaceutical company who is also a global oncology leader. This marks our third oncology-focused collaboration via an MTA and the first with a top 10 global pharmaceutical company. These collaborations have the potential to address some of the most difficult oncology targets existing today, such as colorectal, pancreatic and head and neck cancers. These MTAs highlight the significant interest we continue to see in Matrix-M, as a potentially differentiated adjuvant, not only for major infectious disease manufacturers, but increasingly among oncology companies as well. Our technology platform and partnership approach have the potential for tremendous value generation. Matrix-M's ability to significantly increase antibody titers for both viral and bacterial antigens, its broad applicability across disease areas and vaccine platforms and its saponin-based profile relative to traditional aluminum-based adjuvants make it very attractive to partners. We have developed a model that is successfully delivering a growing number of partnerships utilizing Matrix-M. And what we're seeing is that, when a partner initially accesses Matrix-M under an MTA, they often come back to request expanded access for additional fields and/or to request a collaborative license agreement. The cumulative impact of this is significant, as John stated, more than 30 unique fields are currently identified for preclinical evaluation by partners. In fact, the broad utility of our technology has resulted in several companies exploring Matrix-M for applications in the same high potential markets, including infectious diseases areas such as cytomegalovirus, Epstein-Barr Virus, pneumococcal disease and RSV. And this also includes overlap across oncology in areas such as colorectal, pancreatic and head and neck cancer. In addition to broader use across and within disease areas, our technology is increasingly being used in programs that have previously failed, or shown an inability to get an efficacious and safe vaccine to market. Because our matrix agreements are not exclusive, we are not limited to a single product or partner in any disease area, thus creating the potential for a higher probability of success and for potential revenue across multiple partners in a given disease area. Let me take this opportunity to provide you with an illustrative example of the opportunities ahead of us. Please turn to Slide 9. Novavax's growth strategy is focused on tapping into the approximately $100 billion future global market, for infectious disease vaccine, approximately $60 billion and the oncology vaccine and immunotherapeutics market, expected to grow to over $40 billion by the early 2030s. Please turn to Slide 10. Put simply, on the left-hand side of the slide, you'll see that our growth strategy is focused on tapping into the potential $100 billion market I just described. And existing license partners and MTA collaborations currently have the rights to explore over 50% of that potential market opportunity based on current agreements. This has the potential to result in billions of dollars in revenue from a diversified set of products and partners in the form of upfront payments, milestone payments and royalties from both Matrix-M and product licensing agreements. Please turn to Slide 11. So let's look at our Pfizer agreement to further emphasize the value of a single Matrix-M agreement. In addition to the $30 million upfront payment we received, plus up to $250 million in future development and sales milestones, Novavax is eligible to receive royalties for up to 20 years from first launch in a given country. This means that for each $1 billion in average annual sales per asset by Pfizer over the 20-year term, Novavax would be eligible to receive over $1 billion in cumulative royalty payments, with no incremental investment in clinical or commercial development. The significant scale of the value creation opportunity becomes clear, when you imagine the potential for a portfolio of marketed partner products utilizing our Matrix-M adjuvant technology. Please turn to Slide 12. Finally, in addition to advancing our business development work, we continue to execute on our partnership agreements. Regarding Sanofi, we were pleased to see the results of their positive Phase IV head-to-head study comparing our COVID vaccine and Moderna's next-generation mNEXSPIKE, which Bob will talk about shortly. In our opinion, this thoughtful investment further underscores Sanofi's commitment and is consistent with the methodical approach we have seen them take in building other respiratory markets. For Pfizer, we continue to work with their teams post CLA to enable utilization of our Matrix-M technology according to the remit of that agreement. And as we continue discussions with interested potential partners on the value of Matrix-M in their portfolios, we are also addressing our own pipeline of assets. We're very excited about the potential for our C. diff vaccine candidate, for which we continue to see a significant unmet need and a differentiated commercial opportunity. The combination of strong C. diff preclinical data generated to date, which Bob will expand on shortly, and the significant market opportunity were the driving factors behind this prioritization towards the clinic as early as 2027. And so with that, I'll transition the call to Bob. Robert Walker: Thank you, Elaine. Please turn to Slide 13. Let me begin by saying how excited I am to take on the role of Head of R&D at such a transformational time for the company. I'm fully committed to leading our R&D team in close alignment with Elaine's BD and strategy team as we continue to realize the full potential of our Matrix adjuvant, and apply our scientific knowledge and expertise, to enhance both partner pipelines as well as our own early-stage assets. Please turn to Slide 14. As John and Elaine have said, we have some exciting updates coming out of the first quarter. One of the first significant decisions I made in my new role was to prioritize our C. diff bacterial vaccine candidate from among our early pipeline work as the next asset for advancement into the clinic, and we are targeting entry into the clinic as early as 2027. I'm particularly excited about our C. diff asset for a number of reasons. First, C. diff illness is a major public health threat with no currently available vaccine. Second, we've had the opportunity to learn from prior vaccine development failures of others. And finally, our vaccine candidate offers the potential to address a significant unmet need through a strongly differentiated approach. Please turn to Slide 15. Our candidate uses a multivalent antigen approach designed to go beyond toxin neutralization alone and further target a vast majority of circulating clades and ribotypes. As shown on the slide and shared here for the first time in the public domain, we are seeing positive early data in terms of antitoxin IgG responses supporting our decision to prioritize this vaccine candidate to the clinic. In a robust preclinical development program that also includes assessments of mucosal immunity that may be important in controlling this disease, as well as other endpoints, including survival from lethal challenge with both toxin and spores and gut pathology, our vaccine candidate consistently outperformed an inactivated 2 toxin alone comparator. Based on the accumulated encouraging data, we have progressed this candidate to an IND-enabling repeat dose toxicity study with plans, as mentioned, to be in the clinic pending successful regulatory interactions. We believe our C. diff work presents an incredible opportunity from both a business and clinical standpoint. Please turn to Slide 16. Additionally, the preclinical data we have generated on our RSV and VZV early-stage assets are positive and extremely instructive for advancing our science. Our R&D model allows us to continue to build on our established technology platform that has already produced the highly efficacious and well-tolerated malaria and COVID-19 vaccines. Combining our deep bench of expertise with AI and machine learning has enabled us to rapidly advance our work in designing superior vaccine antigens for both RSV and related respiratory viruses such as DIV3 and for VZV. The scientific knowledge gained from these low-cost, high-throughput exploratory efforts has been substantial and highly impactful and will continue to inform our antigen design and adjuvant work of the future. Please turn to Slide 17. The work I've just described also feeds directly into the progress we're making on another key pillar of our R&D strategy, expanding the utility of our Matrix-M adjuvant and creating additional potential Matrix-based adjuvants. Matrix-M as it stands today is an outstanding adjuvant, with extremely broad utility as is evidenced by the partnering activity Elaine already described. Our ongoing innovation may enable us to do even more and is aimed at designing adjuvants tailored to foster specific differentiated immune properties for new indications, including, for example, prevention of hard-to-treat infections and select areas within oncology. Some of this early work, I should note, is already underway with partners. And early research being conducted by our R&D teams on our Matrix adjuvant indicates that tailored modifications do indeed have the potential to drive specific immune responses that could be harnessed and directed towards specific therapeutic goals such as induction of highly antigen-specific T cell responses in targeted T cell subpopulations. Please turn to Slide 18. We are also committed to retaining the appropriate capabilities to execute on and remain focused on our stated areas of R&D innovation, generating data for partner discussions, expanding the utility of our Matrix technology platform and creating new innovative vaccine candidates, with our Matrix-M and nanoparticle technology platforms to facilitate partnership discussions. We view our data as an asset, and our efforts are focused on expanding our library of data and knowledge regarding our adjuvant and nanoparticle technology platform to better facilitate potential partnering discussions. This also means that, we expect to use certain early candidates as test platforms for both Matrix-M and new potential Matrix-based adjuvants, generating data in the lab to outline how these adjuvants can enhance immunogenicity, while also assessing cytokine induction as potential markers of reactogenicity. We also plan to characterize a number of additional antigens, while we will be selective as to which antigens move into clinical development, we have found this detailed examination of how different antigens interact with Matrix-M has yielded valuable insights that can be directly applied across programs. We may choose to advance select candidates such as C. diff into human trials, when the burden of disease, significant business opportunity and potential for our technology to deliver a differentiated and transformational impact exist. Please turn to Slide 19. Before passing the call to Jim, I want to make some final comments on data generated by our partners. In April, we were pleased to see that Sanofi announced the results of their investment in the first head-to-head randomized Phase IV study comparing the tolerability profiles of our COVID-19 vaccine and Moderna's next-generation COVID-19 vaccine mNEXSPIKE. The study known as COMPARE was recently presented at the ESCMID conference and showed that Nuvaxovid demonstrated statistically fewer side effects compared to mNEXSPIKE, across all prespecified endpoints. Participants who received Nuvaxovid were twice as likely as mNEXSPIKE recipients to say they would definitely choose the same vaccine type again the following year. Additionally, publication of real-world evidence in partnership with the University of Utah showed participants in the SHIELD study who received Nuvaxovid reported fewer side effects and half as many hours of lost work 2 days after vaccination compared to those who received an mRNA vaccine. Combined, these data support the well-established reactogenicity profile of our vaccine. We believe a more favorable side effect profile for a COVID-19 vaccine has the potential to enhance vaccine preference by health care providers and individuals, in addition to adding to the body of evidence supporting use of Matrix-M in vaccines by potential partners. In closing, let me reiterate that I'm excited about taking on the role of Head of R&D and about where we're taking the company with our new strategy, and look forward to sharing future updates. I'll hand it over to Jim now to discuss our financial results. James Kelly: Thank you, Bob. Please turn to Slide 20. This morning, we announced our financial results for the first quarter of 2026. Details of our results can be found in our press release issued today and in our Form 10-Q filed with the SEC. Please turn to Slide 21. We are pleased to reiterate our full year 2026 revenue framework and R&D and SG&A expense guidance and believe that our first quarter 2026 financial results underscore that we are on track to achieve our financial and operational objectives, to drive shareholder value by monetizing our technology. First, a reminder that our prior year first quarter 2025 Nuvaxovid product sales included $603 million in noncash revenue recognition from the closeout of Nuvaxovid APA agreement. While a great outcome, this noncash item has the effect of distorting our year-over-year trends in the first quarter of 2026. For the first quarter of 2026, we reported total revenue of $140 million, a 79% decrease compared to the same period in 2025. In addition, we saw significant revenue growth from partner-related sources in the first quarter of 2026, reflecting continued progress as Novavax executes on our new partner business model. Both our supply sales and licensing royalties and other revenue were up over 100% year-over-year. During the first quarter of 2026, we continue to drive down our combined R&D and SG&A expenses. On a non-GAAP and net of reimbursement basis, we reduced these costs by 23% in the period. Novavax ended the first quarter of 2026, with $818 million in cash and accounts receivables. We added $80 million of nondilutive cash in the first quarter of 2026, including a $30 million Pfizer agreement upfront payment and a $50 million initial draw from the new $330 million credit facility. Based on the combination of our ending first quarter 2026 cash plus anticipated partner reimbursements, we believe we can fund our operations into 2028, without contemplating any new cash flow to Novavax from upfront payments, milestones or royalties. That said, we do anticipate the addition of significant cash flow from partners over time. Please turn to Slide 22 for a detailed review of our first quarter revenue results. Our revenue mix in the first quarter reflects the evolution of our new business model, with lower emphasis on Nuvaxovid product sales and an increase to partner-related revenue sources. Nuvaxovid product sales of $10 million was primarily driven by sales into Germany for the 2025-2026 season and reflects the completion of Novavax's commercial activity in Europe, as we have now transitioned that market over to Sanofi as they prepare for the upcoming 2026-27 season. We look forward to Sanofi's Nuvaxovid commercial efforts in 2026 and beyond. For the first quarter of 2026, we reported $33 million in supply sales, a 139% increase compared to prior year, and reflecting higher demand for our Matrix-M adjuvant to our partners plus COVID-19 supply sales to Sanofi. For the first quarter of 2026, licensing royalties and other revenues of $97 million saw a 116% increase on a broad set of partner activities. These results underscore our intent to build a diverse set of revenue streams from partners and products by monetizing our technology. Please turn to Slide 23. We made significant progress improving our cost structure in the first quarter of 2026. Combined R&D and SG&A on a non-GAAP basis decreased by 23%. Non-GAAP R&D decreased by 13% and our GAAP SG&A spend decreased by 40%. We believe these improvements to our operating efficiency highlight that we're on track to continue reducing our overall expense profile in line with our full year expense guidance. On a quarterly basis, we anticipate higher combined R&D and SG&A expenses in the first half of 2026 on both a GAAP and non-GAAP basis as Novavax provides support to Sanofi with clinical studies and we execute on the Nuvaxovid manufacturing-related activities for the 2026-27 season. We anticipate these costs to materially decline in the second half of 2026 and be fully completed in early 2027. Please turn to Slide 24. Since we have already covered most of the first quarter 2026 financial highlights already, I will emphasize that we reported a relatively small $9 million net loss in the first quarter of 2026. We believe this reflects important progress as we improve our financial performance on our intended path towards profitability. Please turn to Slide 25. Taking a moment to recap accomplishments made towards improving Novavax's financial strength and performance. A key takeaway from this work is that we have put Novavax in the position to have an estimated cash runway into 2028 as we drive towards our goal of non-GAAP P&L profitability as early as 2028. Keys to the timing of our path to non-GAAP P&L profitability are the successful development and regulatory approval of the Sanofi flu/COVID combination program and successful commercial execution by Sanofi on both the COVID and combination programs. This could be further supported by any additional cash flow from new business development agreements and further cost reductions. Please turn to Slide 26 for a review of our multiyear combined R&D and SG&A expense guidance. Today, we are reiterating our 2026 and 2027 non-GAAP R&D and SG&A expense guidance of $325 million and $225 million, respectively, at midpoint. Importantly, in 2026, we anticipate operating at an approximately $200 million core spend profile, when excluding costs tied to completion of partner and APA performance obligations. These include non-reimbursed Sanofi R&D support and COVID strain change and commercial manufacturing support of approximately $125 million and $25 million in 2026 and 2027, respectively. As these near-term activities are completed, we expect to be in a position to further decrease our cost. Our 2028 non-GAAP R&D and SG&A expense targets call for an over $200 million and an over 50% decrease compared to 2025. Today, we're refining and improving our 2028 expense guidance to a range of $150 million to $200 million. Our core R&D spend and growth strategy is focused on capital-efficient value creation. The significant progress highlighted today would not have been possible, without recent R&D innovation and data generation. We continuously evaluate all options to create long-term shareholder value, including the potential to efficiently return capital to shareholders, if and when returning cash would be the best use of capital. Please turn to Slide 27. Today, we are reiterating our full year 2026 revenue framework and expect to achieve adjusted total revenues of between $230 million and $270 million. As a reminder, for 2026, we are following an approach similar to the 2025 revenue framework in that our non-GAAP adjusted total revenue excludes Sanofi supply sales, royalties and milestones. This means, there may be revenues in 2026 that are additive to our expectations for adjusted licensing royalties and other revenue. That said, we believe that in the 2026 season, Nuvaxovid royalties will grow significantly as compared to 2025. At midpoint, our full year 2026 revenue framework for adjusted total revenue is $250 million. Through the first quarter of 2026, we've recorded $119 million, meaning at the midpoint, there's $131 million remaining revenue to be recognized over the next 3 quarters of the year, or approximately $44 million per quarter on average in 2026. Today, we're also reiterating our full year 2026 combined R&D and SG&A expense guidance on a GAAP and non-GAAP basis. We expect to achieve GAAP results of between $380 million and $420 million. On a non-GAAP basis and net of partner reimbursements for R&D, we expect to achieve non-GAAP 2026 combined R&D and SG&A expenses of between $310 million and $340 million. We look forward to sharing additional updates as we improve Novavax's financial performance, cost structure and strength to deliver shareholder value. Please turn to Slide 28. With that, I'd like to turn the call back over to John for some closing remarks. John Jacobs: Thank you, Jim. Before I close, I want to spend a moment on the slide in front of you because I think it tells a powerful story. Please turn to Slide 29. 24 months ago, our company's opportunity was highly concentrated. We had one primary revenue driver, our COVID-19 vaccine, one fully integrated operating model, working largely on our own and a cost structure that needed to change. Our technology platform and our science were proven, yet we lacked the full opportunity to realize their potential at scale. Today, that picture is fundamentally different. 4 of the top 10 global pharma companies are now working with our technology. Our partner, Sanofi, has 2 combination vaccine candidates in clinical development. We have realized over $800 million in revenue from our Sanofi and Pfizer agreements to date. We have more than 30 unique fields that are currently identified for preclinical evaluation by partners. And to date, we have reduced our GAAP R&D and SG&A annual expenses by approximately $1.2 billion and over 70% since 2022. In addition, we've reduced our current liabilities by approximately $2 billion and over 80% since 2022. We went from focusing on one market, COVID-19, to now having the potential to address via our new model, a significant portion of the over $100 billion potential combined global market for infectious disease and oncology vaccines and immunotherapeutics. To paraphrase a wise saying, if you want to go fast, go alone. But if you want to go fast and far, go together. At Novavax, we've chosen to do both, together with world-class partners who bring scale and reach, together with our own R&D capabilities, advancing next-generation Matrix adjuvants and new innovative vaccine candidates, like our C. difficile asset. We believe these metrics are indicative of the progress we're making to transform Novavax under our new strategy and assuming continued successful execution, the future for Novavax is bright. I'd now like to turn the call over to our operator for Q&A. Operator? Operator: [Operator Instructions] We'll take our first question today from Pete Stavropoulos at Cantor Fitzgerald. Pete Stavropoulos: John, Jim and team, congrats on the progress. A couple of questions from us. You're exploring over 30 unique fields of experimentation across both infectious disease and oncology. Just trying to understand how much of this exploration is being conducted at or by Novavax and what's being conducted by the companies that you're partnered with or signed an MTA? And can you just comment on what proportion are novel vaccines? And what proportion is Matrix-M being tested with vaccines that are approved or on the market? And a second question for me is also for C. diff vaccine candidate, one of the design attributes is creating mucosal immunity. Just curious to hear what from the preclinical data sort of gives you confidence that you will be able to develop mucosal immunity, which correct me if I'm wrong, I assume is IgA response, which would be a key differentiator from prior candidates? What are the gate? Yes, that's it. John Jacobs: Pete, excellent question. So to address your first question, of the 30-plus fields of experimentation and disease areas that we noted collectively, those are via partners. That's one thing we really like about our model right now is that we can leverage the scale and the resources of partner companies to drive a significant portfolio of experimentation with our technology that reaches into over 50% of the potential market that we're trying to penetrate, that $100 billion market mentioned in our prepared comments. We also have disclosed our preclinical pipeline and our intentions on C. diff. So Bob Walker can handle that question in just a moment on our C. difficile candidate and why we feel confident about it right now. Your second component of the question, if I heard you correctly, was the mix between novel and existing assets with our partners and how we might -- or what portion of those experiments involve. I would just say, what we can say regarding the confidentiality of our partners, either licensees and/or through MTA collaboration. We can't give specifics, but we can say there is a mix. There is a mix across our full partner set of existing assets as well as new areas of exploration that they're assessing with our technology. We're very excited about that for many reasons, as you can imagine. And Bob, if you might be able to handle that third question on what gives us confidence to paraphrase in our C. diff program based on what we've seen so far. Robert Walker: Great. Yes. As you allude to mucosal immunity, yes, mucosal IgA is definitely one of the most important readouts that we are evaluating in the preclinical models. And as I mentioned also, the gut histopathology would be another key indicator for us. And it's an area that we're very excited about, and we think could be significantly differentiating for our candidate. Operator: Our next question will come from Roger Song at Jefferies. Jiale Song: So maybe just on the commercial side, any comments you can say about the new season progress and then particularly for the supply readiness? And then also related to -- we also heard Pfizer announced the 35-valent PCV vaccine yesterday. Just curious, have you tested pneumococcal vaccine with them? And then what's the possibility you can use on top of the traditional aluminum adjuvant for pneumococcal vaccine? John Jacobs: Yes, very interesting, Roger. Why don't I take the question first. Obviously, we can't speak on behalf of partners or give any illusion to what they may be doing. But it was interesting to hear Pfizer make that announcement. What I can say is that, we have shared data in the public domain on several targets where Matrix can make a difference. And one of those that we put out in the public domain many earnings calls ago was on pneumococcal. So we know that's one of the areas our technology had some positive effect. Our method is to approach potential partners by generating data across a suite of assets that they may already have selectively and also on targets they might be interested in. And Bob Walker and our R&D team, and it's one of the reasons we keep that capability dear to Novavax. It's very important that we maintain our R&D capabilities to generate data so we can go into potential partners and have clear conversations about what our technology might be able to achieve with some of the results we're able to show them with early experimentation. So exciting to see vaccine portfolios advancing in any company, and certainly excited to see partners that we have advancing candidates forward. James Kelly: And your second part of the question, Roger, was about commercial preparedness for the fall. And on that front, what I would emphasize based on some of the guidance we're seeing from other players in the marketplace like Pfizer and Moderna, we're seeing guidance from others that are anticipating, call it, a flattish market year-over-year after the 2025-2026 season, where some of the new, especially in the U.S. recommendations found their way into the marketplace. So I would start on a macro level with at least what we're seeing and hearing, which is an expectation for a flattish market. When you think about Sanofi this season, I tell you what, we are thrilled to have them as a partner. And one of the things that you heard from both Elaine and from Bob is we have so much respect for their methodical method of building markets and an evidence of that is the COMPARE study that they invested in to get the right information out there to best position Nuvaxovid on a go-forward basis. And so that, in particular, is something that really caught our attention and we look forward to what they're able to accomplish. Operator: Our next question today will come from Geoff Meacham at Citi. Geoffrey Meacham: A couple of maybe bigger picture questions. So you guys have MTA or license relationships with a lot of the top 10 biopharma. So how are you thinking about conversion rate from MTA to formal license announcement? And how are you guys managing the field overlap across some of your MTA partners? And then the second question is just the $75 million Sanofi tech transfer, just give us an update on kind of where that stands and timing-wise. James Kelly: Thank you, Geoff. Elaine, would you like to take the first question about potential conversion rate and your thoughts on moving from MTA collaborations to potential full licensure partnerships? Elaine O'Hara: Yes. Thank you very much. And I think actually the question is twofold or the answer is twofold. So we've got a very unique process working with our potential partners from the perspective of giving them access to Matrix-M. A lot of the time forward then is dependent on how they execute their preclinical models, what the results show. And then if they're happy with the results, typically, we are seeing that these partners will come back to engage in a collaborative license agreement to move whatever they're studying ahead into the clinic and then also with the expectation that it will have a commercial launch in the foreseeable future. And again, it depends very much on the timing of the preclinical models, those experiments running forward being successful and then coming to fruition. I think any of these can happen as early as 4 to 6 months into the time frame, again, depending on the results that the partner is going to see with then obviously stepping into a potential collaborative license agreement in the future post that 6-month period. So that's the way, I would address the first question in terms of the conversion rate. And then in terms of field overlap, I think I said this earlier, given the fact that we do not have exclusive licenses, these are nonexclusive licenses that we ultimately enter into. We're delighted to have overlap, because it gives us greater probability of success, if we have multiple partners engaged with the study of our matrix in overlapping fields. James Kelly: All right. And then, Geoff, I'll take the question about the milestones. And what I want to refer our listeners to is a nice overview slide that Elaine had, Slide 12, that outlined the milestones that we have eligibility for from both Sanofi and Pfizer. She highlighted the $425 million in milestones that we were eligible for from Sanofi, including the $75 million for, as you had referenced, the completion of tech transfer, $125 million upon initiation of a CIC Phase III study and another $225 million upon U.S. launch, right, of one and perhaps both of the CIC studies that Sanofi is currently working on. Then on the Pfizer side, based upon the terms we announced in January, you're hearing $250 million in milestones each for each of the 2 products that they might develop vaccines for. So you are seeing with our strategy, we're able to pull forward and monetize cash flows via milestones versus a traditional biotech that might have to wait years, right, to develop revenues and profit. And so that is core to our operating strategy. Now, I haven't forgotten your initial question, which is, hey, where are we with the $75 million tech transfer? And what I'll tell you is that, while we are not guiding to that timing, I can tell you, our manufacturing for Sanofi ends with the 2026-2027 season, meaning they have to be fully ready for the '27, '28 to be able to advance our programs. We have every confidence they will and that this milestone will fall as it will within that period of preparedness. Operator: Our next question will come from Mayank Mamtani at B. Riley Securities. Mayank Mamtani: Appreciate the details on partnership process and people development. Maybe just a follow-up on prior question. How do you see the MTA to license cycle time kind of evolve? And is there a particular disease state where you're seeing strategic interest concentrate more than less? And then just a final point on second part there. I heard a lot more oncology today from you, specifically maybe some of the harder-to-treat pancreatic and colorectal cancers where, for instance, in adjuvant setting, there could be a better biological rationale versus maybe another modality. I was just curious what sort of mono versus combination work is happening preclinically there, which could inform maybe a formal deal execution there? And then I have a quick financial follow-up question. John Jacobs: Thank you, Mayank. Elaine, did you want to take Mayank's question? I think 2 parts, Mayank if we heard you correctly. The first part had to do with any additional color or context that we may be able to add on converting MTA collaborations into full licensure partnerships. And then the second part of your question on oncology. So why don't we have Elaine take those. Elaine O'Hara: Absolutely. So thanks for the question. I think, again, it just really depends on the success rate of the preclinical testing that each partner has. Typically, those studies run between 4 and 6 months, and then dependent on the success rate or what the partner sees, if they like what they see in terms of the data that they're generating in these preclinical studies, then the turnaround time is moving potentially to a collaborative license agreement, where a partner would then enter into the clinic with whatever they're studying as well as our Matrix-M technology, right? So the combination of their antigen plus our Matrix-M. So I think then, again, the range there is between 6 months to a year to translate that convert that turn around time from preclinic into clinic, again, dependent on the rate of advancement that the partner wants to take on board. So that's the way I would answer that question. And then with respect to oncology, I can't get into a whole lot of specific details, because of the confidentiality of the preclinical plans. But yes, you accurately described the utility of Matrix-M in some of these oncology models, more difficult to treat cold and/or warm, what we call cold and warm tumors. So a little too early to tell yet, but we are very excited about the prospect of Matrix-M and its ability to solve some of these problems in the field of oncology. John Jacobs: And, Mayank, before you ask your financial follow-up question, just one additional comment. Obviously, we launched our new strategy at the beginning of last year. And just in the last 4 months or so, just in the first trimester of 2026, we've had 4 new MTAs signed, and we had an existing partner. One of those came back to us for 9 additional fields. So we're really getting into a rhythm. This is the most interest we've ever seen in our technology from third parties. Despite whatever is happening in the macro environment, there seems to be a very strong interest. And we're not surprised because we know what our technology can do and others are really waking up to that. But that being said, we're still in now this new phase of starting to convert all of this interest into potential license partnerships, and that will be our intention. So it's very hard to put specific metrics on that right now. It's going to depend on any given company. And I think each company is a little bit different on how they may want to approach this. And some may be looking at 9 or 10 fields. Others may be looking at 1 or 2 fields. Others may be diving deep into a category and exploring deep within certain disease areas. It just depends. And so it's our intention to do that as quickly as we can as Novavax. We're small, we're nimble. We're very responsive to potential partners and to partners. We can move very quickly. They need to move at the pace they need to, to uncover what they're looking for and then act. But we do have confidence that in many situations, our technology has a chance to work and a chance to make things better that makes it exciting for the future. And the key thing to think about now is how much we've really put in place since the launch of this new strategy and the way that's accelerating from an interest standpoint and from filling the top of that funnel with actual data that we're sharing with partners, potential partners coming back to us, signing agreements to get access to Matrix, running their own experiments to the point of over 50% of that global market opportunity we talked about when you look at the disease areas that these partners and MTA collaborators have the rights to assess right now, that's fairly substantial. So we're very excited. The sooner we can pull it in, we're excited about that as well, but we can't put a specific time stamp on it because it's not 100% within our control. Mayank Mamtani: And actually, John, and actually I was curious about that existing partner expansion, that could lead to a single or like multiple separate deals. But I'll ask my financial question quickly. So the target 2028 OpEx spend being aggressively pushed down. I was just curious how much of this was you're just having more visibility into digging in versus maybe some external pressure. There's the activist campaign and also the top line revs uncertainty a little bit. And I don't know, if any visibility you have with the new leadership with your partner and obviously, CIC approval in EU, we saw for the first time and obviously, very curious how Nuvaxovid kind of fits in the CIC late-stage development paradigm now that the regulatory environment is looking more predictable on both sides of the Atlantic. James Kelly: All right, Mayank. Of course, I appreciate you highlighting what is, I think, just another very methodical and thoughtful quarter of improving our cost structure. One of the things that we emphasized in our prepared remarks here is that you're seeing a 23% reduction year-over-year in non-GAAP R&D and SG&A. And in particular, that 40% reduction, and that's on a GAAP and non-GAAP basis to SG&A, just shows that continued progress that we're making. I am going to take an opportunity to just kind of reinforce some of the key themes that we shared, and this is on Slide 26, about the evolution of our cost structure. And that importantly, one, these deals, this momentum in our business development effort comes on the heels of data generation and that our investment, our target investment in R&D is all about creating significant value. And a lot of the momentum you're seeing here today comes on the heels of smart and targeted R&D investment. Then, I've been emphasizing that in '26 and '27, beyond the part that we're already operating at a core approximately $200 million spend, we do have some legacy obligations, about $125 million in '26 and $25 million in '27 related to non-reimbursed R&D and certain strain change activities, right, as we support our partners. And as we move to 2028, we chose to refine it. I mean, at least personally, the last update, which was below $200 million, it kind of left a lot for the imagination. So the act of offering up $150 million to $200 million was just sort of a professional refinement more than anything. And so I do think it gives folks a really good picture of the evolution of our cost structure. But more importantly, I think when combined with Bob's comments on where we're investing and then Elaine's comments about how that's translated that data into tangible momentum on our BD efforts, I think that's our story. John Jacobs: And our focus has been to become as lean as possible while maintaining capabilities and meeting our trailing obligations to close out APAs and other things as we completely transformed the company over the last 24 to 36 months, Mayank. Nothing has changed in our desire to reduce those costs regardless of external commentary or thought from anyone. We're all aligned that the most lean operating model is the best place to be, and we're doing that in a responsible and thoughtful way as a management team while meeting our obligations, driving a new strategy that's starting to show remarkable results and momentum, right, and maintaining the key capabilities that make that possible. Operator: Our next question today will come from Thomas Shrader at BTIG. Thomas Shrader: Congrats on the remarkable Matrix-M process. I have a question on deal structure. You've always given us a $200 million trigger for Sanofi to choose a vaccine without a lot of structure. Should we think about that as kind of the same structure as the Pfizer deal, something like $30 million upfront? Or can you give us any sense of what triggers Sanofi? And then I have a follow-up from a comment that was just made that I think is interesting that you expect partners might go from getting Matrix-M to being in the clinic in a year. Can we conclude these are mostly very mature vaccines? These are people who are almost ready to go or maybe have been in the clinic and maybe need a little more oomph, so that these are kind of simple additions to formulated vaccines. Is that how we should think about a lot of your partnerships? John Jacobs: Yes, Tom, let me address your second question first, and then I'll hand it over to Jim for the first part of your question. I wouldn't put a time stamp on anything related to converting an MTA to partnership or how quickly a partner can get into the clinic. What we were trying to say before is that, we have this significant momentum since we launched the strategy in '25 and especially in the first 4 months of this year where you see 4 new MTAs signed and a lot of this collaboration going on, 30-plus fields of experimentation that these partners and MTA collaborations enable these companies to do now representing over half of the global $100 billion market that we're targeting as described in our prepared comments. But it's very difficult to put, and we would ask you not to put any kind of a standard framework around that on how quickly anyone can get to clinic, et cetera. But there will be a mix. I think, it was Pete Stavropoulos had asked earlier about what's the mix between existing assets and brand-new programs. So obviously, you can look at typical biotech benchmarks, if that's helpful, Tom, and say, if you're taking an asset from preclinical, right, into early stage all the way through development, that's x type of time frame with typical types of POSs. And we have a proven technology, by the way, right? So that's an important component of that thought process. And then if there are, and there is a mix, some existing assets and companies are approaching life cycle management opportunities using Matrix-M, that would be a faster pathway potentially forward, assuming success, right? So we really are loath to put a specific time frame on that. Some will move faster than others based on the nature of which asset they're exploring or trying to work on, whether it's existing life cycle management, whether it's new from scratch, right? And others may move more quickly or slowly from MTA to full partnership. But what we're really excited about is the level of interest that we're seeing in our technology and the action that potential partners and partners who are coming back and saying, Hey, let's explore 9 more fields with Matrix-M, please. We'd like to sign another MTA or already have a license with us, that particular company, right? They've seen something, they like it. They want to explore it much more broadly in the portfolio. So we'll work as diligently as we can, and we'll be nimble and fast in our responses to enable those as soon as possible and as often as possible to convert to full licensure. And Jim, did you want to take the first part of Tom's question? James Kelly: Yes. So Tom, this is my answer to your question around upfronts, maybe something more of a clarification. While the new Pfizer agreement, and this is for the ability to develop 2 new vaccines, came with a $30 million upfront payment, it's not something you're going to be able to compare to our existing Sanofi agreement and their access to Matrix-M. And what I mean by that is because, hey, we had a $500 million upfront payment from Sanofi, but it covered many attributes, many dimensions of value. And so there's not an apples-to-apples comparison for the Matrix-M piece. So hopefully, that's clear. Thomas Shrader: And do you say what triggers $200 million for Sanofi? Is that clinical? Or do you not say at all? James Kelly: Yes, we say it's a combination of both. It's both development and sales-based milestones. Operator: We'll hear next from Alec Alec Stranahan at Bank of America. Unknown Analyst: This is Matthew on for Alex. Congrats on the progress. On the pipeline and the decision to prioritize C. diff over shingles and RSV, I appreciate why C. diff looks attractive, but curious if you can speak to why shingles and RSV didn't fit that framework. Was it preclinical profile, competitive landscape, unmet need? And could you still bring these forward in their current form? And then I guess second question, just a brief one. Has your view of the combination vaccine market changed after Moderna's progress with their combination vaccine ex-U.S.? Just curious on your thoughts there. John Jacobs: Thank you. Elaine, did you want to take that question on our thought process around which assets to advance further into potential human trials out of our preclinical asset portfolio? Elaine O'Hara: Yes. Just very succinctly, hopefully, our decision was predicated on unmet need, as well as the actual market opportunity. There are relatively few potential competitors in this space developing a C. difficile vaccine, Pfizer being one. And so we believe, again, based upon the data that Bob shared earlier on in our presentation today that we have the ability to make significant advancements in this market, obviously, depending on our data and our study, but we're very excited about the program, both in terms of the unmet need as well as the actual market size potentially generating over $1 billion in revenue. So again, that was our decision to prioritize this particular program. John Jacobs: And I think, Elaine, also the question relates to RSV and shingles. Would there be any thought to advance those in general? Are we intending to bring forward everything from our preclinical pipeline? How do we think about that in general, I think, is part of the question. Elaine O'Hara: Sure. We were very -- also very excited about RSV as well as VZV and what we've seen in our preclinical testing. We have a very well-characterized candidate for RSV, and we will be potentially looking to have discussions with partners in the future around the RSV candidate that we have developed in-house. So we're very excited about that. With respect to our VZV program, what's also interesting there is some of the data that we've generated with VZV. And as Bob had stated earlier on, we'll continue to learn with respect to those programs and leverage that data for other programs that we may decide to bring into the clinic at a later point in time. John Jacobs: Yes, just one thing to add. Thank you, Elaine. One thing to add to that would be we may or may not need to or want to advance certain assets into human trials from our clinic. We're going to rotate different targets into our preclinical work field, if you will, as a learning platform, as a testing platform for new adjuvants that we're working on and other things to generate data for conversations with partners. It is not our intention at Novavax to bring every one of those assets forward. And the data was good preclinically for both of those assets. We're actually excited about it and learned a lot, and we could bring them forward. But in our current model, we don't see that as a major value inflection that would benefit the company and our stakeholders to bring those into more expensive human trials as they stand, they could be partnered now. They're good learning platforms, but C. diff offers the best opportunity from that first set of partner target or target assets that we put in there to work on to bring forward into human trials. We see that as the best value inflection opportunity. Jim, did you want to add anything to that? James Kelly: Well, I think one of the keys to the investment process is both our ability to create differentiated, right, programs and assets in high unmet need markets, but also have an eye towards, hey, what are our partners doing? And our partners already advancing assets leveraging our technology at those same, and how might the differentiation work. And so all of those factors go into our thinking as we both experiment and advance. And what you're hearing is not only are we really happy with the data we're seeing as we're working on these assets, but the update you heard from Elaine is that we've got multiple assets with partner overlap where they're carrying the investment burden and driving programs forward. That is the full context of the investment. Operator: [Operator Instructions] We'll hear next from Chris LoBianco at TD Securities. Christopher LoBianco: Congrats on all the progress in the quarter. I had 2 questions, both on your C. diff candidate. Can you remind us what are the key IND filing requirements for this vaccine? And have you had any initial dialogue with FDA? John Jacobs: Bob, do you want to take that one? Robert Walker: As I mentioned during the prepared remarks, so we're currently conducting the IND-enabling repeat dose toxicity study. And when those data become available, we would seek to follow that up with an IND. We are intending to engage in pre-IND discussions with FDA and expect that the results of those conversations will probably inform some of the thinking about next steps. Christopher LoBianco: And then I had a second question on the commercial opportunity. You've highlighted that C. diff accounts for $5 billion in annual health care costs. Is that a reasonable way of thinking about the peak sales potential for the C. diff vaccine? John Jacobs: Elaine, do you want to take that one for Chris? Elaine O'Hara: Yes, absolutely. I mean, it's -- so as I mentioned, there are potentially other competitors coming into the marketplace, Pfizer being one. But I think that is -- the way we look at this opportunity from a commercial perspective is that it's at least between $1.5 billion to $2 billion, making the assumption that there will be other competitors on the market by the time a potential vaccine that we would bring through clinic and then partner would come to market. So that's how I would round up the sales opportunity. John Jacobs: Thank you, Chris. And Matthew, you also had a question on the combination market. So Jim, did you want to just make a brief comment on the combination market, COVID/flu? James Kelly: Well, certainly. And reminder to folks that when we look at both the COVID and the flu market, they're each approximately $5 billion to $6 billion a piece. We're talking about a $10 billion to $12 billion marketplace that is poised to really merge together, right, because of the significant importance of combination treatments, especially in that setting. And I think that was one of the questions we heard a little bit earlier was, hey, what's the importance of combination treatments in the adult market? And the answer is, we expect it to follow a path you saw in the pediatric marketplace where the efficiency of getting vaccination is critical, right, to health policy and outcomes. So with respect to the combination flu and COVID market, hey, we continue to see investment. We see -- continue to see a high unmet need. And we're really looking forward to that next update from Sanofi on their plans for not one, but perhaps 2 late-stage programs with Nuvaxovid plus their market-leading flu products. We'll wait to learn more. I think, while I can't speak for them, I guess I can repeat what they've said. They met with the agency in the first quarter. They're awaiting alignment and updates for next steps. I think you saw just recently, Moderna getting approval in Europe. And so you're certainly seeing the competitive nature of that industry, it's important and rising. So hey, we can't wait to be a part of it through our partners. And so I'd say that's the update. John Jacobs: Yes, Jim, and we were also really pleased to see Sanofi's investment in the COMPARE study to show against mNEXSPIKE, the tolerability of our Nuvaxovid, which would be a component of a potential combo they bring forward, right? So really excited to see our partner, Sanofi, leaning in, making investments to show data and really start to kick off the season already for the coming year with some interesting data comparatively. Operator: At this time, we have no further questions from our phone audience. Mr. Jacobs, I'll turn it back to you, sir, for any additional or closing remarks that you have. John Jacobs: I just want to say thank you to all of our employees for their constant diligence and effort to help drive Novavax forward toward our vision. Thank all of our investors and stakeholders for supporting us and wish everyone a wonderful day. Thank you for your attendance. Operator: Ladies and gentlemen, this does conclude today's Novavax first quarter 2026 financial results conference call. We thank you all for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to the Advantage Solutions First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. Unknown Executive: Welcome to Advantage Solutions First Quarter Earnings Conference Call. Dave Peacock, Chief Executive Officer, and Chris Growe, Chief Financial Officer, are on the call today. Dave and Chris will provide their prepared remarks, after which we will open the call for a Q&A session. During this call, management may make forward-looking statements within the meaning of the federal securities laws. Actual outcomes and results could differ materially due to several factors, including those described more fully in the company's annual report on Form 10-K filed with the SEC. All forward-looking statements are qualified in their entirety by such factors. Our remarks today include certain non-GAAP financial measures, which are reconciled to the most comparable GAAP measure in our earnings release. As a reminder, unless otherwise stated, the financial results discussed today will be from continuing operations and revenues will exclude reimbursable expenses. And now I would like to turn the call over to Dave Peacock. David Peacock: Thanks, operator. Good morning, and thank you for joining us. I want to first acknowledge our team for a solid start to the year. We have a lot of work ahead of us, but I am grateful for the resilience our people are showing in this uncertain time. Our first quarter was solid and ahead of our internal expectations, reflecting strong growth in Experiential Services, improvement in Retailer Services and continued headwinds affecting Branded Services. In the first quarter, total company net revenues of $723 million were up 4% year-over-year and up 4.7% on a pro forma basis, excluding divestitures. Adjusted EBITDA of $68 million was up over 16% and up 22% on a pro forma basis, excluding divestitures, driven by strong incremental margins in Experiential Services and improved profitability in Retailer Services. Our results reflect continued progress on the growth and productivity initiatives outlined last quarter, especially our centralized labor model, which is driving improved retail execution and profitability. Our technology investments also continue to enhance our workforce productivity and improve our ability to drive sales for clients. We are still in the early stages of realizing the benefits of these initiatives. We recently launched the last phase of our SAP implementation, and we continue to advance the rollout of our human capital management system. First quarter cash flow was strong. We generated $74 million in adjusted unlevered free cash flow and ended the quarter with $144 million in cash after a meaningful debt paydown in March. While we remain focused on cash generation and productivity, we have increased our efforts to drive growth across our platform. Technology will enable this push. Faster insights to action using AI built on top of our data lake will enable us to better meet increasing demand for Experiential and other in-store services and drive demand for clients' brands through a better understanding of product level performance. In Experiential, Retailer Services, we are using AI tools integrated with legacy systems as well as process redesign to increase our hiring speed to better meet in-store labor needs. Our Branded Services team continues to advance our analytic architecture, driving faster action, increasing the likelihood of accelerating brand performance and driving in-store brand merchandisers dynamically. We leveraged partnerships like our alliance with Instacart to help drive better retail pricing and assortment decisions on behalf of clients. We're collaborating to leverage proprietary data and an alert-based model to more effectively deploy retail reps to the highest yielding in-store opportunities. Our retail pilot with Instacart is expanding and initial results have been positive. We're also expanding into new markets and services and see a meaningful opportunity to expand beyond grocery retail. We are in active discussions with several non-food retailers to perform similar services that we've been doing with grocers and in other food channels for years. While growth is our focus, we continue to pursue several productivity initiatives. First, our centralized labor model is improving service quality and supporting long-term margin expansion, particularly in Experiential Services. We also see an opportunity to extend some of these capabilities into our Retailer Services segment as we execute product resets and store remodel work in approximately 80% of the U.S. grocery channel. Second, we are in the final stages of our enterprise technology transformation. Our SAP and Oracle platforms have strengthened our data integrity, improved our reporting capability, reduced duplicative systems and are improving our ability to deliver insight-driven services while our Workday implementation will further improve our talent management. The heavy lifting of this transformation will be mostly complete by year-end. Beginning in 2027, we expect to more fully realize the efficiency benefits of these investments. Finally, we are integrating AI across our operations. Today, AI-enabled staffing and scheduling tools are already improving our speed and labor utilization. We're leveraging AI to drive further efficiency across our businesses and expect it to play a large role in improving execution, forecasting and labor productivity. This includes a use case-based approach to AI tool selection and development and accelerating the fidelity and maturity of our data to ensure accuracy. I am proud of our execution in the quarter, controlling what we can amid ongoing consumer softness. Several enduring trends impacted our business and the consumer sector more broadly. Lower and middle-income consumers remain highly focused on value, while higher income consumers are shifting spending towards healthier options and also beginning to look for savings opportunities. Rising gas prices are constraining consumer spending and have contributed to the lowest consumer sentiment since tracking began in 1952. We do not expect these dynamics to change in the near term, but we are adapting our business accordingly and helping our manufacturing clients and retailer customers also adjust their strategies. Additionally, our exposure to the fast-turning consumer packaged goods sector provides less volatility in this environment compared to other sectors and our heavier focus on the food category, which represents the majority of Branded Services revenues, provides a degree of built-in resilience as consumption patterns in food tend to be relatively stable or shift more slowly over time. Finally, as a scaled outsourced labor provider, we are well positioned to support clients as they seek greater efficiency and return on their investment at retail. Hiring remains competitive, but it is consistent with recent quarters, and we are investing in our workforce and training to support the durable demand growth we are seeing. As I stated at the outset of this call, our segment results were mixed. Experiential Services delivered very strong first quarter results. Events grew over 19% and execution rates improved on both an annual and sequential basis. As we build top line momentum, we are focused on increasing profitability by advancing the centralized labor model rollout, enhancing training and safety protocols and driving a favorable mix shift toward higher-margin events. Branded Services continues to navigate a challenging environment, resulting in some client turnover that we will continue to lap through the year. Our focus is on stabilizing the revenue base with strengthened client retention efforts, executive engagement and targeted growth opportunities with existing clients. We are already seeing progress with several existing clients have shifted retail account coverage to us earlier this year. New business development remains active with a disciplined focus on higher-quality opportunities. While still under pressure, we believe the business will move towards stabilization as the initiatives take hold. Retailer Services delivered a solid quarter of positive revenue and EBITDA growth despite a timing-related benefit in the quarter. We are encouraged by improving activity, pricing and the more moderate impact of channel mix shifts. Pipeline momentum is strong, and we are converting our pipeline of new customers and new service offerings, which should continue to support growth in this segment. We have seen strong conversion in our retail merchandising business in particular. Finally, we remain focused on revenue and cost alignment and improving execution discipline. Cash generation remains a core strength of our business. Strong cash flow performance continued in the quarter, supported by disciplined working capital management, though the timing of some new system implementations contributed to a slight sequential increase in DSOs. We expect DSOs to be elevated in the near term before improving later in the year. Our capital spending is on pace with our full year expectation, and we paid down roughly $130 million of debt in the quarter. Overall, enhanced liquidity is supporting our operations and strategic flexibility. While we are pleased with our results, we are maintaining a prudent outlook reflecting the continued uncertainty that I mentioned earlier. We expect strength in Experiential Services and improved growth performance in Retailer Services and progress toward achieving stabilization in Branded Services throughout the year. We are reiterating our full year guidance of flat to low single-digit revenue growth, adjusted EBITDA that is flat to down mid-single digits as our revenue growth is weighted towards lower-margin businesses in our portfolio. Adjusted unlevered free cash flow of $250 million to $275 million and net free cash flow conversion of 25% of adjusted EBITDA, excluding the incremental costs related to the recent debt refinancing. We are encouraged by our progress and remain focused on executing our strategy and driving long-term profitable growth. I'll now turn it over to Chris for more detail on our financial performance. Christopher Growe: Thank you, Dave, and welcome to everyone joining us today. I will review our first quarter performance by segment, discuss our cash flow and capital structure and provide additional detail on our outlook. As noted last quarter, we recently divested a small business, an equity stake and a portion of our European joint venture that collectively accounted for approximately $20 million in revenues and over $10 million of EBITDA in 2025. As a result of these divestitures, first quarter net revenues and EBITDA were adjusted down by approximately $5 million and $3 million, respectively. These businesses were all contained within our Branded Services segment, and we will call this out for comparability in our discussion of the quarter. Starting with Branded Services. In the first quarter, we generated $226 million of revenues and $21 million of adjusted EBITDA, down 12% and 25% year-over-year, respectively. As noted, on a pro forma basis, excluding divestitures, revenue was down 10% and EBITDA was down 17%. This segment remains under pressure due to a challenging macro environment, select client losses and an unfavorable mix shift. While we maintain cost discipline in this segment, we are not able to fully offset these impacts. That said, we are taking targeted actions to improve performance, including expanding our customer footprint, accelerating cross-sell across our existing client base, leaning into newer, higher-value services and converting a solid pipeline of opportunities. We are also leveraging technology to drive greater efficiency and enhance ROI for our clients. While near-term conditions remain challenging, we believe the business will move toward a more stable baseline as the year progresses. In Experiential Services, we generated $270 million of revenue and $26 million of adjusted EBITDA, up 22% and 116% year-over-year, respectively, driven by higher event volumes, strong execution and an easier comparison to the prior year period. We saw growth from both existing clients and new retail partners launching programs, reflecting continued strong demand. Operationally, we benefited from improved alignment between demand and labor availability, supporting higher event execution rates and increased volumes as well as price optimization, partially offset by higher variable labor and wage costs. We remain focused on converting strong demand into sustained margin improvement through better labor utilization and mix, supported by our CLM initiatives as well as onboarding and retention improvements. The CLM initiative is already benefiting execution in Experiential Services. Our hiring initiatives accelerated in the first quarter with a significant increase in net hires. Retention remained consistent with the prior year, positioning us well to support strong execution in Q2. In addition to supporting growth, we're seeing improved efficiencies in our hiring processes, reflected in a meaningful reduction in cost per hire during the first quarter. We continue to hire to support growth, including frontline associates, event managers and shift supervisors. We are investing in our teammates in 2026 to elevate service levels for our customers. As a result, in Experiential Services, we expect strong revenue growth for the year with adjusted EBITDA growth broadly in line with the revenue growth due to these investments. In Retailer Services, we generated $227 million of revenues and $21 million of adjusted EBITDA, up 4% and 14% year-over-year, respectively. Performance was supported by new business wins, pricing, the continued ramp of key client programs and project timing. We are pleased that the Retailer Services segment returned to adjusted EBITDA growth during the quarter. In the first quarter, we lapped a client loss from the prior year period, while the timing of certain project work also provided a benefit. We also saw a reduced impact from channel mix shift, resulting in a lower drag on growth in the quarter. Additionally, we expect the combination of new projects, new service lines and new clients onboarded during the first quarter to support overall growth in 2026 with year-over-year comparison factors affecting the quarterly cadence. Our focus remains on execution, staffing alignment and operational discipline to convert pipeline strength into more consistent earnings. We are encouraged by the current pipeline momentum. First quarter shared service costs were lower year-over-year, reflecting reduced labor and professional services spend. We expect shared services costs to be stable in 2026 versus the prior year, even as we continue investing in growth and transformation with operating efficiencies helping to fund those investments. Moving to the balance sheet and liquidity. We ended the quarter with $144 million in cash, down from the fourth quarter as we utilize our strong cash position to reduce debt, but up from $121 million in the prior year period, reflecting disciplined capital management. As mentioned on our last earnings call, we completed an extension of our debt maturities to 2030 during the first quarter, improving our liquidity profile and overall financial flexibility. We also now have a largely fixed and hedged rate structure. At quarter end, our net leverage ratio was 4.2x adjusted EBITDA, down from 4.4x at the end of the fourth quarter, and we expect to end the year around this level. We are executing against a clear plan to further reduce leverage and achieve our long-term target of 3.5x or below. Turning to cash flow and working capital. Cash generation remains a core strength of the business, and we continue to prioritize it through disciplined cost management, lower restructuring costs and a focus on working capital improvements. DSO increased slightly in the first quarter and is expected to remain elevated over the next few months, primarily due to the temporary impact of ongoing systems implementations and upgrades, including the final phase of our SAP implementation, which is going live this week. We expect disciplined management of DSO as the year progresses. While it will remain elevated midyear, we expect year-end levels to be below the prior year, supporting strong full year cash flow generation. Adjusted unlevered free cash flow was $74 million in the quarter with a conversion rate of 110%. Restructuring costs were lower in the first quarter, and we continue to expect full year restructuring costs to be approximately half of the prior year level. Finally, turning to our outlook. We are encouraged by our first quarter results; we are maintaining a prudent outlook in light of ongoing macro uncertainty and unfavorable margin mix shift resulting from strong growth in lower-margin business segments. Additionally, a portion of the outperformance in the quarter reflects timing-related benefits that may normalize over the balance of the year. As Dave mentioned, we are reiterating our prior 2026 guidance, including flat to low single-digit revenue growth, adjusted EBITDA flat to down mid-single digits, adjusted unlevered free cash flow of $250 million to $275 million and net free cash flow conversion of approximately 25% of adjusted EBITDA, excluding incremental costs related to our debt extension. From a cadence perspective, we now expect the first half to represent in the low 40% range of full year adjusted EBITDA. Key factors influencing our outlook include labor and benefit costs, mix dynamics and our ability to convert pipeline into revenue, particularly within Branded Services. Overall, we remain focused on execution, cost discipline and positioning the business for consistent and sustainable performance. Thank you for your time. I will now turn it back over to Dave. David Peacock: Thanks, Chris. The first quarter reflected solid progress against our strategic priorities with strong performance in Experiential Services, improving results in Retailer Services and disciplined execution across the business. Looking ahead, we believe our growth and productivity initiatives, including our centralized labor model, technology transformation and AI investments position us well to navigate the current environment. At the same time, we are building on this momentum while taking the necessary actions to stabilize Branded Services. We remain focused on executing our strategy and generating strong cash flow over time as we position advantage for long-term profitable growth. Unknown Executive: I want to thank everybody for joining, and we look forward to connecting with this group next quarter. Operator: Thank you. we'll now begin the Q&A session. [Operator Instructions] And your first question comes from the line of Greg Parrish with Morgan Stanley. Gregory Parrish: Dave, you mentioned opportunity to expand beyond grocery retail. I think you said you're in active discussions with a few nonfood retailers. Can you give us maybe some flavor there? I mean, what verticals are we talking about? And then, I mean, I guess, what was different about these markets historically? And then why are you able to attack them today? And then I mean, do you think this might be a contributor going into 2027? David Peacock: Yes. Thanks for the question. So I'd say, one, if you think about our business over the last several years, it evolved, right? I mean we acquired Daymon, which significantly changed our business in 2018, integrated that business and then COVID hit. And that had a lot of impacts on our business from the Experiential business all the kind of drying up and the grocery headquarter business really taking off. And then you have been the reverse of that. So I think we were so focused on managing through a lot of uncertainty and change that we didn't have the time to really focus on these other retailers, number one. Number two, I think you're seeing what we've now known as a business that was really began and focused on grocery retail to kind of lift our eyes up and see that a lot of the same impacts are affecting other retailers. We've had business with other but we feel there's opportunity to do more. If you think about what they deal with as far as labor shortages and the augmented labor that we provide for episodic tasks in store is one example. And Supply Chain as a Service within our branded segment has an opportunity to help retailers with either slower-moving items or what we kind of call limited time specials, what have you. So it's very early process, and we're having good dialogue and probably a much higher level of willingness to explore opportunities, but it will take some time because we're cultivating those relationships as we speak. Christopher Growe: Can I add to that, Greg, that just one consideration here would be that this is actually occurring across each of the segments. So Dave talked about Supply Chain as a Service, which is something we have in our Branded Services segment, but we're seeing this opportunity in Retailer and Experiential as well to move beyond the typical grocery store client and customer that we have across our business. Gregory Parrish: Yes. Okay. That's very helpful. And then maybe as a follow-up, I just want to dive into Experiential a little bit. You had great growth there for years and maybe slowed a little bit and then now you've just sort of exploded here. Maybe just help us unpack this. I mean is a lot of it -- all that HR system work you did last year? Is it that? A lot of the work that you do is just one big Retailer. So is this -- are you just doing more work in store than you used to? And then we're going at a 20% clip here. So how do we think about the rest of the year in Experiential? David Peacock: Well, I'd say a couple of things. And let's go back because I think sometimes because we do these quarterly, we forget maybe what happened a year ago. In the first quarter last year, we talked pretty openly that we had some issues on just the hiring side, right, and supplying labor to our business. And that had a little more of a profound impact on the Experiential segment. So we are lapping that, which contributed to the kind of significant lift you saw this quarter. And then obviously, as we're able to supply labor as we were able -- as we did this quarter, you just get better fixed cost coverage that improves your margins. And I would argue our labor readiness has improved, meaning both the caliber training and just readiness of the labor force that comes in is better because of a lot of the initiatives that our workforce operations team has embarked upon a year ago. So that is built to sustain a pretty robust growth rate for the Experiential segment, our Retailer segment where we've got our SAS division that does resets and remodels and then even within our branded segment where you've got our branded merchandising. It's an important part of our business and one that there's increasing demand for. So I really think it's those things. It's a lot of initiatives around training, hiring, get -- shortening the time in which people from when they're hired to when they actually start is another thing that we've been focused on. And what that does is leads to higher retention rates because you have to remember when you hire an hourly worker, they really need the job right away typically. And when it gets started right away. So we've been focused on that as well as improving the employee experience. Christopher Growe: Greg, I'll just add a couple of points on to Dave's perspective there. Dave mentioned the easier comparison, but we had really strong 2-year growth as well in that business. And we've been tracking at, call it, that 30-plus percent incremental margin, and you saw about that same level this quarter. And when you have nearly 20%, call it, 19.5% execution -- I'm sorry, demand growth and then you have execution accelerate sequentially, those are the things that lead to not just the growth overall, but in the strong margin performance as well. I also want to note, though, that we've seen an expansion with -- we've added some new customers there. So it goes beyond just the core business. We've actually had some new customers come in as well, which I think is just an encouraging sign for the continuation. But we -- just one final comment. We said in the release -- I'm sorry, I think in the script would be that we do expect solid revenue growth there this year. We expect EBITDA to be mostly in line with the revenue growth. So this is an area that we're investing in. We see the opportunity for very strong incremental returns on that investment. So just be aware that as the year goes on, we want to try to invest back here as well to support the growth going forward. Operator: Your next question comes from the line of Luke Morison with Canaccord. Lucas Morison: So maybe we can just start on some of the -- just double-clicking on some of the efficiency benefits you're seeing from the SAP and the Oracle and the Workday implementation. It sounds like we're finally at the point where that's starting to really bear fruit and be more fully realized. Maybe you can just speak to sort of like the timing and the cadence of how that's going to flow into the model. I know you said we're going to see most of it in 2027, but maybe just frame like when we can expect to see that and then also just the magnitude of that? Like are we talking tens of basis points of margin uplift? Are we talking hundreds? Just help us think through that. Christopher Growe: Yes. I think this is Chris Growe, obviously, and I'll have Dave, I'm sure, follow my comments here. But this is -- so we talk about this transformation phase for the company largely being completed by the end of this year. And just to be sure, and we said this in our script, we are going live with another instance of SAP today. So it will be our last kind of major business going on to SAP. And there's always going to be refinements and work to that going forward. But I want to just give you a perspective that we're not done yet. We still are investing. There still are some -- a heavy amount of work from our teams to get this over the line, but we've really been in a good place on that. Oracle is in place and then Workday goes in place next year. So I just want to be sure I level set us on kind of where we are today. And I think therefore, we made a comment that '27 is when a lot of the efficiencies occur. The groundwork for all that's happening right now. So meaning that we're not -- there's not just the systems being in place, but all the work to now really harness the value of these systems. There is AI built into these systems. There's efficiencies that come from having all of our -- I'll call it the better data integrity across our business. We're really utilizing the data lake. I know that's a word you've heard us talk about. But in reality, that's going to lead to significant efficiency and again, integrity in the way we manage the data. I think the key you're going to see here is efficiency across the business and the performance of -- in the value of the margin of the business, no doubt, and I'm not going to quantify that for you, but that should be beneficial, especially in '27. And then we also talked about, for example, DSO. So like our cash flow benefits coming from this should be quite significant as well. So I think that's the way I would look at it. Again, I can't give you a number necessarily, but look at that to be more of a '27 opportunity, and it goes beyond just the margin performance, but also the cash flow. David Peacock: Yes. And I'm going to pile on. We're really excited about what Workday can mean to our business. I mean when you've got almost 70,000 folks and 70 million labor hours, I've seen in a smaller setting when I worked at the regional grocer, what Workday can do as far as employee experience, employee engagement and just ease of operation and actually enhancement around training. I mean you can't underemphasize how important training is to delivering a superior both client experience, but customer experience for our clients. But right now, we're seeing a lot of benefits, as Chris said, with the data lake and cloud migration that we went through that's enabling us to leverage machine learning and AI, and I know that's a buzz term right now, but a little more profoundly in our business. And some of the cases are in our workforce operations where it's helping us streamline the hiring process, and we're working on projects right now that are breaking down the process for that time between when you're hired and when you start with us. And a lot of companies have gone through this. They're in the high-volume labor businesses. But it's exciting to see because when you think about large language models, this type of volume of data and then the positive impact it can have with employee experience retention, hopefully lowering hiring costs over time. We're seeing some of the seeds of that, but we're excited about where that can go in the future. Lucas Morison: Yes. Super helpful. And then maybe just a follow-up, double-clicking on Pulse and Instacart. Those continue to be highlighted. They continue to be topics of conversation. Maybe just help us think about like at this point, are you seeing them being cited in new business wins? Are they generating meaningful revenue or value for customers at this stage? Are they still kind of in the investment or ramping phase? Just help us think through that. David Peacock: Yes, it's more in the ramping phase. We -- our partnership with Instacart, and we'll acknowledge them for a great first quarter we saw today, is early stages, and we've expanded our pilot. The pilot has been successful in what we were trying to accomplish as it relates to a more kind of real-time signal-based processes in our merchandising businesses. And the data efficacy that we get and that transference of data between the 2 companies has been very successful. So we're bullish on what that can mean. And I think we are able to provide value to each other and to the benefit of our clients and customers. So early days, and we're not sharing details because the pilot, I could say, is so early, but as it expands, and we are finding a lot of client interest and willingness to join us in the journey of testing these new capabilities. But I think you'll see more of the benefits of that in 2027. Operator: There are no further questions at this time. I will now turn the call back over to Dave Peacock for closing comments. David Peacock: Thank you. We appreciate everybody joining the call. We look forward to our second quarter call later this summer, and have a good day. Appreciate it. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, and welcome to the Bio-Techne Earnings Conference Call for the Third Quarter and Fiscal Year 2026. [Operator Instructions] I would now like to turn the call over to David Clair, Bio-Techne's Vice President, Investor Relations. Please go ahead. David Clair: Good morning, and thank you for joining us. On the call with me this morning are Kim Kelderman, President and Chief Executive Officer; and Jim Hippel, Chief Financial Officer of Bio-Techne. Before we begin, let me briefly cover our safe harbor statement. Some of the comments made during this conference call may be considered forward-looking statements, including beliefs and expectations about the company's future results. The company's 10-K for fiscal 2025 identifies certain factors that could cause the company's actual results to differ materially from those projected in the forward-looking statements made during this call. The company does not undertake to update any forward-looking statements because of any new information or future events or developments. The 10-K as well as the company's other SEC filings are available on the company's website within its Investor Relations section. During the call, non-GAAP financial measures may be used to provide information pertinent to ongoing business performance. Tables reconciling these measures to most comparable GAAP measures are available in the company's press release issued earlier this morning on the Investor Relations section of our Bio-Techne Corporation website at www.bio-techne.com. Separately, in the coming weeks, we will be participating in the Bank of America and Jefferies Healthcare Conferences. We look forward to connecting with many of you at these upcoming events. I will now turn the call over to Kim. Kim Kelderman: Thank you, Dave, and good morning, everyone. Welcome to Bio-Techne's Third Quarter Earnings Call for Fiscal 2026. The Bio-Techne team continued to execute with discipline in a dynamic and uneven end market environment. Our quarterly performance was supported by sustained strength from our large pharmaceutical customers and stable to improving trends in our U.S. academic end market. These positives were partially offset by continued softness in emerging biotech spending, resulting in a 2% organic revenue decline for the quarter. Importantly, we are seeing encouraging indicators that point to an ongoing improvement in the U.S. academia and an eventual recovery in emerging biotech, which positions us well for a stronger fiscal 2027. As discussed in our prior earnings call, order timing related to 2 cell therapy customers that received FDA Fast Track Designation along with the timing of a large OEM commercial supply order created a 400 basis point headwind in the quarter. Excluding these factors, underlying organic revenue growth was 2%. There were several notable highlights during our third quarter, including the following: our Spatial Biology portfolio delivered mid-teens growth and exited the quarter with another record backlog for our COMET platform. Our GMP protein portfolio grew nearly 50% year-over-year when excluding the 2 fast track cell therapy customers. Within our Proteomic Analysis franchise, favorable instrument placements and utilization trends drove mid-single-digit growth. Our China end market achieved positive organic growth for the fourth consecutive quarter. And our largest end market, large pharma, delivered its sixth consecutive quarter of double-digit growth. We also remained highly focused on profitability. Adjusted operating margin in the third quarter was 34.2%, representing a 310 basis point sequential improvement over fiscal Q2. Jim will provide additional detail on our financial performance later in the call. Now I turn to our end markets, beginning with biopharma, excluding cell therapy. Here, we continue to see a divergence between the performance of large pharma and the performance of emerging biotech. Revenue from our large pharma customers grew low double digits, driven by sustained investment in discovery, translational research and manufacturing. In emerging biotech, however, revenues declined high single digits reflecting the typical lag in spending following the funding constraints experienced in the first half of calendar 2025. Biotech funding activity has since rebounded meaningfully with estimate increases of more than 90% and 50% in our fiscal Q2 and Q3, respectively. Given the typical 2 to 3 quarter lag between funding and customer spending, we view this as a constructive setup for fiscal 2027. In academia, the team delivered low single-digit growth as the U.S. academic market returned to growth in the third quarter. The improvement in NIH outlays new grant activity and the 1% increase to the NIH budget have reduced funding uncertainty and position this end market for continued stabilization. From a geographic perspective, the Americas declined low single digits, while Europe achieved mid-single-digit growth. Our 2 largest fast track cell therapy customers are reported within the North America results. Asia delivered low single-digit growth with momentum in China continuing for the fourth consecutive quarter. China is seeing increasing demand from biopharma and CRO customers focused on antibody drug conjugates, cell therapy and autoimmune disorders. These are areas where our reagents, instruments and analytical platforms are particularly well suited. In April, Bio-Techne announced a strategic brand alignment designed to streamline our portfolio from 10 brands down to 3. This alignment simplifies how our customers engage with Bio-Techne across the research to clinical continuum. Our 3 brands now include R&D Systems, which integrates our full portfolio of research use only and GMP reagents alongside a proteomic analysis instruments previously branded as ProteinSimple. Bio-Techne Spatial Biology, which includes our RNAscope in situ hybridization kits and reagents as well as our COMET Multiomic Spatial platform and Bio-Techne Diagnostics, which encompasses our clinical controls and precision diagnostic solutions. This structure better aligns our products and technologies with our customers' progress from discovery through translational research into clinical and diagnostic applications. It also enhances the visibility of our solutions across digital and AI-driven platforms, making it easier for customers to identify and deploy the right tools within their workflows. Speaking of artificial intelligence, we continue to see AI increasingly influence both how we operate internally and how our customers approach drug discovery. Internally, we are leveraging AI to design novel and patentable proteins with enhanced properties, including improved heat stability, bioactivity and solubility relative to the naturally occurring proteins. As you are aware, AI tools are only as effective as the data that informs the model. Our models are trained on 5 decades of proprietary data, creating a meaningful competitive moat. And in parallel, we are deploying AI throughout the organization to improve productivity and customer engagement. From a customer perspective, AI adoption is accelerating the earliest stages of drug discovery, particularly target discovery, which is expected to expand the number of viable programs and improve probabilities of success. The effectiveness of these models depends heavily on the generation of high-quality biological data, which is an area where Bio-Techne is extremely well positioned. As an example, a recently published collaboration between Providence Health and Microsoft on the GigaTIME AI framework used data sets generated on the Bio-Techne Spatial Biology platform, COMET, to convert traditional H&E pathology images into virtual 3-dimensional tissue representations. We view the growing demand for content-rich biological data sets as a durable tailwind for both our spatial biology and our proteomic analysis platforms. AI also acts as a downstream demand driver for RUO reagent and assay portfolios. Every AI-enabled insight ultimately requires biological validation, which will fuel demand for highly specific antibodies functional assays and complex recombinant proteins in mechanism of action studies, biomarker validation and preclinical workflows. These applications align directly with the most differentiated and highest value sections of our portfolio. Now let's turn to our segments, beginning with Protein Sciences, where organic revenue declined 4% in the quarter. After adjusting for order timing from the previously mentioned cell therapy and OEM commercial supply customers, underlying growth was 2%. Our differentiated portfolio of reagents, instruments and analytical technologies remains foundational to the development and manufacturing of advanced therapeutics, including cell therapies. As a reminder, 2 of our largest cell therapy customers received FDA Fast Track Designation, which accelerated clinical time lines and reduce near-term GMP reagent demand as these customers had already secured the materials required to complete their clinical programs. Excluding the impact of these 2 customers, GMP protein revenue grew nearly 50% year-over-year. This strong performance from emerging cell therapy customers underscores the increasing reliance on GMP-grade cytokines and growth factors, as programs advance for early development through clinical trials and into manufacturing scale-up and commercialization. Staying with cell therapy, I'd like to provide a brief update on Wilson Wolf. We currently own 20% of Wilson Wolf and remain on track to acquire the remainder of this manufacturer of the market-leading product line of single-use bioreactors called the G-Rex by the end of calendar 2027 or potentially earlier upon achievement of specific milestones. Despite the challenging biotech funding environment, Wilson Wolf delivered low double-digit growth on a trailing 12-month basis while maintaining EBITDA margins north of 70%. Turning to our proteomic analysis instruments. Growth was led by an operating increase in our Ella benchtop immunoassay platform. Ella automates traditional immunoassays into cartridge-based workflow, delivering rapid, highly reproducible protein quantification with minimal hands-on time. These attributes are driving strong adoption in neurodegeneration research, which is reflected in a 3-year CAGR of 50% across our neurology assay portfolio. While this remains an emerging portion of the business, the recent launch of ultrasensitive capabilities strengthens Ella's position as a leading platform for blood-based neurological biomarker analysis. During the quarter, we also achieved CE-IVD marking for Ella enabling hospitals, clinical laboratories or other European organizations to use Ella as a validated platform for clinical applications, in-house test development, clinical trials or other translational activities. We also saw continued traction across our biologic characterization portfolio led by our Maurice platform. Maurice is increasingly embedded into biopharma manufacturing workflows as a quality control and the characterization tool. It is enabling faster and more consistent assessment of critical protein attributes, including size, charge and purity. This drove double-digit growth in both Maurice instruments and consumables. Wrapping up Protein Sciences, our core reagent and assay portfolio, which includes more than 6,000 proteins and 400,000 antibody types declined mid-single digits in the quarter. Excluding the impact of order timing related to the previously referenced OEM commercial supply customer, organic growth declined low single digits. Strength from large pharma customers was offset by continued softness in U.S. academic demand and the lingering effects of last year's challenging biotech funding environment. As funding conditions continue to normalize in academia and recent improvements in biotech funding translate into customer spending, we believe that this core portfolio is well positioned to return to growth, supported by its differentiated performance in bioactivity, lot-to-lot consistency and reproducibility. All of these are attributes that become increasingly critical as customer programs advance towards translational and regulated applications. Shifting to Diagnostics and Spatial Biology, the segment delivered 3% organic revenue growth in the quarter. Before discussing the performance in more detail, I'd like to congratulate Steve Crouse on his promotion to President of the segment. We look forward to Steve building on his prior success leading our Analytical Solutions business over the past 5 years. Let's begin with our recently rebranded Bio-Techne Spatial Biology portfolio, where we continue to strengthen our leadership in situ hybridization and mid-plex multiomic applications across translational and clinical research. Strong order momentum over recent quarters translated into more than 65% growth for our COMET Multiomic Spatial Platform. During the quarter, we installed the first COMET system in China, an important milestone as demand continues to build in the region. We exited the quarter with another record backlog for the COMET, positioning the platform for continued growth. Performance within our RNAscope portfolio of in situ hybridization kits and reagents improved to high single-digit growth. Growth was driven by further customer adoption in EMEA and Asia as well as increasing use in clinical diagnostic applications in the U.S. Finally, our Diagnostics portfolio recently rebranded as Bio-Techne Diagnostics declined low single digits as order timing from certain large customers temporarily impacted our results. Given the concentration of large customers, this business can be lumpy from quarter-to-quarter. And therefore, I want to mention that on a trailing 12-month basis, growth for Bio-Techne Diagnostics remained in the low single digits. In summary, the Bio-Techne team continued to execute effectively in a mix end market environment. Demand from large pharmaceutical customers remains strong. Our U.S. academic business has stabilized, and we continue to build momentum in China and the broader APAC region. While emerging biotech spending has yet to fully reflect improving funding conditions, engagement and activity levels with this customer base continue to trend positively. We remain highly disciplined in how we operate the business, delivering sector-leading profitability while continuing to invest in the growth factors that will shape Bio-Techne's future. With improving funding visibility for our customers and strong positions across our core reagents, cell therapy, proteomic analysis and spatial biology solutions, we believe that Bio-Techne is well positioned for outperformance in the years ahead. With that, I will turn the call over to Jim. Jim? James Hippel: Thanks, Kim. I'll begin with additional details on our Q3 financial performance, followed by thoughts on our forward outlook. Adjusted EPS for the quarter was $0.53, down $0.03 from the prior year with foreign exchange having a favorable $0.02 impact. GAAP EPS came in at $0.32, up from $0.14 in the prior year period. Total revenue for Q3 was $311.4 million, decreasing 2% on both an organic and reported basis. Foreign currency exchange was a 2% tailwind, while the prior divestiture of Exosome Diagnostics created a 2% headwind. The timing impact from our 2 largest cell therapy customers who received FDA Fast Track Designation was a 3% headwind, while a large OEM commercial supply order that we typically receive in Q3 but received in Q2 of this year was an additional 1% headwind to revenue. Adjusting for these previously disclosed items, organic growth was plus 2% for the quarter. From a geographic lens, North America declined low single digits as strength from large pharma and growth in academia was offset by order timing in cell therapy and a biotech end market that is yet to inflect from favorable funding trends. In Europe, revenue increased mid-single digits, including low single-digit growth in biopharma and mid-single-digit growth from our academic customers in the region. We are encouraged by the fourth consecutive quarter of growth in China, where revenue increased low single digits. APAC, excluding China, also increased low single digits on a very strong comp as the Asian geography continues to show signs of sustained improvement. By end market, biopharma declined low single digits overall. However, excluding our largest cell therapy customers, Biopharma grew low single digits, driven by strong pharma demand, but partially offset by emerging biotech softness. Academia increased low single digits with the stabilization trends giving way to low single-digit growth in the U.S. and Europe growing mid-single digits. Below the revenue line, adjusted gross margin was 70.4%, down from 71.6% last year, but up 190 basis points sequentially. The year-over-year decline was driven by unfavorable product mix. Adjusted SG&A was 28.7% of revenue, down 30 basis points compared to 29% last year. R&D expense was 7.5% compared to 7.8% in the prior year. The operating leverage reflects the benefits of structural streamlining and disciplined expense management, partially offset by targeted investments in strategic growth initiatives. Adjusted operating margin was 34.2%, down 70 basis points year-over-year. The decline was driven by unfavorable mix and volume deleverage, partially offset by the Exosome Diagnostics divestiture. Below operating income, net interest expense was $1.3 million, up $0.4 million year-over-year due to the expiration of interest rate hedges. Bank debt at quarter end stood at $200 million, down $60 million sequentially. Other adjusted net operating income was $1.3 million, down $1.8 million from the prior year, primarily due to nonrecurring foreign exchange gains in the prior year related to overseas cash pooling arrangements. Our adjusted effective tax rate was 22.3%, up 80 basis points year-over-year, driven by geography mix. Turning to cash flow and capital deployment. We generated $86.7 million in operating cash flow with $9.1 million in net capital expenditures. Also during Q3, we returned $12.5 million to shareholders via dividends and ended the quarter with 157.4 million average diluted share outstanding down 1% year-over-year. Our balance sheet remains strong with $209.8 million in cash and a total leverage ratio well below 1x EBITDA. M&A remains a top priority for capital allocation. Now let's review our segment performance, beginning with Protein Sciences. Q3 reported sales were $226.2 million, a decrease of 1% year-over-year. Organic revenue declined 4%, with a 3% benefit from foreign exchange. Excluding cell therapy and OEM commercial supply timing impacts from our largest customers, organic growth was plus 2%. Growth was led by our Proteomic Analysis instrument franchise, which benefited from continued strength in large pharma paired with double-digit growth from our academic end market. As Kim mentioned, our core portfolio of research reagents and assays declined mid-single digits, reflecting a challenging biotech environment and the lingering impact of the U.S. government shutdown on grant activity and fund outlays in the quarter. Excluding the timing impact of a large commercial supply customer, the decline in the core portfolio was limited to low single digits. Protein Sciences operating margin was 44.2%, down 140 basis points year-over-year, primarily due to unfavorable product mix and volume deleverage, partially offset by ongoing profitability initiatives. In our Diagnostics and Spatial Biology segment, Q3 sales were $85.6 million, down 4% year-over-year. The divestiture of Exosome Diagnostics negatively impacted reported growth by 8%, while foreign exchange had a favorable impact of 1%, resulting in 3% organic growth for the segment. Bio-Techne Diagnostics declined low single digits as order timing from certain large customers impacted growth. Spatial Biology grew mid-teens, including over 65% growth in our COMET platform, while our RNAscope portfolio increased high single digits. Segment operating margin improved to 12.1%, up from 9.4% last year driven by the Exosome Diagnostics divestiture and productivity initiatives, partially offset by unfavorable mix among our OEM customers. We expect continued margin expansion commensurate with the scaling of our COMET Spatial Biology platform. As we look ahead to closing out the remainder of our fiscal year 2026, we remain focused on what we can control. This includes our operational and commercial execution, productivity and capital discipline and delivering sector-leading profitability while investing across our growth platforms. The state of our pharma end market remains strong. The stabilization and signs of gradual improvement in the U.S. academic market are encouraging. Funding levels for biotech have been very strong in the past 2 quarters, and our commercial teams are reporting increased engagement in a higher opportunity funnel from these customers. However, given the timing lag between funding and spending by biotech customers, which typically is 2 to 3 quarters, we believe this end market is the biggest swing factor for growth to accelerate from here. While we can start to see improvement in the biotech end market as early as our June quarter, our base case is that we won't see a meaningful uptick in growth until the first half of our fiscal year 2027. As Kim mentioned earlier, we also remain encouraged by the progress of our largest cell therapy customers following FDA Fast Track designation. While these designations temporarily reduce near-term GMP reagent demand as these customers advance through their Phase III trials, they meaningfully accelerate potential commercial time lines. This customer-specific headwind moderates in the fourth quarter, impacting growth by approximately 150 basis points year-over-year and will be fully out of our comparisons as we enter fiscal 2027. Taking these market and customer-specific dynamics into account, we expect organic growth in the fourth quarter to be approximately flat. Excluding the impact of the cell therapy headwinds, we anticipate low single-digit underlying growth across the remainder of the portfolio. This outlook assumes end market conditions are broadly consistent with what we experienced in Q3. And any incremental stabilization or improvement in emerging biotech spending could prove additive. Importantly, this near-term outlook positions us well for an acceleration in fiscal 2027 as biotech funding should more fully translate into customer spending, academic conditions continue to normalize, company-specific timing headwinds roll off, and we lap easier year-over-year comparisons. From a margin perspective, we remain focused on balancing growth investments with operational efficiency and intend to close the last quarter of the year with approximately 100 basis points of margin expansion over the prior year. That concludes my prepared remarks. I'll turn the call back to the operator to open the line for questions. Operator: [Operator Instructions] We'll take our first question from Matt Larew with William Blair. Matthew Larew: I wanted to follow-up on emerging biotech that was down mid-single digits in the fiscal second quarter, and you mentioned down high single digits this quarter, acknowledging the improvement in funding may materialize later in the year. Just given that step down, I would be curious what you saw from sort of an intra-quarter trend perspective and if you've seen any improvement sort of from January through to March and then now into April. Kim Kelderman: Matt, thank you for the question. Yes, the biotech end market was indeed our surprise. So I appreciate you honing in on it. We had, of course, very clear visibility to how the funding had been. And as you remember, funding was relatively dismal in the first half of 2025, calendar 2025. It recuperated a little bit to low single digits in the third quarter and then actually had a real step-up, 90% growth in Q4. And then we rolled into the new calendar year with yet another good quarter in funding. Underneath that, we saw our 2 last quarters at negative mid-single digit 2 times in a row, indicating some sort of stabilization. You take on top of that, that we saw that the funding was up. We know interest rates were stabilizing. M&A deals were up in biotech and licensing deals just as well. We also had a little bit of visibility to the COMET bookings being positive there. So we assumed a slight improvement in the biotech end market to maybe negative low single digits. But you're right, it did step down to negative high single digits instead. And that really is the whole for our quarter, and it fits very nicely to exactly the gap in our biotech end market. And there, of course, we double-clicked, and you can see that funding was substantially up in late-stage biotech, but early-stage biotech, where a larger portion of our core reagents have a direct read on, that early-stage funding was actually down if you tease that apart. And that is where our surprise came in. The trend during the quarter, we hear from our sales force that there are more interaction and dialogue about possible orders and investments. But for now, we are assuming that with 2 negative mid-single-digit quarters going to high negative singles, we can't assume that there is a clear stabilization or improvement. So for now, we're keeping our forecast at flattish because we don't have clear indicators that there is an improvement. Matthew Larew: Okay. Okay. Fair enough. And then you talked about the outlook here for the calendar second quarter, as I think through the way some of your larger peers have characterized both that quarter and then the rest of the year unfolding, given the OEM timing and cell therapy headwinds being removed on your comps, some improvement in A&G -- would just be curious if you're thinking that sort of the mid-single-digit range by the end of the year, again, kind of consistent with improvement in others are citing, if that's reasonable or if there's another range we should be thinking about? And that's all for me. James Hippel: This is Jim. Thanks for the question. I make sure I understand your question correctly. You're asking about the end of calendar '26. Matthew Larew: Yes. That's right. Yes. Just given how sort of peers have framed the calendar second quarter relative to the balance of the year. James Hippel: Yes, sure. Yes, I mean, again, we won't be giving any kind of even soft guidance around '27 until next quarter. But as I've mentioned in my prepared comments, we're very encouraged about the upcoming fiscal year. Some of these headwinds that are company-specific will now finally be behind us. And we're seeing -- we have seen a definite stabilization in the North American academic market. And of course, pharma remains strong. So it really comes down for us to biotech. And admittedly, I think we were probably a little bit -- we saw 2 quarters of stabilization in biotech and felt perhaps the worst was behind us. But in retrospect, we may have been a little bit -- got the cart a little too far ahead of the horse on that one in the sense that the reality is, let's call it, the 2- to 3-quarter lag really hasn't happened yet given that it's only been 2 quarters -- 2 recent quarters where we've had strong funding. But it does -- if history is any guide, it does bode very well for the second half of calendar '26 as with respect to the biotech market. And of course, that's our first fiscal quarter of '27. And it's also encouraging to hear from our peers who've already announced that they're also expecting an uptick in momentum in the back half of the year, and we tend to agree with that thesis. Operator: We'll take our next question from Puneet Souda with Leerink Partners. Puneet Souda: So, Jim, first for you, you're 1 quarter away from fiscal '27. Just given we've been in these markets for some time, the challenges you're well aware of those. Can we still do mid-single-digit growth? Can Bio-Techne do mid-single-digit growth still in fiscal '27? I think it's an important question just given how we have ended so far. And on the biotech side, I understand, but just trying to understand, given the end market challenges, was there something that surprised you later in the quarter? Or is this more about the way you're building the overall forecasting because I don't think investors were expecting a surprise at this point given that GMP Fast Track designations already surprised 2 quarters ago. James Hippel: Yes. Puneet, thanks for the question. This is Jim. So yes, with regards to fiscal year '27, I mean, based off the lens we have right now, yes, we'd be disappointed if we didn't do at least mid-single-digit growth because all the indicators are pointing towards a gradual normalization of the market. And I'll remind everyone that put these company-specific items aside, which amounts to 3 customers, we would have been low single-digit growth even in this environment we're in today with a tough biotech end market. So yes, I think we'd be disappointed. And I think in terms of what we're looking for in terms of indicators, we talked about the fact that in academic, we really saw an uptick in growth in our proteomic analysis instrument portfolio as well as in our spatial portfolio. And you've heard us say this before, Puneet, that those 2 -- in particular, those 2 growth vectors for us are where we are kind of indicators for us when we start to see the markets come back, that's where the money often flows first. And it's exactly where we saw some very nice growth in U.S. academic this quarter, which gives us added confidence that our customer base is getting more confidence in their funding there. And so that's also what we're looking for with regards to our biotech customers in terms of an indicator for that inflection point. And again, it's too early to call it at this point, which is why we're being, I think, rather prudent about our Q4 forecast in terms of kind of holding it steady in terms of overall base improvement. But it was encouraging to hear from our businesses and our commercial leads that the interest in -- particularly in our proteomic analysis as well as our spatial biology offerings has picked up recently among our biotech customers, and the funnels there are starting to grow again. So we'll see if that translates into more orders in Q4 for higher revenue in early fiscal year '27. Those are the things we'll be looking for out of our biotech end market. Puneet Souda: Got it. And then -- that's helpful. And then, look, on the RUO reagent side, I think you commented that, that business is soft, partly biotech being the -- emerging biotech being the reason. But we have seen 2 readouts from 2 competitors so far. One of them under -- as an OpCo under a larger entity and their business is recovering there. Another one that is strong in flow cytometry is also showing signs of growth. So how should we -- what gives you confidence that this is not any share loss in R&D Systems and Novus Biologicals? Kim Kelderman: Yes, Puneet, thanks. Yes, very good question. The -- in fact, a couple of dynamics here. The one order that we had talked about that got booked in Q2 versus Q3, the 100 basis point swap we've talked about previous and this earnings call is actually in that number. It sits in that core reagents area. And if you look at our comparables with double-digit growth last year, it's almost 20% last year. And compared to some of the other companies that you're talking about having negative numbers to compare against, we've done our math and our homework and also, of course, our market work. And we're relatively confident that we're actually still pretty well off, and that is the situation for that core business. James Hippel: Yes. And I'll add there, Puneet, just a little bit so that when people think about our core reagents, they typically think about our proteins and antibodies portfolio, rightfully so. But we also include that there's some other small molecules, there's assays, core ELISA assays, et cetera. But as it pertains specifically to that proteins and antibodies portfolio, after you take out this very large one customer OEM order that happened to impact that portion of our portfolio, both our proteins and antibodies combined grew low single digits this quarter. Operator: We'll take our next question from Patrick Donnelly with Citi. Patrick Donnelly: Kim, maybe one on the China piece, continues to show a little bit of growth there. Can you just talk about what you're seeing and then the expectations visibility going forward? Are you feeling you're in a pretty good spot there as we head into '27? We would like some more detail just on the overall backdrop and expectations there. Kim Kelderman: Patrick, thank you for the question. Yes, we are quite excited that we have, for the fourth time, positive growth in China. And obviously, Jim and I were earlier this quarter in China, meeting with government officials, exploring how we can further support science and medicine in the country. We connected with customers in academic as well as in the new companies that are working on new therapeutics, including CROs and CDMOs. And there's a lot of activity. You can clearly see a momentum in the market, especially around the advanced therapeutics. And so for us, we're not surprised that we are in growth mode again. We called that one right a year ago. And there's no reason to believe that, that is going to weaken. I would expect a continued momentum and strengthening of that particular end market, specifically after our visit. We are direct in the market, and our team is really well connected with customers on both sides, on the biotech as well as pharma as well as the academic side. And yes, it's positive all around. Patrick Donnelly: Okay. That's helpful. And then maybe just one more on the biotech piece. Again, a surprising step down there. I guess in terms of your customer conversations, what are you hearing? I mean, the funding has looked quite good for over 6 months here. Typically, that does cause an inflection higher for you guys. Just curious, I guess, on the visibility, the customer conversations, how you're feeling about that market as you head into '27. It feels like it should have been a nice tailwind certainly going into the next quarter and '27. Obviously, it's lagged a little bit. Just trying to figure out what that could look like as we work our way forward here over the next 6, 9 months. Kim Kelderman: Patrick, I think Jim already touched on it, right? So we were quite surprised at the step down -- after further analysis and if you look at the funding levels for early-stage biotech and later-stage biotech, we understand it. But you're right, the funding levels were very encouraging. And as I mentioned, interest rates, M&A deals, all those were pointing in the right direction. I already mentioned that the conversations are getting better. Interest levels from the biotech market are improving. And last quarter, with 2x negative mid-single digits, we thought stabilization and improvement was there. But with the step down, we're going back to, okay, stabilization is our next point typically because we need to see the ship turn the corner. And therefore, we are somewhat careful. And I think that's the right thing to do. But you're right, all the indicators, including the dialogue with customers are positive. James Hippel: And if I could, I'll just add a little bit. I mean, kind of going back to my cart before the horse comment, it's like kind of trying to thread a needle here with regards to exactly what quarter you see the inflection point. And we've said that we've looked at our history over the last several decades and look at different ebbs and flows of biotech funding and the range is anywhere between 1 quarter and as many as 4 quarters. But the average or the mean is somewhere between 2 and 3. And the reality is it's only been 2 quarters of solid funding. So we're kind of right at that median point now. And we'll see whether we see any of that pickup in Q4 or not. Right now, our base case is that it does not, but it doesn't necessarily get any worse from here either. But it does, again, bode well for the back half of this calendar year, which is the first half of our fiscal year because at that point in time, you start to get to the, call it, the tail end of the bell curve of when we usually start to see that flow through. Operator: We'll take our next question from Justin Bowers with Deutsche Bank. Justin Bowers: Just going to stick with the current line of questions. But Jim, can you update us on your view for fourth quarter for the different end markets? So what's the view for academic, U.S. academic, biotech, et cetera? And then also, when you double-click on the funding analysis, what sort of competitive dynamics, if any, did you uncover? And then part 3 of that would just be what parts of the portfolio would you start to see the recovery the soonest -- from the EVP customers? James Hippel: Well, I'll take the first one. Thanks for the question. I'll take the first one and the third one, and I'll let Kim jump in on the second point. Real quite simple without going through end market by end market, the very simple answer is our base case is we're assuming basically the same level of performance across all our end markets in Q4 that we saw in Q2. Pharma already is very strong. Academic is going in the right direction, albeit slowly. So therefore, we don't see a meaningful move, but nonetheless, continued progress. And then with biotech, we're assuming the same kind of performance we saw in Q3 for Q4. As we talked about in my opening comments, that would be the -- that will be -- if there's any potential upside, that's where we think we might see it is in biotech. But right now, that's not our base case. So that's really how we're viewing the end markets. With regards to -- I was going to take the third bullet, I'm trying to remember what it was now. It was around -- remind me... Justin Bowers: Just around what parts of the portfolio would you start to see the recovery for biotech. James Hippel: Yes. Thank you. So again, as I mentioned in answering an earlier question, we look at our -- we look at the performance, particularly our proteomic analysis business, our spatial business, those 2 growth vectors, cell therapy kind of beats to its own drum, but that's doing -- that's already doing very well. Those 2 growth vectors for us, we believe, is usually an early indicator for us with regards to a turn in the markets when we see those start to inflect. And just as we saw those 2 parts of our business do very well with double-digit growth in our U.S. academic markets this most recent quarter, that's what we're looking for the inflection point in biotech as well. And like I said, I don't want to get ahead of us, but it was encouraging to hear that the interest level and funnels among our biotech customers for those 2 portions of our portfolio have picked up here in the last several months. Kim Kelderman: And Justin, to your second question -- oh, go ahead. James Hippel: No. Go ahead, Kim. Kim Kelderman: Yes. Your second question was around the trends in biotech, right? So yes, over the last year, funding mix has shifted. And the year before, you could clearly see 75% of all the funding going into late-stage work, clinical development, Phase I, II, III, and that has become 82% of the funding. And the same happened in reverse for the early-stage discovery, which used to be 25% of budgets and now being 18% of all the funding. So that took a step down in the early discovery part. And that's really what we bumped into with our core portfolio, specifically the assays that Jim mentioned. And I don't think that is, by definition, a change in competitive trends. It's just a change in where the money gets spent. Operator: We'll take our next question from Kyle Boucher with TD Cowen. Kyle Boucher: I know you touched on this a little bit, but I wanted to ask another -- just a clarification question on the guide. You said flat organic in fiscal Q4, sort of implying low single-digit underlying growth, excluding the GMP headwinds. But it sounds like there's fewer sort of discrete items in the fiscal fourth quarter. The GMP reagent headwind is pretty small at 150 basis points. The OEM reagent timing headwinds out of the way. You faced the easiest comparison year-over-year on organic. I guess beyond biotech performance, I mean, is there anything else that's sort of getting worse? Kim Kelderman: I can give a flyby and then Jim can double-click. No, I'll look at our end markets first. The pharma has been double digits and funding have been stable there and maybe slightly improving. So we think our entitlement continues to be double digits. Biotech, we discussed in detail here. Academic, we see a slight improvement, and we are excited that we're back in positive territory for the first time. It's still a frail market. It's certainly not going to be a V-shaped recovery, I think. But stabilizing and improving is a fair assumption there. And China, we've already discussed with 4x in positive territory and continued momentum. So from that point of view, I'm relatively comfortable and the one that we are -- have been talking about and we feel could be a detractor is still in the biotech area. From a portfolio point of view, our core has been doing good, except for these areas that we discussed. And if you look at our verticals, I couldn't be more positive. Cell therapy, we know about the 2 customers, but you take those out, the underlying growth was 50%. We're looking at 17%, 12 trailing months. And that looks stable. We would like that to be 20% minimum. So it's heading there. Spatial, as you know, was back to mid-double digits with the reagents improving and COMET instrument at 65% growth/ Proteomic analysis, right now, it's at mid-single digits, and we do know that it belongs in double digits, deep in double digits. So there, we feel that the biotech uptick would be the trigger to get it back into the zone where it belongs in mid-double digits. And then the diagnostics area, it was negative for the quarter, especially the diagnostics -- molecular diagnostics products. And that was clearly a timing issue. So there, I do have some positive backdrop as well that it can come back to normal growth rate. So that's the flyby on the product lines. So overall, comfortable with, of course, be careful for your next quarter, but with a strong trajectory to normalization. Kyle Boucher: Got it. And maybe just on the GMP reagent business and even spatial on the Lunaphore side, pretty impressive growth rates almost 50% on the GMP reagent side, over 60% for Lunaphore. I mean how sustainable do you think these levels of growth are going forward? I mean, do they face easy comps year-over-year? Kim Kelderman: Yes. So the -- taking the 2 customers out, we clearly look at the funnel underneath. We have 700-plus customers. The number of customers has increased mid-single digits. So that's not carrying it. But customers going deeper into their projects and spending more is clearly the driver. We have 85 programs, the same like last quarter in clinical. However, 18 are in Phase II, and they used to be 15 and still the same 6 customers in Phase III. So there is a progress that the customers are making that drives the growth. If you look at the cell therapy trials globally are also increasing significantly. There has been a mix shift from gene therapy to cell therapy, and that's where we're benefiting as well. So we do believe that the 20% growth as a minimum for a 12-month trailing would be the right bar to set. And of course, we can always look at our Wilson Wolf numbers. We talked about mid-single-digit growth this last quarter and that was over a comparable of 25% growth last year. But the number of grants that we're writing there is impressive. We are happy that there's more or less 50% attachment rates with Bio-Techne's cytokines and proteins. So overall, we are comfortable with the market underlying activity levels, progress of the pipeline and the number of customers that we are putting into the funnel. Operator: We'll take our next question from Mac Etoch with Stephens Inc. Steven Etoch: Maybe just one for me and following up on the last question asked on GMP proteins and cell therapies. Could you just maybe break down how much of those -- how much of the growth that you're seeing is coming from maybe new program wins versus expansion of existing customers? I would really appreciate that. Kim Kelderman: Yes, I just touched base on it. Thanks for the question. Our overall number of customers increased 3%. Over the last couple of quarters, we saw a rotation. Some customers rotated out and they started 2, 3 years ago with a setup that turned out to maybe not be a winning strategy within the cell therapy. But others have come in, and it's all about are you able to scale? Are you able to make it cost effective, and we are certainly helping our customers doing so with the Wilson Wolf G-Rex and our cytokines proteins as well as the form factor of the ProPak that we've launched a quarter or 2 ago. So overall, we feel that 3% increase in customers, including the churn is encouraging. The number of clinical studies is increasing, and there is progress in the pipeline from -- by the customers from clinicals 1 into 2 and 3. So we see positive trends in all 3 of those dimensions. Operator: At this time, we've reached our allotted time for questions. I will now turn the program back over to our presenters for final remarks. Kim Kelderman: Thank you, everyone, for joining today's call. I want to recognize the Bio-Techne team for their continued focus and execution through what has been an extended period of market and customer-specific challenges. We are encouraged by the improving biotech funding visibility, stabilization in the U.S. academia, sustained engagement from our large pharmaceutical customers and continued momentum across China and the broader APAC region. As we move through Bio-Techne's 50th year, we do so with a portfolio that has never been better aligned with the direction of science and medicine. Our combination of high-quality reagents, analytical platforms and enabling technologies supports critical workflows from early discovery through translational research and manufacturing. Continued investments across cell therapy, proteomic analysis, spatial biology and precision diagnostics position us well to support our customers and capture attractive long-term growth opportunities. Thank you again for your interest in Bio-Techne, and we look forward to updating you on our progress next quarter. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good morning, and welcome to the United Therapeutics Corporation First Quarter 2026 Corporate Update. My name is JL, and I will be your operator today. [Operator Instructions] Please note that this call is being recorded. I'll now turn the webcast over to Harry Silvers, Investor Relations at United Therapeutics. Harrison Silvers: Thank you, JL. Good morning. It is my pleasure to welcome you to the United Therapeutics Corporation First Quarter 2026 Corporate Update Webcast. Remarks today will include forward-looking statements representing our expectations or beliefs regarding future events. These statements involve risks and uncertainties that may cause actual results to differ materially. Our latest SEC filings, including Forms 10-K and 10-Q, contain additional information on these risks and uncertainties. We assume no obligation to update forward-looking statements. Today's remarks may discuss the progress and results of clinical trials or other developments with respect to our products. These remarks are intended solely to educate investors and are not intended to serve as the basis for medical decision-making or to suggest that any products are safe and effective for any unapproved or investigational uses. Full prescribing information for the products is available on our website. Accompanying me on today's call are Dr. Martine Rothblatt, our Chairperson and Chief Executive Officer; Michael Benkowitz, our President and Chief Operating Officer; James Edgemond, our Chief Financial Officer and Treasurer; Dr. Leigh Peterson, our Executive Vice President of Product Development and Xenotransplantation; and Pat Poisson, our Executive Vice President of Strategic Development. Note that James Edgemond and I will participate in a fireside chat and one-on-one meetings at the RBC Global Healthcare Conference in New York on May 19 as well as the Jefferies Global Healthcare Conference in New York on June 3. Our scientific, commercial and medical affairs teams will be present at the American Thoracic Society International Conference in Orlando, May 15 to the 21. Now I will turn the webcast over to Martine for an overview of our development pipeline and business activities. Martine? Martine Rothblatt: Thank you, Harry. Okay, folks, it's going to be a great and exciting call today. UT is doing so freak amazing that it is hard to imagine any other mid-cap biotech right now with prospects as good as ours. Here's what I mean. We just proved beyond a shadow of a doubt with a p-value of less than 0.0001 that we have 2 different therapeutics in 2 different diseases of substantial size, each of which has been shown to produce better clinical outcomes than any other drug ever approved for either indication. Wow, that's got to sink in. I personally have not seen anything like that from a single pharma company, all accomplished within 6 months. The 2 diseases we will be the best therapeutic for based on the completed Phase III trials are IPF with Tyvaso and PAH with ralinepag. Each of the 2 products will exceed our total revenues of today, a revenue run rate of $3 billion going to $4 billion by the end of 2027. Let's take ralinepag first. Every patient with PAH should be prescribed that once-daily pill because it actually gives them their best shot at clinical improvement. Specifically, we showed a threefold reduction in disease progression compared to background therapy. Ralinepag hit this and all other primary endpoints with better hazard ratios than selexipag and durably through 4 years. Frankly, this is the drug I dreamed of in starting United Therapeutics. This is why we've been calling ralinepag a super prostacyclin. There is simply no reason that virtually every PAH patient shouldn't be on it. Hence, I fully expect within 2 years of launch, it will double our number of PAH patients to over 30,000 total. Next, let's look at Tyvaso for IPF. I said this will become the most prescribed drug for IPF because it improves forced vital capacity far more than the 3 existing drugs. It and only it boosted FVC to over 100 milliliters of oxygen and it did so quickly and it did so durably. With tens of thousands of PAH patients and tens of thousands of IPF patients, it is nearly certain that these 2 drugs, once approved, will lap our 2027 $4 billion revenue run rate twice over. And coming right behind Tyvaso for IPF will be Tyvaso DPI for IPF and right behind that, Tyvaso SMI for IPF. Our goal is to leave no IPF patient behind regardless of how their particular body best absorbs Tyvaso. Now let's take a breath and reflect back on United Therapeutics. UT has been ahead of schedule as a habit. We were ahead of schedule on outcomes unblinding. We were ahead of schedule on TETON unblinding. And today, I am excited to announce another ahead of schedule, the next blockbuster product to emerge from stealth mode in our Skunk Works division and inhaled formulation of our new chemical entity, ralinepag called RALDPI. In Stealth mode, a few months ago, we activated our exclusive option with MannKind for a second DPI. We now feel confident based on subsequent PK, computational biology via our proven CLIMB digital lung model and the results of the outcomes and TETON studies that this will be our biggest product ever. As you can see in the distributed market capture graph, we foresee our RALDPI product rising to tens of thousands of treated patients through PAH, ILD, IPF and PPF. Indeed, we will need all the capacity of the Danbury, Connecticut MannKind production plant and all the capacity of the new United Therapeutics North Carolina DPI facility to keep up with the Tyvaso DPI and RALDPI demand. Now let's delve into the science to better appreciate what a generational product RALDPI will be for IPF. Ralinepag is the most potent member of the class of drugs that includes treprostinil. This is super clear from the extraordinary results of the outcome study. Second, it is now indisputable that this class of drugs via inhalation has significant antifibrotic effects as we proved in the 2 TETON trials. ERGO, we very reasonably and scientifically expect RALDPI to show after further clinical trials that it is the best-in-class treatment for IPF and PPF. The scientific reason lies in the chemical differences between the new ralinepag molecule and the old treprostinil molecule, both of which are digitally mirrored in our CLIMB predictive computational biology model. Ralinepag has 8 fewer hydrogen atoms than treprostinil, but instead has a key nitrogen and a key chlorine item [indiscernible] that treprostinil lacks. These changes in molecular chemistry make all the difference in the world for pharmacodynamics and pharmacokinetics. Now treprostinil is a very, very good molecule, delivering very, very good results, but not our treprostinil, not Insmeds, not liquidus treprostinil, none of these can ever be the super prostacyclin that is ralinepag. It is just not in their chemistry, but it is in ralinepag's chemistry. It is this change in chemistry that makes ralinepag a generational product for IPF. In summary, UT's long-standing multiple shots on goal strategy has now yielded its greatest reward, a proven once-daily NCE in PAH formulated to use a proven DPI drug device for the best-in-disease treatment of the largest indications to which we aim. And as we march to this summit, we are rising through a series of great product stages that give us ever greater reach into the PAH and IPF community. Namely, we are rising through Tyvaso for ILD and IPF, Tyvaso DPI for ILD and IPF open-label extension, Tyvaso SMI or transmi for PAH, ILD and IPF and many more such combinations of products and diseases to treat, which are still in stealth mode in our Skunk Works division. Each incremental product indication platform that I just mentioned, each of these, we are now aggressively developing for new and existing markets, and each of these brings UT ever closer to the ultimate goal depicted in the forecast chart released today. Thanks for listening and digesting all of this great science and great clinical development work. And now I'll turn to Michael to describe how the demand for our existing products from doctors and patients is strong as ever. Mike? Michael Benkowitz: Thank you, Martine. That's a tough act to follow, but I'm going to do my best. Good morning, everyone. For the first quarter of 2026, we recorded $782 million in total revenue. Typical historical seasonality trends persisted in the first quarter, in addition to severe winter weather and pharmacy operations issues that slowed starts during the quarter. These have since been rectified, but it did impact our sales in the quarter, particularly in February. As discussed on our last earnings call, we expect to return to sequential growth in the near term. Turning to Tyvaso. Total revenue for the first quarter was $458 million. While sales of nebulized Tyvaso lagged a little bit over the quarter, Tyvaso DPI contributed 9% year-over-year growth, driven by an increase in patient demand. Looking at the competitive landscape, it's clear the market for inhaled prostacyclins is attractive and growing. We built and lead this market and expect our proven expertise to continue to win in the long term. We see this competitive dynamic as fuel for sharper execution across the organization, enhancing our strategic focus while operating with greater tactical intensity as we continue to shift momentum back in our favor. Speaking of momentum, we are seeing favorable trends in our underlying demand metrics. Coming out of the quarter, Tyvaso referrals or prescriptions rates are at approximately the same level they were before YUTREPIA launched. Patient shipments have grown for the last 5 months. Prescriber breadth and depth continue to grow, and we've seen a steady increase in patients graduating to higher doses of Tyvaso DPI with the launch of the 80-microgram single capsule and the 96-microgram and 112-microgram combination kits. Going forward, we're doubling down on what has always driven our success, relentless innovation, proven experience and patient obsession. Additionally, the sales force investments we're making in anticipation of the ralinepag and IPF approvals will be deployed in the middle of this year to focus on expanding our reach and capturing more of the large addressable but yet uncaptured market in PH-ILD and expanding share in PAH with our existing commercial portfolio. We've built a durable, high-performing commercial engine, and we're confident in our ability to expand our core business while driving the next wave of growth in treresmi, ralinepag and IPF. To once again quickly recap, as Martine mentioned, both the TETON 1 and TETON 2 trials of nebulized Tyvaso in IPF were a resounding success and exceeded our highest expectations. We look forward to filing a supplemental new drug application by the end of this summer and believe the highly compelling body of evidence across both the TETON studies could warrant an expedited approval through priority review to bring this therapy to those patients in need as quickly as possible. If we receive a standard review time line, we would expect to launch by Q2 of next year. And in parallel, we have already embarked on preparations for a product launch. Following IPF approval, we'll work with payers to secure coverage for the new indication as soon as possible. We recognize the substantial market opportunity that lies ahead, and we're fully prepared to seize it. Coming back to ADVANCE OUTCOMES, the unprecedented top line results suggest ralinepag has the potential to revolutionize the treatment of pulmonary arterial hypertension as the first true once-a-day oral prostacyclin agonist. We believe this advancement could fundamentally shift the treatment paradigm, potentially positioning prostacyclins for earlier line usage in conjunction with ERAs and PDE-5s. With a differentiated clinical profile, combined with its convenient once-daily dosing, we foresee a multibillion-dollar opportunity in the market for oral ralinepag, where we expect to launch mid next year, assuming a smooth FDA approval on a standard review time line. In summary, our goals over the near to medium term are to drive further growth in Tyvaso, the most prescribed inhaled prostacyclin and after anticipated FDA approvals for ralinepag to become the most prescribed prostacyclin for PAH and for nebulized Tyvaso to become the most prescribed therapy for IPF. To close, I want to recognize the intensity, discipline and patient-first commitment our commercial and medical affairs teams bring every day. We remain confident that our business is positioned to deliver sustained double-digit long-term growth. With that, I'll pass the call back over to Harry to start the Q&A session. Harrison Silvers: Thanks, Michael. Operator, if you want to assemble the roster and start with the first question. Operator: [Operator Instructions] Your first question comes from the line of Ash Verma of UBS. Ashwani Verma: Congrats on all the progress. Maybe just on the IPF regulatory filing and how you're positioning yourself in the market. I know you had previously mentioned that you would do a bridging study for the DPI. And where are we on that? And do you think that by the time that you launch the IPF, you would have the DPI format available? And just as a quick follow-up, I wanted to understand just your thoughts on the JASCAYD or Nerandomilast launch metrics that are looking particularly strong. So do you think that is kind of like an indication of the pent-up demand in this market, given there isn't much of good options available? And how does Tyvaso get positioned compared to JASCAYD when you launch it? Harrison Silvers: All right. Thanks, Ash. [Operator Instructions]. Leigh, if you want to take the DPI to IPF component and then maybe Michael can follow up on JASCAYD. Leigh Peterson: Yes. So for -- we're actually working with FDA to come up with our bridging strategy for IPF with the Tyvaso DPI. I think we've been discussing that before. We will likely do healthy volunteer PK compatibility studies, comparability studies and as well as patient studies to demonstrate safety and efficacy. And as far as the sample size and duration of those studies, again, we're still working with FDA to come up with a clinical development plan. Michael Benkowitz: Yes. Just on the JASCAYD -- I think I'm going to address the question that you had on JASCAYD. Yes. So yes, Ash, we've been -- I mean, obviously, we're following that very closely. I do think that's a good proxy or a good analog and does suggest that there is a lot of pent-up demand for new therapies in IPF, given what's currently on the market. So I mean, yes, I guess the short answer is we agree with you, and that's really kind of how we're starting to think about potential launch curve. We're starting to have conversations with physicians now. It's still a little bit on the early side because we were somewhat embargoed in what we could talk about with the New England Journal publication. But now that that's behind us, we're able to have those conversations. And I think we're hearing from the physicians that they're very impressed by the data, very excited about bringing Tyvaso to market. I think we had an advisory board about a month or so ago where we had some of the -- like the top 15, I think, IPF treaters in the country. And we were asking a question around where are you going to use Tyvaso? You use it first line, you use it after JASCAYD, how do you think about this? And they all said, it's going to be patient dependent. In some cases, they use Tyvaso first. In some cases, they may start JASCAYD. But at the end of the day, it doesn't matter because they fully expect that this disease is going to look a lot like what we see in PAH where it's combination therapy. So even if they're starting JASCAYD first, they're going to add Tyvaso on very quickly thereafter. So yes, we think the potential is, as Martine said in the beginning, just enormous in IPF. Operator: Your next question comes from the line of Roanna Ruiz of Leerink Partners. Roanna Clarissa Ruiz: So I was curious, how does your overall commercial strategy and peak sales and timing expectations change now that you're focusing on a few different levers like the triple combo pill for ralinepag, DPI for ralinepag and also thinking about the SMI? Harrison Silvers: Thanks, Anna, for the question. Good to hear your voice this morning. Michael, do you want to take that one? Michael Benkowitz: Sure, Roanna. Yes, I think we'll provide some more granularity as we start to kind of build out our forecast, we start to have more conversations with physicians about the different products and where they expect to use them. But I think high level, what Martine said in her opening remarks is right. I mean, if we're trending towards $4 billion run rate by next year, we think certainly with just ralinepag and the IPF indication regardless of the delivery device, that puts us on a path to more than double revenues over the next few years. That's what we're building for and aiming for. How that breaks out between the different indications, different devices, like I said, I think we'll provide some more granularity on that as we get later in the year and build out our models. Operator: Your next question comes from the line of Jessica Fye of JPMorgan. Jessica Fye: I wanted to focus on ralinepag DPI. Can you just confirm this product coming out of stealth mode? Is that the once-daily inhaled product you've been alluding to in prior quarters? When should we expect that Phase I healthy volunteer PK/PD data comparing that product to oral ralinepag? And what led you to decide for DPI over SMI for ralinepag's new formulation? Harrison Silvers: Thanks, Jess. Good to hear from you. Welcome back. I'll kick that over to Pat to answer on ralinepag DPI plans. Patrick Poisson: So first, let me say we are excited to work with the MannKind development team again. What we were able to do with -- together with Tyvaso DPI, which was approved in less than 4 years from our engagement while contending with the pandemic, was really nothing short of incredible, and we expect an even better encore with RALDPI. So as mentioned in the MannKind press release this morning, we began work on RALDPI about 6 months ago. And we've made great progress with the completion of formulation development and the transition into manufacturing tox study supplies. We've had a very positive pre-IND engagement with FDA, and we'll shortly be moving into some minimal nonclinical testing, which will be quickly followed by an IND in a Phase I study, which we believe will be completed before the end of the year. We believe the half-life of ralinepag, along with some other characteristics we are investigating are very promising for this to be a once-a-day product. And important to note that this will be without the addition of any release controlling materials, which need to be carefully studied for safety when used chronically. So I'll finish with, as they say in iCar racing, we are staying with hard tires and not making any pit stops. Operator: Your next question comes from the line of Joseph [ Thorne ] of TD Cowen. Joseph Thome: Maybe just to extend a little bit on the development program for RALDPI. Maybe how quickly can this move? Is the availability of the data for oral ralinepag helpful at all, maybe specifically for PAH? Could you go right into registration? Just trying to think about time lines relative to some competitors in the space. Harrison Silvers: Joe, thanks for the question this morning. I think we'll kick that back over to Pat again. Patrick Poisson: Yes. Another great question. Of course, the AVANCE OUTCOMES data was off the charts incredible. So that's very encouraging that RALDPI will be very effective to treat PAH, PH-ILD and IPF and PPF. So as far as the timing, I think long term, we're going to be able to move into PAH fairly quickly relative to our world in pharma as we'll be pursuing that approval with the solid dose. And certainly, the solid dose has been a big contributor to our engagement with FDA and really the minimal amount of pre-IND work that we have to do for RALDPI. So I anticipate we'll complete the initial Phase I study by the end of the year, and we'll be rapidly be able to kick off studies for PAH efficacy as well as PH-ILD, IPF and PPF. So each of those will progress at different paces and -- but initially, PAH will be the first approval. Operator: Your next question comes from the line of Lisa Walter of RBC Capital Markets. Lisa Walter: On the 1x daily ralinepag DPI, just wondering if you can share more color on the formulation. Should we think of this as a ralinepag prodrug or another formulation with the lung targeting ligand? Or are relatively little additional flourishes needed to make ralinepag inhalable? Any color here would be helpful. Harrison Silvers: Thanks, Lisa. Good to hear from you. Pat, you're at the star of the show today. Patrick Poisson: All right. Thanks, Harry. So we'll be leveraging MannKind's crystal carrier IP for ralinepag, very similar to what we have for treprostinil. It is not going to be a prodrug. Now perhaps we investigate other polymorphs of ralinepag in the future, but initially, it's going to be the ralinepag molecule that we investigated for solid dose. So again, very similar formulation to the current treprostinil in using MannKind's crystal carrier IP. Operator: Your next question comes from the line of Olivia Brayer of Cantor. Olivia Brayer: Now that you are committing to developing a number of different formulations in IPF going forward, can you maybe just talk about which you think have the highest chances for success? And how you're thinking about nebulized versus DPI versus SMI and then also Tyvaso versus ralinepag for IPF patients specifically? And just kind of following up on that from a regulatory strategy perspective, anything you can say yet in terms of what that strategy is for getting some of these next formulations to patients? I mean it sounds like a bridging study for DPI, but what about the SMI formulation? And then when could you realistically start those ralinepag studies in IPF and PPF? Harrison Silvers: Perhaps from a broader strategic standpoint, Michael can take that question and then maybe Leigh can follow up on the regulatory side. Michael Benkowitz: Yes. I think from a strategic standpoint, our approach to IPF is very similar to what you've seen us over the last 30 years do in PAH, which is taking multiple shots on goal approach. And we started with Remodulin IV. We thought Remodulin subcu could be a better version of Remodulin just in terms of dealing with the potential for infections. And then we progressed to Tyvaso, we progressed to Orenitram. Now we're -- and then we looked at Tyvaso DPI, we look at -- and now we're ralinepag. And I think the point of all that is that I think what we've uncovered in PAH, and we think this is true in IPF is that patients are like Snowflakes, right? They're not this homogenous group of people that all respond to the same drug delivery approach. And so there's a role for all of these products in PAH. And I think that's what we're going to see in IPF is we take multiple shots on goal. And I think we're very optimistic and confident in our ability to bring all of these products to market. And we think they're all going to have a role, right? I think there's going to be some patients that are going to respond well to DPI. I mean you look over in PH-ILD, I mean, I think -- you still have a significant number of patients that are still on nebulizer even though you have the convenience of a DPI. So patients are -- they're unique. They all respond to different drugs and different delivery devices in different ways. And so the approach has always been, multiple shots on goal, we give patients options -- give patients options in terms of the way they can receive the drug. And then from our standpoint, we're really kind of agnostic as to which one they choose as long as they're choosing one of our products. So strategically, that's how we think about these different devices and different NCEs and IPF. So Leigh, I don't know if you want to -- or Pat, you guys want to talk about the regulatory path. Leigh Peterson: Yes. Actually, I just wanted to add on a little bit of color to what you said and with the patients or people or Snowflakes. Just keep in mind that with -- so we have the different sort of categories, we have the inhaled route versus the oral route. Now we know that oral for patients, especially if it's once a day, tends to be more convenient, but we also know that systemic vasodilators are generally contraindicated in patients with like PH-ILD or IPF, given the potential for worsening ventilation perfusion mismatch, VQ mismatch. And so that kind of separates that right there as to we imagine the inhaled would be more for this other population. And then as far as the powder versus the SMI, some patients, it could be a convenience thing or a cough, some patients might be more sensitive to the powder versus the nebulizer. And so that's where that might fall out. And then as far as -- this is something we haven't really talked about too much. But even though treprostinil and ralinepag are both in the same class of drugs, they do bind -- Martine went through the chemistry of the actual molecular structure between the 2. And as such, they bind their receptors differently. Ralinepag is a really, really potent IP receptor agonist, whereas treprostinil binds multiple receptors, IP, EP2 and DPI. And so there may be some differences with regard to efficacy there based on patient genetics. And so all of these things, again, just to reiterate that they really give us -- this really allows individual patients to get the absolute best treatment possible. And as far as the IP receptor goes, there's some recent data that -- recent preclinical data that IP receptor activation promotes alveolar regeneration during lung repair. And so -- and this is -- if you want to really get into the molecules and the pathways, it's versus this June p53 pathway. And so I mean, there's coming out more and more evidence for these things and the class of molecules versus different mechanisms of action in these indications, whether it's PAH or PH-ILD or ILD or IPF or PPF or all of them. So anyway, I just wanted to add a little bit more there and then maybe Pat would want to talk about the regulatory aspect. Patrick Poisson: Yes. I mean I think the regulatory strategy would proceed kind of as expected. So we'll have nebulized approved in IPF, and we'll conduct whatever agreed upon bridging study is necessary and then proceed directly with the filing from there. So I don't anticipate anything unusual. Harrison Silvers: Thank you, Pat, Lee, Michael, 3 really wonderful answers. Operator, I think one more question we have time for. Operator: Your last question comes from the line of Roger Song of Jefferies. Jiale Song: Congrats for the quarter. Maybe -- I think in the update, you also have the PH-COPD Phase II about to start later this year. So curious about how should we think about the market opportunity and then also what the product formulation potential sequence for that indication, given we haven't talked about a lot of the combination device and the drug. Harrison Silvers: Thanks, Roger. Leigh, perhaps you want to share a little bit of color on the PH-COPD study? Leigh Peterson: Yes. So as far as the formulation, we're planning to use treprostinil SMA -- SMI, excuse me, for this and for PH-COPD. And we're planning on doing it the study in a couple of phases. We obviously have our Phase I where that's already ongoing with the treprostinil SMI in healthy volunteers. And then we're planning a Phase II study with PH-COPD patients, and that will be followed by a Phase III PH-COPD study. And we have several learnings through over the years that are being considered here with regard to patient populations, and we're really looking forward to starting these studies with these sort of enriched patient population eligibility criteria. Harrison Silvers: Thank you, Leigh. Operator, you can go ahead and close the call. Operator: Thank you for participating in today's United Therapeutics Corporation earnings webcast. A rebroadcast of this webcast will be available for replay for 1 week by visiting the Events and Presentations section of the United Therapeutics Investor Relations website at ir.unither.com. This concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the Horizon Technology Finance First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Megan Bacon, Director of Investor Relations and Marketing. Please go ahead. Megan Bacon: Thank you, and welcome to Horizon Technology Finance Corporation's First Quarter 2026 Conference Call. Representing the company today are Mike Balkin, Chief Executive Officer; Paul Seitz, Chief Investment Officer; and Dan Trolio, Chief Financial Officer. I would like to point out that the Q1 earnings press release and Form 10-Q are available on the company's website at horizontechfinance.com. Before we begin our formal remarks, I need to remind everyone that during this conference call, the company will make certain forward-looking statements, including statements with regard to the future performance of the company. Words such as believes, expects, anticipates, intends or similar expressions are used to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements, and some of these factors are detailed in the risk factor discussion in the company's filings with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2025. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Horizon's CEO, Mike Balkin. Michael Balkin: Thank you, Megan, and welcome, everyone, and thank you for your interest in Horizon. Today, we will update you on our quarterly performance and the current operating environment. Paul Seitz, our Chief Investment Officer, will take us through recent business and portfolio developments as well as the current status of the venture lending market; and Dan Trolio, our Chief Financial Officer, will detail our operating performance and financial condition. We will then take questions. It has certainly been a very newsworthy and exciting couple of months for Horizon. In March, we were pleased to form RoHo, a new joint venture with Roth Capital, which will provide growth financing solutions to small and microcap public companies. Then in April, we successfully completed our merger with Monroe Capital Corp. or MRCC, officially embarking on an exciting growth path for the combined new Horizon. The merger provided us with significant increase in Horizon's equity capital available for investment in earning assets. This larger capital base affords us greater economies of scale to compete for larger cutting-edge early and later-stage venture capital deals backed by some of the leading venture capital and private equity funds. We are also increasing our lending to small-cap public companies as evidenced by some of our latest announced transactions. Aided by the full support and backing of Monroe, we are taking the Horizon platform to the next level and are well positioned to succeed over the longer term. Turning to our specific results for the quarter. We grew our portfolio for the second consecutive quarter, funding 5 investments totaling $120 million and bringing our total portfolio size to almost $700 million. We generated net investment income of $0.19 per share, exceeding our distributions, while our NAV per share ended the quarter at $6.98. Based on our outlook and our undistributed spillover income, our Board declared regular monthly distributions of $0.06 per share payable in July, August and September of 2026. Consistent with our announcement prior to the closing of the merger, our Board also declared special monthly distributions of $0.03 per share payable in July, August and September 2026. As we prudently work to deploy the incremental capital from the merger and move to our target leverage, it remains our goal to deliver NII at or above our declared distributions over time. We achieved a portfolio yield on debt investments of over 15% for the first quarter, once again at or near the top of the BDC industry. We finished the quarter with a committed and approved backlog of $180 million. And finally, we continue to close attractive venture debt and small-cap public company investments, while our pipeline of loan opportunities continue to grow. Moving forward, we believe we are stronger than we have been in years and are excited for the long-term growth path we see ahead. To that end, given the dislocation between our stock price and the current net asset value, we intend to utilize our $10 million stock repurchase program in the near term. Again, we appreciate your continued interest and support in the Horizon Technology Finance platform. I will now turn the call over to our Chief Investment Officer, Paul Seitz, to give you the details of our first quarter results and progress. Paul? Paul Seitz: Thanks, Mike, and good morning to everyone. I want to echo Mike's remarks about our excitement at closing the merger with MRCC. With the additional capital from the merger as well as our new joint venture with Roth, we now have more size and scale as well as products to originate venture and growth loans to growing public and private companies. We believe this positions us well to continue growing our portfolio and NII over time. At the end of the quarter, our current portfolio stood at $696 million as we produced our second consecutive quarter of portfolio growth. In the first quarter, we funded 5 life science debt investments, including refinancing of an existing investment, totaling $120 million. We also made further progress in building our pipeline, including larger venture loan opportunities in our target sectors. One of those pipeline opportunities, Stellar Cyber closed in April. In Q1, we increased our committed backlog by $26 million from the end of Q4, which positions us well to further grow our portfolio in the quarters ahead. In Q2, we expect to further grow our portfolio, driven by our current pipeline. Along with Stellar Cyber, since the end of the quarter, we have been awarded 5 new venture loan transactions, representing $90 million in total commitments. It goes without saying that we will always be disciplined in originating and underwriting new loans. During the first quarter, we experienced 1 loan prepayment and refinancing totaling $63 million in prepaid principal. Our onboarding debt investment yield of 12% during the first quarter remained consistent with our historic levels. We expect to continue to generate strong onboarding yields with our current pipeline of opportunities, which we believe will generate strong net investment income over time. Our debt portfolio yield of 15.2% for the quarter was once again among the highest yielding debt portfolios in the BDC industry. Our ability to generate industry-leading yields continues to be a testament to our venture lending strategy and our execution of such strategy across various market cycles and interest rate environments. As of March 31, we held warrants, equity and other investments in 99 portfolio companies with a fair value of $50 million. Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value. As mentioned, we ended the quarter with a committed and approved backlog of $180 million compared to $154 million at the end of the fourth quarter. We believe our pipeline of investment opportunities, combined with our committed backlog with most of our funding commitments subject to companies achieving certain key milestones provides a solid base to prudently grow our portfolio over time. As of quarter end, 88% of the fair value of our debt portfolio consisted of 3 and 4 rated debt investments, while 12% of the fair value of our portfolio was rated 2 or 1, which is a modest improvement from our levels at the end of the fourth quarter. We continue to collaborate with all of our portfolio companies and utilizing a variety of strategies to optimize returns and create future value. Turning to the venture capital environment. According to PitchBook, approximately $267 billion was invested in VC-backed companies in the first quarter, which by itself exceeded all full year totals for investment except for 2021 and 2025. However, this record performance was completely due to large investments in AI. In fact, the top 5 investments accounted for $196 billion of that amount. Venture capital dollars are flowing again. However, there is a significant bifurcation in the marketplace as only the companies at the very top are receiving the lion's share of capital. A similar story is playing out in the exit markets. While exit value of nearly $350 billion puts 2026 on pace to smash records by June, 72% of that value is due to SpaceX's acquisition of xAI. Still excluding that acquisition, exit value of $97 billion was the largest quarter since the fourth quarter of 2021, driven primarily by AI acquisitions. The IPO market, however, remains muted with only 15 VC-backed IPOs during the quarter. Given the current geopolitical and macro uncertainty, we believe the IPO market will remain somewhat muted in the near term. Nonetheless, we believe the limited life science IPO market creates more opportunities for venture loan originations as evidenced by our fundings in the quarter. On the tech side, though we see the IPO market is muted, we see considerable optimism for tech IPOs, while we continue to conduct deep due diligence, particularly in AI and defense technology to determine the best types of opportunities for future investments. We continue to believe that venture debt remains a compelling option for these high-quality companies to access additional capital. As we move through 2026, we are excited for the new horizon and have been hard at work in identifying and targeting larger venture loan opportunities for both private and small cap public companies given our substantially enhanced capacity profile. Additionally, we continue to work diligently on optimizing outcomes with respect to our current portfolio. We remain confident that we are on the right path to expand our portfolio over the longer term and continue to lead in the venture lending space. We expect this will lead to increased NII over time and ultimately, additional value for shareholders. With that, I will now turn the call over to our Chief Financial Officer, Dan Trolio. Daniel Trolio: Thanks, Paul, and good morning, everyone. As Mike mentioned, we're excited to have completed the merger with MRCC, which significantly strengthened our balance sheet upon closing with $141 million of additional capital. With the merger complete and with us exiting our blackout period, we expect to begin tapping our $10 million repurchase program given the dislocation between our current valuation and our confidence in the near- and long-term outlook of Horizon. In addition, we continue to diligently work with all of our portfolio companies to optimize outcomes for our investments and improve our credit quality. As such, we believe we are well positioned to grow our portfolio in the coming quarters and create additional value for our shareholders moving forward. As of March 31, we had $105 million in available liquidity, consisting of $73 million in cash and $32 million in funds available to be drawn under our existing credit facilities. As of March 31, we had $45 million outstanding under our $150 million KeyBank credit facility, $181 million outstanding on our $250 million New York Life credit facility and $90 million outstanding on our $200 million Nuveen credit facility, leaving us with ample capacity to grow our portfolio of debt investments. Post-merger, we paid down the full amount outstanding under the KeyBank facility. Our debt-to-equity ratio stood at 1.35:1 as of March 31 and netting out cash on our balance sheet, our net leverage was 1.13:1, below our target leverage. Based on our cash position and our borrowing capacity on our credit facilities, our potential new investment capacity as of March 31 was $357 million. Post-merger, our new investment capacity has increased by $141 million of additional capital. Turning to our operating results. For the first quarter, we earned investment income of $24 million compared to $25 million in the prior year period, primarily due to lower fee-related income on our debt investment portfolio. Our debt investment portfolio on a net cost basis stood at $655 million as of March 31, up 9% compared to $602 million as of December 31, 2025. For the first quarter of '26, we achieved onboarding yields of 12%, in line with what we achieved in the fourth quarter of '25. Our loan portfolio yield was 15.2% for the first quarter compared to 15% for last year's first quarter. Total expenses for the quarter were $14.8 million compared to $13.4 million in the first quarter of '25. Our interest expense of $8.2 million was $0.5 million lower than last year's first quarter, while our base management fee was $3.1 million, in line with prior year period. We received $1.8 million of performance-based incentive fees in the first quarter. But as a reminder, our adviser agreed to waive up to $4 million of fees or $1 million a quarter post merger starting in Q3 of '26. Net investment income for the first quarter of '26 was $0.19 per share compared to $0.18 per share in the fourth quarter of '25 and $0.27 per share for the first quarter of '25. We continue to expect prepayment activity will remain modest in the near term. And for the second quarter, we expect to record a nonrecurring onetime transaction expense of $4.3 million related to the completion of the merger. The company's undistributed spillover income as of March 31 was $0.52 per share. Based upon our outlook and undistributed spillover income, our Board declared monthly distributions of $0.06 per share for July, August and September 2026. In concert with the completion of the MRCC merger, our Board also declared $0.03 per share special distributions payable in July, August and September of 2026. We anticipate with our expanded capital base and available leverage, our expectation for growth and our predictive pricing strategy will enable us to generate NII that covers our distribution over time. To summarize our portfolio activity for the first quarter, new originations totaled $120 million, which were offset by $5 million in scheduled principal payments and $63 million in principal prepayments, refinancings and partial paydowns. We ended the quarter with a total investment portfolio of $696 million. At March 31, the portfolio consisted of debt investments in 41 companies with an aggregate fair value of $646 million and a portfolio of warrant, equity and other investments in 99 companies with an aggregate fair value of $50 million. Our NAV as of March 31 was $6.98 per share comparable with where it stood on December 31 and compared to $7.57 as of March 31, 2025. The stable NAV on a quarterly basis was primarily due to NII exceeding our distributions and a shift in when we account for monthly distributions. Moving forward, we're accounting for distributions on the ex-dividend date, which is more aligned with when most BDCs report their distributions. As we've consistently noted, nearly 100% of the outstanding principal amount of our debt investments bear interest at floating rates. Of those investments, approximately 71% are already at their interest rate floors, which should mitigate the impact of decreasing interest rates. This concludes opening remarks. We'll be happy to take questions you may have at this time. Operator: [Operator Instructions] And our first question, we will hear from Cory Johnson with UBS. Cory Johnson: I was wondering, could you actually just -- on the last point that you had just touched on regarding, I guess, like the NAV bridge, could you help me, I guess, to maybe understand that because I don't know if maybe I wasn't getting it correctly. But I thought NAV was flat this quarter. And obviously, there were some of the unrealized losses and such. So my understanding is correctly that the dividends that were used for the first quarter were actually the $0.18 rather than the $0.33. Is that correct? Daniel Trolio: Yes. So every quarter, we will accrue the distribution that is declared in that quarter. So normally, it would be the $0.18. There's 2 accounting guidances that public BDCs can follow. The first is related to recording your distribution on the declaration date, which would be in the quarter. And the second is recording your distribution on the ex-dividend date. And so this quarter, because of the merger and the different shareholders at different periods of time, we adjusted our policy to record the distribution on the ex-dividend date. So 1 of the 3 distributions that were declared is accrued this quarter. So the impact is $0.06 instead of the $0.18. And so that bridge you from where you're looking at the -- from the unrealized. I was just giving you a little more information to help you bridge from the unrealized to the NAV. Cory Johnson: And then just a follow-up. So you do, I guess, have now all this additional capital on hand. But I was just wondering like what is, I guess, the environment like for you to be able to deploy that capital? Like how aggressive do you think you'll be able to be? Are the quality of deals that you're seeing strong enough to allow you to be able to deploy that? If you can maybe just give a little bit of background on that. Paul Seitz: Yes. Thanks for that question. This is Paul Seitz. So one is, I think the market is pretty active right now. It's pretty evidenced by the -- some of the larger funds moving down market in terms of the activity with the venture ecosystem, it's just getting -- it's picking up quite a bit. So our focus is to obviously deploy capital, but we need to be resilient and unrelenting on credit quality. And the way we structure our deals is critically important and the way we approach the risk-adjusted return profile of each company is critically important. So while it's active, we remain very diligent on structuring our deals and only doing the deals that are the highest of quality. Operator: [Operator Instructions] Next, we'll move to Sean-Paul Adams with B. Riley. Sean-Paul Adams: It looks like you guys have actually had a pretty good quarter as far as credit quality. It looks like a good amount of non-accruals fell off the portfolio as well as your watch list also decreased. Can you provide a little bit of color on the remaining 2 names kind of on non-accrual? It looks like you guys actually experienced a write-up on Provivi. And just a little bit more color on how you're able to move so many names previously on non-accrual back to accrual. Daniel Trolio: So yes, we -- I guess if you look quarter-over-quarter on our schedule of investments, we had 3 names last quarter and 3 names this quarter. So they were Vesta, Provivi and [indiscernible]. For the previous quarter, Q3 to Q4, we were able to drop off some non-accruals and because we're able to work through some transaction and maximize those returns. And then this quarter related to Provivi, specifically and the change, like we say, we're working on each one of the deals, and we're trying to maximize returns. We were able to receive some paydown related to Provivi as we continue to work through that account. Operator: There are no further questions at this time. I would like to turn the floor back to Mike Balkin for closing remarks. Michael Balkin: Thank you all for joining us this morning. We appreciate your continued interest and support in Horizon, and we look forward to speaking with you again soon. This will conclude our call. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Good day, and welcome to the Brink's Company First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Jesse Jenkins, Vice President, Investor Relations. Please go ahead. Jesse Jenkins: Thanks, and good morning. Here with me today are CEO, Mark Eubanks; and CFO, Kurt McMaken. This morning, Brink's reported first quarter results on a GAAP, non-GAAP and constant currency basis. Most of our commentary today will be focused on our non-GAAP results. These non-GAAP financial measures are intended to provide investors with a supplemental comparison of our operating results and trends for the periods presented. We believe these measures allow investors to better compare performance over time and to evaluate our performance using the same metrics as management. Reconciliation of non-GAAP results to their most comparable GAAP results are provided in the SEC filings, which can be found on our website. We will also have commentary on the status of our pending acquisition of NCR Atleos. As a reminder, this transaction is subject to the completion of customary closing conditions, including regulatory approvals and approval by Brink's and NCR Atleos shareholders. Additional details, including risk factors related to the transaction can be found in the pertinent SEC filings. I will now turn the call over to Brink's CEO, Mark Eubanks. Richard Eubanks: Thanks, Jesse, and good morning, everyone. Starting on Slide 3. We're pleased with another strong quarter of growth and operational execution as we continue to transform Brink's into a more predictable and profitable enterprise. I want to thank all of our team members, especially those in the Middle East region, for their focus in this dynamic global economic backdrop. I could not be more proud of our teams for staying focused and delivering on our Q1 commitments. Our results were at the upper end of our first quarter guidance ranges, and we're off to a strong start to the year. First quarter revenue growth of 10% included 4.5% organic growth, driven mostly by 15% organic growth in ATM Managed Services and Digital Retail Solutions or AMS/DRS. The growth in the quarter was highlighted by the onboarding of Pandora in DRS and good momentum in AMS, especially in the Rest of World segment. At the segment level, Rest of World delivered 7% organic growth on strong precious metals activity in the global services line of business. Overall, organic growth, favorable revenue mix and good underlying productivity drove margin expansion of 10 basis points with over 100 basis points of expansion in both North America and Rest of World and 240 basis points of expansion in Europe. In total, Q1 EBITDA was $238 million with a margin of 17.3%, trailing 12-month EBITDA was $1 billion for the first time in our history this quarter, reflecting a more than $200 million increase since the end of 2022 as we continue to deliver profitable growth across our business. We also continue to improve cash generation with an increase of $66 million year-over-year in the first quarter. On a trailing 12-month basis, free cash flow exceeded $0.5 billion for the first time in our company's history with conversion from EBITDA of 50%. Operationally, we saw improvement in both days of sales outstanding and days payable outstanding. Coupled with EBITDA growth I mentioned earlier, total free cash flow has more than doubled since year-end 2022, with free cash flow now exceeding $12 per share. As I review the quarter, we delivered on our commitments with results at the top end of our guidance range. As I mentioned, I'm proud of our consistent execution during volatile market conditions and our team's focus on the heels of the announcement of our transformational acquisition of NCR Atleos. Supported by this strong first quarter, I remain confident in our ability to continue our trajectory and deliver our full framework for 2026. Turning to Slide 4. You can see the components of our value creation strategy, which remain unchanged for 2026 and are well aligned with the strategic rationale of the NCR Atleos acquisition. We expect organic growth in 2026 to remain consistent in the mid-single digits, driven primarily by new and converted customer growth in recurring AMS and DRS revenue, which is expected to approach 1/3 of our total company revenue by year-end. The acquisition of NCR Atleos is expected to accelerate our ability to capture these AMS and DRS customers by delivering a more vertically integrated AMS offering and lowering our cost base through increased network density on the retail side of our business. On a stand-alone basis for 2026, we expect EBITDA margins to expand by 30 to 50 basis points as we shift revenue to these higher-margin services and drive cost productivity across our operations. This mix shift is expected to continue after completion of the acquisition and cost efficiencies are expected to accelerate behind the $200 million of cost synergies that we previously identified as we eliminate duplicative SG&A and public company costs, optimize our service delivery network and finally, drive global procurement savings. Both companies have delivered meaningful improvement in cash generation over the last few years, and we expect that will compound as we combine our 2 businesses. In addition to working capital improvements, we've already completed a secured financing arrangement that will allow us to absorb the $1.6 billion of NCR Atleos bank debt at a rate that is more than 1 full percentage point better than their current level. While we're focused on the near term on reducing leverage, we expect to produce a combined $1 billion of free cash flow from the 2 companies, providing flexibility to maximize value creation through strategic investments and shareholder returns. Shifting back to the quarter on Slide 5, I'll provide some commentary on performance by line of business. Starting with Cash and Valuables Management, or CVM. Organic growth was 1% in the quarter with good pricing discipline offsetting a couple of percentage points of AMS/DRS conversions. Our Global Service business was also strong again this quarter despite lapping a robust first quarter of 2025. Precious metals movement remain volatile and trends can change rapidly, but we factored in the current favorable trends into our second quarter guidance. AMS/DRS revenue grew organically approximately $50 million in the quarter for a rate of 15%. This was the 13th consecutive quarter of at least 15% organic growth in AMS/DRS as we continue to build momentum in these important businesses. It's important to note that in the fourth quarter of last year, we saw strong growth related to onetime equipment sales, primarily in North America that impacts the sequential comparisons. Factoring in this dynamic, growth in the quarter was in line with our expectations and positions us well to deliver our guidance for the full year. In DRS, we continue to see positive momentum with large enterprise customers in North America, including the onboarding of Pandora during the late fourth and early first quarters. In AMS, we're lapping some large wins in the prior year like Sainsbury's, while we stage for other large deployments, including some in the Rest of World segment. We continue to see positive AMS trends with banking customers, including in Southeast Asia, where we recently won the largest national bank in Indonesia with about 5,000 ATMs. Looking to the balance of the year, we expect AMS and DRS to accelerate sequentially, supported by our strong pipelines and DRS backlogs, including Paradies that will lead us directly into the next slide. On Slide 6, I'd like to highlight an example of the type of wins we're delivering with DRS. Paradies is a leading travel retailer and restaurateur, operating over 700 stores in airports across North America. They offer major brands like Chick-fil-A, Tumi, Starbucks today and Jimmy John's just to name a few. Paradies came to us to help solve common dilemmas they see across large global retail and quick-serve organizations. I've often discussed DRS as a true win-win for both Brink's and retailers, and that's clearly the case here with Paradies. We designed a bespoke solution incorporating both front office recyclers and smart safes that integrate directly with Paradies POS software. Our solutions are expected to help them with several pain points across their global footprint. Among other things, we're able to reduce cash handling time for managers and employees, unlocking productivity and efficiency within their stores. Our solution digitizes cash quickly and tracks transactions down to the teller level, reducing operational shrink across the business. We are also able to simplify service delivery for customers as we shift our key quality service deliverable from arriving within a certain appointment window to providing overnight electronic deposits for faster access to working capital. This shift creates flexible routing and scheduling options for Brink's, allowing us to arrive when needed or when easily added to an existing scheduled trip into the area. We completed a successful trial phase with Paradies and are planning for the full rollout across their entire footprint over the balance of the year. While the solution we designed for Paradies is unique to their specific needs, the problems we're solving for customers are universal. Our DRS offerings have a clear and demonstrated value proposition for retailers of all sizes. As we close more of these deals, I remain confident that we're in the early stages still of our efforts to expand our DRS business across the retail landscape in all geographies that we serve. On Slide 7, you can see our methodical progress towards 20% EBITDA margins in North America. In Q1, EBITDA margins in this segment expanded by 170 basis points year-over-year, driving trailing 12-month margins to 19.5%. Revenue mix has been a big contributor to this progression. It was another great quarter of AMS/DRS growth in North America as we continue to convert customers and install new DRS units, including the Pandora win that we mentioned last quarter. Global Services revenue growth was also strong this quarter despite an elevated prior year period comparable. Our shift to higher-margin flexible service recurring revenue is unlocking operational productivity across the business. Over the years, we've improved and standardized our service delivery network to enable profitable growth. This improvement is clear in the numbers as we continue to deliver improvements in revenue per vehicle and labor as a percentage of revenue. This is setting the stage for continued momentum post closing of our NCR Atleos acquisition as we layer on additional volume to our more efficient network. I'm confident increased scale will position us to drive further expanded margins well beyond our preliminary 20% targets. Turning to Slide 8. I'd like to provide a brief update on the NCR Atleos transaction. While we've been publicly engaged with shareholders over the last 8 to 10 weeks, we've been working hard diligently behind the scenes to progress this transformational acquisition forward. At the end of March, we successfully completed a refinancing of the secured portion of the bridge loan, increasing our capacity while unlocking attractive rates and improving certain conditions in our credit agreement. Just last week, we filed our registration statement and are progressing towards a shareholder vote over the next few months. We're making good progress on the regulatory front as well with filings submitted in many jurisdictions and reviews progressing as expected. NCR Atleos first quarter results will be filed after the market closed today, and we understand them to be in line with our business case modeling and on track with our full year projections. Though NCR Atleos will continue to operate independently until closing, we expect our integration management team to work closely with NCR Atleos to plan and prepare for the execution of the potential cost synergies. Importantly, we've created a dedicated integration management team within Brink's that is isolated from the day-to-day operations of our business and will be responsible for driving program execution of cost synergies after closing. While we're still in the early process in many ways, we're making good progress and continue to expect closing will occur by the end of the first quarter of 2027. The more we interact with our internal teams, our customers and the NCR Atleos management teams, the more encouraged I am by the potential of this combination. Supported by strong momentum in AMS and DRS and ATM as-a-Service, it remains clear that this is the right strategic direction at the right time to accelerate our growth and bolster our business for the future. Before I hand it over to Kurt to walk through the financials, I want to thank our team for embracing the power of our strategy. We've lifted our performance by consistently delivering on our external commitments while improving our service levels to our customers, even redefining the definition of what service quality means. Our team is focused on continuing our efforts to move the business forward behind AMS/DRS customer offerings that deliver clear win-wins for both the customers and for Brink's. I'm encouraged by the strong results we delivered, the strong momentum supporting us and I'm even more optimistic about the future potential as we combine with NCR Atleos and position ourselves to accelerate growth, profitability and value creation. And with that, I'll hand it over to Kurt to discuss the financials, and I'll come back for Q&A. Kurt? Kurt McMaken: Thanks, Mark. I'll begin on Slide 10 with a look at Q1. Revenue increased 10% with 5% constant currency growth and a 6% tailwind from foreign currency. Adjusted EBITDA was up 10% to $238 million with operating profit up 12%. Both operating profit and EBITDA accelerated 10 basis points year-over-year on favorable revenue mix, pricing discipline and productivity in both labor and fleet. Earnings per share was $1.80, up 11%. In the quarter, we completed approximately $30 million of share repurchases prior to the NCR Atleos acquisition announcement, reducing outstanding shares by 5%. As Mark mentioned earlier, trailing 12-month free cash flow was $502 million at the end of the quarter, representing conversion of 50%. I would like to call out that we have enhanced our cash flow disclosures to highlight cash flows related to the NCR Atleos acquisition, which were $2 million in the quarter and are expected to be between $50 million to $60 million for the full year. We believe it is important to isolate these cash flows for investors so they can get a better picture of the true underlying cash generation of the business. These cash flows are included in our expectations to get to approximately 2.3x by the end of 2026. Similar to timing from the prior year, we are currently ahead of our full year cash conversion guidance after Q1. We expect the timing of certain cash tax payments and cash investments over the balance of the year to return us to our target level of 40% to 45% by the end of the year. On Slide 11, total organic growth was $56 million or more than 85% of the growth came from higher-margin subscription-based AMS and DRS. The $8 million of CVM growth was in line with expectations and represents volume growth in Global Services and strong pricing execution, partially offset by the conversion of customers to AMS and DRS. FX contributed $71 million of growth in the quarter with favorable year-over-year rates primarily in the euro and Mexican peso. Shifting to the right side of the slide, growth of $128 million generated $23 million of EBITDA, expanding margins by 10 basis points. As you will see from our guidance for Q2, we expect expansion to accelerate into the second quarter as we continue growth into AMS and DRS. Moving to Slide 12. Starting on the left. Operating profit was up $18 million to $168 million with a margin of 12.2% on strong productivity, pricing and line of business revenue mix. Interest expense was $64 million in the quarter, up about $6 million year-over-year and in line sequentially with the fourth quarter. For the full year, interest expense is expected to be just over $250 million using current interest rate expectations. Tax expense was $29 million in the quarter, representing an effective tax rate of 27.6%, in line with the prior year rate. Interest income and other was down $6 million year-over-year, primarily due to lower interest income related to the prior year repatriation of cash from Argentina. Income from continuing operations was $75 million. Depreciation and amortization was $64 million, primarily reflecting increased depreciation from growth in AMS and DRS equipment. In total, first quarter adjusted EBITDA was $238 million, up $23 million year-over-year with margins expanding 10 basis points. Let's move to Slide 13 to discuss our capital allocation framework. Our capital allocation framework has remained consistent during Mark and my tenure, including through our transformational investment in NCR Atleos. Our leverage at the end of the first quarter was 2.7x net debt to adjusted EBITDA. During 2026, we expect net debt leverage reduction to be the primary focus of our capital allocation as we position our balance sheet for the NCR Atleos acquisition. Over the year, we expect to reduce our stand-alone leverage to approximately 2.3x. While we expect leverage to be approximately 3.4x, assuming Q1 2027 closing, we are currently expecting to be below 3x by the end of 2027. We continue to believe that 2 to 3x is the right leverage to balance capital efficiency and appeal to existing and potential equity investors. Our capital allocation framework has generated meaningful shareholder value over the last several years. The growth acceleration potential into high-margin recurring revenue AMS and DRS is expected to continue to drive margin expansion and compound cash generation for years to come. With clear line of sight to a combined free cash flow of $1 billion, we expect to have the flexibility to make strategic investments and return capital to shareholders in the future. Moving to guidance on Slide 14. Our framework for 2026 remains unchanged. We expect to deliver mid-single-digit total organic growth, supported by mid- to high teens organic growth for AMS/DRS. Using rates as of yesterday, we are currently expecting to see an FX tailwind for the full year of between 2% and 3%. EBITDA margins are expected to expand between 30 and 50 basis points with conversion of EBITDA to free cash flow of between 40% and 45%. In the second quarter, we expect revenue between $1.37 billion and $1.43 billion, reflecting organic growth in the mid-single digits. Using yesterday's spot rates, FX is expected to be a year-on-year tailwind of just below 3% at the midpoint. Adjusted EBITDA is expected to be between $245 million and $265 million, reflecting 10% growth and margin expansion of approximately 40 basis points at the midpoint. EPS is expected to be between $1.85 and $2.25. And with that, we are happy to now take your questions. Operator, please open the line. Operator: [Operator Instructions] The first question comes from George Tong with Goldman Sachs. Keen Fai Tong: In DRS, can you perhaps quantify how much of the growth came from conversion of traditional cash-in-transit customers versus greenfield wins? Richard Eubanks: Yes, sure. We have -- again, George, a good quarter for us in Q1 kind of everywhere in DRS. But particularly as you think about convergence, again, we stay on track what we've seen in prior quarters. So about 1/3 of the installs really coming from conversions of existing customers, which, as we've talked about previously, gives us a little bit of headwind in CVM, but of course, get the benefits of the better margin and certainly recurring revenue. The 2/3, though, really, we continue to be excited about because these are new customers that are either unvended or were previously vended by some other solution. You can see -- we talked about the Pandora deal a little bit in the call. We had it in our presentation last quarter, where we were able to really provide an enterprise solution for a customer that we were able to identify, negotiate and deploy fairly rapidly to collapse our time to revenue. We didn't get a chance to talk about it much last quarter, as you know, given the deal announcement. But if you look at, again, this quarter, another really nice deal here with Paradies, that's one of the airport operators for food and quick serve and retail. And again, just the opportunity to work with customers like that to provide a unique solution, whether that's leveraging hardware, software, POS integration and even some of our cash forecasting and balancing software really allows us to tailor a solution to almost any retail environment as we look to streamline and optimize the total cash ecosystem inside these retail stores. And this is something we'll continue to see going forward. Keen Fai Tong: Very helpful. And then you expect AMS/DRS growth to accelerate sequentially given the strong backlog. What are your latest thoughts on what sustainable medium-term AMS/DRS growth can be? Richard Eubanks: Sure. I think -- we think this mid- to high teens organic growth will continue, George, here, certainly this year. And I don't know what your medium term is, but we've got a view as we go into '27 and get this deal closed, we can do -- continue to accelerate that more. So we're excited about it. And I think if you look at our backlog coming out of Q4 into Q1, team is excited about what we've got lined up for the second half of this year as we're installing those in Q1 as well as Q2. But you can see the organic growth rates are continuing. Although we were a little bit higher in Q4, about 22%, as we mentioned previously, we had a pretty significant amount of equipment sales, particularly in North America. But even that was still in the high teens from an organic perspective, and that continued into Q1. Q1 is typically a little bit lighter just given the fact that we don't do a whole lot of installations during Q4 retail season because most of our retailers are -- it's a busy season, particularly North America and Europe, where they don't want us in their stores installing. So we tend to carry a good backlog into Q1 and Q2. Operator: The next question comes from Tobey Sommer with Truist. Tobey Sommer: I'd like to double-click on AMS and DRS again. How would you describe the geographical differences you're seeing in customer uptake and demand? And then what do you think it takes to light a fire under financial institutions in North America for this to take off? Richard Eubanks: Yes. Good question, Tobey, because we're really starting to to see more broad AMS/DRS growth around the world. And you can see, particularly in Latin America in the quarter, we're seeing Mexico continue to have a good run here in DRS that is allowing us to not only convert customers, but continue to improve margins and build out an installed base. We're seeing that in Argentina as well. And then, of course, in Brazil, we've been having success, and that continues. We're seeing more AMS and DRS, but particularly, I called out AMS in the Rest of World segment, which is really good because these are big cash markets that are kind of much earlier cycle when it comes to AMS/DRS conversion. But last quarter, we talked about AMS Security Bank down in the Philippines that we're currently deploying. We also then talked this quarter about Indonesia, although we've had some success in Indonesia previously. This is a pretty big deployment there. So we feel good about that. We're seeing banks in Rest of World as well as Latin America continue to either make decisions or continue to look at better ways to serve their continued ATM needs. If we move to the Northern Hemisphere, Europe and North America, of course, Europe is our most highly penetrated AMS/DRS market. And again, a good -- continue to have good progress there and a good outlook as we think about Q2 and Q3. But North America, certainly, our DRS trajectory continues to go higher. And you see it in our margins, and I called it out in the North American deep dive there, we continue to see the good mix benefits from DRS, particularly as we see going forward. The last part of your question was around North America banks, particularly U.S. banks. And that's something that we're continuing to have lots of discussions. And as we think about the services across the entire continuum for ATMs and ATM managed services, we're starting to get up those opportunities. And whether that's some of the off-branch bank at work ATMs or whether that's specific services and/or managed services on the on-branch, the full outsourcing continues to be a little slower than -- certainly a lot slower than the Rest of the World. I think this is one of the things that we think about with the Atleos acquisition, Tobey, and getting to a full vertical solution where customer outcomes can be better controlled and I think create more confidence with those customers about a full outsourcing. And so this is something that we're keenly aware of and thinking about and certainly part of our long-term thesis on the business to support both growth and being a catalyst for those banks to do outsourcing as well as increasing our density and participation in our retail footprint. Tobey Sommer: If I could ask a specific question on DRS. Is this -- are you finding this service is more valuable or less valuable to customers based on their business models as sort of like, I don't know, a stand-alone big box as opposed to an area like in an airport where retail is clustered or a mall because you've had a couple of marquee customers that you can talk about that sort of fit that latter bucket. Richard Eubanks: Yes. I'd say it's more about the idea around disclosure, Tobey, and customers being willing to talk about it, to be honest, because we are seeing DRS, we don't get to highlight all of our DRS wins as we've talked about previously in retail. But we're seeing strong value propositions, everything from the SMB mom-and-pop coffee shops all the way up to the big box guys. And many of those solutions can look similar maybe in the middle of that bulge. But when you get to the smaller or you get to the larger, they're certainly more sophisticated and can be more complex. We think the complexity is helpful for us because we can solve some of those problems with more technology and an integrated service model. And then on the low end, on the smaller customers, we're able to, frankly, lower our cost to serve to allow us to provide a better value proposition as we build more density. And as I think about one of the other big opportunities, and we talked about that last earnings call about the Atleos integration is building out more density across our network that again is going to lower our cost to serve and ultimately be able to provide better value propositions to customers, both small and large, but ultimately provide a much more compelling solution than they're able to either self-perform today or even than what we can deliver today from a cost perspective. So again, those benefits continue to accrue, and we think there's a definite network effect that we can create as we build out that density. Tobey Sommer: If I can ask one last one, and I'll get back in the queue. With respect to cash, conversion from EBITDA. You had some numbers in your recent filing that gave us a look at what your expectations are for a number of years for stand-alone Brink's. But maybe you could touch on the opportunity or what the combination with NCR Atleos does to the opportunity to increase that conversion over time. Kurt McMaken: Yes. Tobey, it's Kurt. Maybe I'll jump in here. I would say, first of all, just from a profitability perspective, certainly an opportunity there. The synergies will help on flow-through for sure. Then you go below the OP line and below the EBITDA line, we definitely see opportunities in terms of capital efficiency from both the CapEx and working capital perspective, and we talked a little bit about it. I mean we have to obviously develop that further together, but certainly see opportunities there to drive increased conversion on that. Richard Eubanks: I think the other area, Tobey, is that we think about, and frankly, we're seeing benefit now in our business as we really ramped up our efforts in and around global supply chain and procurement is getting better payment terms as we operate as one large enterprise versus 52 countries. And we've talked about that transformation that's been going on in the business for some time. We're really starting to see some of those benefits. And we think that putting together 2 companies of similar size and scale and purchasing power would only help that in the future as we think about managing payment terms, managing our balance sheet, managing our receivables in the same way as we think about common customers. So the working capital benefits that we're achieving -- sorry, improvements we're achieving now. By the way, Atleos is doing a pretty good job of that, too. We think only together can we really drive not only kind of in contract changes, but also just efficiencies in our systems and better follow-up and operational execution on credit and collections and payment terms. Kurt McMaken: And maybe I just might add that's a good point, Mark, one other thing. If you look at cash interest and cash taxes, there'll be opportunities there as well with the combined firm. And so that's another final area. Operator: The next question comes from Tim Mulrooney with William Blair. Samuel Kusswurm: This is Sam on for Tim. Maybe I'll pivot away from some of the AMS/DRS questions, some good ones were already asked and ask more about your Latin America business actually. So this year, you'll be moving past some of the Argentina inflation impacts for the first time in a while. So how are you thinking about the growth rate and margins for this business? And then I noticed a competitor of yours just made a pretty sizable acquisition in Peru. Curious how this might impact the level of competition you face in this region. Richard Eubanks: Yes. Thanks. Good to hear from you. First of all, I'll address the Peru acquisition. We're not in Peru. Actually, we were in Peru years ago and actually exited the business -- exited the country. But for us, we're -- we're very comfortable with the geography we have today. And as we've talked about previously, our strategic focus is really about moving further up the stack around DRS and AMS more around technology and service efficiency versus really expanded geography. Now we will have some expanded geography or we expect to have some expanded geography post the NCR acquisition that will allow us to kind of reassess what resources we have in which markets and how best to optimize cost and the supply chain there. But for us, again, this wasn't much of a strategic lever for us. We didn't have any cost synergies there because we don't have any businesses there to combine. And really, the market is pretty isolated from our perspective. So we don't see that competitive pressure, let's say, in the region from this acquisition, particularly. More generally, we love Latin America from a fundamental perspective, high cash usage in these markets, good margins. We have good businesses, good leadership teams. And as you point out, Argentina is a place as you look at the kind of FX trends here in the last 6 months as we get to the back half of the year at current rates. Argentina is not a headwind at all. And so from an FX perspective. So that's really interesting because it's a good business for us. We have a good position down there, and it's good margins. And so as we think about going forward, it's going to be less noise and effectively will be something that investors will be able to get a better look at on an apples-to-apples basis without as much noise. The other thing that we think about also down there is the AMS market. It's a huge ATM market, and we're in the biggest markets down there in Brazil, Argentina and Mexico, Colombia, Chile. And certainly, there's activity already going on down there. We've talked about it, but there's a lot left to go. And the banks down there are pretty sophisticated operators. They are relatively consolidated. And so the discussions are progressing well, we have several active networks down there as well as active pilots with existing banks that we're working to convert here in '27 and '28 -- I'm sorry, '26 and '27. Kurt McMaken: Sam, just I'd add too. I mean, you should expect the margins to get better sequentially, and that's what we're seeing. Richard Eubanks: Yes. I think it's -- and Sam, just of note, as you look at our Q1 performance and Q2 guide, this $10 million to $11 million of EBITDA that's above -- was above the midpoint of our guide of our framework should flow through to the balance of the year. And that's -- part of it is this LatAm margin improvements. And as you can see, the EBITDA margins are benefiting in Q1 kind of over our midpoint at the high end of our guide for a couple of reasons. One is the continued AMS/DRS mix benefits, but also we had a strong quarter in BGS. And our Global Services business, I mentioned on the call, given the -- all the volatility in the Middle East that we've seen, there's been a lot of movement of precious metals around the world. And in and out of all of the big financial centers around the world, that likely -- in our guide, we assume that's going to continue into Q2. And as we look out to second half, these markets are volatile. Hopefully, we'll have peace by then and things will settle down. And we're not assuming the kind of that same performance in the back half that we've seen in Q1. Kurt McMaken: So if you think about progression, Sam, it's very typical to look at kind of a 45% of our EBITDA in the first half, 55% in the second half is very typical for us. We're a little bit ahead of it this year. And as Mark said, we see that flowing through for the year. So I think good start. Samuel Kusswurm: Got it. Super, very helpful. And I was going to ask about BGS next, but you already beat me to it there. So maybe I can leverage this next question and maybe address fuel prices. I think I know that your contracts generally have fuel surcharges that are rent into them. But I guess I'd be curious if that's actually captured the full impact that you're seeing right now. And if there's any impact to margins that you might expect for the remainder of the year from this? Richard Eubanks: Yes. So we've been -- you know it well. We've been pretty good at ensuring that fuel doesn't necessarily impact us over the long term adversely. Of course, those indexes and changes, some are monthly, some are quarterly, some are biannually, whatever that we recapture that. But if anything, maybe it could be delayed a quarter. But those -- the fuel prices were in -- we had them in Q1, and you can see our performance, again, was way above our midpoint and at the high end of the guide. So we think that our teams have been pretty good at covering that and ensuring that our pricing discipline maintains those margins. If we go forward we see that likely to be a blip. Some of the things we -- some of the stuff we've seen around the world, we heard about some of these interruptions and fuel and so forth. We haven't experienced that. We haven't experienced it in anything other than episodically, let's say, okay, airports were closed in Dubai for a bit. But other than that, we really haven't had any real kind of structural supply impact and aren't expecting that going forward. Kurt McMaken: Yes. So in our guide and our framework contemplates that, Sam. So we've been good about covering it and still feel good about continuing to cover it. Richard Eubanks: Well, thanks. Listen, we appreciate everyone's time. I appreciate your support and interest in the company and look forward to speaking with you either next few days or when we're on the road at conferences coming up here in May and June. Have a great day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning. My name is Michael, and I will be your conference specialist. At this time, I would like to welcome everyone to the BorgWarner 2026 First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the call over to Patrick Nolan, Vice President of Investor Relations. Mr. Nolan, you may begin your conference. Patrick Nolan: Thank you, Michael, and good morning, everyone. Thank you for joining us today. We issued our earnings release earlier this morning. It's posted on our website, borgwarner.com, both on our home page and on our Investor Relations home page. With regard to our Investor Relations calendar, we will be attending multiple conferences being now in our next earnings release. Please see the Events section of our IR page for a full list. Before we begin, I need to inform you that during this call, we may make forward-looking statements, which involve risks and uncertainties as detailed in our 10-K. Our actual results may differ significantly from the matters discussed today. During today's presentation, we will highlight certain non-GAAP measures in order to provide a clearer picture of how the core business performed and for comparison purposes with prior periods. When you hear us say adjusted, that means excluding noncomparable items. When you hear us say organic, that means excluding the impact of FX. When you hear us refer to our incremental margin performance, incremental margin is defined as the organic change in our adjusted operating income divided by the organic change in our sales. We will also refer to our growth compared to our market. When you hear us say market, that means the change in light vehicle production weighted for our geographic exposure. Please note that we posted today's earnings call presentation to the IR page of our website. We encourage you to follow along with these slides during our discussion. With that, I'm happy to turn the call over to Joe. Joseph Fadool: Thank you, Pat, and good morning, everyone. I'm pleased to share our results for the first quarter of 2026 and provide an overall company update, starting on Slide 5. We I wish to begin by thanking our employees, our customers and our suppliers for all of their trust, efforts and continued support. In the quarter, we achieved sales of $3.5 billion. Excluding the decline in our Battery Energy Systems segment, our organic net sales were down approximately 3% year-over-year, in line with the decline in the market production. I am excited to report that our strong award activity has continued into the first quarter. To date, I'll highlight 12 business awards across our foundational products and e-products portfolios. These wins represent only a portion of the awards secured during the quarter. But I believe that they underscore the strength of our portfolio and the global demand for efficient powertrain technology. Our adjusted operating margin performance was strong in the first quarter, coming in at 10.5%. This strong underlying operational performance was once again driven by our focus on cost controls across our business. And we are taking steps to grow our product capabilities for the data center and other industrial markets. I will share 2 additional products with you in a few slides. At the same time, our turbine generator continued to make progress towards its 2027 launch. Lastly, we remain disciplined in deploying capital to drive shareholder value during the quarter, returning approximately $185 million to shareholders through share repurchases and our quarterly cash dividend. Looking back on our first quarter performance, I'm extremely proud of our team and our results. Once again, we executed at a very high level which gives us confidence that we are on the right path to achieve our full year guidance while also continuing to win awards across our portfolio to deliver sustained shareholder value throughout long-term profitable growth. Turning to Slide 6. I'd like to highlight several recent product awards that demonstrate both the competitiveness of our technology and the strength of our execution in key markets. First, BorgWarner has secured 3 electric motor business awards with Asian OEMs in South Korea and China. BorgWarner is broadening its electrification offerings in China by introducing S winding and ultra short hairpin winding technology for hybrid vehicles. In South Korea, BorgWarner secured a new state or assembly business for an electric vehicle program I believe these awards reflect the customers' confidence in BorgWarner's engineering capabilities, localized manufacturing footprint and product quality in Asia. Second, BorgWarner has secured a 7-year contract extension to supply 8 families of engine, machines, power module and battery management controllers to a leading off-highway manufacturer. The extension builds on decades of partnership with the OEM and spans a broad range of applications from construction vehicles and marine platforms, the stationary power systems. I believe this contract expansion validates our position as a trusted long-term propulsion partner that is agile enough to support them and provide tailored solutions as they expand into new and emerging markets. Third, BorgWarner has secured 3 turbocharger program extension awards and 1 turbocharger conquest award with a major European OEM. Our turbochargers will be utilized on a range of passenger car and fan applications. The awards include variable turbine geometry, twin-scroll wastegate and regulated 2-stage turbocharging technologies. These technologies are tailored to a range of engine and vehicle requirements, helping the customer meet demanding performance fuel economy and emissions targets across a broad range of applications. I believe these business wins reflect -- BorgWarner's strong turbocharging technology. Our competitive solutions and the trust we have built with this long-standing customer. Fourth, BorgWarner secured conquest business with a major European commercial vehicle OEM to supply both a variable turbine geometry turbocharger and an exhaust gas recirculation cooler for a Euro VII compliant heavy-duty diesel engine platform. The award expands BorgWarner's product portfolio in the on-highway commercial vehicle sector and further broadens our collaboration with this customer. Production is expected to begin at the end of 2028. And finally, BorgWarner continued to grow its drivetrain and engine timing portfolio in Asia with 2 new program overs. BorgWarner will supply a next-generation wet dual clutch for a Chinese OEM SUV platform. BorgWarner also secured a conquest win for a Tamtor-actuated VCT system for a Japanese OEM's next-generation hybrid ego. These new awards reflect BorgWarner's continued commitment to advancing efficient and competitive propulsion solutions across both transmission and engine timing technologies. I believe they further demonstrate the resilience and growth potential of our propulsion business in Asia as customers continue to value high-performance, cost-competitive solutions for both combustion and hybrid powertrains. Next, on Slide 7, I would like to discuss our expanding capabilities for the data center and other industrial markets. Let's start with an update on our turbine generator launch progress. I'm very pleased with the advancements we've made over the past quarter. First, strong customer demand indicators continue with ongoing end customer visits to our facility in Asheville. Next, I'm pleased to report that our first B sample turbine generators are now being delivered to our customer. This is a very important step to allow our customers to move towards field testing our product. In addition, our teams have continued their testing processes, which are performing as plan. And as part of our production readiness, I'm also pleased to report that our supplier nominations for production are now complete. Our UL compliance process is now well underway. We have completed our internal UL compliance requirement evaluation on our B samples. This is an important milestone toward our final certification which will take place with C samples later this year. In my opinion, these are all positive steps as BorgWarner continues to progress towards industrialization and production, currently expected in 2027. In the middle and right side of the slide, you'll see that BorgWarner continues to expand its portfolio to serve the data center and other industrial markets. I'm really excited that this portfolio now includes battery energy storage systems and bi-directional microgrid inverters. With this expansion, we have products that serve the market needs across power generation, energy storage and power conversion. First, I would like to highlight our battery energy storage system offering. You've heard BorgWarner speak about the possible application of our battery technology for various industrial markets, and we are now testing and quoting business for these markets. We believe our battery energy storage system will be well suited for deployment in multiple uses across the data center market, but we also see other commercial and industrial applications. Importantly, our battery energy storage system designed a cell chemistry, form factor and application independent. I believe this is important. Given the wide range of needs and potential battery cell technologies that could be deployed for these markets. Our product design is modular lean and scalable with redundancy in our design. We believe this design can be deployed for applications, including peak shaving, backup power and more. We believe our battery energy storage system will be production-ready in 2027 with ongoing customer validation and UL compliance and process. I look forward to providing you with updates as we receive customer feedback. Finally, we are also adding bidirectional microgrid inverter or grid tie inverter to our portfolio for these markets, and we expect this product to be production-ready in 2027. Our grid tie inverter features a power distribution unit, critical for efficient and flexible grid forming across microgrid applications. Our tie inverter is designed to enable the filing, significantly reduced weight and size compared to traditional systems, efficient bi-directional power flow for seamless charge and discharge. Why voltage conversion capability to support diverse energy systems and fast dynamic response for improved micro grid stability and controlling. Our UL compliance for this new product is already underway as part of our product readiness. We're excited to share that the first grid tie inverter B sample units are being shipped to 4 customers, a major milestone for the program and a testament to the work behind it. To summarize, there are 3 key takeaways from today's call. First, BorgWarner's first quarter results were south. Excluding the decline in our battery and charging sales, our sales performance was in line with industry production and is consistent with our full year outlook. Our adjusted operating margin expanded 50 basis points and adjusted EPS grew 12% compared to the first quarter of 2025, reflecting our continued focus on cost controls and growing the earnings power of the company. Second, we announced 12 new business awards across our portfolio in the quarter, which we believe further demonstrates our focus on product leadership across the propulsion market for combustion, hybrid and BEV architectures. And third, we plan to take steps to continue growing our capabilities for both our existing markets while also expanding into data center and other industrial markets. We expect this technology expansion will help ensure that our profitable growth continues long into the future. While the current environment remains challenging and uncertain, I'm confident in our team's ability to effectively navigate these conditions, which we clearly demonstrated in the first quarter. I also continue to firmly believe that we have the right portfolio decentralized operating model and financial strength to deliver our full year 2026 guidance and drive long-term profitable growth. With that, I will turn the call over to Craig. Craig Aaron: Thank you, Joe, and good morning, everyone. Let's jump into our first quarter financials. By turning to Slide 8 for a look at our year-over-year sales. Last year's Q1 sales were just over $3.5 billion. In the first quarter, stronger foreign currencies drove a year-over-year increase in sales of $167 million. Then, you can see the sales headwind from our batteries, which drove a year-over-year decrease in sales of $54 million. The remaining organic sales decline of $95 million or 2.7% was in line with the reduction in our light vehicle market production for the quarter. This decline was primarily driven by transfer case outgrowth in North America, which was more than offset by foundational product headwinds in Europe and a timing-related e-product sales decline in China. The sum of all this was just over $3.5 billion of sales in the first quarter. Turning to Slide 9. You can see our earnings and cash flow performance for the quarter. Our first quarter adjusted operating income was $372 million, equating to a strong 10.5% adjusted operating margin. That compares to adjusted operating income of $352 million or a 10.0% adjusted operating margin from a year ago. The exit of our charging business in 2025 increased operating income by $8 million year-over-year. Excluding this benefit and FX impacts, adjusted operating income decreased $4 million on $149 million of lower sales. This strong year-over-year performance benefited from ongoing cost reduction actions that our teams continue to take across our business. Our adjusted EPS was up $0.13 or 12% compared to a year ago as a result of higher adjusted operating income and the impact of over $650 million in share repurchases over the past 4 quarters. And finally, free cash flow was a generation of $13 million in the first quarter, which was a $48 million improvement from a year ago. Now let's turn to Slide 10 and take a look at our full year 2026 outlook, which is unchanged compared to our initial guidance provided in February. We continue to project total 2026 sales in the range of $14.0 billion to $14.3 billion. Starting with foreign currencies. Our guidance assumes an expected full year sales benefit of $200 million compared to 2025 due to the strengthening of the euro and the renminbi versus the U.S. dollar. We continue to expect our weighted end markets to be flat to down 3% for the year. We expect our light vehicle business, which comprises over 80% of our sales performed broadly in line with our weighted by vehicle market. However, we expect a sales decline in our battery business due to the lack of North American incentives and weaker European demand. This decline represents a 150 basis point headwind to our year-over-year sales group. Based on these assumptions, we expect our 2026 organic sales change to be down 3.5% to down 1.5% year-over-year, which is roughly in line with our market, excluding the decline in battery sales. . Now let's switch to margin. We continue to expect our full year adjusted operating margin to be in the range of 10.7% to 10.9% compared to our 2025 adjusted operating margin of 10.7%. On a year-over-year basis, we expect the exit of our charging business to drive a 10 basis point improvement in adjusted operating margin. Excluding this benefit, the low end of our margin outlook contemplates the business delivering a full year decremental conversion in the low double digits, while the high end of our outlook assumes we largely offset the impact of the organic sales decline through further cost controls, just like we saw in the first quarter. We view this as strong underlying performance with our first quarter results, providing a strong start to the year. Based on this sales and margin outlook, we're expecting full year adjusted EPS in the range of $5 to $5.20 per diluted share, which is unchanged compared to our initial guidance. The midpoint of this EPS guidance represents approximately a 4% increase versus our 2025 adjusted EPS and once again demonstrates our focus on consistently driving or expansion despite lower industry production, battery sales declines and potential cost inflation. And finally, we continue to expect full year free cash flow to be in the range of $900 million to $1.1 billion, building off a strong 2025. With that, that's our 2026 outlook. Let me summarize my financial remarks. Overall, we were very pleased with our first quarter results. Our sales performance was in line with our full year guidance despite a challenging first quarter production in market. We achieved a 50 basis point adjusted operating margin improvement on relatively flat reported sales. And our free cash flow performance represented a solid start to the year. Our Q1 results once again demonstrates the BorgWarner team's ability to deliver strong financial results and a declining production environment. As we look ahead to the balance of 2026, we intend to remain focused on expanding the earnings power of the company. At the midpoint of our guidance, we expect another year of adjusted operating margin expansion and adjusted earnings per share growth despite our expectations that market volumes and battery sales are expected to decline in 2026. Finally, with another year of anticipated strong free cash flow, we expect to have additional opportunities to create value for shareholders as we prudently evaluate inorganic accretive opportunities that grow BorgWarner's earnings power and execute a balanced capital allocation approach that reward shareholders. With that, I'd like to turn the call back over to Pat. Patrick Nolan: Thank you, Craig. Michael, we're ready to open it up for questions. Operator: [Operator Instructions] And the first question today comes from James Picariello with BNP Paribas. James Picariello: Good morning, everybody. So I'd like to hit on the company's non-auto industrial focus to start things off which is clearly gaining momentum in terms of the company's strategy. So for the battery energy storage product launch potential, how translatable is the company's competency regarding commercial truck battery packs to a proper energy storage system. How -- I mean, clearly, you're targeting the potential for production next year. Like is there additional investment that we should anticipate within that Battery Systems segment this year? And how rich is the quoting pipeline. . Joseph Fadool: Yes. James, so first of all, the battery energy storage business and our products are very portable to these types of stationary applications. If you think about the requirements in commercial vehicles and buses, they're pretty significant in terms of reliability and quality. So -- we are leveraging our existing capacity to pivot further into the data center space and other industrial markets. So from that standpoint, it's a really smart play for our teams and as we mentioned, the battery energy systems are cell chemistry and form factor independent. So we think we're well positioned for various types of applications that are out there. As far as the pipeline, we are actively quoting with a number of customers. So we're really pleased with the pipeline we're seeing. James Picariello: Got it. And then as a segue, my follow-up, is there a natural synergy for battery energy storage through your turbine generator partner endeavor? And -- as we think about the power generation business for data centers for BorgWarner, I know production starts next year, targeting $300 million plus in sales. It's early days. But -- are there any considerations to potentially expand your turbine generator capacity like beyond the North Carolina plant? I know Endeavor and its subsidiary edged have data centers, active data centers in Europe in addition to the U.S. So I'm just curious how the company might be thinking about that capacity potential international expansion element and then the synergy, the potential synergy on the energy storage piece. Joseph Fadool: Yes. Sure. So the first question on synergy, there's definite synergy. I mean, if you think about the 3 offerings we show on Page 7, turbine generator, battery energy storage and then power conversion. Those are highly related products in the system, and they're all solving a major issue, which is lack of power. So when it comes specific to Endeavor, definitely, we've got a great partnership with Endeavor. We see it continuing to grow over time even better news is these energy storage systems and power conversion have lots of opportunities outside of the strong endeavor relationships. So we're optimistic. There's a lot of applications and potential customers out there for both energy storage and power conversion. With respect to your question on the turbine generator, as we mentioned on the call, the progress is quite good, in our view, we're on track for a 2027 launch sometime this year, we will have to make a decision on whether we expand capacity further beyond the 2 gigawatts that we've installed in North Carolina, but we'll take that decision as we get closer to the second half. . Operator: And your next question comes from Emmanuel Rosner with Wolfe Research. Emmanuel Rosner: Great. Just 1 follow-up on the power gen side. Obviously, it's still early days and a lot to learn there from customers, et cetera. Are you able to give us some color on how do you think about the value proposition that your solution offers. What unit economics look like? How does that compare with the existing established solution? Just trying to understand how the conversation with potential customers is going. Joseph Fadool: Sure. So a couple of things we're solving here for. One is time to market the backlog for power generation is pretty significant, sometimes up to 5 and 6 years. So our ability to leverage automotive scale and move quickly into the space is speed that's well needed in this market. That's the first thing. The second is the emission profile of these turbine generators raises the bar and meets even the car requirements in 2027 and beyond. So from an emission standpoint, very clean power. The third thing is the total cost of ownership is very attractive. So -- we feel really good about the value proposition of this into the space, especially right now. Emmanuel Rosner: Understood. And then the -- my second question would be on the capital allocation. So it looks like you have in front of you some opportunities to invest more capital into this industrial solution, you'll make a decision on the capacity for power gen. And then obviously, you're trying to get into energy storage, power conversion. Is there any change at all into how you're thinking about capital allocation, either within CapEx in terms of increasing that or just shifting that towards these solutions and away from autos? And then in terms of M&A versus buybacks, like if you have so many organic opportunities, you still need -- do you still have as much focus on M&A as you did recently? Joseph Fadool: So let me begin by saying our top priority will always be on driving organic growth, and we're able to show that we're leveraging our entire portfolio especially if you look over the last 18 months of win. So we want to continue with that winning strategy and the first priority then for capital would be to invest for those projects. Nothing has changed from our capital allocation process beyond that. I'll answer the M&A topic, maybe Craig talk more deep about the other way to serve shareholders. On the M&A side, we continue to open up the aperture and have a very disciplined process and flow of targets that we're looking at. But just to remind you, there's 3 main criteria here. One is really leveraging the core competence we already have. So it has to make some strong industrial logic. The second is we want any acquisition to be accretive. And third, we want to pay a fair price. So we're sticking with that disciplined approach. We continue to have a good flow of targets inside auto and out. And I would just say you can expect from Craig and I to stick to that game plan. Craig Aaron: Maybe just to add on to Joe's comments, what is our goal? Our goal is to create value with our cash. And I think we've done that very effectively over the past several quarters. Q1 was another great example of that, $185 million of cash deployed to shareholders between share repurchases and dividends. Over the past 5 quarters, we deployed over $800 million of cash, which represents about 70% of our free cash flow. Joe and I are focused on discipline, consistency and how we're allocating capital across the business, but it's through those levers for investing in the business organically. So we feel really good about the actions we've taken over the last several quarters. Operator: Your next question comes from Joseph Spak with UBS. Joseph Spak: Thanks. Good morning, everyone. Back on the best opportunity. I just want to be clear sort of what you're doing here. So you're -- it's similar to what you doing -- or we're doing on commercial trucks, where you're putting the pack together into a system with some software because it does say sort of chemistry and form factor independent, which leads me to believe you're still not doing the calls here. But I guess the reason I ask is I keep going back to this FinDreamsLFP announcement from 2024. And I know that agreement said it was specifically for commercial vehicles, but I'm wondering if there's any leeway in that agreement to be able to leverage that relationship as well. Joseph Fadool: Yes. Joe. So as you mentioned, we do have a strong partnership with FinDreams and our products are cell chemistry agnostic. So, we're in production today on NMC, but we're also working on future cell chemistries, like LFP, sodium-ion and others. The great part about the pivot here is we're leveraging both our technology that's existing that commercial vehicle and the current CapEx that's invested. So that's 1 of the reasons we can get to market so quickly. So we're moving forward with UL certification and quoting. As far as our content on it, it's very similar to CV or eBUS in terms of procurement of the cells, design of the entire pack, the system, the BMS and the final testing. The main difference is these will be for stationary applications versus mobility. Joseph Spak: Okay. That's helpful. And then just to, I guess, follow on to Emmanuel's question on capital. Look, these opportunities are super exciting, are still relatively small, but you can see how they are much, much -- are much more meaningful in the future. So is there any like just a rule of thumb for -- and I know you're using existing capital as you sort of just mentioned, but is there any rule of thumb about how you would advise investors think about incremental investment dollar per every pick your metric of revenue just so we can understand how the return profile looks going forward? Joseph Fadool: Yes. I think it would be Fair to say that the ROI and capital intensity will be similar to our light vehicle business. So if I look at our turbine generator, which we talked about over the last quarter, although we're putting a greenfield site in for the final assembly and test and Henderson Bill, we're leveraging 4 existing auto plants, broad components and subassemblies. So I think it's a great example of how we're leveraging our CapEx, our capability and our speed, so that we can move quickly into these new markets. Operator: And your next question comes from Colin Langan with Wells Fargo. Colin Langan: Just on the overall guidance to step back. I mean, production has come in a bit worse. Raw materials have gotten better. and the guide is being held. Are there any puts and takes within that we should be thinking about? Is there favorable mix or favorable FX? And any additional cost actions that may be needed to offset some of the inflation we've seen in the market? Craig Aaron: Yes. Colin, overall, we think we can manage the inflationary impact at this point. in our mid-teens decremental conversion. So let me start there. But I'll walk you through again the guide from a revenue perspective and a margin perspective at the midpoint. And really, it's unchanged from our view Q1 was a good start to the year. So when we think about sales year-over-year, we ended last year at $14.3 billion. We do see a headwind from industry production right around 1.5%. A decline versus last year. We see the battery business declining, but we see positive FX coming in as well as some modest outgrowth. And that's what gets us to $14.15 billion, when you think about the margin profile, we're excited that we're expanding margins at the midpoint and the high point of our guide despite some challenges from a market perspective. That's really coming from a couple of areas. First, the exit of our charging business, that's about 10 basis points of enhancement. Additional cost controls, just like you saw in Q1, that's another 10 basis points. And then again, we're holding that decremental conversion in the mid-teens, which includes the inflationary pressures that might, might happen in Q1 and throughout the year. So we're closely monitoring that, but we feel good that we can expand margins and expand EPS this year despite some macro headwinds. Colin Langan: Okay. So there's no incremental -- there's no cost or there's no -- you're going to offset those cost savings actions from a raw material side. Craig Aaron: At this point, we feel like we can manage that appropriately. Colin Langan: Okay. And then on the -- just on the data center and storage. I'm just trying to understand all this. One, just from the energy gen side. I mean, just to be clear, this is more -- at this point, you're just capacity constrained that looks like that market is just completely sold out. And then on the storage side, anything -- any way to size that market, is that potentially just as big as the turbine generator opportunity. And then lastly, as we think of these businesses together, does that actually help you market to customers? Because I believe hyperscalers are actually starting to actually have storage requirements as they build out data centers. Does the combo actually, is that a selling package that you could provide both and that created an added opportunity to win business? Craig Aaron: Yes. Colin, maybe I'll start with the second question. When you think about, again, Page 7 power gen, storage and power conversion, those are highly related and they're all towards solving this power availability issue. So yes, there's synergy between those 3, and we do find customers that want more of a system solution or at least someone that understands the complete system across these very complex product segments. With regard to your first question? The ability to bring storage to market fits well within the same data center growth that we see across all 3 platforms. So from our view, we're talking mid-teens CAGR for the next 10 years or more. So the backdrop and the demand very strong for these products, and it's actually increased over the last 12 months as many folks know. Operator: And your next question comes from Chris McNally with Evercore. Chris McNally: Thanks so much, team. And sorry, some of these will be really questions, I get the toner of the call on the industrial extensions. But I wanted to just kind of phrase it differently. I think the way I'm questioning the size of -- let's focus on the power gen opportunity over the next couple of years. Would you characterize it as -- are we -- is there a supply constraint, a capacity constraint or signing up customer by customer? I mean it's a new business, it's going to be deal by deal. But I would love to know is what is a capacity ramp look like? How does that occur? Is that the type of thing that you'll need multiple years lead time or as the deals come in, as the customer wins come in, capacity will follow. But that supply versus demand, what would be the bottleneck taking a couple of years out would be great for sizing the business. Joseph Fadool: Sure. Thanks for the question, Chris. So let's say this starts massively with demand. The demand for power gen, especially behind the meter, driven by the fact that many utilities have a 4-, 5-, 6-year lead time to get the power to serve these data centers. And on top of that, the growth of Gen AI specifically, it's creating a massive demand challenge. I would say over the last 12 months, what we've seen is the supply constraints of the existing turbine generators and other behind-the-meter solutions has made the challenge even bigger. So we're fortunate to come in at the time we are with a great product that has a lot of value to the customer. So I hope that answers that question. With regard to the capacity we have installed and how do we go about selling that. So as a reminder, we've installed at of capacity, the $300 million next year is the initial launch and revenue that we're planning. So it's a subset of this capacity. So we feel really good about the installation of the 2 gig. We wouldn't install that much if we didn't feel that there was going to be a backlog created. And as we mentioned earlier in the call, we'll likely take a decision whether or not we add additional capacity based on the demand we see in the purchase orders placed. And that capacity could be installed in this market, but we also see demand in Europe and other markets. So we'll also have to decide the location. Chris McNally: And I know we tried to do this last call, and obviously, we're not going to get specific pricing, but just ballpark like 2 gigawatts is multiples of $300 million of revenue. Is that fair to say? Joseph Fadool: Yes. We haven't provided pricing. So yes, multiples is a fair way to think about it. I think if you look at the pricing that's out there for power gen, especially behind the meter, you get a range that's out there. And it's only increased over time. So that might give you some indication of where we're at. Chris McNally: No, that ended. That was the check on the math. And is the last follow-up. I think someone asked right before -- it seems like with the behind the meter and the battery stores that also you could have great lead-in from some of the auto customers, right, on the battery restorage side, a lot of excess capacity we know in batteries. Is that helping on a cross-sell specifically on those 2 businesses? Joseph Fadool: Yes. I would say it's adding significantly to our play. Our play is more about serving these industrial markets directly, not with our automotive customers. Clearly, we have relationships with those customers and where we can work together, we will. But these plays are more about our relationships with the industrial customers. Operator: And your next question comes from Dan Levy with Barclays. Unknown Analyst: Thanks for taking the questions. I'll continue. The line of questions on the data center side. And more so just a supply chain question. I know you've talked about 2/3 on the turbine generator 2/3 of the content is coming from you and then you're heavily leveraging the automotive supply chain. But I think we've heard within the power gen side that 1 of the key sort of supply constraints out there is areas around [ blade, veins ] and very large lead times. So we know that generally, it takes maybe only 1 or 2 components to have a bottleneck. So maybe you could just walk us through your confidence that when you look across the supply chain, there won't be any issues getting what you need for the turbine generator system and that if you're going to expand capacity that the supply chain can keep up with you, even on the most supply limited component. Joseph Fadool: Yes. No, thanks, Dan. So a couple of things that I think may help address your question. So first of all, our turbine generator system, it does leverage not only our supply base, but our technology. So our turbo products are radial turbos many of the large turbines are more flow-through or axial turbos. So it's different technology, different levels of material selection for these are more consistent with what you see in commercial vehicle applications and sometimes pass car. So the requirements are different for what we're buying. Second point, -- it is true 80% of the supply base for the turbine generator is already in a BorgWarner is already a BorgWarner supplier. So they know how to work with us from developing those components to launching and producing those components. So we feel that's a big risk reduction, getting this product to market. I think the third important thing here is 1 of the things that we are experts on is global supply chain. I mean we have teams of people around the globe that manage suppliers in many, many commodities. So this is our wheelhouse. It's a core competence of the company and we're going to bring all that confidence to launch these products. So from time to time, you do see a constraint or you see an issue with the supplier. But as a global company, we get boots on the ground to address those constraints and make sure it doesn't impact the products to our customers. . Unknown Analyst: Great. As a follow-up, I'll give you a question on the core business today. I mean our reaffirming the guidance for the growth of the market to be flat this year, but you've given a sort of another slide of all these component wins. You've talked about really being this reacceleration of growth. Maybe you could just give us an update on where we are on line of sight to the rest of the portfolio seeing a reacceleration. Is it just content gains, new new program launches? What's going on that's driving that uptick in growth from the core portfolio in '27. Joseph Fadool: Yes. I think it's fair to say, in 2016, we're still living with the overhang from some of those programs on the EV side from a couple of years ago. but we're working through that. In '27, what we like to point to are the product wins across the entire portfolio. So if you just go back last 18 months I mean over 30 awards we've announced publicly. And it's not just 1 part of the world. It's not just a couple of product lines. The other thing to point to is if you just look at this quarter, we announced 12 wins, 3 of them were conquest wins. So what we've been sharing over the last 12 months that the strong will not only survive, they're going to thrive in this type of market, we're starting to see that in the program wins. And of course, as those launch we'll start to see the revenue beginning in 2027. Operator: And our next question comes from Luke Junk with Baird. Luke Junk: Maybe you could just put a finer point on how you're thinking about capital allocation is a way to maybe potentially accelerate the data center and industrial story in an inorganic sense. Is that something that you're looking at intentionally in terms of building the acquisition funnel and thinking sort of holistically and deploying capital towards these efforts? Joseph Fadool: Yes, Luke. So the capital allocation story hasn't changed. I would say, over the last 12 months, we've continued to open up the aperture of what we're looking at. So not only automotive and CV space, but also this new data center space, but I just want to bring us back to the 3 criteria. The first 1 is, it needs to make a lot of sense and leverage our competence. We wanted to be accretive, and we want to pay a freight price. We want to pay a fair price. So we want to stick to that discipline, and you can kind of Craig and I to do that. But we do feel more and more confident that our products and technology played really well into this data center space. So as you can see, we're leaning further into it with the R&D investment. And so I can expect we're going to look at some things that might help accelerate that journey. But you can count on us being disciplined about it. Luke Junk: Stay tuned there. And then second, maybe this is an unfair question, Craig, but I'll ask it. Just you mentioned that you're confident in the right path to achieve full year guidance, why not raise the display margins, especially, -- is it just too early in the year? Or is there something that we should be thinking about in terms of investments tied back to these incremental products that you're showing us this morning. Craig Aaron: Yes. I think we had a really good Q1. There's still a lot of uncertainty in the overall environment, but when you look at our performance, that's implied in the guide, and I'll walk through what we saw Q2 through Q4 last year versus this year. Q2 through Q4, sales were about $3.6 billion a quarter. Margin was about 11.0%. And -- what's implied in our guide is revenue is coming in a little bit lower, $3.54 billion per quarter, about $60 million loss per quarter, and that's really the contraction in our battery business. But our margin profile is staying right about 10.9%. So basically on top of the 11.0% and it's managing that decremental conversion right around the mid-teens, which is what we've communicated consistently. So from my perspective, I think, hey, solid Q1, a lot of uncertainty with higher energy prices around the globe, through Q4 looks pretty consistent year-over-year. We feel like we're on the right path to create value by executing our guide. So that's where we sit today, look. Operator: And your next question today comes from Andrew Percoco with Morgan Stanley. Andrew Percoco: I do just want to come back to the power gen side 1 more time. I know you're in an exclusivity with Endeavor for this turbo cell product. But as you mentioned, it's such a capacity-constrained market and you obviously have a decent amount of content and in-house capability there. I'm curious like whether or not you've evaluated if there is an opportunity to develop a product on either on a stand-alone basis or work through Endeavor to look outside of their captive universe of customers to deploy this product. Joseph Fadool: Sure. So Andrew, a couple of things. It is true. We're an exclusive relationship with Endeavor to bring that turbine generator to market. What we're hyper focused on is a successful launch next year in 2027. One of the things that's important to know, so Endeavor and the entity we're working through Turbocell, they sell internally for their own data center use, but they also are able to sell to other customers and users. So you need to keep that in mind. They understand the market. They've been in this market for a long time, the principals have -- and of course, they want to leverage those relationships and know-how. And we're more of the design and manufacturing house to help them deliver. So Hopefully, that brings some clarity. As far as the other 2 products, battery, we're actively quoting and I would say, with an outside of Endeavor inverters, the same. The exciting part about the inverters is the 4 customers we're shipping product to for their testing. So I feel real good about the overall momentum of these 3 product segments. Andrew Percoco: Okay. So that makes sense. So essentially, Endeavor could sell that turbo cell product outside of their own data center applications, if there was demand for it. So that's a helpful clarification. And maybe to follow up, on the battery storage for a second here. I think it was asked earlier about the content. Can we just double click on that. If you think about the current environment, I think battery storage on average, it's $225 to $250 per kilowatt hour. Is there a way to bracket what your content is as a percentage of that potential ASP? And as a follow-on to that, I think it makes sense that you guys are getting into this market, you have core competencies there. I think 1 thing that we've seen across this landscape is the service angle and the service requirements from some of these customers can be a lot different than maybe what you see in auto. So I'm just curious in terms of the investment needs maybe on the service side of the organization to make sure you're providing the level of uptime needed for some of these customers? Joseph Fadool: Sure. So the content of the battery energy stores, we want to think about it, it's very similar or maybe a little bit incremental to what we serve on the CV side. So we're buying cells. We're designing complete packs. We're assembling those complete packs. There's other value-add like battery management systems and control systems, software development, and then we test and ship those packs. Now the main difference is these are in stationary applications as opposed to mobility. So you would see a little bit different structure there. But in essence, it's a very similar type of product that we serve the CV market with. Operator: We have time for 1 final question, and that question comes from Mark Delaney with Goldman Sachs. Mark Delaney: One on the power gen business as well for me. Joe, you mentioned BorgWarner may need to expand capacity there, and you're going to have to make that decision soon. We've also seen several hyperscale guides now during earnings season, they've been pretty robust. So given that backdrop and based on your customer engagements and discussions with Endeavor, should investors think about BorgWarner shipping the full 2 gigawatts in 2028. Joseph Fadool: Yes. We haven't shared that level of detail. I would say as we get into early 2027, we'll start to provide more color on the sales and a longer-term view on the business. It is true. We've seen recent announcements with hyperscalers really growing their capital investments, which I think holds well for this entire data center space. So -- but we'll provide more details as we get into late '26 or early '27. Mark Delaney: Okay. My other question was specifically on the auto business and China, the company spoke about a little bit of growth in our market in China in the first quarter based on some program timing. Maybe talk a bit more on how you see the China market developing from here and your ability to get back to growth over market in part given some of the past wins you've discussed? Joseph Fadool: Sure, Mark. So first, it's important to note, generally speaking, we are really strong in the China market. We continue to win business there. It's a very important market for us. I think what you've seen in this last quarter, if you start with the market itself, the domestic market was down -- but overall, it was buoyed by a lot of export sales. And much of that export sales has put into content on it. So we continue to feel optimistic about that market. It's hard to read too much into 1 corner like we have in the first quarter. But generally speaking, the Chinese OEMs continue to grow their share globally and a lot of it has to do with the export markets, which we're very well positioned in as they eventually localize in those markets. Patrick Nolan: Thank you all for your great questions today. If you have any follow-ups, feel free to reach out to me or my team. With that, Michael, you can conclude today's call. Operator: This concludes the BorgWarner 2026 First Quarter Results Conference Call. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Kimball Electronics' Third Quarter Fiscal 2026 Earnings Conference Call. My name is Rob and I'll be your facilitator for today's call. [Operator Instructions] Today's call, May 6, 2026, is being recorded. A replay will be available on the Investor Relations page of Kimball Electronics' website. At this time, I'd like to turn the call over to Andy Regrut, Vice President, Investor Relations, Strategic Development and Treasurer. Mr. Regrut, you may now begin. Andrew Regrut: Thank you, and good morning, everyone. Welcome to our third quarter conference call. With me here today is Ric Phillips, our Chief Executive Officer; and Jana Croom, Chief Financial Officer. We issued a press release yesterday afternoon with our results for the third quarter of fiscal 2026 ended March 31, 2026. To accompany today's call, a presentation has been posted to the Investor Relations page on our company website. Before we get started, I'd like to remind you that we will be making forward-looking statements that involve risks and uncertainty and are subject to safe harbor provisions as stated in our press release and SEC filings, and that actual results can differ materially from the forward-looking statements. Our commentary today will be focused on adjusted non-GAAP results. Reconciliations of GAAP to non-GAAP amounts are available in our press release. This morning, Ric will start the call with a few opening comments, Jana will review the financial results for the quarter and guidance for fiscal 2026, and Ric will complete our prepared remarks, before taking your questions. I'll now turn the call over to Ric. Richard Phillips: Thank you, Andy, and good morning, everyone. Results for the third quarter were in line with expectations. Sales increased sequentially compared to Q2 driven by strong growth in our Medical vertical market. Margins remain solid and cash from operations was positive for the ninth consecutive quarter. We expect Q4 to be a good finish to the year and we are affirming our guidance for fiscal 2026 with adjusted operating margin estimated to be at the high end of the range. As we look forward, the Medical CMO continues to be a key part of our strategy, and we are making deliberate investments in our capabilities, operating capacity and commercial focus. When volumes ramp, we expect it to become a meaningful driver of both top line growth and margin expansion. In addition, we continue to focus on inorganic growth as a possible complement to this strategy. We believe this could be a powerful combination for the future of our company. Turning to the third quarter. Net sales were $353 million, an increase of 3.4% compared to the prior quarter, with Medical up 10%. At face value, this result was a 6% decline compared to Q3 last year and all 3 end market verticals were down. It's important to highlight, however, that the third quarter of fiscal '25 included a nonrecurring sale of consigned inventory, totaling $24 million in the medical market. If we normalize the comparison for that event, total company sales this quarter increased nearly 1% year-over-year, with Medical up a robust 17%. This would represent our third consecutive quarter of double-digit Medical growth and year-to-date growth of 15% in this vertical. Drilling down a little deeper into Medical. Sales in the third quarter were $106 million or 30% of the total company, which, at nearly 1/3 of the portfolio, is a key milestone in our strategic objective to balance the verticals with a higher concentration of Medical business. North America accounted for slightly less than half of the sales in the quarter, while the other half was roughly split between Asia and Europe. The growth in Q3, after adjusting for the inventory sale last year, occurred primarily in Asia and North America, with increases in respiratory care, imaging systems, drug delivery devices and blood separation products. Sales in Europe were up low single digits, driven primarily by patient monitoring systems. Medical continues to be a compelling opportunity to diversify our top line and leverage core strengths. Our strategy is to support new and existing blue-chip customers in need of manufacturing capacity to keep pace with the overall market growth. And our state-of-the-art manufacturing facility in Indianapolis is designed to do just that. With capabilities in precision-injected molded plastics, complete device assembly and cold chain management, we are uniquely positioned to produce medical disposables, surgical instruments and selected drug delivery devices such as auto-injectors. Our recent investments in this new facility underscore our deep commitment to the Medical CMO market. Next is Automotive, with sales in the third quarter of $161 million, down 3% compared to Q3 of last year, and 46% of the total company. The decline this quarter was primarily in Asia and North America, partially offset by growth in Europe. Similar to Q2, Poland and Romania reported strong sales resulting from the ramp-up of new programs in steering and braking. Combined, these 2 locations were up 20% in Automotive sales in the quarter, and we expect this strength to continue for the balance of '26. In addition, we are carefully monitoring the demand for electronic steering systems for EVs, particularly in North America where legislative changes significantly impacted consumer incentives and the overall market, which unfortunately has significantly reduced the demand for EV programs we have won over the past few years. As you might imagine, this situation is fluid, particularly as gasoline prices move upward in the U.S. Finally, sales in Industrial totaled $86 million, an 8% decrease compared to Q3 last year, and 24% of total company sales. Once again this quarter, our Industrial business was heavily concentrated in North America where the majority of the decline occurred from lower demand for HVAC systems. Off-highway equipment and green energy were also down, partially offset by higher sales in public safety and smart meters, which continue to rebound in Europe but may be impacted near term by a protracted war in the Middle East. I'll now turn the call over to Jana for more detail on third quarter results and our guidance for fiscal 2026. Jana? Jana Croom: Thank you, and good morning, everyone. As Ric highlighted, net sales in the third quarter were $352.9 million, a 6% decrease year-over-year. Foreign exchange had a 3% favorable impact on consolidated sales in the quarter. On a sequential basis, sales increased 3.4%, driven by growth in the Medical vertical. The gross margin rate in the third quarter was 7.9%, a 70 basis point improvement compared to 7.2% in Q3 of fiscal 2025, with the increase resulting from favorable mix offset by the ramp-up of the Medical CMO and a somewhat easier comparison as the inventory sales we experienced in Q3 of FY '25 had very little margin. We expect gross margin to remain under some pressure in FY '27 related to the cost of the facility as expenses associated with the expansion fully ramp up in Q4 this year. As we have previously stated, the path to the CMO revenue is 18 to 36 months for new programs, and we expect this impact to abate over time as business grows and margin improves. Adjusted selling and administrative expenses in the third quarter were $13 million, a $1.8 million increase year-over-year. When measured as a percentage of sales, the rate was 3.7% this year, compared to 3% last year. As we previously indicated, expenses will be higher in FY '26 as we make strategic investments in business transformation, IT solutions that drive innovation and efficiency, and business development for the future. Adjusted operating income in Q3 was $14.8 million or 4.2% of net sales, which compares to last year's adjusted results of $15.7 million, which was also 4.2% of net sales. Other income and expense was expense of $3 million, compared to $4.6 million of expense last year. Once again, this quarter, interest expense drove the decrease, down nearly 30% year-over-year. The effective tax rate in Q3 was 34.9%, compared to 46.6% last year. As a reminder, the rate in the third quarter of fiscal 2025 was driven by the limitation of the tax deductibility of our interest expense, which cannot exceed a certain percentage of domestic EBIT. We expect a tax rate of approximately 30% for the full fiscal year. Adjusted net income in the third quarter was $8 million or $0.33 per diluted share, compared to last year's adjusted results of $6.8 million or $0.27 per diluted share. Turning now to the balance sheet. Cash and cash equivalents at March 31, 2026 were $82.5 million. Cash generated by operating activities in the quarter was $14.9 million, our ninth consecutive quarter of positive cash flow. Cash conversion days were 90, a 1-day improvement compared to last quarter and a 9-day improvement compared to Q3 of fiscal 2025. For clarity, our CCD calculation in Q3 FY '25 excludes the consigned inventory sale. We continue to focus on improving cash conversion days by actively managing the components. Inventory ended the quarter at $273.3 million, an $8.4 million reduction compared to Q2 and down $23.3 million or 8% from a year ago. Capital expenditures in Q3 were $14.4 million, with much of the spend on leasehold improvements in the new facility in Indianapolis balanced by spend to support new programs in Europe. We expect CapEx for the full year to be in our guidance range of $50 million to $60 million. Borrowings at March 31, 2026 were $163 million, up $8.8 million from the second quarter but down $15.8 million or roughly 9% from a year ago. Short-term liquidity available, represented as cash and cash equivalents plus the unused portion of our credit facilities, totaled $358.5 million at the end of the third quarter. In April, we renewed our $300 million revolver. Combined with our strong balance sheet, we have ample dry powder to support the future growth of the business, including opportunities for inorganic tuck-ins that would further our CMO strategy. We invested $4 million in Q3 to repurchase 165,000 shares. Since October 2015, under our Board-authorized share repurchase program, a total of $113.5 million has been returned to shareholders by purchasing 7 million shares of common stock. We have $6.5 million remaining on the repurchase program. As Ric mentioned, we affirmed our revenue range of $1.4 billion to $1.46 billion and expect adjusted operating income margin to come in at the high end of our guidance range of 4.2% to 4.5%. This would indicate that Q sales will be in the range of $370 million to $380 million, with adjusted OI margin in the range of 4.4% to 4.6%. I'll now turn the call back over to Ric. Richard Phillips: Thanks, Jana. Before we open the lines for questions, I'd like to share a few thoughts in closing. We're expecting Q4 to be a good finish to the fiscal year with another sequential increase in sales and with the growth in Medical outpacing the other 2 verticals, as we monitor the impacts of the war in Iran, including higher freight and raw material costs, higher gas prices and consumer sentiment. Looking ahead, we continue to evaluate strategic opportunities that could accelerate the expansion of our Medical CMO. In particular, we see strong inorganic growth potential with established medical manufacturers outside the U.S. seeking domestic market entry and scaled U.S. production. The ideal profile would bring complementary capabilities such as micro-molding, advanced precision injection and high-automation engineering expertise, while benefiting from cost-efficient operations in lower-cost geographies. These efforts are ongoing and align with our objective to broaden our capabilities, deepen customer relationships and position the company as a differentiated medical manufacturing partner. As I noted in my opening comments, we believe this is a powerful combination that will drive profitable growth in the future. I'm very excited for what's ahead for the company. Thank you for your ongoing support. Operator, we would now like to open the lines for questions. Operator: [Operator Instructions] The first question comes from the line of Mike Crawford with B. Riley Securities. Michael Crawford: I was hoping you can give us some more details on your new 300,000 square foot manufacturing facility and how your ramp of new programs in there is going to affect potential revenue growth and also margins, and like when you kind of hit that level where you're covering fixed costs and the margins start to layer in better on incremental revenue from there. Richard Phillips: Mike, yes, we're continuing to be really excited about Indianapolis, and actually just connected with our GM there in the last couple of days. The work continues to ramp up. Obviously, there's some approvals that we need, that we're working on, and the clean rooms are going in there and a lot of exciting things. We expect that we'll be actually producing in there by the end of the calendar year as we ramp toward that. It will be a combination of, of course, we're taking lots of customers through there, as you can imagine, right now, existing and new potential customers, but we'll also be moving over all of our current production in Indianapolis to that facility. So there'll be a combination of existing programs that are moving over, new programs that are coming. And we're also talking to customers about what we call lift-and-shift, which is programs that are already underway somewhere else, usually within the customers that we have producing themselves that we want to shift over to us and customers can find advantage from doing that. So it will be a combination. New programs, as Jana mentioned in her remarks, take time to ramp up, between clinical trials and so on. But yes, we'll be producing in there before the end of the calendar year and look to ramp that up through a combination of new and existing customers. Jana Croom: So Mike, to give you a little more color on the margin impact. We expect a 40 to 50 basis point impact to gross margin in fiscal '27 related to the costs associated with ramping that facility. Because remember, we still have all the costs associated with the current facility. We have not closed that facility, it's continuing to operate. And so you're going to feel it -- we will feel it in FY '27 while we're bringing on new production. The expectation is that by FY '28, those -- the impact on margin starts to abate as you're bringing in more and more revenue to cover those fixed costs. Michael Crawford: Okay. And just to continue on that, is that going to be most acute in the September, December and then start to abate in March? Jana Croom: In terms of calendar -- it depends on the timing of the -- it depends on the timing and speed of the ramp of new business, which is difficult to predict, and so I'm hesitant to give you for sure. But first half, we'll definitely feel it because there won't be much production there covering the expense. It depends on how Q3 and Q4 ramp as we are bringing in new business. And I can give you a better update on that in the coming quarters as volumes are ramping. Michael Crawford: Okay. And then just a final question for me is given that your Automotive business is well-situated for trends like electronic braking and steering and new technologies being brought up by your customers like next year, but is that something that seems like has maybe turned, unless there's an unexpected program loss to no one's fault, absent that, is that a vertical that you would expect to grow? Or is that really still overly dependent on the global macro economy? Richard Phillips: You just nailed it, Mike. Global macro. So we continue to feel like we're well positioned in both steering and braking. We're really focused on ensuring that we win those next-generation programs. We don't see major changes or losses, as you mentioned, we've experienced in the past at this point. But as I had mentioned in my remarks, the biggest pressure there has been the level of demand for programs that we already have been awarded where the demand hasn't been where we anticipated it to be. So as we look forward, and obviously, as Jana said, we'll give more insight here as we get to year-end across the whole business and also, of course, in Automotive, on what we're seeing. But the global economy is truly the biggest impact and driver of what we see there. Because we feel good about our positioning, the programs that we've won. We're just waiting to see what the demand for those programs is going to look like in the short term. Operator: Our next questions are from the line of Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: Yes, and congrats on returning to organic growth here. So starting with another question on the Medical facility. Ric, you mentioned you plan on moving existing programs into that facility. And then when you sort of take into account the Medical deals you've signed over the past 12 to 18 months or so, can you quantify how much of the facility's capacity you've booked already? Can you quantify that at all? Richard Phillips: No, Derek, I think we're early on that. I mean we've got -- as you know, it's a leased facility. We ensure that we have lots of space for growth. And I can tell you, I've personally taken customers through there, really excited about what that looks like. Some of those programs in CMO can be much more significant than the typical Medical programs that we've had. But I would say that we're early given the ramp to estimate capacity there. I will say we've had customers ask us, can you expand? And the answer is yes. But I think we're a little early on those moves. Derek Soderberg: Got it. And then just on the pricing environment within the medical space specifically, we've seen some of your private peers mention intensifying competition in the medical and aerospace segments. Are you guys seeing aggressive pricing and competitive bids for new medical opportunities? Seeing anything like that in the market? Jana Croom: So the pricing is always competitive, that -- especially in the CMO/CDMO space, the pricing is always competitive. What I would say is it's still rational. And there are other areas of the market where we've seen where the pricing is not rational. But in the medical CMO space, we would say, aggressive, fair, but still rational. And part of that is driven by just the need for supply chain in the space. The proliferation of growth in the medical space is such that they need more and more suppliers in the supply chain. And so that is keeping everything rational right now. Derek Soderberg: Got it. And then my last question, just I was wondering if you could mention or talk about the M&A environment. It looks like your balance sheet just continues to improve here, debt coming down. I was wondering if your ability to go out and do a larger inorganic agreement to something that's increasingly on the table or maybe that those plans haven't changed. And then just broadly on the M&A space, how are valuations trending, getting more expensive? Anything sort of to note on that front? Richard Phillips: Yes, Derek. I mean, yes, very much part of our strategy. I'll tell you our efforts over the last year in terms of laying out criteria within the Medical CMO, thinking about potential targets, interacting with our Board, is at a high level. So definitely part of our strategy. We think about it, as Jana had mentioned in her comments, around tuck-ins, opportunities that could add geographic advantages for us, things that could help us as we look to continue to fill capacity within the new facility in Indianapolis, opportunities that will advance our capabilities and expand what we're able to do from a technology standpoint. All of those are on the table. Our team is very active in evaluating. And yes, from a financial standpoint, we're very comfortable with the cash that we've generated and our situation from a debt standpoint, that we can act decisively in M&A. Operator: Our next questions are from the line of Max Michaelis with Lake Street Capital Markets. Maxwell Michaelis: First one for me, I think I read an article saying that you guys were targeting 5 new customers annually in the Medical side of the business. Maybe give us a few comments on maybe where you stand there in adding new customers this year? Jana Croom: So you did read that. Our targeted goal is to add 5 new customers annually. This year -- am I allowed to say how many customers we've added? We're on target for goal, is what I will say. Now the question becomes, you bring the customers on, how big is the initial program that you've been awarded and then how quickly can you ramp that program and do what we call land and expand, which is you bring on a new program, you could do it exceptionally well, and then you expand with that customer into bigger programs, higher volumes and you build the relationship over time. That is very much center plate to the Kimball strategy, and not just for Medical, but that's our strategy for all 3 of our verticals. Maxwell Michaelis: Okay. And were any of these new applications or are they all things you guys have done before? Jana Croom: So some are new applications and then some are work that we've done for other customers that we're now going to be doing for the new customers that we're bringing onboard. It's both. Maxwell Michaelis: Great. And then last one for me, I'll stick to Medical. I think you said in the prepared remarks, Europe grew low single digits. Is there any way you can share us the growth rate from the Asian market? And then kind of how you expect that to trend going forward into fiscal year '27, if you can share? Jana Croom: Yes. Let me get that. We have that information. Richard Phillips: As Jana pulls the specifics, Max, maybe just a general comment. As you I know are aware, our Thailand facility does a lot of our Medical work overseas and is an export facility. So I think you'll find that the Asia growth will likely be consistent with overall company growth because as, again, as an export facility, it's responding to growth opportunities globally. Operator: Our next question is from the line of Anja Soderstrom with Sidoti. Anja Soderstrom: Congrats on the performance here in the quarter. I'm just curious, you're talking about the meaningful growth in the CMO business. But how dependent are you on new logos to drive that growth? Richard Phillips: Anja, we couldn't quite hear you. Could you say it one more time? Anja Soderstrom: Yes. So you were talking about driving meaningful growth in the CMO business. But I'm just curious, how dependent are you on adding new logos to be able to drive that growth? Richard Phillips: Got it. Yes. No, great question, Anja. I would say that's an important part of our strategy. So what we have -- what we knew and what we've found, since we have announced the Indianapolis facility, is you've got to have that space. You've got to have a modern, ready-to-go medical facility in order to attract those new logos. So the conversations that we're having have accelerated. We do have existing customers that are really excited about what we're doing and we're talking about programs with them. But I would say if you fast-forward to the future, we'll be adding a number of new logos as part of that CMO growth strategy for sure. Anja Soderstrom: Okay. And then you talked about moving the production from the old facility to the new one. How much revenue do you generate from that facility? And what's sort of the time frame of completing that move? Jana Croom: So we don't disclose the revenue of that facility specifically. We disclose revenue of North America. So unfortunately -- and I know we need to think about that because as we're talking about the CMO more, we need to be able to give you some of that. We're just -- we're not going to give that information today. Anja Soderstrom: Okay. Understood. And then in terms of M&A, are you more imminently looking at adding capabilities to make you more competitive, or adding customers? Richard Phillips: I'd say both. Jana Croom: Yes. Richard Phillips: I'd say both. Yes. It's a combination of capabilities, customers, geographies. One of the things that I had mentioned on the call today is it's interesting that we have customers that we talk to who are looking for U.S. footprint, and that's one of the things that we think will help us really gain utilization in Indianapolis over time. It just gives us a new capability. But yes, all of the above: customers, capabilities, geographies. Anja Soderstrom: Okay. And then one last one on inventories. So that came down for the quarter. But with the growth you're expecting, how should we think about that? Was that some inventory you were -- that had built up that you're building down, or? Jana Croom: I was going to say, that's just us working through days inventory. We are getting better and tighter with managing our inventory and our supply chain. So it doesn't necessarily have anything to do with revenue or top line. It's much more just working capital management that's improving. Anja Soderstrom: Okay. Great. Good to hear. Jana Croom: And that's been a goal of ours over time. Yes. I want to go back to Max's question and answer it because he asked specifically about Medical in Asia. And that growth for Q3 was over 20%. It was offset by some movement that we've had in other areas, but it was over 20%. Operator: Thank you. Ladies and gentlemen, this will conclude today's Q&A session and will also conclude today's conference. Before we go, we'd like to remind you that a telephone replay will be available of this call approximately 3 hours after the end of the conference. To access the conference replay, you may dial 1-877-660-6853. International callers, please dial 1-201-612-7415. You may use -- Access ID is 13759805. Thank you for joining us today. Have a wonderful day. Jana Croom: Thank you.
Operator: Good morning, and welcome to the Limbach Holdings First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] I will now turn the conference over to your host, Lisa Fortuna of Financial Profile. You may begin. Lisa Fortuna: Good morning, and thank you for joining us today to discuss Limbach Holdings financial results for the first quarter of 2026. Yesterday, Limbach issued its earnings release and filed its Form 10-Q for the period ended March 31, 2026. Both documents as well as an updated investor presentation are available on the Investor Relations section of the company's website at limbachinc.com. Management may refer to select slides during today's call and encourages its investors to review the presentation in its entirety. On today's call are Michael McCann, President and Chief Executive Officer; and Jayme Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open the call to questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts, such as those about expected financial performance are also forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in the company's results compared to these forward-looking statements is contained in Limbach's SEC filings, including reports on Form 10-K and 10-Q. Please note on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our first quarter 2026 earnings release and in our investor presentation, both of which can be found on Limbach's Investor Relations website and have been furnished in the Form 8-K filed with the SEC. With that, I'll turn the call over to President and CEO, Mike McCann. Michael McCann: Good morning, and welcome to our stockholders, analysts and interested investors. We appreciate you joining us today. Yesterday, we reported our first quarter 2026 results, which were in line with the expectations we discussed on our last earnings call in March. Before turning to the details of the quarter, I want to briefly recap where we've been and where we're headed. Our long-term vision and strategy are to become an indispensable building system solutions partner for our customers' mission-critical facilities. We provide cost-effective, innovative and dependable services designed to support uninterrupted operations. We operate as an integrated organization that aligns our people, capabilities and service offerings. Our culture is built on the value of caring. At Limbach, our people care about our customers and are dedicated to delivering and maintaining systems that support some of their most critical assets while staying safe. Over the last 5 years, we've transitioned and scaled our business to focus on direct relationships with building owners. This has raised our margin profile, improved the quality of our revenue and deepened our relationships with customers who operate mission-critical facilities. Our revenue mix between ODR and GCR has reached stabilization, reflecting progress toward what we view as the optimal balance between the 2 business segments. Going forward, we intend to continue to prioritize ODR growth while selectively pursuing high-quality GCR opportunities where customer, partner, risk profile and end market align with our strategy, particularly in data centers where demand is accelerating rapidly. As we move forward into 2026, our focus is on scale and growth. We see significant opportunities to deepen and expand our customer relationships, supported by the strong foundation we have built over the previous 5 years. Now turning to our first quarter results. First quarter revenue was $138.9 million, in line with our expectations. Although total revenue growth was 4.3%, organic revenue was down as expected, decreasing by 13.4%. As previously discussed, the results reflect the impact of lower bookings in the middle of 2025 and normal seasonal patterns among industrial customers. The revenue mix was 71.9% ODR and 28.1% GCR, with ODR revenue growing 10.4% and organic ODR revenue declining 5.4%. Total gross margin was 22.4%, primarily due to lower fixed cost absorption in our ODR segment from lower revenue during the quarter, the absence of higher net project write-ups that benefited the prior year period, which is largely timing related and the current lower gross margin profile of Pioneer Power. Adjusted EBITDA was $8.7 million, which was also in line with our expectations. As anticipated, we experienced a cash outflow due to the lower net income and higher working capital needs in Q1. Q1 bookings were exceptionally strong at $209 million, generating a book-to-bill ratio of 1.5. Approximately 27% of bookings came from data center opportunities, reflecting strong demand in this vertical and the value of Limbach's existing customers with brand-name hyperscaler customers. As a reminder, in 2026, we remain highly focused on our 3 strategic growth pillars: ODR organic and total revenue growth, margin expansion through evolved customer solutions, scaling the business through acquisitions. While first quarter organic revenue was down as expected, the more important development in the quarter was the acceleration of demand. Over the past 2 quarters, we recorded more than $434 million of bookings, including $209 million in Q1 of 2026 and $225 million in Q4 of 2025. Our Q1 2026 book-to-bill ratio of 1.5x is a strong indicator that revenue momentum is building as we move through 2026. We believe the strength of these bookings reflect the traction we are getting from recent investments in our national sales, vertical market teams, customer solution teams as well as our ability to serve increasingly complex mission-critical facilities. Earlier this year, we invested in dedicated sales enablement tools to support productivity. This type of sales support is only possible in an organization that works collaboratively and shares best practices. During the first quarter, we rolled out an updated sales process system designed to better highlight what differentiates Limbach in the marketplace. We also continue to invest across 3 national vertical market teams. The health care team is now fully built and delivered strong bookings over the past 2 quarters, positioning revenue to accelerate in the second half as those bookings convert. In addition, during the first half of the year, we are focused on adding resources to our data center team, combining experienced Limbach employees with new hires to drive scale and deepen existing customer relationships. Our second pillar is to expand margins by driving more evolved customer solutions. We differentiate ourselves from our competition by delivering creative integrated solutions that solve real business problems. Our strategy is focused on 6 core customer solutions, including integrated facility planning, service and maintenance, replacement equipment and retrofits, rental equipment, MEPC infrastructure upgrades and energy efficiency decarbonization projects. Over time, our goal is to deliver all 6 customer solutions at both the national and local level across our customer base. By bundling these offerings, we can create a more comprehensive solutions for customers while layering on incremental margin. Our third strategic pillar is targeted acquisitions, designed to extend the Limbach brand, strengthen our market presence and expand our capabilities. By pursuing disciplined acquisitions, we seek to diversify our vertical market exposure, broaden our geographic reach and add new offerings that enhance and scale our customer solutions. Given robust demand from customers with national operations who are increasingly seeking partners with comparable geographic reach and technical capabilities, we believe there's an opportunity to further refine our acquisition strategy. We're actively evaluating acquisitions and are open to larger acquisitions where the strategic rationale is compelling. Many of our customers operate nationally and increasingly want partners whose geographic footprint and technical capabilities can match the scale of their own businesses. We are focused on businesses that expand and extend our local service capabilities, deepen our presence in attractive geographies and enhance our ability to deliver mission-critical solutions across a larger national platform. Our integration of Pioneer Power is progressing well. Pioneer expands our capabilities, broadens our customer base and gives us additional avenues to participate in high-growth mission-critical end markets, including data centers. We're in the process of increasing gross margin at Pioneer Power to align with our company average. Our key strategic priorities to achieve this include reviewing and renegotiating existing contracts for better pricing, optimizing project mix with prioritizing revenue by specific target margins, leveraging cross-selling opportunities and implementing Limbach sales and operating tools. We expect Pioneer's margins to begin improving in 2026 with continued progress over the next 2 to 3 years. From a macro perspective, conditions were generally favorable in the first quarter. We believe the optimal mix for Limbach is centered on 3 key areas: institutional markets led by health care and higher education, industrial markets and data centers. Our experience in 2025 reinforce that market vertical diversification and geographic expansion will make our business model more resilient. Starting with health care. Customers remain focused on near-term mission-critical spending while thoughtfully planning longer-term capital investments. As discussed last quarter, D.C. policy changes extended budgeted time lines for several of our customers. We are now seeing those budgets normalize with spending expected to pick up in the second half of the year and align with historical patterns. At the national level, our team is gaining traction with key customers and aligning sales efforts with anticipated funding releases. Locally, customers remain disciplined in how they allocate capital, prioritizing investments to maintain and upgrade critical systems. Our local engineering expertise and solution-oriented approach remain key differentiators, and it's our responsibility to structure opportunities that clearly meet each customer's ROI requirements. Jake Marshall was a key contributor to our margin expansion over the last 4 years. They've been focused on building relationships in the health care sector. This momentum continued in the first quarter with the award of a multiphase renovation project at Chattanooga-based facility, further strengthening our presence with this customer. Our Chattanooga team has successfully deployed multiple customer solutions, including maintenance agreements, rental fleet utilization and on-site account management. These solutions enabled us to win this significant infrastructure project. Turning to data centers. We want to emphasize that Limbach has long-standing 10-plus year relationships with brand-name hyperscaler customers, and we are focused on building on that foundation as demand accelerates. What has changed is the scale and urgency of demand in the market and our ability to bring a broader, more coordinated set of capabilities to those customers. As mentioned on our fourth quarter call, we were awarded a unique infrastructure data center project. Additionally, in the first quarter, we successfully won a similar but even larger project from one of the hyperscalers in the market. We will be providing a fabricated package encompassing of steel structures, piping systems and the execution is expected to be rapid. We anticipate the final contract value of this project to exceed $30 million and expect to generate the revenue over the next few quarters. Our experience and disciplined approach has made us highly selective around customer quality, contract structure, project execution risk and partner alignment. We are approaching this opportunity with discipline. We're not pursuing growth for growth's sake. We are pursuing data center work where we believe Limbach has a differentiated right to win and where the risk-adjusted return profile is attractive. One of the key value creation initiatives of Pioneer Power is expanding its reach into the data center market. In the first quarter, we were awarded one of the initial projects within an existing data center, which is expected to provide immediate contributions beginning in the second quarter. The contract value is approximately $6 million, features a rapid execution schedule, involves a complete retrofit of the space to support new server installation. Layering data center work into Pioneer's existing customer profile remains an important driver of the margin expansion over time. We continue to see meaningful opportunities within this vertical market and expect momentum to build through the year. To support this growth, we are developing a dedicated data center vertical market team focused on leveraging both our fabrication resources and our available field talent. Industrial manufacturing activity began to show meaningful momentum starting in April with our strength in this vertical beginning to translate into new opportunities. Our other vertical markets are trending in a positive direction, though we expect most of the growth to come in the latter part of the year. Moving to our outlook. We are reaffirming the full year guidance we provided for 2026 back in March. We expect revenue between $730 million and $760 million, implying year-over-year growth of 13% to 17%. Adjusted EBITDA of $90 million to $94 million, implying year-over-year growth of 10% to 16%. The following underlying assumptions support this guidance: total organic revenue growth of 4% to 8%, ODR organic revenue growth of 9% to 12%, ODR as a percentage of total revenue to be in the range of 75% to 80%, reflecting the stabilization of the mix shift, total gross margin of 26% to 27%. SG&A expense as a percentage of total annual revenue to be 15% to 17% and free cash flow to be 75% of adjusted EBITDA. For the second quarter of 2026, we expect sequential improvement in revenue adjusted EBITDA and are comfortable where the consensus expectations currently stand. With that, I'll turn the call over to Jayme to walk through the financials in more detail. Jayme? Jayme Brooks: Our Form 10-Q and earnings press release filed yesterday provide comprehensive details of our financial results. So I'll focus on the highlights of the first quarter of 2026 with all comparisons versus the first quarter of 2025, unless otherwise noted. We generated total revenue of $138.9 million compared to $133.1 million in Q1 of 2025. The increase was primarily due to $23.5 million revenue contribution from Pioneer Power. ODR revenue grew 10.4% to $99.8 million, with ODR acquisition-related revenue increasing 15.8%, partially offset by an expected 5.4% decrease in ODR organic revenue. ODR revenue accounted for 71.9% of total revenue during the quarter. As expected, GCR revenue declined by 8.6% to $39 million from GCR organic revenue decreasing by 30.2%, partially offset by a 21.6% increase in GCR acquisition-related revenue. Total gross profit decreased 15.1% from $36.7 million to $31.2 million. Total gross margin on a consolidated basis was 22.4%, down from 27.6% in the prior year quarter. Excluding Pioneer Power, total gross margin would have been 25% due to the lower margin profile of Pioneer Power. As Mike mentioned earlier, our acquisition integration strategy is focused on improving Pioneer Power's gross margin to align with our broader operating model over the next 2 to 3 years. ODR gross profit comprised 73.7% of total gross profit dollars or $23 million. ODR gross profit decreased 12.1% or $3.2 million and ODR gross margin was 23% compared to 28.9% in the prior year period. The decrease in gross margin was primarily due to lower fixed cost absorption as a result of higher fixed costs and seasonally lower revenue, the absence of higher net profit write-ups in Q1 2026 compared to the first quarter of 2025 and Pioneer Power's current lower gross margin profile. Project write-ups are typically recorded when projects are at or near the end of their life cycle to reflect strong execution. During the first quarter of 2025, more projects were at or near the end of their life cycle than in the first quarter of 2026. Additionally, we incurred higher fixed costs impacting the cost of revenue in the first quarter of 2026, primarily due to the increase in the size of our vehicle fleet and increase in our insurance premiums as well as increase in tools, supplies and safety costs. As revenue levels increase in 2026, we expect fixed cost absorption to improve. GCR gross profit decreased 22.5% from $10.6 million to $8.2 million. GCR gross margin decreased from 24.7% to 21%. The decrease was due to lower gross margin work associated with Pioneer Power and lower total net project write-ups in the first quarter of 2026 compared to the first quarter of 2025, similar to the ODR. SG&A expense for the first quarter was $28.1 million, an increase of approximately $1.6 million from $26.5 million. The increase was primarily driven by an increase in payroll-related expenses. As a percentage of revenue, SG&A expense increased to 20.2% compared to 19.9% in the first quarter of 2025. Interest expense increased $0.2 million to $0.7 million, driven by higher borrowings under the company's revolving credit facility to finance working capital as well as higher financing costs associated with a larger vehicle fleet. Net income for the first quarter decreased 57.1% from $10.2 million to $4.4 million and earnings per diluted share was $0.36 compared to $0.85. Adjusted net income decreased 42.6% to $7.8 million compared to $13.5 million and adjusted diluted earnings per share decreased 42.9% from $1.12 to $0.64. Adjusted EBITDA for the quarter decreased 41.7% to $8.7 million compared to $14.9 million. Adjusted EBITDA margin was 6.2% compared to 11.2% in Q1 last year, primarily driven by the lower gross profit and slightly higher SG&A expense. Turning to cash flow. Net operating cash outflow during the first quarter was $7.8 million compared to a $2.2 million cash inflow in the year ago period, driven by lower net income and higher working capital. The primary drivers of the reduction in operating cash during the quarter were incentive compensation payments, contingent consideration payments related to prior acquisitions and prepaid insurance premiums. Additionally, as part of our capital allocation to offset stock issuances for our long-term incentive plan, we used $5.8 million of cash to pay employee taxes related to the shares withheld to cover their taxes. Free cash flow, defined as cash flow from operating activities, excluding changes in working capital, minus capital expenditures, was $7.7 million in the first quarter compared to $15 million in Q1 last year, representing a $7.4 million decrease. The free cash flow conversion of adjusted EBITDA for the quarter was 88.7% versus 101.1% last year. As Mike already mentioned, for the full year 2026, we continue to target a free cash flow conversion rate of at least 75% of adjusted EBITDA and expect CapEx to have a run rate of approximately $5 million. Turning to our balance sheet. As of March 31, we had $15.8 million in cash and cash equivalents and total debt of $57 million, which includes $32.4 million borrowed on our revolving credit facility and $7 million of standby letters of credit. As a reminder, at the end of June last year, we expanded our revolving credit facility from $50 million to $100 million in principal amount borrowings. Total liquidity, defined as cash and availability on our revolving credit facility was $76.4 million at the end of the first quarter. This concludes our prepared remarks. I'll now ask the operator to begin Q&A. Operator: [Operator Instructions] The first question comes from the line of Rob Brown with Lake Street Capital. Robert Brown: First question is on your kind of gross margin trends. You addressed some of the ins and outs, but how -- what's sort of the timing of the improvement on Pioneer kind of this year? I know you gave a 2- to 3-year window, but how much improvement can you see this year from Pioneer integration? Michael McCann: Rob, so from a Pioneer Power perspective, obviously, we've discussed this before, but the first piece of this really was from an integration perspective from a systems, process, accounting system. So that was really last year. This year, it's focused on, obviously, from a gross profit improvement perspective. So a number of different things we've talked about. But obviously, dedicating resources to the best accounts, analyzing them, going back from renegotiation from accounts as well, too. I think the other thing we talked about in the prepared remarks, too, was our ability to infuse some data center work on top of their markets from industrial and institutional as well, too. So I think those are going to take some time to come into play. And I think we're going to improve. It will be towards the back half of the year. But we're making a lot of -- I think the team, along with management is making a lot of proactive steps to really think through what that improvement process is. And quite frankly, there's a number of different levers that we can pull, and we're kind of doing those in a very coordinated effort. So we're optimistic for sure with Pioneer Power margin improvement. Robert Brown: Okay. Great. And then on the bookings, strong bookings in the quarter, particularly in data center, how much -- it seems like you're early in that effort. How much opportunity do you see in the data center vertical as you get your national accounts teams in place? Michael McCann: Yes. We've definitely been pleased with the last 2 quarters, $434 million booked in the last 2 quarters. I think one thing we -- from a data center perspective, there's so much need for people that work in a mission-critical environment. We're leveraging some relationships we've had for a number of different years. I think we're off to a strong start in Q1. There's a lot more opportunity as well, too. So I think -- as we continue to work our way through that vertical, dedicate resources, we have a national vertical market team as well, too, that will be working relationships and understanding where we fit in. Ultimately, though, the skill set that we have in the mission-critical environment translates really well from a data center perspective as well, too. So we haven't really provided any forward-looking outlook as far as from a percentage basis, but I think we're pleased with the 27% in Q1, and we see tons of opportunity for players like us. The other thing I would tell you, I think from a data center perspective, the things that we continue to learn are they're looking for somebody that has a -- is a national contractor that has a good footprint that matches aligns with their footprint. And again, that quality mission-critical expertise. So we anticipate the combination of those 2 to be favorable for us as we look forward through this year and I think the next couple of years. Operator: Next question comes from the line of Chris Moore with CJS Securities. Christopher Moore: Maybe just one more follow-up on the data center. So it sounds like the lead times in terms of converting the data center orders is -- at least on these orders is a little bit quicker than the average bookings. Is that fair? Michael McCann: Yes. We -- one of the examples that we gave in the prepared remarks was a fabrication project, which is a very quick burn, which will burn in the next several quarters. So it depends on the work. I think the one thing that seems pretty consistent with the data center work is, unless on our end is they -- it's speed to market at the end of the day. So it does take time to set the work up, even the jobs that we did, we think it will move pretty quickly, but there is a reasonable setup period of time as well, too. But we're excited. I think our ability to leverage our capacity to move quickly. We won several of these fabrication type projects. And this one that we recently were awarded that encompasses steel and pipe and a number of different structures that we can put into place that they want to -- I think they're looking at us for capacity and speed to market. So it will depend on the opportunity, but I think that particular opportunity or at least a couple that we mentioned in the prepared remarks will burn very quickly. Christopher Moore: Terrific. Are the margins there consistent with your ODR targets? Michael McCann: We've done some work. The margins -- the work that we've done in the past, the margins have been really good. So we definitely wouldn't be getting into this vertical if we felt like the margins weren't as good, if not better. Again, we're going to be very selective as well, too. So I think that's -- we're going to be very measured just like we are overall from a strategic standpoint. But we're excited about the margin opportunity. It's all about delivering on time with a high level of quality, and they will pay the margins that's relative to that effort. Christopher Moore: Got it. So in terms of -- on the guide, ODR organic growth, 9% to 12% versus the 17% last year. Last year, you had a big Q4. Is there a similar expectation in '26 that the organic ODR kind of builds in Q2 through Q4? Michael McCann: Yes, it will definitely build throughout the year. I mean, I think a similar cadence that we've had and similar cadence that we had last year as well, too. So -- and I think it's part of the cadence with the owner direct customers as well, too. I think as we layer data center work in, I think that could have a little bit of a different profile that's not so backloaded. But a good chunk of our revenue, obviously, this year is based on the institution and industrial markets. Industrial doesn't really start hitting until April. And then the institutional, they set their budget at the beginning of the year, and they see how it goes and they tend to really spend towards the back half. So yes, I would say similar cadence to last year and especially due to the institutional and industrial work that we do. Christopher Moore: Got it. And so you do expect a positive ODR organic growth in Q2, that's I guess what I was asking. Michael McCann: I think it will build throughout the year for sure. Operator: Next question comes from the line of Brian Brophy with Stifel. Brian Brophy: Congrats on the data center activity. Just I realize awards are kind of hard to predict. But the data center activity in terms of awards that you saw this quarter, is that unusually high? Or just given the demand environment that we're seeing, could we see this potentially grow from this level? I guess how sustainable do you think this level of activity on data center side is? Michael McCann: It's tough for us to tell. But I will say we've talked to various customers in this space. The opportunity is there, no doubt about it. I mean we're going to have to figure out what our cadence is. We're off to a good start, but I think we don't have enough quarters in a row to kind of figure out our cadence or our year-end percentage. But there is so much spend that they're looking for people that understand quality, speed to market, kind of all the things that kind of play into our expertise. So we haven't necessarily run into a position or a customer where there wasn't the need. And so I think it's going to be -- the demand is there for us to take advantage of for sure. Brian Brophy: Okay. That's helpful. And then obviously, it sounds like fabrication work is part of the awards here. Do you guys have enough capacity currently to support what you're being awarded? Or is there any more CapEx that is needed to support some of that work? And I guess at what point would you need to add more fabrication capacity? Or are we pretty far away from that at this point? Michael McCann: No, it's a good question. So we have a decent amount of capacity right now. If anything, we have excess capacity, one thing that we're able to leverage is we -- when we purchased Jake Marshall in late 2021, they had a very large fabrication facility. I think it's almost 14 acres. So we have a lot of capacity. I'd love to get to the point where we need more because that means that, that shop. We also have other shops at locations as well, too. So I think the advantage for us is when some players or competitors are filled up, we have the capacity. So we spent a lot of time touring people through our facility. And they can see physically that there's capacity as well, too. So I'd love to be discussing a CapEx in some sense because that means -- but I think we're quite a bit of ways away from that. And we're trying to use the capacity that we have and fill it up. So there are several of these jobs that we could handle at one point. And then we also have overflow as well, too. So that's the message that we're telling our customers. I think it's going to help the business all around as if we fill up that fabrication capability capacity. Operator: Next question comes from the line of Tomo Sano with JPMorgan. Tomohiko Sano: Could you talk about industrial manufacturing situations? You mentioned you're seeing meaningful momentum start in April. So if you could talk about what exactly you're seeing? And any more color would be appreciated. Michael McCann: Sure, sure. So a lot of our industrial work in manufacturing has really come from our acquisitions from Pioneer Power in Minneapolis and Consolidated in Kentucky as well as Jake Marshall in our Chattanooga location as well, too. So for us, part of it is just -- I think as we continue to acquire companies that work in that space, there seems to be kind of a natural cadence that April starts that spend. So we see positive outlook for sure. But I think that seems like that's the spend. That's the timing. I mean, especially even from a PPI perspective, I think some of this is just seasonal as well, too. But as we continue to acquire in this space, I think we're going to see kind of the pattern that happens. So we're optimistic and looking forward, I think, to the work that happens this year. Tomohiko Sano: And a follow-up on national versus local sales contribution. Last quarter, you discussed investing in 2 senior executives, one focused on local sales enablement and one on the national relationship. How much of the $209 million in Q1 booking was driven by national account relationship versus local sales? And are you seeing the national strategies begin to contribute meaningfully? Michael McCann: Yes. We didn't provide a breakout per se, but I will say there's a good mix between the 2. Still more heavily locally weighted but definitely starting to see some efforts from a national perspective as well, too. So very -- Jayme and I are very happy with the way that we -- from a structure standpoint and an executive management standpoint as far as one executive is on sales enablement with local sales, been very successful. And then we have somebody dedicated from a national account perspective. So that's going really well. I think there are -- I would also tell you, too, that the 2 of them work together and those functions work really well together as well, too. So if we have a national account or an opportunity, the 2 of those execs collaborate as well as the local branch as well, too. So I see them working really closely together. As we expand not only our footprint, but as well as our exposure from a national account perspective, the more overlap, the better. So that means we're getting synergies as well, too. So I think for us, especially from a customer buy perspective and the way that we go to market and differentiate ourselves, the ability to have local and national, I think, is going to be a game changer as we continue to expand resources. Operator: Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to turn the floor over to Mike McCann for closing comments. Michael McCann: In closing, our strategic priorities for 2026 are the following: ODR organic revenue growth and total revenue growth, margin expansion through evolved customer solutions, smart capital allocation and scale through acquisitions. Our first quarter book-to-bill ratio of 1.5x, expanding data center opportunities, growing national account relationships and healthy acquisition pipeline all reinforce our confidence in our strategy. We believe Limbach remains in the early stages of building a larger, more valuable, more durable building systems solutions platform, and we're focused on executing that opportunity with discipline. Our model combines engineering expertise with direct execution, enabling us to partner with customers through multiyear consultative capital planning efforts that extend beyond traditional backlog. We believe this is a differentiated approach, supports sustained growth and shareholder value creation. Thank you again for your interest in Limbach, and have a great rest of your day. Operator: Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to Owens Corning's First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Darren Garvin, Director of Investor Relations. Please go ahead. Darren Garvin: Good morning, and thank you for joining us to discuss Owens Corning's First Quarter 2026 results. Joining me today are Brian Chambers, our Chair and Chief Executive Officer; and Todd Fister, our Chief Financial and Operating Officer. Our earnings release, Form 10-Q, and presentation slides were issued earlier this morning and are available on the Investors section of our website at owenscorning.com. Following our prepared remarks, we will open the call for Q&A. To allow for broad participation, please limit yourself to one question. Before we begin, please refer to Slide 2. Today's remarks will include forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially. We undertake no obligation to update these statements, except as required by law. Please refer to the cautionary statements and risk factors identified in our SEC filings for more detail. This presentation also includes non-GAAP financial measures. Explanations and reconciliations to GAAP measures can be found in our earnings release and presentation materials available on our website. Financial metrics discussed today reflect continuing operations, except for cash flow measures, which include amounts related to glass reinforcements. With the completed divestiture of glass reinforcements, Q2 will be the final quarter that cash flow includes the impact of discontinued operations. For those following along with the presentation, we will begin on Slide 4. And with that, I'll turn the call over to our Chair and CEO, Brian Chambers. Brian Chambers: Thanks, Darren. Good morning, everyone, and thank you for joining us today. I know many of you have had the opportunity to speak with Darren, who recently assumed leadership of our Investor Relations function, and I want to welcome him to his first earnings call in this role. I also want to recognize and thank Amber Wohlfarth for all of her great work leading Investor Relations and wish her well in her new role leading our finance team in Roofing. To begin, I'll provide a brief overview of our first quarter performance and then discuss our progress in reshaping Owens Corning as a more focused and more integrated building products leader, which generates consistently strong margins and cash flows. Todd will then provide a detailed review of our first quarter financial results, and I'll come back to share our outlook for the second quarter. Entering the year, we continue to perform at a high level despite current residential market conditions. Repair and remodel demand and new residential construction activity continue to reflect affordability challenges and consumer uncertainty. Roofing activity was boosted by end-of-quarter inventory restocking, but remained impacted by low carryover demand from the uniquely quiet storm season in the second half of last year. Against that backdrop, our team executed well and delivered strong operating performance. For the past several quarters, we've been operating through markets with declining volumes, but our ability to consistently deliver solid results highlights the strength of our enterprise and the structural improvements we have made. We are demonstrating the durable performance of the new Owens Corning, a focused building products company that outperforms through the cycles and is poised for significant growth as repair and remodel investments and new construction activity increases in the future. I'll share more about our financial performance in a moment. But first, I'll lead with safety. Our Safer Together operating framework is driving improved results as we start the year with a first quarter recordable incident rate of 0.46. Our team's commitment to working safely achieved one of the best quarters on record in each of our businesses with nearly 85% of our sites working recordable injury-free. Turning to first quarter financial performance. We generated $2.3 billion in revenue and $369 million in adjusted EBITDA with an adjusted EBITDA margin of 16%. We also returned $63 million to shareholders through a cash dividend. This reflects our ongoing commitment to return $1 billion of cash to shareholders in 2026. For the past year, we've delivered strong margins on lower market volumes in Roofing and Insulation. In fact, when we compare today's results to similar market conditions over the past 10 years, we have improved margins across both businesses by over 500 basis points. Across the company, we are seeing the impact of structural improvements made to strengthen our market positions and streamline our operating costs. In Roofing, we are expanding our contractor base through an industry-leading engagement model, growing our high-margin components business and increasing capacity to service a sustained shift toward premium laminate shingles. In our Insulation business, we've invested in a more profitable mix of products and applications and restructured our manufacturing network to be more efficient and more flexible. And in Doors, we are applying the same commercial and operational playbook used to increase revenues and improve margins in Roofing and Insulation, utilizing an integrated go-to-market strategy to increase our customer share positions while achieving significant operating cost synergies. Taken together, these actions reflect how a more focused and integrated Owens Corning is operating today by leveraging our unique OC advantages to drive growth and productivity and deliver structurally higher and more durable margins. One key part of the playbook is our integrated go-to-market strategy that combines the breadth and depth of our distribution network with our downstream demand pull-through model. Commercially, we've built one of the strongest distribution networks in building products and are leveraging that strength across the enterprise. We serve over 4,100 home center locations and more than 8,000 distributor locations, providing broad access to our product categories, which gives our downstream customers the widest choice of service platforms. Our network has grown through commercial strength that is unparalleled in the market. Home center customers value our in-store service, merchandising capabilities, unique product portfolio and highly recognized brand, both on the shelf and online, which helps drive traffic and increase average ticket size. As a result, we have earned additional placement across all 3 of our product categories at Lowe's and were recently recognized in their annual vendor partner awards for our ability to deliver quality products, innovation, value and service. Distributors choose Owens Corning because we provide easy-to-sell products, and they increasingly see value in offering a complete residential package, Roofing, Insulation and Doors, as we help them grow with our down channel customers across all 3 product categories. Through our unique customer engagement model, we've built deep and loyal partnerships with the contractors, builders, dealers and specifiers who utilize our iconic brand, our wide array of products and our robust marketing and merchandising programs to help them grow their businesses. This partnership accelerates demand creation, deepens distribution partnerships and is a meaningful source of differentiation for Owens Corning. And we continue to focus on increasing and expanding our network. In Roofing alone, we have grown our contractor network to over 30,000 members. Operationally, alongside our commercial strength, we are leveraging the full scale and capabilities of the enterprise to deliver a winning cost position. Over the past several years, we've optimized our manufacturing network, improved flexibility and invested in productivity and efficiency across our businesses. This includes expanding our use of intelligent monitoring and AI-enabled tools to improve asset reliability, reduce unplanned downtime and support a structurally lower cost position. Today, we are monitoring and analyzing over 20,000 process sensors in our plants using AI to provide real-time alerts that help our teams predict risk before they impact safety, quality or productivity. These capabilities are deployed in nearly 40 plants across our 3 businesses with plans to continue expanding. We are also capturing meaningful cost synergies in our doors business as we leverage enterprise manufacturing and supply chain capabilities and processes. Currently, we are on track to achieve approximately $135 million in run rate enterprise cost synergies by midyear, exceeding the $125 million we committed to. We are also making progress to deliver an additional $75 million of structural cost improvements within our operations. These actions are reducing the cost structure of the business and supporting a path to improve margins. At the same time, we're simplifying and standardizing work across the company to reduce complexity and improve operating expense efficiency. By continuously identifying opportunities and maintaining a best-in-class cost structure, we are strengthening our ability to self-fund growth initiatives and reinvest in our OC Advantages. Through this work, we are enhancing our ability to perform in today's environment while positioning us to grow revenues and earnings as volumes increase. We've also taken decisive portfolio actions to unlock cash and deploy capital to the opportunities that best support growth and returns. A key milestone in this effort was the recently completed sale of our glass reinforcements business. As a result, we will see cash proceeds from the transaction of approximately $280 million and expect to generate additional cash of $50 million to $70 million from excess alloy sales over the next year. With the reshaping of Owens Corning complete, we are positioned to operate as a more integrated company and capture the full value of our complementary product platforms. To help drive this next phase forward, we recently expanded Todd Fister's role to Chief Financial and Operating Officer. Todd's deep strategic and operational expertise, along with his knowledge of our people and the building products industry, will be key to our ability to unlock efficiencies, streamline execution and accelerate organic growth by fully leveraging the OC advantages across the enterprise. Todd will provide both operational and financial leadership as we conduct a search for a Chief Financial Officer. Before I turn it over to Todd, I also want to provide a brief update on our sustainability journey, which is fundamental to how we operate and build a strong company. We continue to embed sustainability into our operations by reducing emissions and waste to landfill and increasing the use of recycled materials, actions that lower cost, improve efficiency and support both our winning cost position and our growth in Europe. In recognition, we were recently honored by S&P Global as a top 1% performer in the Sustainability Yearbook for the building products industry, placing us among a select group of sustainability leaders worldwide. We look forward to sharing more details on our progress in the upcoming release of our 20th annual sustainability report. In summary, our first quarter results demonstrate the strength of the operating model we have built. Moving forward, we will remain focused on leveraging the OC Advantages across our complementary businesses to create value for both our customers and our shareholders. With that, I'll turn it over to Todd. Todd Fister: Thank you, Brian, and good morning, everyone. Our first quarter results once again demonstrate the benefits of the structural improvements and portfolio transformation we've been executing. As the macro environment improves, we have room to grow the top line and bottom line significantly from this level. The actions we've executed have meaningfully changed the earnings profile and cash generation potential of Owens Corning, resulting in a business that is more resilient through the cycle, better positioned to manage different markets and capable of generating consistently attractive returns with better capital efficiency. I'll begin on Slide 5 and walk through our enterprise results for continuing operations in the first quarter. Against this backdrop, first quarter revenue declined 10% year-over-year, largely due to the market environment. Adjusted EBITDA for the quarter was $369 million, and we delivered an adjusted EBITDA margin of 16%. While these results clearly reflect the impact of market demand, they also highlight the positive durability of our margin structure, particularly when compared to prior cycles in Roofing and Insulation. During the quarter, we recorded $75 million of adjusting items, including amounts related to our continued cost optimization efforts as we operate now as a focused building products company and charges related to a previously disclosed recall in our Paroc business. We do not expect to incur additional material charges related to the recall products. Adjusted earnings per diluted share for the quarter were $1.22. Turning to Slide 6. Free cash flow in the first quarter was a net outflow of $387 million. This use of cash reflects the seasonal working capital we typically experience early in the year in addition to higher capital expenditures. With the completed divestiture of glass reinforcements, Q2 will be the final quarter that cash flow includes the impact of discontinued operations. Capital additions for continuing operations were $210 million in the quarter, up from last year. We are investing at elevated but targeted levels to support long-term growth, expand capacity and drive productivity and efficiency across the enterprise. For the 12 months ending March 31, 2026, our return on capital was 10%. Our debt-to-EBITDA ratio was 2.5x at the middle of our targeted 2 to 3x range. At quarter end, the company had liquidity of $1.8 billion, consisting of $272 million in cash and $1.5 billion available under our bank debt facilities. Maintaining a strong investment-grade balance sheet remains a priority. During the quarter, we returned $63 million to shareholders through a cash dividend. We did not repurchase shares in the first quarter, reflecting the seasonal use of cash for working capital. We remain committed to returning $1 billion to shareholders in 2026 through dividends and share repurchases in addition to the $1 billion we returned to shareholders in 2025. With the glass reinforcements business sale complete, we plan to use the proceeds to fund organic growth initiatives and return cash to shareholders, consistent with our existing capital allocation priorities. We are focused on generating strong operating cash flow, reinvesting in the business to support our long-term strategy, returning capital to shareholders and maintaining a strong balance sheet. Now turning to Slide 7, I'll walk through segment results, beginning with Roofing. Overall, Roofing performance in the first quarter reflects both the realities of the current demand environment and the strength of the business. Our vertically integrated cost position, pricing discipline and contractor engagement model continue to result in attractive margins. Roofing sales were $960 million, down 14% year-over-year, driven primarily by lower volumes. The U.S. asphalt shingle market was down approximately 10% compared to the prior year. The main drivers were lower storm-related carryover demand and severe weather in parts of the country, and the roofing market was stronger than expected, driven by a pickup in restocking activity late in the first quarter. While our U.S. shingle and components volumes were slightly behind the overall market, we believe this was related to timing. The sellout of OC products through distribution was good, and we have outperformed the market over the last 12 months. EBITDA in Roofing was $231 million, down compared to last year, driven by lower volume and the impact of higher cost inventory. In line with our expectation, roughly $30 million in curtailment costs carried over into Q1 with approximately half of that impact offset by favorable productivity in the quarter. Modest inflation outside of asphalt and slightly lower pricing resulted in negative price/cost in the quarter. Despite these impacts, Roofing delivered an EBITDA margin of 24%, which highlights the durability of our business model. Turning to Slide 8, I'll discuss our Insulation business. Insulation continued to deliver strong and relatively stable performance in current markets. Total sales were $867 million, a 5% decrease from Q1 last year. North American residential volumes declined as expected due to the housing market. In North American nonresidential, revenue was flat versus prior year as the business continues to perform well with pockets of strength. And in Europe, we continue to see stable markets and benefited from the impact of currency. We remain disciplined in inventory management, which resulted in incremental production downtime versus the prior year. In addition, targeted price moves and additional inflation resulted in adjusted EBITDA of $167 million, down $58 million from prior year at 19% EBITDA margins. This performance reflects the strength of our broad end market exposure, operational discipline and pricing execution as well as the improvements we've made to the cost structure. Insulation continues to benefit from secular drivers tied to energy efficiency, building performance and regulatory standards. We are well positioned for these trends, which should create long-term organic growth opportunities. Moving to Slide 9. I'll provide an update to the Doors business. Doors continues to operate in a challenging demand environment with ongoing pressure across residential construction markets, including existing home sales that are impacted by higher mortgage rates. Sales in the quarter were $475 million, down 12% from prior year, driven by lower market volumes and the impact of our recent strategic actions. As previously announced, we divested our distribution business late in Q1, which had net annual revenues of approximately $70 million. We also sold our Oregon components facility in the fourth quarter of last year, which had annual sales of approximately $50 million and will be a headwind to volume throughout most of the year. The combined net revenue impact of these actions to our first quarter results was approximately $24 million, which will step up in subsequent quarters. EBITDA was $34 million, representing a margin of 7%, in line with Q4 margins. We are encouraged by the progress in Doors and remain confident that the actions underway will meaningfully improve earnings performance as markets strengthen. Overall for the company, there was about $13 million in net impact from tariffs in Q1 versus prior year. As a result of the recent Supreme Court ruling on tariffs, the company may be eligible for approximately $50 million in refunds across the enterprise. We already have submitted for approximately $25 million in refunds that could benefit the second quarter, but tariff refunds are not reflected in the outlook that Brian will share in a moment. In addition, the majority of inflation stemming from the conflict in Iran is expected to impact our results on a lagged basis. The costs associated with the Iran conflict for the second quarter are expected to be approximately $60 million. About half of the cost will impact our Roofing business with the remainder split between Insulation and Doors. These costs are included in the second quarter outlook. Turning to Slide 10. I'll briefly cover corporate and outlook-related items for continuing operations. General corporate EBITDA expense is expected to be between $245 million and $255 million for the year. Our effective tax rate for 2026 is expected to be in the range of 24% to 26%. Depreciation and amortization is expected to be approximately $680 million for the year, and capital additions are expected to be around $800 million, with more than half driving productivity and growth initiatives across the enterprise. In closing, we are pleased with how our teams executed during the quarter, continuing to deliver resilient performance in the current markets. We remain focused on controlling what we can control, positioning the business for sustained value creation and delivering strong returns for shareholders over the long term. Finally, having spent over 11 years at Owens Corning in a range of leadership roles, including Insulation President and CFO, I am more excited about our future than ever. As Chief Operating Officer, I look forward to working even closer with our teams to strengthen execution and accelerate organic growth by helping our customers win with the OC Advantages. And with that, I'll turn the call back to Brian. Brian Chambers: Thank you, Todd. Our first quarter performance within current market conditions reflects the impact of the structural improvements we've made and the disciplined execution of our teams. In terms of the market outlook for the second quarter, we expect discretionary remodel activity and residential new construction in the U.S. to remain under pressure. Absent major storm activity, nondiscretionary reroof demand should remain solid, but slightly down versus prior year. Nonresidential construction in North America is expected to remain stable. And in Europe, we anticipate a gradual market recovery. Given this near-term outlook, we anticipate second quarter revenue of approximately $2.6 billion to $2.7 billion, slightly below prior year. For adjusted EBITDA, we expect to deliver a margin of approximately 20% to 22% for the enterprise. Now consistent with prior calls, I'll provide a more detailed business-specific outlook for the second quarter. Starting with our Roofing business, we anticipate revenue will be down low to mid-single digits versus prior year. While current year storm demand is tracking in line with historical averages, we expect ARMA market shipments to be down low to mid-single digits in the second quarter based on limited prior year storm carryover and some pull forward of restocking activity into Q1. We expect our shingle volumes in the quarter to be above the market, supported by our customer mix and contractor engagement model, driving strong demand for the OC brand. We anticipate components to be in line with shingle demand. While we are seeing good realization of our April price increase, we expect pricing to be down slightly versus prior year with ongoing input and transportation inflation, resulting in negative price/cost in the second quarter. Given the increased inflation we are seeing in the business, particularly in asphalt, we recently announced another price increase effective June 1. Given our strong market position, we expect Roofing EBITDA margin to be in the low 30% range. Moving on to our Insulation business. We anticipate revenue to be down low single digits versus prior year, inclusive of the sale of our building materials business in China. As a reminder, this business had approximately $130 million of annual revenue, and that transaction closed mid-2025. Within the business, we expect North American residential revenue to be down low single digits, driven by previous pricing actions in addition to slightly lower volumes. In North American nonresidential, we expect revenue to be up low single digits, driven by slightly positive pricing. And in Europe, we anticipate revenue will be up versus prior year, supported by gradual market recovery and currency tailwinds. Overall, for the Insulation business, we expect price to be roughly flat. At the same time, we expect ongoing input costs and transportation inflation to result in negative price/cost. We also expect continued idle impact from lower production versus last year as we manage inventory levels and working capital. Given all that, we expect Insulation EBITDA margin to be approximately 20%. Moving to our Doors business. We expect the market to remain soft, driven by low levels of discretionary remodel and new construction activity. We anticipate second quarter revenue will be down mid-single digits versus prior year, driven primarily by our recent divestitures that Todd discussed. We expect to continue to see the benefits of our integrated go-to-market commercial strategy and ongoing cost optimization work scale throughout the year. Additionally, we expect relatively flat pricing, coupled with an ongoing inflationary environment inclusive of transportation. Overall, for Doors, we expect second quarter EBITDA margin to sequentially improve to high single digits. With that review of our business outlook, I want to close with a few enterprise comments. Within current market conditions, we remain focused on disciplined execution of our strategy and leveraging our unique OC Advantages to help customers win and grow in the market. Those strengths have supported our performance through a wide range of market conditions, and they position us to continue to build Owens Corning as a best-in-industry performer that generates higher, more durable margins and cash flows. We are well positioned to capitalize on key secular trends in housing and energy efficiency that support long-term growth opportunities. And we will stay committed to investing in our people, our capabilities, our brand and our customer relationships while keeping a sharp focus on operational discipline. Finally, I want to recognize and thank our teams for their ongoing commitment to working safely, taking care of our customers and delivering on our cost and productivity initiatives. That focus is what enables us to perform at a high level in any market environment. With that, we would like to open the call up for questions. Operator: [Operator Instructions] Your first question comes from the line of John Lovallo with UBS. John Lovallo: If I missed this, I apologize, but I know last quarter, you had talked about expecting to see market improvement as you move through 2026 with top and bottom line results largely in line with current consensus. Are you still comfortable with that? Or have you guys kind of backed away just given some of the uncertainty in the market? Brian Chambers: John, thanks for the question. I think the year has started out very consistent with what we expected when we talked about in the last call. We've seen actually good progression and a little bit of improvement in terms of the performance in Q1. Our Q2 guide is, again, right in line getting back to these sticky kind of 20% plus EBITDA margins for the company within all of the current market environment and some of the uncertainty. So I think it really shows the confidence we have in the business performance, our execution and the strength of our company. And so we feel very good about kind of how the year is starting out consistent with what we talked about last time, and we think we've got a good year ahead of us given how we're setting up the frame of the company. So yes, we feel good about our performance to start the year. We think it's very consistent with what we talked about on the last call. Operator: Your next question comes from the line of Michael Rehaut with JPMorgan. Michael Rehaut: Congrats, Todd, on your new role. I wanted to focus on Roofing for a moment. If you could just kind of walk through the drivers of the upside on the margin? And also, when you talked about kind of underperforming the market a little bit in the first quarter, I'm curious on the drivers of that, if you maybe were already fully represented in the channel and therefore, there wasn't the same opportunity maybe as some of the other suppliers out there into the channel. And by contrast, what's driving the outlook for outperformance in the second quarter? Brian Chambers: Mike, thanks. When we talk about the upside for Q1, I'd say it's primarily volume driven. So we came into the year expecting that we were going to have a step back in volumes versus prior year. A big part of that driven by really very little storm activity and demand carrying over into Q1. And then we thought the timing of the quarter would be based on a little bit of when the restocking activity was going to occur. With free supply of shingles, we thought some of that could be pushed into Q2. So we saw a little acceleration of that towards the end of the quarter relative to the price increase we have in the market. And so that additional volume really just gave us some additional leverage. I'd say the other piece of it was really within our productivity. The manufacturing team started up and got the operations going exceptionally well given the harsh winter weather. And so we were able to offset some of that $30 million carryover with better productivity and performance in our manufacturing operations. So those were 2 of the big drivers in that. So we underperformed Q1. That's not unusual for us given our retail presence in the markets. We have a pretty strong retail presence. So retail generally does not participate in any stocking activity. They carry a pretty stable inventory levels to feed through the year. So generally, Q1 where wholesale distribution may participate in restocking activities, retail doesn't. So we -- it's a little bit about our customer mix that drives that, and that feeds into kind of our Q2 outperformance because generally, when we get even on all forms of our distribution buying now to market demand, we see that accelerate a little bit for us given that presence. And then based on just the strength of our performance in the business overall, our contractor growth, the other thing -- the other commercial activities we're working, we just see that really come to fruition to drive some additional volume for us here in Q2. Operator: Your next question comes from the line of Stephen Kim with Evercore ISI. Stephen Kim: Appreciate all the color. And again, let me add my congrats to Todd for the new role. I guess I wanted to maybe focus on Insulation, if I could. I'm curious, you provided a little bit of detail regarding North America resi being down, but then nonres being flat. And I think you said Europe was stable with an FX benefit. Curious if you could give us a little bit of insight into what you're seeing in the supply-demand dynamics across those 3 as we think about the rest of the year. For example, in North American resi, what is your expectation around what starts are going to do? And how does industry capacity downtime look like in your view in '26 versus '25? And then if you look into the other segments or subsegments, are there any things that we should be watchful for in terms of either the supply or the demand dynamic? Todd Fister: Thanks, Stephen. I appreciate the question, and thank you for the congratulations as well. I'd be happy to go through segment by segment and give a little more color on what we're seeing. So let me start with North America res. Everyone has seen the strong print we saw in March for new starts at around 1.5 million starts for the month. We expect to see the benefit of that start to come through late in Q2, and that was good news as we get into the spring selling season. When we think about the full year for res, we use consensus. We look at what consensus estimates are for the year and plan accordingly. Consensus has been relatively stable for res. It may tick up a bit if we see continued starts activity strong like we saw in March. But we all know the starts bounce around a bit month-to-month depending on overall dynamics. For res, we would go back to what we've shared before, which is we believe the industry can support between 1.4 million and 1.5 million housing starts with the current installed base of capacity. Given the current heavier mix for multifamily versus single-family, we would expect to be at the higher end of that range. We continue to take idle in our network to manage inventory levels appropriately. We typically build inventory in the early part of the year to support the peak season into Q2 and Q3, but we continue to be disciplined in how much inventory we're building. We assume that's occurring across the industry as well because we're not seeing a lot of inventory -- kind of unusual levels of inventory make its way into the market. So res, we would describe as pretty stable conditions really right now with some encouraging growth coming off of the March starts print. When we look at nonres, there are pockets of real strength in nonres where we're in very strong demand environments. Anything related to AI, data centers, the reindustrialization of North America has been strong for us on the nonres side. So in some of those areas, we're close to being sold out or are sold out in specific product lines that feed into those high-growth segments within nonres. And when we look at Europe, Europe, we're seeing pockets of strength in Europe as well. It's been relatively stable overall. Germany has been a bit weaker. Some of the other regions have been stronger in Europe. But we've got an ability to serve that market, and we've been disciplined in taking downtime in Europe as well throughout this period. So overall, as we look at the back half of the year, we're somewhere between stable and positive, depending on what happens with North American new residential construction in the year. And we've been disciplined around how we're managing our production network through this period. Operator: Your next question comes from the line of Philip Ng with Jefferies. Philip Ng: Congrats on the strong quarter, and congrats to you, Todd, in your new role. I guess to kind of kick things up, a question for Todd. Given the -- you called out inflation for 2Q. Is that like a full ramp? How does that kind of progress as we kind of look through the back half? And I think implied in Brian's guidance for 2Q, it's calling for a negative price/cost spread for most of your segments. Given the increases you guys have announced, I think, 2 in Roofing and more recently 1 for Insulation. As we look out to the back half, assuming you get decent traction, should you get back to like a neutral price/cost spread or maybe even a little positive? How should we think about that dynamic as we think about the back half? Todd Fister: Thanks, Phil. Let me start with the -- what we're seeing in Q2 from Iran-related inflation, and then we could talk about the price over cost dynamics. So the $60 million that we discussed in our prepared comments, around half of that is impacting our Roofing business. The remaining half is impacting Insulation and Doors. It skews more towards Insulation, though, than Doors. So you can think of Roofing, Insulation and then Doors last in terms of a relative impact. When we look at categories of inflation, there's 3 big categories we're seeing right now. There's asphalt inflation, which is entirely in our Roofing business. We then see delivery inflation, which is a mix of delivery to our customers as well as interplant delivery that we have in our network. And then we have purchased materials that we use as inputs into our process, especially chemicals. We know what's happening with asphalt inflation now very directly as oil goes up. Historically, we've been able to offset asphalt inflation with price in the Roofing business on a bit of a lag. It takes some time for the price to hit the market and offset the asphalt inflation. Likewise, for customer deliveries, we have fuel surcharges that are long established in our Roofing and Insulation businesses. Those operate on about a 60-day lag. So it takes some time for us to get a new fuel index and then we pass the surcharge on into the market. So there's a bit of a lag there. And then finally, on the purchase materials, we are seeing inflation on some materials that are really tied to oil. So you look at something like polystyrene in our Insulation business. That's tied to benzene inflation, and we have seen inflation there. So some of those materials we're absorbing right away. When we think about the outlook, $60 million, when you look at asphalt and diesel, if oil stays about where it's at and those 2 commodities stay about where they're at, we would expect that to be a pretty stable run rate then into the back half of the year. On purchase materials, it depends how much of that price starts to come through in our purchases of those materials in the back half. So we could see some ramp in purchase materials inflation in the back half. But if oil stays where it's at, we would expect the first 2 categories of asphalt and delivery to stay relatively stable. We're not seeing a lot of benefit of the June price increases in the Q2 guide that Brian highlighted for Roofing or for Insulation. So we would expect a more positive benefit from those in Q3 and Q4, assuming good market traction, which would then start to offset the inflation that we're seeing come through. So Q2 is the quarter where we're feeling the most pressure of the inflation coming through without corresponding price increases to offset it. And Brian is going to add one comment as well. Brian Chambers: Yes, Phil, maybe just to add to it as well. I think we always want to try to manage our price/cost to a positive setup. But there are other levers we are pulling consistently inside the company around cost efficiencies, productivity. And I think the underlying margins that we're guiding to in terms of Roofing getting back to around 30%, Insulation at 20%, a step-up in margins in Doors even inside this inflationary environment. So we're going to always try to manage price/cost to get to a positive level. But when you look at the underlying margin performance, we've got a lot of other levers that we're pulling in terms of bringing that durability to life. And I think ultimately, that's what we're trying to achieve is how do we get to those kind of stable, high durable margins over time through any kind of inflationary environment or any kind of pricing environment we face in the market. Operator: Your next question comes from the line of Susan Maklari with Goldman Sachs. Susan Maklari: Building on the last -- answer to the last question, can you talk a bit more about the efficiencies and the cost improvements, where we are in that process? How you think about the opportunities across all 3 of the segments and how we should think about them flowing through to the business over the next 12 to 18 months? Todd Fister: Thanks, Sue. I'll take that one. When we look at the big categories we're driving improvement in, we're really focused on how do we drive consistent productivity through operations, sourcing, supply chain in our cost structure. And we have quite a bit of that already in the first quarter of this year as well as the second quarter. And typically, those projects build through the year as we execute on it and then we start to see run rate benefits come through. We're also focused on the step change improvement in efficiency in our Doors business. Brian highlighted the success we've seen on synergies at the $135 million run rate. Much of that is already in our P&L for Doors and for the enterprise. But then we're also focused on the additional $75 million of COGS efficiencies in the business that we're just now starting to see the benefit come through our P&L in Q1 and then into Q2 and building through the course of the year and even into next year. So we're -- we still have room to go on these, but we are seeing a lot of the benefit of the self-help come through to drive the kind of margin stability that Brian talked about in Q2, where we're, again, above 30% margins in Roofing, right around that 20% level for Insulation. And then we're seeing good performance in Doors relative to overall what the industry is seeing. Operator: Your next question comes from the line of Trevor Allinson with Wolfe Research. Trevor Allinson: I'll echo the congratulations to Todd. I want to follow up on the commentary on Roofing pricing with 2Q not really seeing a whole lot of benefit from the increases you guys have announced. Is it your expectation that you're going to see normal realization on these increases and that it just is taking some time for those to get in the market, especially with the distributors taking on some inventory in 1Q? And then if that is the case, as we get into the back half of the year, when these are more fully realized, what are you expecting pricing to be up on a year-over-year basis in the second half of the year in Roofing specifically? Brian Chambers: So let me make sure you heard the comments. When we talked about the price realizations in Roofing, so we are seeing very good realization in April. And so that is absolutely embedded in, and that's going to continue to progress as we go into the back half of the year. What we've got a little bit in, but not a lot is going to be sitting in the June increase just because it's late in the quarter. So we still expect, given current market conditions that we're going to see good realization off of that June increase as well. It's just going to have a little bit more minimal impact as we finish Q2, but we would expect that then to accelerate in terms of pricing realization as we move into the back half of the year. So on a year-over-year basis, I guess, just to kind of walk through that comp, we talked about making some targeted moves into Q4, Q1 to reset some programs with distribution customers. So that was creating a bit of a headwind coming into the year in the first quarter that you saw. So -- as we move through the year, we're going to see positive realization on the April increase, positive realization on the June, and we think that could get to a positive price point as we move through the year. But that's kind of the step through in the progression going forward. But at the end of the day, right now, we're seeing very good realization on April. And given current market conditions, we would expect to see good realization of the June increase as well. Operator: Your next question comes from the line of Anthony Pettinari with Citi. Anthony Pettinari: Good morning. I was wondering if you could talk a little bit more about the tariff refunds and any color on timeline, steps involved, kind of relative certainty of receiving these? And I think you indicated that they are not included in your outlook, but I'm not sure if I heard that right. So just any color there? Todd Fister: Anthony, happy to give color. So first, you're correct. We have not included any tariff refunds in the Q2 guide. So if we see any of that come through, that would be potential upside to what Brian discussed. When we look at the process, there is an established process for filing to receive these. We filed for about $25 million of the $50 million potential refund we could receive. We would anticipate filing for the other $25 million when we're able to later this year. When we look at the timing of this, it could benefit us late in Q2 or potentially into Q3. So we are unsure of the timing of this coming through. When we look at whether or not we should receive the $25 million? I mean, the answer is we should. And in fact, some companies are monetizing now their tariff recoveries for $0.90 or more on the dollar for these near-term recoveries. So the market is saying it's highly likely to receive these, but the timing is uncertain when we will receive the first 25 or the second 25, which is why we did not include it in our guidance. Operator: Your next question comes from the line of Mike Dahl with RBC Capital Markets. Michael Dahl: I just wanted to go back to Roofing one more time. On the price realization, I mean, when you say very good realization, can you quantify that? Our sense has been kind of mid-single digits and then maybe like low to mid-single digits gets realized on June, which effectively would cumulatively be what you need to cover, not just the asphalt inflation, but some of the other inflationary dynamics that you're seeing in that business. So can you talk about -- is that ballpark the right way to think about it? And then when you think about what the prebuy represented for the industry in 1Q, what's your perception of where channel inventories stand today? Brian Chambers: On the price realization, I continue to say we're seeing very good realization. So I'd say we don't ever cut those down in terms of exact amounts, but a little better than historical, I would say. And if you think about how we look at that on average. So we're seeing a little better realization than we'd historically see. And again, I think that's tied to the market environment, the inflationary environment we're getting. And then the June increase, we would expect, again, given current market conditions that we would continue to see very good realization. We announced a little higher rate in the June amount. So that's reflective of kind of the inflationary environment we're running in. Over time, our history has proven that we're able to recover asphalt inflation through price. And it generally lags a couple of quarters given the acceleration of asphalt inflation relative to the price realization rates, and we're seeing that play out this year. But we have high confidence that, with our business model and with our strength in the market, we can recover asphalt inflation through price. Whether we can recover all inflation, that's going to depend a little bit on how the inflationary environment plays out going forward. And if we have to make any other pricing moves relative to that inflationary environment. So that will be -- yet to be seen as the rest of the year plays out. When I look at the restocking and the buys in Q1 or the restocking efforts in Q1, I'd say it had a couple of percent probably move in the industry relative to -- we talked about a market outlook of potentially down up to 20% that was down closer to 10%. So we saw some acceleration coming through over time. But we came into the year expecting to have a weaker first half in overall demand relative to last year. But relative to historical averages, the year is shaping up to be a pretty average year for Roofing. So we had a bit of a headwind on no storm carryover coming into the year. But the setup is still for a solid Roofing year, very constructive Roofing year, probably in line with kind of the historical kind of 10-year average for the full year, assuming we get kind of normalized weather patterns that we started to see here in Q2. And if we see that play out in the back half, I think you'd see a first half that's probably down on a year-over-year basis in terms of market shipments and the second half that could be up to get to that kind of construct for a full year that's pretty in line with the averages. So we feel like the year is shaping up to be another good year. It's going to be a little different shaping in terms of volumes first half and second half versus last year. But we didn't -- don't expect to see anything that's different from our original outlook for how the year is playing out as soon as we get -- or as long as we get weather patterns kind of to a historical norm. Operator: Your next question comes from the line of Matthew Bouley with Barclays. Unknown Analyst: We have [indiscernible] on for Matt today. In terms of what you're seeing in the market today, what have you seen in terms of competitive capacity? Are others also taking some capacity down? And just what has the general industry discipline been around this? Brian Chambers: Are you talking specific to Roofing or Insulation or general? Unknown Analyst: Roofing, yes. Brian Chambers: Roofing. Yes, Roofing capacity, again, no changes in terms of capacity outlooks that we've talked about in the past. So Roofing, though, it's a materials conversion business. So generally, price and margin performance doesn't align to capacity utilization rates like some of the other industries we talk about, we talk about Insulation in that frame. So Roofing being a material conversion business, we feel like we have an advantage given our vertically integrated supply chain and puts us in an advantaged cost position in the market and that gives us the opportunity to drive the kind of margins and performance in the business that we're seeing today in our guide in terms of Q2. If I just step and look at some of the capacity additions coming into the market, we started up our Medina capacity end of last year. That's been very helpful in giving us needed lam capacity to service the Midwest region this year that's coming up. We've got a few other competitors that have announced some line expansions, but we've also seen some competitors that have announced line closures. And that's kind of how we see the capacity in Roofing playing out over the next 2 or 3 years. We think there's going to be some additions, but we also think there's going to be capacity coming out and some of the older assets coming out in lieu of more efficient assets being added into the market. So the other thing I've talked about in the past is we continue to see this mix shift from strip shingles to laminate shingles, and that continues to grow. So there is going to be an ongoing need for more laminate capacity in the industry. So some of this capacity is met just to meet the industry needs that we see evolving over the next 2 or 3 years. Operator: Your next question comes from the line of Rafe Jadrosich with Bank of America. Rafe Jadrosich: You called out some market share gains at Lowe's. Can you just give a little bit more color by segment, what the key driver was? And then is there additional opportunity that you see in that channel at retail to take share? Brian Chambers: Yes. Thanks. So we really use the Lowe's as much as an example of what our now very complementary product offering is bringing to our customers. So Lowe's is an example of a distribution partner that sells Roofing, Insulation and Doors. And when we can bring our full offering to them now and leverage our iconic brand, our merchandising capabilities to help them grow their businesses, it really creates a great partnership where they want to grow with us given our brand -- bringing our broad product offering, given our demand pull-through capabilities in the market. So we saw that as a great example that we're actually taking to other distributors and other distribution partners that we're starting to see some traction around really leveraging this commercial playbook to grow our business and to help our distribution partners grow their business. So Lowe's was an example of that. They've been a good partner of ours for many years in the space. And so we're excited that we get the opportunity to kind of expand in our product offering with them and help them grow their business in the market. Operator: Your next question comes from the line of Sam Reid with Wells Fargo. Richard Reid: I wanted to also talk market share, but from a slightly different angle, specifically just looking for any quantification on how much the contractor network share gains might have benefited your Roofing business in Q2 -- or Q1, I should say, and what that will look like in Q2? And then just give us a sense, are those gains kind of narrowing? Or are they staying kind of relatively consistent? Brian Chambers: Thanks. Yes, I'd say overall, we service today now about 30,000 contractors against an estimated universe of approximately 100,000-plus kind of Roofing contractors in the U.S. market. So we think we've got a lot of opportunity to continue to grow and scale our contractor engagement model. And so -- and we've seen this kind of steady drumbeat of growth over the last few years. We expect that to continue this year and into next. So we still think we've got some upside and opportunity to grow our contractor network. And really, it's demonstrating the value that they're seeing by partnering with us, our brand, our pull-through capabilities, our product offering, our merchandising capabilities, which is really expansive around not just providing a great product, but how we train, how we do in market -- marketing efforts, how we do in-home sales training tools. We do a lot of work in terms of providing digital capabilities and expanding their ability to market in their local market. So it's really a full service suite that we provide our contractors that really is why we continue to see this growth overall in our contractor base and expect that to continue. In terms of how that impacted Q1, I would say it's very difficult to kind of target where that contractor strength is coming through. It's early in the year. So generally, given just the seasonality of Roofing, we don't see the benefits of these contractor conversions until we get into the season. So I'd say pretty limited impact in Q1. But certainly, Q2, Q3, we get through the rest of the year, we're going to continue to see the benefits of that expanded base generating demand for our product as we move forward. Operator: Your next question comes from the line of Collin Verron with Deutsche Bank. Collin Verron: Just wanted to ask one on Doors. I think the guide is for revenue down mid-single digits. You have some divestitures going on there. So any more color as to sort of what you're seeing from an underlying organic volume perspective and how you're viewing potential demand for the rest of the year? Are we nearing a bottom? Or do you guys still see more headwinds as we move through the rest of the year? Brian Chambers: Yes. Thanks, Collin. I think overall, we feel we're making great progress really bringing the OC playbook into our Doors business. So from an operational standpoint, Todd talked earlier about the cost synergies we're seeing, the operational efficiencies through network optimization that's really helping to improve the margin performance, and we think that continues to grow as we move through the year. And then from a volume standpoint, we saw in Q1 volumes seem pretty stable versus Q4, which was a positive sign given some of the market dynamics we faced in the back half of last year and actually saw the order book accelerating to finish the quarter kind of coming into this quarter. So I think we feel good that we're able to go out and generate some incremental volume for our business relative to this integrated commercial playbook we're going to market with. I talked about Lowe's. One of the categories that we saw an increase with them was in the Doors category. We've seen that across our dealer network that I talked about on the last call that we're driving more volume with our distribution network because of the strength of our total portfolio and our brand. And then we're making quite a lot of investment in that downstream pull-through, particularly with dealers and builders that really benefits our Doors pull-through in terms of volume and capacity as we go forward through the year. So I think we've got a lot of, again, self-help initiatives in place around our commercial activities that we're starting to see some benefits of some of the order book growing. And then that's kind of falling now against a market backdrop that we do think is stabilizing and would expect to see pretty solid performance in new construction, as Todd talked about, hopefully some solid performance in R&R. But I think we're positioning the business to increase margins kind of sequentially as we go through the year with some big upside as we actually start to see market dynamics get even better. Operator: Your next question comes from the line of Adam Baumgarten with Vertical Research Partners. Adam Baumgarten: Just back to the Roofing price topic, just on the slight decline you're expecting in 2Q. Is that just despite the pretty good realization you were talking about, is that just a product of pricing maybe falling sequentially a bit through the back half and maybe even 1Q and then you're going to get that increase, but you can't quite overcome some of the maybe slippage you saw earlier? Brian Chambers: Yes, Adam, I think that's a fair way to phrase it. We saw some declines, again, based on some targeted pricing moves we made to start the year that felt and that flowed through the first quarter. So as we kind of move into Q2, we're seeing some of that carryover. We're seeing the increase from the April increase in good realization. And then we've got the June one that's out there. And depending on kind of the realization rates of that one, that's what's kind of causing a little bit of a cautious outlook to say we could still be a little bit negative on price as we go through the quarter. Operator: We have reached the end of the Q&A session. Pardon me, we have one more question. This question comes from the line of Keith Hughes with Truist. Keith Hughes: Questions on Europe. You called that out as a positive on the guidance. I guess the question, there's a lot of input inflation there, coming probably more than in the United States. How does that square up for the rest of the year? Todd Fister: Thanks, Keith. When we look at Europe -- so we see a few things in Europe. Over a long period of time, we've been able to get price consistently in Europe, and we've got price increases in the market right now. We will see some inflation on the energy side, in particular, over time in Europe. But we hedge quite a bit of our energy usage, both in North America and Europe, which tempers the impact of any short-term variability in Q2, Q3. And Europe is still poised for long-term growth. We've got pockets of Europe that are strong right now. That's being offset with the German market that is still sluggish to recover. So overall, we remain bullish on Europe longer term in terms of the ability to drive top line with really attractive bottom line performance given all of the self-help work our team has done there to get the cost structure right and poised to rebound in a better market. Operator: There are no further questions at this time. I will now turn the call back to Brian Chambers for closing remarks. Brian Chambers: All right. Well, I want to thank everyone for making time to join us on today's call and for your ongoing interest in Owens Corning. We look forward to speaking to you again on our second quarter call. Thanks, and have a safe day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the Greenlight Capital Re First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to David Sigmon, Greenlight Re's General Counsel. David, please go ahead. David Sigmon: Thank you, and good morning. I would like to remind you that this conference call is being recorded and will be available for replay following the conclusion of the event. An audio replay will also be available under the Investors section of the company's website at www.greenlightre.com. Joining us on the call today will be our Chief Executive Officer, Greg Richardson; Chairman of the Board, David Einhorn; and Chief Financial Officer, Faramarz Romer. On behalf of the company, I'd like to remind you that forward-looking statements may be made during this call and are intended to be covered by the safe harbor provisions of the federal securities laws. These forward-looking statements reflect the company's current expectations, estimates and predictions about future results and are subject to risks and uncertainties. As a result, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may impact future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time. Additionally, management may refer to certain non-GAAP financial measures. The reconciliations to these measures can be found in the company's filings with the SEC, including the company's Form 10-K for the year ended December 31, 2025. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, it is now my pleasure to turn the call over to Greg. Greg Richardson: Thank you, David. Good morning, everyone, and thank you for joining us. We reported net income of $35.8 million in Q1 2026, driving an increase in fully diluted book value per share of 4.7%. Our net income was driven by a combination of strong investment performance with the Solasglas portfolio returning 6.8% in the quarter, an excellent result in a challenging market and an underwriting profit of $6.2 million, which equates to a combined ratio of 96.0%. Our underwriting results in the first quarter includes a $5 million provision linked to the Middle East conflict. This added 3.2 points to our combined ratio. As we referenced on our earnings call in early March, the Middle East conflict remains a fluid situation. While a cease-fire is currently in place, and we hope the conflict will end soon, significant uncertainty remains. In Q1, we received an immaterial amount of formal loss notifications. However, given the high degree of uncertainty, we felt it was prudent to establish a $5 million general provision for potential losses. On our Q4 2025 call, I provided an update on our 1/1/26 renewal season and the market environment at the time. While April 1 is not a major renewal date for us, market trends are unchanged with softening across most lines. April 1 is the primary renewal date for Japanese business. Due to significant rate decreases this year, we decided to nonrenew our direct Japanese cat business. Given the relatively small amount of premium, the limited margin potential no longer made sense for the portfolio. We remain disciplined. We expect Open Market reinsurance written premium this year to be lower than in the prior year given the soft reinsurance market. On the other hand, we expect our Innovations segment premium to continue to increase, given the organic growth of our existing client portfolio, a strong flow of new business opportunities, more favorable rate trends and our ability to monitor and influence terms and conditions. As a management team, we are focused on delivering consistent profitability over the long term. While our shares have been trading at a discount to our growing book value, we have all along maintained that strong underwriting and investment results will ultimately be reflected in our share price. We have started to see this recently following the release of our full year 2025 results. Meanwhile, we have returned $14.5 million of capital to our shareholders year-to-date via share repurchases under our Board-approved share repurchase plan. As I have noted previously, we are optimistic about the opportunities ahead and Greenlight Re's positioning. Now I'd like to turn the call over to David. David Einhorn: Thanks, Greg, and good morning, everyone. The Solasglas fund returned 6.8% in the first quarter. The long portfolio contributed 1%, the short portfolio contributed 5.7% and macro contributed 1.2%. During the quarter, the S&P 500 Index declined 4.4%. The largest positive contributors were long investments in gold, Acadia Healthcare and DHT Holdings. The largest detractors included our macro position in short-term interest rates and our long investments in Kyndryl Holdings and Graphic Packaging. Gold was the largest positive contributor as its price advanced 8% during the quarter. Gold spiked through the end of February amid dedollarization concerns leading to gains in both our physical and call option positions. We took some profits, which lowered our total exposure and allowed us to preserve most of our gains in gold as it declined in March. Acadia Healthcare shares advanced 65% during the quarter. We established a small position in late 2024 when the shares came under pressure following the New York Times investigation into patient treatment. The decline continued as the company's aggressive expansion strategy weighed on results. In late January, shares recovered when the company removed the incumbent CEO and announced the return of its well-regarded former CEO. Should the company be successful in improving occupancy to its target levels, we believe annual earnings per share can double. DHT Holdings shares advanced 53% during the quarter. The company owns and charters very large crude carriers, which were in short supply even prior to the war. With day rates increasing to 5x the long-term average level, these elevated rates, we expect will allow the company to pay a dividend that is nearly quadruple this year. The largest detractor for the quarter was our long SOFR futures position. After the war began and oil prices spiked, the market [indiscernible] to doubt the Fed's ability to cut rates, resulting in losses for the quarter. We maintained the position as we view the oil price shock as ultimately a headwind to growth, creating a viable pathway for the incoming Chairman of the Federal Reserve to lower rates. Kyndryl shares declined 58% during the quarter. We owned Kyndryl for more than 4 years through a successful turnaround following its spin-off from IBM. Recently, it became more difficult for the company to win new business and the shares were on [indiscernible] back near our entry price. Fortunately, along the way, we took some profits at higher prices. We exited our remaining position during the quarter. Graphic Packaging shares declined 33% during the quarter. The company missed earnings expectations and lowered guidance as costs for its new paper mill came in well over budget. Also, the company replaced its experienced CEO with a new one who recently oversaw a major disappointment at its prior company and has yet to outline a clear strategy. While the shares have suffered, we believe they are extremely cheap relative to reasonable mid-cycle operating results. We initiated a medium-sized position in Versant Media Group following its recent spin-off from Comcast. Shares declined after the spin-off as Comcast shareholders sold stock they received, and the index removals triggered additional selling. This resulted in Versant trading at under 4x adjusted EBITDA and an implied cash flow yield that we believe will allow the company to return almost all its entire market cap to shareholders within 4 years. Prior to the war, we cautiously positioned with relatively low gross and net exposure. While most market participants are optimistic that the conflict will be resolved soon and with minimal repercussions, we continue to prioritize capital preservation and maintain some dry powder. Our net exposure at the end of the quarter was about 41% compared to about 40% at the end of 2025. Solasglas returned 0.4% in April, bringing the year-to-date 2026 return to 7.2%. Net exposure in the investment portfolio was approximately 30% at the end of April. We continue to be pleased with the performance of the company's underwriting portfolio and investments. We remain disciplined in our capital allocation and are being deliberate on where we can generate the best returns on our invested capital given the many levers we have at our disposal, including share buybacks. And now I'd like to turn the call over to Faramarz to discuss the financial results in more detail. Faramarz Romer: Thank you, David. Good morning, everyone. During the first quarter of 2026, Greenlight Re reported net income of $35.8 million or $1.05 per diluted share. Total underwriting income was $6.2 million, resulting in a combined ratio of 96%, which was 8.6 points better than the same period last year. The 2026 first quarter combined ratio benefited from 10.5 points of improvement due to lower cat and event losses contributing 5.8 combined ratio points compared to the same period last year, which included 18.1 combined ratio points related to the California wildfires. Favorable loss development contributed 4.1 points of improvement in the combined ratio and was offset by 4 points of higher acquisition cost ratio and 1.2 points of higher expense ratio. Our net investment income for the quarter was $40.4 million compared to $40.5 million in the first quarter of 2025. $33.7 million of the investment income related to our investment in Solasglas, which posted a strong 6.8% return in the quarter, the remainder related to interest income on our collateral and funds withheld balances. I will now break down the first quarter results by segment, starting with the Open Market segment. The Open Market segment reported a pretax income of $11.9 million composed of underwriting income of $6.8 million and investment income of $5.1 million. For the quarter, the Open Market segment net written premiums decreased by 22.7% to $151.3 million, while net earned premiums decreased by 13.8%. A decrease in net earned premium was expected as it related to the casualty book, which we had decided to nonrenew early in 2025. The remainder of the decrease was mostly related to downward premium adjustments on quota share specialty property and multiline contracts. The Open Market combined ratio for the first quarter improved by 11.2 points to 94.8% compared to the same period in 2025 due to favorable loss development and lower cat losses. First quarter favorable reserve development was 2.2 percentage points compared to adverse development of 3.3% in first quarter last year. Cat losses were $5 million related to the Middle East conflict in the first quarter of this year versus $27 million relating to the California wildfires in Q1 last year. The improvement in combined ratio was partially offset by higher acquisition cost ratio due to higher commissions reported on the FAL programs and higher expense ratio attributed to performance-based long-term incentive compensation. Overall, the Open Market segment had a strong performance during the quarter. Now let's turn to the Innovations segment. The Innovations segment produced an underwriting loss of $0.6 million and an investment income of $1.1 million. During the quarter, the Innovations gross written premiums increased by $20.1 million or 73% to $47.6 million, mainly driven by new business and exposure growth from existing treaties in casualty, financial and specialty lines, combined with growth in Syndicate 3456, which is presented under Multiline. We renewed our Innovations whole account retrocession program on January 1, 2026, increasing the ceded share from 28.5% to 33%. Therefore, the ceded premiums in the first quarter increased due to the combination of growth in underlying business and a higher portion ceded. The net earned premiums for Innovations segment increased by $6.2 million or 32% to $25.2 million. The combined ratio for the Innovations segment was 102.3% during the first quarter, which included 1.4 points related to adverse prior year development compared to 3 points of favorable development in the first quarter last year. The attritional loss ratio was 4.4 points higher, mainly related to a financial lines program where the past loss experience warranted a higher current year loss ratio. The expense ratio for this Innovations segment was unchanged at 8.2% in spite of the increase in earned premiums. We continue to invest in talent and technology in readiness for future growth of this segment. During the first quarter, we repurchased 298,701 shares for $5 million at an average price of $16.7 per share. Subsequently, during the month of April, we repurchased an additional $9.5 million of shares, bringing our year-to-date repurchases to $14.5 million. On April 28, the Board approved a new share repurchase authorization of $40 million effective May 15, 2026, and expiring at the end of May 2027. At the end of the first quarter, our fully diluted book value per share was $21.40, an increase of 4.7% for the quarter. Our primary metric continues to be growth in fully diluted book value per share, and we are pleased with the first quarter 2026 results. That concludes our prepared remarks. The operator will now open the line for your questions. Operator: Thank you. We'll now be conducting your question-and-answer session. [Operator Instructions] Thank you. As there are no questions at this time. Should you have any follow-up questions, please direct them to Jeremy Hellman at -- The Equity Group Inc. at ir@greenlightre.ky, and he'll be happy to assist you. This does conclude Greenlight Re's First Quarter 2026 Earnings Conference Call. Thank you. You may now disconnect.
Operator: Greetings, and welcome to the Clean Harbors First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael McDonald, General Counsel for Clean Harbors. Mr. McDonald, you may begin. Michael McDonald: Thank you, Christine, and good morning, everyone. With me on today's call are Co-Chief Executive Officers, Eric Gerstenberg and Mike Battles; our EVP and Chief Financial Officer, Eric Dugas; and our SVP of Investor Relations, Jim Buckley. Slides for today's call are posted on our Investor Relations website, and we invite you to follow along. Matters we are discussing today that are not historical facts are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Participants are cautioned not to place undue reliance on these statements, which reflect management's opinions only as of today, May 6, 2026. Information on potential factors and risks that could affect our results is included in our SEC filings. The company undertakes no obligation to revise or publicly release the results of any revision to the statements made today other than through filings made concerning this reporting period. Today's discussion includes references to non-GAAP measures. Clean Harbors believes that such information provides an additional measurement and consistent historical comparison of its performance. Reconciliations of these measures to the most directly comparable GAAP measures are available in today's news release on our Investor Relations website and in the appendix of today's presentation. Let me turn the call over to Eric Gerstenberg to stock. Eric? Eric Gerstenberg: Good morning, everyone, and thank you for joining us. Before we move into the results, I want to recognize our General Counsel, Michael McDonald, who will be retiring next month. Michael has been a trusted colleague and an integral part of the Clean Harbors team for more than 25 years, and his judgment and perspective have been invaluable. We thank him for his many contributions and wish him good health and happiness in the years ahead. Thank you, Michael. Starting off with safety. Our team delivered an extraordinary safety results in Q1 by achieving the lowest quarterly total recordable incident rate in our history at just 0.39. While we invest in better equipment, technology and company-wide programs to improve safety, you only get the type of results we are achieving with buying at the field level. We are continually setting a higher standard for our company and our industry. For any employees tuned in today, thank you for all the best you do and keep yourself safe and your colleagues safe. Turning to a summary of results on Slide 3. We kicked off 2026 with better-than-expected Q1 results, including higher profitability in both of our segments. Despite challenging weather conditions that impacted our collection and services business in February, we exceeded our EBITDA expectations and improved the company's adjusted EBITDA margin by 60 basis points from Q1 2025. Within the Environmental Services segment, we demonstrated our resiliency by delivering the segment's 16th consecutive quarter of year-over-year improvement in adjusted EBITDA margin and 18th straight quarter of EBITDA growth. At the same time, Safety-Kleen Sustainable Solutions segment benefited from our continued focus around charge for oil services and from a late quarter surge in base oil pricing that lifted its profitability. Turning to the segments, beginning with ES on Slide 4. Q1 revenue in this segment increased by more than $40 million due to growth in project services, including PFAS-related opportunities and a considerable amount of emergency response work. We also continue to see healthy demand for our disposal and recycling services. Technical Services revenue rose 5% and Safety-Kleen Environmental Services revenue grew 7%, driven by pricing and higher volumes within its core offerings. Incineration utilization, including the new Kimball incinerator was 80% versus 81% a year ago, reflecting scheduled maintenance days and weather-related impacts in both periods. Continuing the trend of the past several quarters, we generated a sizable increase in landfill volumes, which rose by 34% on strength of project work, including PFAS-related claims. Field service revenue grew 7% in the quarter as we responded to a steady stream of customer emergency events across the U.S., including a large-scale event that generated approximately $10 million in revenue. We opened 18 field service branches during 2025 and plan to open 10 more in 2026. While these new locations will take some time to grow their revenue base, our investment speaks to the opportunities we see in field services as well as our ability to cross-sell across other businesses. Adjusted EBITDA was up 6% in the quarter, with ES segment margin up 50 basis points due to pricing, higher volumes, workforce productivity and cost control initiatives. Overall, our ES segment achieved positive Q1 results despite certain market conditions in the quarter, including weather and regional softness in our Industrial Services business. We exited the quarter with considerable momentum for ES in March. Revenues were approximately 10% higher than the same month a year ago. Turning to Slide 5. We wanted to take a moment to highlight our PFAS management framework that we issued in early April. The purpose today is not to cover the individual details of the framework, but to reemphasize that we have an end-to-end cost-effective solution for PFAS in all of its forms and concentrations. Over the past several years, we've had many customers, government agencies and even community leaders approach us for advice on how to best address PFAS. For example, they call on us when they want us to clean up contaminated water, remove stockpiles of AFFF firefighting foam and need someone to respond to emergency situations like fire [indiscernible] spills or remediate a contaminated site. Customers have a lot of uncertainty around PFAS, and we believe our framework featured on this slide is beneficial to help them make smart economic decisions at all stages of the process. Our recommendations are based on years of institutional knowledge and the latest scientific data, including the PFAS incineration study we completed in conjunction with the EPA and the Pentagon. Our concentration-based framework provides the proper treatment and disposal pathway for a range of scenarios. This tiered approach provides the ideal way to address complex contaminants at reasonable costs. We are starting to see considerable regulatory movement around these forever chemicals. Both the Department of Water in March and the U.S. EPA in April have issued PFAS guidance that included incineration, hazardous waste landfill and water filtration as recommended methods of treatment and disposal. The market is still developing, but having both the Pentagon and the EPA issued guidance that endorses high temperature, permanent incineration and our other PFAS offerings is critical. Those endorsements of our proven capabilities add to the momentum we are already seeing in our PFAS sales pipeline. As PFAS remediation accelerates nationwide, our integrated framework provides a practical and scalable model for industry and government partners. Today, we continue to believe that Clean Harbors remains the only company that can offer a cost-effective end-to-end single-source solution that is commercially scalable for any PFAS need. With that, let me turn things over to Mike to discuss SKSS our reference related to AI and our capital allocation strategy. Mike? Michael Battles: Thanks, Eric, and good morning, everyone. Turning to SKSS on Slide 6. The year-over-year decrease in segment revenue was expected and reflects lower market pricing for base and blended products as compared to a year ago. This was partially offset by an increase in charge-for-oil revenue as well as rising base oil prices toward the end of the quarter. That base oil price increase and the work the team has done to manage our costs over the past year has led to a meaningful rise in profitability. Q1 adjusted EBITDA in SKSS grew 17% to $33 million with an impressive 320 basis point improvement in margin. We increased our CFO pricing sequentially from Q4 and more than doubled our rate from Q1 last year. We continue to provide high-level services to customers. And even with a higher CFO, we collected 53 million gallons of waste oil to keep our re-refinery running efficiently. At the same time, sales of base and blended gallons were consistent with the prior Q1. We incrementally grew both our direct lubricant gallons and Group III gallons sold versus Q1 a year ago. Those gallons carry a premium value and profitability compared to our other products. Overall, our SKSS segment delivered better-than-anticipated results. Turning to Slide 7. This morning, I want to briefly touch on the topic of artificial intelligence, an area of immense potential for us. Technology has been part of Clean Harbor's DNA and a competitive differentiator for decades. AI is the next practical layer of that. We have implemented AI type functionality for years, and we continue to see real opportunity to improve productivity, compliance, safety and customer service over time. We use AI in many areas, including waste classifications, invoice audit, ready-to-bill automation, document processing and field support tools. We are also evaluating opportunities in routing, scheduling and supply chain logistics. Our approach is disciplined, governed data, human-in-the-loop controls and clear operating use cases. People and technology creating a safer, cleaner environment has been our corporate slogan for many years. AI will continue to be a key element of our technology journey, and we expect our AI efforts to keep delivering meaningful financial returns for us in the years ahead. Turning to capital allocation on Slide 8. We continue to look for internal and external opportunities to generate the best return on our shareholders' capital. In recent years, we have executed well against all elements of our capital allocation framework, and we expect 2026 to be no different. We closed the DCI acquisition at the end of Q1, and we're excited about other attractive candidates that could materialize in the very near future. We're also investing wisely internally to accelerate our growth, including our previously announced back truck fleet expansion, SDA unit in East Chicago and other smaller revenue-generating opportunities that have recently developed. We ended the quarter with an ample cash balance and low leverage to execute both facets of our growth strategy. We also continue to view share repurchases as an attractive way to return value to our shareholders. Eric will detail our Q1 purchases, but we continue to see our shares as attractive at current market prices, given the favorable long-term outlook for our business. We exited Q1 with momentum in a number of fronts. Within our disposal and recycling network, we are seeing an improving U.S. economic backdrop to drive our base business, supported by growth opportunities stemming from reshoring, PFAS and project services. Within -- with a large number of maintenance days in our incinerators now in the rearview, we expect to deliver mid- to upper 80% utilization for the full year. SK Environmental should deliver another consistent year of profitable growth. Our Field Service business continues to strengthen its position as a trusted national provider for environmental emergency response. Our Industrial Services business continues to operate in a challenged market, but initiatives we are undertaking now should position us for growth and better margins as conditions improve. For SKSS, we are capitalizing on elevated pricing and demand dynamics associated with global market disruptions and a continued focus on maximizing profitability while enhancing long-term customer relationships. Overall, we expect another year of exceptional profitable growth, margin improvement and free cash flow generation. With that, let me turn it over to our CFO, Eric Dugas. Eric Dugas: Thank you, Mike, and good morning, everyone. Turning to Slide 10. Our quarterly results came in ahead of the expectations we outlined in February, driven primarily by SKSS outperformance and continued strong execution from the Environmental Services segment. Total Q1 revenue increased 2% to $1.46 billion, reflecting solid top line growth for the quarter. Following some weather-related impacts in February that Eric mentioned, the ES segment delivered a record revenue month in March. Q1 adjusted EBITDA increased 6% to $248 million. Our consolidated Q1 adjusted EBITDA margin was 17%, representing a 60 basis point improvement from the prior year period as both operating segments contributed higher margins. This margin expansion reflected a combination of our ongoing initiatives, including disciplined pricing, leveraging volume growth, effective cost controls around labor and cost internalization as well as network and transportation efficiencies. SG&A expense as a percentage of revenue in Q1 increased year-over-year to 14.2%, partially due to higher incentive compensation and insurance costs in the current period. For the full year, we still expect SG&A expense as a percentage of revenue to be in the high 12% range. Depreciation and amortization in Q1 was $116 million, up slightly from a year ago. For 2026, we expect depreciation and amortization in the range of $460 million to $470 million. First quarter income from operations was $119 million, up 7% from the prior year. Net income in Q1 increased 8% as we delivered earnings per share of $1.19. Turning to the balance sheet on Slide 11. We ended the quarter with cash and short-term marketable securities of approximately $670 million, providing ample flexibility to execute on the capital allocation priorities that Mike outlined. We closed the quarter with a net debt-to-EBITDA ratio of approximately 2x, while our debt currently carries a blended interest rate of 5.2%. Our balance sheet remains in terrific shape as we move into the more cash-generative quarters of the year. Turning to cash flows on Slide 12. Cash provided from operations in Q1 was $6 million. CapEx, net of disposals was $97 million, down roughly $20 million from the prior year. Included in this quarter's CapEx figure is approximately $15 million of cash investments in strategic growth projects, including the SDA unit and our vacuum truck fleet expansion. Adjusted free cash flow, which excludes spend from these strategic projects, was a negative $76 million in the quarter and in line with our expectations. As a reminder to folks, due to seasonality, negative adjusted free cash flow is typical in Q1 for our company. For 2026, excluding our expected $85 million of spend on the SDA unit and $25 million related to our fleet investment, we now expect net CapEx to be in the range of $350 million to $410 million with a midpoint of $380 million. This represents a $10 million increase versus the guidance we provided in February due to some investments related to attractive growth opportunities in select markets and geographies. We are acting these opportunities by making additional property investments and adding capabilities at certain sites where we see immediate returns. As such, these investments require a modest increase to our 2026 capital plan. During Q1, we bought back approximately 87,000 shares of stock at a total cost of $25 million or an average price of approximately $287 per share. At March 31, we had approximately $575 million remaining under our share repurchase authorization, reflecting the expansion of that program by our Board in February. Turning to our guidance on Slide 13. Based on current market conditions and our Q1 results, we are now guiding to a 2026 adjusted EBITDA range of $1.24 billion to $1.30 billion, with a midpoint of $1.27 billion or an increase of $40 million from our prior guidance. Given positive trends and market factors, which have developed late in Q1 and on into Q2, we now expect meaningful increases in both of our operating segments and are confident in our revised outlook. At the midpoint, this updated 2026 guidance now implies adjusted EBITDA growth of approximately 9% versus 2025. Looking at our annual guidance from a quarterly perspective, we expect second quarter adjusted EBITDA to grow 5% to 9% year-over-year on a consolidated basis. Looking at how our annual guidance translates into our reporting segments. At the midpoint of our guidance range, we now expect our 2026 adjusted EBITDA in Environmental Services to grow 5% to 8% for the year. We exited Q1 with increasing demand across disposal, recycling, remediation work and our SK branch offerings. Our facilities network is positioned to process record volumes this year with strong execution from our sales team in a market backdrop of reshoring activity, robust project work and expanded PFAS-related work. We also expect to see continued expansion in our Field Services business. This 2026 guidance midpoint now assumes that our SKSS segment delivers approximately $165 million of adjusted EBITDA, up approximately 20% from 2025 and higher than the $135 million we provided in February due to the increase in base oil prices. There is significant uncertainty around the duration of the overseas conflict and its impact on petroleum-derived products such as base oil. We believe $165 million is an appropriate assumption at the current time given the wide range of potential outcomes. Within corporate, at the midpoint of our guidance, we expect negative adjusted EBITDA to increase by approximately 3% to 6% compared to 2025. This modest growth is primarily driven by higher wages and benefits, costs to support business growth, increased insurance costs and acquisition-related impacts. Looking at it as a percentage of revenue, we expect Corporate segment results to be flat to slightly down from the prior year. For 2026, we now expect adjusted free cash flow in the range of $490 million to $550 million with a midpoint of $520 million. That represents a $10 million increase versus our prior guidance, reflecting the higher adjusted EBITDA we now anticipate this year and considering the revised CapEx assumptions. We're off to a strong start in 2026, and our Q1 performance has led us to raise our full year expectations for both operating segments. We expect the positive demand environment we are seeing today to support strong profitable growth through the balance of the year. We're encouraged by our growth trajectory and remain focused on executing against our long-term vision and goals as we move through the rest of 2026. And with that, Christine, please open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Noah Kaye with Oppenheimer. Noah Kaye: Great start to the year. I'm just trying to think about the growth profile across business lines here in the second quarter in the guide. Clearly, I think you mentioned improving trends, really accelerating trends across segments. In March, I think you said 10% year-over-year revenue growth within ES in March and base oil prices improving as well. So I guess if we just unpack kind of the midpoint of the EBITDA guide for 2Q, how do we kind of think about that, if possible, from a segment perspective? Because it seems like your exit trends imply a pretty good amount of upside to that. Eric Gerstenberg: Yes. Noah, this is Eric. I'll start. When you think of our different business segments, Clearly, as Mike pointed out, there's still a lot of fluctuation in what's going to happen with base oil, but we're cautiously optimistic that, that segment is going to continue to overperform. When we think about our Environmental Services segment, as we saw in Q1, our growth rates of our SKE business, our Technical Services business, our Field Service business, all are north of mid-single digits and higher. Industrial Services, we continue to be cautious about looking at how that business will perform, especially in light of how refineries these days and turnarounds are producing -- are trying to maximize the production of fuel and diesel and jet fuel. So that business, we expect to obviously have a stronger second quarter and third quarter, but probably pretty flat year-over-year. Eric Dugas: I think to address kind of the Q2 question you had, Noah, in terms of the segments, I agree with all of Eric's points. To put a little bit finer point on Q2, I think when you look at the Environmental Services segment, Q2 last year strong. Q1 this year, kind of in that 5%, 6% range, very similar growth pattern as we move into Q2 here for Environmental Services, a little better than what we thought 3 months ago. And so that's nice to see. On SKSS, obviously, the year-on-year growth in Q2 greater than that, probably in excess of 10% due to the increase in base oil pricing predominantly. Noah Kaye: That's super helpful, guys. I want to pick up on your comments around the field expansion, the branch expansion and the cross-selling opportunity there. Can you talk a little bit more about that? Like how do you generate cross-sell from the field expansion? How does it translate across the business? If you can give us some examples, that would be helpful. Eric Gerstenberg: Yes, absolutely. When you think about our Technical Services business going out and collecting waste and packaging and bringing it back, those same technical services customers have -- the larger ones have environmental needs to have us respond with Field Services to clean their production tanks, to perform vacuum services above and beyond those baseline disposal lines -- disposal and transportation lines of business. When you think about our Safety-Kleen Environmental customers, we're seeing the same things where those smaller customers, smaller locations still have tanks and still have emergency response events, still have fleets that need our Field Services, services to respond to their fleet emergencies or minor spills that they have as they transport goods throughout the country. So our job is to make sure that as we grow out our footprint that when we have a technical service branch footprint or SKE branch that we're complementing that by building out all of our Field Service branch capabilities in those same locations and growing our cross-sell with all of our lines of business. We have about 60 different lines of business that we service. And when you think of the number of technical -- the types of technical services customers, they consume about 20 to 25 lines of business. Safety-Kleen customers is about 5 to 6 of those business unit lines of business. Field Services complements both of those business units by responding to their needs, and that's why we continue to build out that field service footprint. It also, I would say, is that as we talk about field service branches, we're strategically trying to make sure that we are always the first call for any emergency response, large or small. And our team has been doing an excellent job of positioning us with emergency response agreements with large and small customers that we can be there from our needs. And those efforts, the team has done a great job there, and they're really paying off. And that's to come back around and to answer your question, Noah, our field service business is really complementing those other business units. Operator: Our next question comes from the line of Bryan Burgmeier from Citi. Bryan Burgmeier: Just on the '26 guide, the updated '26 guide, just curious if there's any impact from kind of rising diesel costs, maybe the impact to 1Q or 2Q as you kind of pass those costs along to customers or maybe that's kind of happening in real time? Just any thoughts on that would be helpful. Michael Battles: Yes, Bryan, this is Mike. I'll take a shot at that. The diesel, we have a recovery fee that covers many different things, including the price of diesel that gets reset monthly. And so we tend to offset the cost of the diesel prices with that recovery fee. It's really been a long-standing process we've had for many, many years. It's based on the underlying price of diesel, and I think it's been well understood and well accepted by our customers and it moves every month. So I think that the rising price of diesel as it relates to Environmental Services, the rising price of diesel has kind of an immaterial effect on our profitability, on our margins. It's almost a pass-through. On the SKSS side, obviously, it's very much more material. Bryan Burgmeier: Got it. Got it. Yes, that makes sense. And then I appreciate the kind of overview and your thoughts on AI. Just maybe from a high level, where do you see the greatest opportunity right now? Would you say it's maybe on top line, bottom line? Is it efficiency or safety? Just some general thoughts on where the opportunities lie. Michael Battles: Sure. I'll start. The -- when I think about artificial intelligence, it was interesting as we prepared for this call, we start wanting to talk a little bit more about AI. We went back and looked and we were actually talking about AI and robotic process automation back in 2017. So we've been actually having these types of technologies in our systems, in our processes. As we say, we think we're leading in technology in Clean Harbors and AI is just the next iteration of that. And again, we've been talking about it for many, many years. So all the things I laid out in my prepared remarks, they're all part of the reason why the margins have gone up 16 straight quarters for 4 straight years. They're all that and many other things we do as an organization, with that type of safety, compliance and profitability drivers, whether it be invoice audit automation, faster profiles, I mean the list goes on and on. I mean we're making a more concerted effort here in 2026, a little more money, not a lot more money, but there's many, many different projects out there that are -- that help us from a safety and compliance standpoint as well as profitability. And it's hard to put a real number on that, like how much is that related to it. It isn't a huge spend, but we do see it as a great opportunity. Operator: Our next question comes from the line of Jerry Revich with Wells Fargo. Jerry Revich: I'm wondering if you could just talk about the cadence of demand that you're seeing in Industrial Services, especially on the refining end market given the improved spreads. I'm wondering what you're expecting over -- as we head into turnaround season and what's the potential upside in that line of business now that the customers are a lot more profitable than a year ago? Eric Gerstenberg: Yes, Jerry, to start the year, we went out with our sales team, and they did touch points with over 12,000 customers that have both small and large type turnarounds planned for the year. And our overall turnaround count seems to be consistent with last year. However, with what's going on with the Iran conflict, we're also seeing that those refiners really want to run full out to make as much fuel and diesel as they can. And preliminary trends that we're seeing exiting first quarter seems to be that those are more of pit-stop-related refinery turnarounds shorter in duration. So while the count seems good, they have been shorter in duration, we've evident. We have had a few that have expanded in scope that we've seen, and we think that, that's primarily due to last year, they were also constricting their spend. But we're cautiously optimistic. We're staying close with our clients. We're making sure that we manage all their needs. Our specialty services is growing when we perform those turnaround services as well. So we'll continue, I think, 90 to 120 days from now, we'll have a better outlook of what we're seeing. Jerry Revich: Okay. And then, Mike, can we just circle back to your comments in the prepared remarks on the M&A pipeline. Can we -- to the extent you're comfortable, just talk about the sizes of potential deals that you're looking at? Is it one large deal? Is it multiple deals? And any color that you could share or willing to share on what are the key signposts from a timing standpoint that we should keep in mind? Michael Battles: Yes, Jerry. So when we think about M&A, it's been another busy year here at Clean Harbors. It's just like it was last year, which just weren't as successful. But we got the DCI acquisition over the goal line that closed here in Q1. And there's many other opportunities out there, all in our swim lane, primarily in Environmental Service that have permanent facilities that feed our network or have a large collection network. So these are many out there. I think some are very close to closing. Some are -- but there's plenty in the hopper, mostly smaller deals, tuck-ins type of transactions, but I think those have been plentiful this year. Operator: Our next question comes from the line of James Ricchiuti with Needham. James Ricchiuti: Just based on what you're seeing in the Industrial Services turnarounds in the energy market, which I think you just characterized as kind of like pit-stops in nature. Does that suggest something more meaningful in the back half we see some change in the overall pricing environment for a while? Eric Gerstenberg: We don't see a change from the pricing environment, no, but could suggest that in the back end that it might be a little bit more heavily loaded on turnarounds in Q3 and some bleeding into Q4. Obviously, as mentioned earlier, they're running hard right now. But we're staying close with those customers, making sure that we're available for all of their needs, and we'll be there to service them. Michael Battles: Yes, certainly hopeful that, that pattern comes to fruition, Jim. But just to be clear, kind of in the guidance as we have it laid out right now, we don't have large turnaround activity coming back in the second half. again, hopeful that, that happens. But the way we have it laid out right now is pretty flattish year-on-year. James Ricchiuti: Got it. And just with respect to the activity, the more positive trends that you're seeing in ES in March, can you give any color on -- and maybe more broadly in the quarter, which market verticals are you seeing changes versus your expectations, say, entering the year? I think you alluded to it. Eric Gerstenberg: Yes, James, we're seeing very strong trends with multiple verticals. Chemical, a little bit too early to tell. But in other areas such as health care and retail, we are driving expansion of those businesses. Pharma has been showing a lot of strength. Manufacturing, we're seeing volumes being really strong. So a number of areas in our verticals that are pushing volume growth across the network in both Technical Services as well as SK Environmental, other things like universities and household hazardous waste days, pretty confirmed good spending trends. The number of quotes overall that we're seeing across the business is continuing to grow substantially. Our pipeline is strong in various areas, including project services. So a number of verticals we're seeing expansion in. Michael Battles: Jim, the only thing I'd add to that is that you've been covering us for a long time. We've been doing this for a long time. And normally, we don't raise guidance after 90 days in the quarter, whether we -- unless there's an M&A or something like that. So the fact that we're raising guidance on both segments here just after just giving guidance 6, 7 weeks ago should tell you about our view as we think about the rest of the year. James Ricchiuti: Yes, it does. And I appreciate that additional color and congrats on the nice start. Eric Gerstenberg: Thank you. Operator: Our next question comes from the line of Larry Solow with CJS Securities. Lawrence Solow: I was going to follow up on that question just because I know you mentioned the economy, too, the backdrop seems to be improving, and you gave a little more color on that. Just a question I had was, has there been any hesitation from any customers through the kind of just the Iran conflict going on? Has that interrupted you guys at all? It doesn't feel like much. Obviously, we talked about the oil effects. But outside of that, has any customer behavior changed at all due to maybe inflationary pressures they're feeling. Obviously, your energy customers are kind of drinking from the fountain there from the hose, but just outside of those customers. Michael Battles: Larry, this is Mike. Thanks for the question. I guess I would say that we haven't seen a lot of disruption because of the conflict. As a matter of fact, one would think, logic would tell you that you're getting kind of more U.S. production, that should be, if anything, a short-term pop from a short term -- from a manufacturing standpoint, you want to be closer to your customers, you're worried about supply chain. I mean those types of things that happened during COVID, frankly, that may be happening again. And certainly, if you look at some of our larger customers and read their earnings releases and their transcripts, you come away with that impression that they are definitely -- whether or not the demand environment is changing, I don't know, but that's still kind of muted. But certainly, as the U.S. manufacturing should grow in the short term because of this conflict, if you're betting then. Lawrence Solow: Right. Okay. And then just a question more mid- to longer term on PFAS, and I appreciate all the color and the framework that Eric provided there. Just so the DOW, the EPA, obviously, they've given kind of guidance. It still feels like it's interim, though, right? Because they're not really establishing actual requirements. They're just kind of laying out the options, right, for removal. So are we still waiting for like a more finalized guidelines or requirements for customers that might actually accelerate growth over the next couple of years? Eric Gerstenberg: Larry, I'll start. So certainly, we've talked about in the past, the revenue that we did in 2025 was about $120 million plus, and our pipeline was continuing to increase by 20%. To start the year, based on the activity and the announcements over the past couple of quarters, we're seeing an accelerated pipeline. And our whole reasoning behind putting out that recommended guidance was because we see customers responding to that. When they have PFAS needs like changing out AFFF fire suppression systems or fire departments need to change out their fire trucks or an airport is going to be remediated because they're going to put a new runway down. We're using that guidance, and they're accepting it. And they accept it because of who we are and what we know and how we utilize our network in order to perform those responses. So I think the point is that we're seeing that framework being enacted, customers acting more and more responsibly, regulatory agencies acting more and more responsibly. There definitely seems like there's more momentum going into this year than a year ago at this time, too. So we're -- even though there hasn't been any formal specific guidance like what we put out, we're acting by that. We see the market acting by that when they need to deal with their situations. Operator: Our next question comes from the line of David Manthey with Baird. David Manthey: First off on the new guidance. So it looks like $30 million of the $40 million midpoint EBITDA increase is because of SKSS. And as you said, I mean, you don't normally raise guidance in the first quarter. So should we expect the benefit from spreads in SKSS to flow ratably second quarter through fourth quarter? Or are you thinking about this like, hey, we have visibility on the second quarter based on where spreads are now, and we'll assess the potential third quarter and beyond spreads when we report in second quarter in July or whatever. Eric Dugas: Sure, David, it's Eric. I'll take that one. I would say we have the better base oil pricing kind of spread ratably between Q2 and Q3. Certainly more insight into Q2 right now, given the uncertainty around how long oil stays high. So I would think about it kind of ratably through Q2, Q3. I think Q4 remains better just with a lot of the things that the business is doing as well. But in the current guidance, we kind of assume pricing maybe coming back down a little more towards normal as we get closer to year-end. David Manthey: Okay. That's helpful. And then as it relates to Kimball, I know initially, you were doing a lot of starting and stopping and doing some test burns and things. As we sit here today, is Kimball sort of running on a normal schedule? Is it taking what you would consider normal waste streams at this point? Eric Gerstenberg: Yes, David. Kimball ramp-up has gone extremely well. We more than exceeded our tonnage targets in 2025. We're out of the gates exceeding our expectations in 2026. The plant is running well. Team has done a great job, and we're on track with everything that we've laid out in the past from financially. When you think about 2025, our overall EBITDA contribution was about $10 million this year, add another $10 million to $15 million to that. But we're hitting our goals, our targets, and the plant is running very well. Operator: Our next question comes from the line of Adam Bubes with Goldman Sachs. Adam Bubes: How are you thinking about potential to maybe hold on to some of the charge-for-oil actions in a base oil up cycle? And is there a way you would advise us thinking about SKSS EBITDA growth on a percent higher base oil prices or maybe incremental margins are a way to frame that? Eric Gerstenberg: Yes, Adam, we -- the team throughout 2025, we were responding to some very challenging conditions with what was happening with base oil and did a great job of moving to a charge-for-oil basis. As we exit Q1, we're in that $0.60 range, and we look to continue to manage. We had lost some gallons, but we really want to continue to manage in a charge-for-oil scenario. It's a waste that needs continued processing and refinement. And we want to make sure that we continue to operate that way and operate efficiently even though the base oil market has been changing. Michael Battles: Adam, we worked really hard to change the industry from a pay for oil to a charge for oil and it's a long painful 18 months, and we're not that interested in giving it back. Obviously, we're going to need to be selective on that because we want to make sure we keep our gallons flowing into the re-refineries, but I think we'll be loathed to do that. Adam Bubes: And then can you just help us think about where your realized base oil price was in the quarter? And how is that compared to the exit rate? Michael Battles: I mean base oil prices, I don't have exact numbers to share with you, but base oil prices certainly went up as we got towards the end of the quarter. The conflict started in late February. We gave guidance in mid- to late February. The conflict started in late February, prices started ramping up, and that was part of the beat here in Q1. And frankly, the guide raise in Q2. Operator: Our next question comes from the line of James Schumm with TD Cowen. James Schumm: So maybe just a couple of clarification questions for me. So the SKSS guide, up 30%, we're spreading that over 2 quarters, Q2, Q3. So that's like $5 million additional or incremental per month over those 6 months? Or did you realize some benefit in Q1 and you're assuming a little bit of benefit in Q4? Just maybe some help there. Eric Dugas: I would describe it as this. We certainly realized some of the benefit in Q1. We talked about that kind of on the call. In Q2 and Q3, I would say kind of an equal amount of incremental benefit and then kind of back down to normal in Q4. Q4 has a small kind of year-on-year increase in our current assumptions. But as I alluded to a moment ago, there's -- and in my prepared remarks, a lot going on in the business, a lot changing even early as today, some news. We have some assumptions we're working on right now, and we're going to come back in 3 months' time and kind of update those. But I would think about it as the increase that's in the bank in Q1, spread pretty evenly between 2 and 3 for the rest of the $30 million and then kind of flattish to up a little bit in Q4. James Schumm: Okay. And then on PFAS, it sounds like you just kind of mentioned some -- maybe some accelerating momentum there. Is 20% the right growth rate to continue to think about this? Or does the accelerated pipeline maybe we should be thinking about like a 25% growth rate? Or is that too premature? Eric Gerstenberg: Yes. We -- it's more in the 25% to 35% range of what we're seeing initially here entering the year. So strong pipeline, number of samples that we're seeing to analyze for PFAS contamination that customers have been submitted have been up. The pipeline in both soil remediation, AFFF change-outs as well as industrial and municipal water treatment, all of those areas, we're seeing improvement trends as we begin here in 2026. Operator: [Operator Instructions] Our next question comes from the line of Tobey Sommer with Truist. Tobey Sommer: I'd love to get your perspective on the EPA guidelines, any differences that you've noticed between those fresh and the DoD and what you expect to hear from customers or, in fact, are already hearing. Eric Gerstenberg: Yes. No, we were really excited, obviously, to get -- to see over the goal line, the approving of incineration by the Department of War. Our teams have been working with already 700 different military installations to make sure that we're here for their needs. So all positive trends there. Just as you know, we spoke in the past that we had Lee Zeldin down and visited our incinerator down in Houston a while ago, and he recently commented about meeting with environmental and us on helping to solve the PFAS challenges out there. So we're excited by just seeing some of that limited momentum about disposal of technologies being pushed out there, by particularly the Department of War. Michael Battles: Tobey, it just revalidates what we already know that we have a great end-to-end solution. As Eric said in his prepared remarks, we have -- we can solve any of our customers' PFAS problems, and we've proven that both internally with our own framework as well as externally with the Department of War or the EPA. Operator: We have no further questions at this time. Mr. Gerstenberg, I'd like to turn the floor back over to you for closing comments. Eric Gerstenberg: Thanks, Christine, and I appreciate everyone joining us today. We are participating in several investor events in the coming weeks, starting with the Oppenheimer Conference tomorrow. We are looking forward to seeing many of you at these events. And as always, have a great, safe rest of your week. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good morning. I would like to welcome everyone to Kennametal's Q3 Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note that today's event is being recorded. I would now like to turn the conference over to Michael Pici, Vice President of Investor Relations. Please go ahead. Michael Pici: Thank you, operator. Welcome, everyone, and thank you for joining us to review Kennametal's Third Quarter Fiscal 2026 results. This morning, we issued our earnings press release and posted our presentation slides on our website. We will be referring to that slide deck throughout today's call. I'm Michael Pici, Vice President of Investor Relations. Joining me on the call today are Sanjay Chowbey, President and Chief Executive Officer; and Pat Watson, Vice President and Chief Financial Officer. After Sanjay and Pat's prepared remarks, we will open the line for questions. At this time, I'd like to direct your attention to our forward-looking disclosure statement. Today's discussion contains comments that constitute forward-looking statements and as such, involve a number of assumptions, risks and uncertainties that could cause the company's actual results, performance or achievements to differ materially from those expressed in or implied by such statements. These risk factors and uncertainties are detailed in Kennametal's SEC filings. In addition, we will be discussing non-GAAP financial measures on the call today. Reconciliations to GAAP financial measures that we believe are most directly comparable can be found at the back of the slide deck and on our Form 8-K on our website. And with that, I'll turn the call over to Sanjay. Sanjay Chowbey: Thank you, Mike. Good morning, and thank you for joining us. I will begin with an overview of the quarter, including end market commentary followed by a discussion on unit volume trends. From there, Pat will cover the quarterly financial results and the fiscal year '26 outlook, along with an early look at fiscal '27. Finally, I'll make some summary comments, and then we'll open the line for questions. Turning to Slide 3. Let me begin by addressing some of the highlights from our strong third quarter. Our global commercial teams continued to advance our strategic growth initiatives. The infrastructure team delivered solid growth. In construction, we saw volume growth from strong product performance and the advantage we have as a secure source of tungsten in a tight supply environment. Additionally, we received large orders in our defense business, further securing ongoing growth in this market as we head into fiscal '27. In metal cutting, we continue to increase our share of wallet with key accounts, especially in aerospace and defense and build upon our momentum in energy from AI power generation initiatives. In general engineering, we have been winning new customers through targeted promotional campaigns and improvements to our digital customer experience, especially for our small- to medium-sized customers. As you know, we continue to prioritize above-market growth as a strategic imperative, and these wins position us well in our key end markets. Turning now to the broader tungsten environment. Prices continued their unprecedented increase throughout the quarter, rising from approximately $900 per metric ton to $3,000 as the supply of material continued to be constrained. This tungsten price and supply environment have created both challenges and opportunities. On the challenges front, we have seen a highly competitive market for material, but our supply chain has held up relatively well. We have and will continue to implement pricing actions in response to these rising tungsten costs and remain confident in our ability to secure that price. We are also focused on managing the working capital and balance sheet implications of higher tungsten costs. In terms of opportunities, our vertical integration has been a real strength in this market, providing us better supply chain control and flexibility compared to some competitors. For example, as competitors are turning away orders or extending lead times, we are well positioned to capture business that is aligned with our strategic priorities. During the quarter, we capitalized on these opportunities in each of our business segments, specifically earthworks within infrastructure and aerospace and defense in metal cutting. These new opportunities also facilitate shaping our product portfolio away from lower margin to higher-margin solutions. As such, we are seeing a unique combination of three factors that are opening the door to sales opportunities. First, continued market recovery; second, solid execution on our strategic growth initiatives; and third, a window of opportunity from the current tungsten market, which is likely to persist in the near term. Given those dynamics, we are prioritizing our time and attention on growth opportunities over restructuring initiatives in the near term. And we are shifting the time line for facility closure actions we had previously planned to complete in fiscal '27. We will provide additional detail on the restructuring time line as appropriate. Even with that shift, we are still targeting approximately $110 million in savings from cost takeout actions by the end of fiscal '27, which is $10 million above what we outlined at Investor Day. Now let's move to our quarterly results, which once again exceeded our sales and EPS outlook. Compared to outlook, sales were mostly driven by increased price realization and better-than-expected volume in both segments. EPS benefited from the additional price raw timing of $0.09, positive volume and lower-than-anticipated tax rate. Year-over-year, sales increased 19% organically. Please note, this was our third consecutive quarter of organic growth, driven by additional price realization, strategic growth initiatives and continued recovery in several end markets. Adjusted EPS increased to $0.77 compared to $0.47 in the prior year quarter. And adjusted EBITDA margin was 20.8% compared to 17.9% in the prior year quarter. Cash from operating activities year-to-date was $70 million compared to $130 million in the prior year period. Free operating cash flow year-to-date was $18 million compared to $63 million in the prior year. Free cash flow was adversely impacted by increased working capital requirements related to tungsten prices. Finally, we returned $15 million to shareholders through dividends. As it relates to our outlook, today, we are raising our sales and EPS outlook for fiscal '26. This update reflects the additional price due to the continued rise in tungsten and additional volume. Pat will provide more details on our updated outlook shortly. In summary, we are pleased with this quarter's results and how the team is navigating these unique business conditions. As I mentioned, there are opportunities and challenges in this market, and we remain focused on delivering on our commitments throughout fiscal '26 and setting ourselves up for a successful fiscal '27. Now let's turn to Slide 4 for an end market update. As a reminder, our full year outlook reflects forecast of specific market drivers and general market conditions. The top half of this slide reflects our sales outlook at the midpoint and includes price, volume and market factors. My comments will focus on the bottom half of the slide and address transportation and energy, which are the only end markets that changed since our last call. IHS estimates for transportation slightly improved from the previous estimate, up in the low single-digit range, mostly driven by improvements in Asia Pacific market. Energy improved slightly relative to our prior outlook as customer sentiment improved. The tone is now cautiously optimistic, which is an improved stance compared to what customers were previously signaling. Turning to Slide 5. As we have talked about over the last several years, customer activity rates and our sales volumes have been below the pre-COVID peak. I want to take some time to provide insight into unit volume and how those trends have improved over the last few quarters. This chart uses units sold volume and excludes the impact of price and foreign exchange. It also excludes infrastructure defense sales as these are lumpy and not tied to industrial production metrics. Now let me spend a moment on what is driving the volume recovery and just as importantly, why we believe it's sustainable. As the call-out indicates, we are now experiencing the second consecutive quarter of year-over-year trailing 12-month unit volume growth despite a macro backdrop that has been uneven. Volumes are strengthening in the Americas and Asia Pacific, but EMEA continues to lag, and that is consistent with what we are seeing in PMI and industrial production data. A key driver continues to be aerospace and defense, which remains strong across both metal cutting and infrastructure. Importantly, this strength isn't simply tied to OEM build rates, which are still roughly 20% below pre-COVID levels, but rather to share gains and deeper penetration with tier suppliers. That gives us confidence there is still additional runway as production rates normalize over time. We are also starting to see early signs of stabilization in general engineering and energy, even while headline indicators remain soft. In Energy, power generation continues to see meaningful momentum. And while U.S. land rig counts are still about 30% below pre-COVID levels, we are seeing enough stabilization to suggest we are past the trough. In infrastructure, earthworks has delivered volume gains for 2 consecutive quarters, driven by share gains. Stepping back, if you look at the chart, global volumes are now up approximately 3% from the Q1 fiscal '26 trough following 36 months of stagnant industrial production. Our performance is not just the result of a market recovery. It's shaped by where we compete, how we allocate resources and where we are winning share. We know we operate in cyclical end markets, but we are quite confident in the long-term growth potential of these markets and our ability to capture share within them. Now let me turn the call over to Pat, who will review the third quarter financial performance and the outlook. Patrick Watson: Thank you, Sanjay, and good morning, everyone. I will begin on Slide 6 with a review of our Q3 operating results. Sales were up 22% year-over-year with an organic increase of 19% and favorable foreign currency exchange of 5%, which was slightly offset when adjusting for the divestiture we concluded last year. Sales volume in the quarter was up low single digits. At the segment level, organic sales increased 30% in Infrastructure and 12% in Metal Cutting. On a constant currency basis, Americas sales increased 27%, Asia Pacific sales increased 25% and EMEA was up 2%. The sales performance this quarter exceeded the expectations we provided last quarter on higher sales volumes from better market conditions and share capture. We also had higher-than-expected price, primarily in infrastructure from the continued rapid increase in tungsten prices. By end market, on a constant currency basis, Earthworks grew 43%, Energy increased 28%, Aerospace and defense grew 23%, General engineering grew 14% and Transportation increased 1%. I will provide more color when reviewing the segment performance in a moment. Adjusted EBITDA and operating margins were 20.8% and 13.8%, respectively, versus 17.9% and 10.3% in the prior year quarter. The margin increase was driven by favorable price raw of $39 million within the Infrastructure segment, pricing and tariff surcharges in Metal Cutting, increased sales and production volumes and year-over-year restructuring benefits of $7 million. These are partially offset by higher compensation costs, which are mostly performance-based, tariffs and general inflation and a prior year benefit from an advanced manufacturing tax credit of approximately $8 million that did not repeat in the current year. Adjusted earnings per share was $0.77 in the quarter versus $0.47 in the prior year period. The main drivers of our EPS performance are highlighted on the bridge on Slide 7. The year-over-year effect of operations this quarter was positive $0.36. This reflects approximately $39 million of favorable timing of price raw material costs, price and tariff surcharges in Metal Cutting, higher sales and production volume and incremental restructuring benefits of $7 million. These are partially offset by higher compensation costs, tariffs, general inflation and higher raw material costs in Metal Cutting. There was a headwind of $0.08 related to the net prior year manufacturing tax credit. You can also see the $0.02 of transaction gains related to preferential Bolivia exchange rates. Currency, other and pension impacts offset each other. Slides 8 and 9 detail the performance of our segments this quarter. Reported Metal Cutting sales were up 18% compared to the prior year quarter with 12% organic growth and favorable foreign currency exchange of 6% Regionally, excluding currency exchange, Asia Pacific increased 18%, the Americas increased 17% and EMEA increased 3%. Looking at sales by end market on a constant currency basis, Aerospace and defense increased 27% year-over-year due to improved build rates in Americas and easing supply chain pressures in EMEA, combined with our global focus on deeper market penetration. Energy grew 17% this quarter from data center power generation wins. General engineering increased 13% year-over-year due to price, volume gains in Asia Pacific and stronger distribution sales in the Americas. And lastly, transportation increased 1% year-over-year due to price and market softness, primarily in EMEA. Metal Cutting adjusted operating margin of 11.2% increased 160 basis points year-over-year, primarily due to higher price and tariff surcharges, higher sales and production volumes and incremental year-over-year restructuring savings of approximately $5 million. These factors were partially offset by higher compensation, tariffs and general inflation and higher raw material costs. Turning to Slide 9 for Infrastructure. Reported Infrastructure sales increased 29% year-over-year with organic growth of 30% and favorable foreign currency exchange of 4%, partially offset by a divestiture effect of negative 5%. Regionally, on a constant currency basis, Americas sales increased 42%, Asia Pacific increased 35% and EMEA sales were flat. Looking at sales by end market on a constant currency basis, Earthworks increased 43% from higher demand in construction as we were able to provide product to customers who are unable to source product from other players and share gain in underground mining. Energy increased 34%, mainly driven by price. General engineering increased 18% due to price and higher powder demand in Asia Pacific, partially offset by lower demand in EMEA. And lastly, Aerospace and Defense increased 17% due to defense orders, driven by continued focus on growth initiatives and timing in the Americas. Adjusted operating margin increased 680 basis points year-over-year to 18.3%, primarily from the favorable timing of pricing compared to raw material costs of $39 million and year-over-year restructuring savings of $2 million. These items were partially offset by higher compensation costs and a prior year manufacturing tax credit of $8 million that did not repeat in the current year. Now turning to Slide 10 to review our free operating cash flow and balance sheet. Our third quarter year-to-date net cash flow from operating activities was $70 million compared to $130 million in the prior year period. This change was driven primarily by higher working capital from higher tungsten prices and increased volumes of tungsten to secure our supply chain. Our third quarter year-to-date free operating cash flow decreased to $18 million from $63 million in the prior year, primarily due to the increased primary working capital changes I just referenced, partially offset by lower capital expenditures. On a dollar basis, year-over-year, primary working capital increased to $819 million from $654 million. On a percentage of sales basis, primary working capital increased to 32.4%. It's important to note that from both an earnings and cash flow perspective, the business is operating as it normally would when the price of tungsten rises. In periods of rising tungsten prices, we always experienced favorable price raw timing effects in sales and earnings, while we experienced headwinds to cash flow as primary working capital grows based on tungsten valuation. What is unique about the current circumstance is the magnitude of the rise in tungsten prices. In no recent time have we experienced a ninefold increase. Due to the uncertain nature of tungsten pricing and the corresponding pressure it has placed on working capital, we once again made the decision not to repurchase shares. Net capital expenditures decreased to $52 million compared to $67 million in the prior year quarter. In total, we returned $15 million to shareholders through dividends. Inception to date, we have repurchased $70 million or 3 million shares under our $200 million authorization. We remain committed to returning cash to shareholders while executing our strategy to drive growth and margin improvement. We continue to maintain a healthy balance sheet and debt maturity profile. At quarter end, we had ample liquidity to support the business with combined cash and revolver availability of approximately $742 million. And as always, we remain well within our financial covenants. The full balance sheet can be found on Slide 16 in the appendix. Now on Slide 11, regarding our full year outlook. We now expect FY '26 sales to be between $2.33 billion and $2.35 billion, with volume ranging from 2% to 3%, net price and tariff surcharge combined of approximately 16%, and we anticipate an approximate 2% tailwind from foreign exchange. The increased outlook reflects additional pricing actions related to the increase in cost of tungsten since our February call. Specifically, within the fourth quarter, we expect net price and tariff surcharges combined of approximately 35% compared to the prior year quarter. We now expect adjusted EPS in the range of $3.75 to $4. This outlook includes approximately $2.45 related to the timing of price raw benefit due to the rise in tungsten prices, the significant majority of which affects the Infrastructure segment. This effect increased $1.50 from the prior outlook. On the cash side, the full year outlook for capital expenditures is now anticipated to be approximately $85 million. And free operating cash flow is expected to be approximately negative 30% of adjusted net income, reflecting the working capital pressure from the rising cost of tungsten as discussed earlier. It's important to note our outlook does not include any effects from the conflict in the Middle East. The other assumptions in our outlook are noted on the slide. While it is earlier than normal, I would like to take a moment to provide a bit of a framework to help you think about FY '27. First off, our current assumption is that tungsten prices will remain elevated for some period of time going forward. That implies there will be significant carryover pricing given the 35% price expectation for the fourth quarter. This carryover pricing will diminish as FY '27 progresses since we would fully lap it in the fourth quarter. Keep in mind that this assumption holds price at the fourth quarter level. Also, we would expect price raw timing benefits in a flat tungsten environment will continue through the first half of FY '27 with the bulk of the benefit occurring in the first quarter. Outside of tungsten, we would expect normal cost inflation going into FY '27. However, we would see performance-based compensation reset the target, providing a $20 million tailwind. We will also see additional savings from restructuring and continuous improvement of $10 million. We will provide the rest of the details, including market expectations for FY '27 on our call in August. Back to you, Sanjay. Sanjay Chowbey: Thank you, Pat. Turning to Slide 12. Let me take a few minutes to summarize. We have delivered 3 strong quarters so far in fiscal '26, driven by price and modest improvements in various end markets, project wins on the commercial side and productivity and cost improvement actions. Going forward, we will remain focused on the strategic growth initiatives and lean transformation we have underway while also exploring ways to strengthen our portfolio over time. Additionally, we will continue to actively manage our tungsten supply chain. And in summary, we remain confident in our plan for long-term value creation for shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] And today's first question comes from Steve Volkmann with Jefferies. Stephen Volkmann: Can we just start with what do you think -- what was the incremental margin on the volume in the quarter? Patrick Watson: Yes. I think the volume incremental margin was pretty normal for us, Steve. I think there's a couple of things, obviously, in the quarter that are kind of masking that because we've got some big numbers being thrown around there. Obviously, you've got the $39 million worth of price raw timing benefit coming through. In the prior year, we had that $8 million advanced manufacturing tax credit. And then I'd say the third component there that's just unusual for us is variable compensation. So last year, we would have been on the low side of accruing for variable compensation. This year, given performance, we're a bit on the high side. In the quarter, that's like an $18 million number there in and of itself. And then, of course, you have some benefits coming through for restructuring. But when you pull all that back, volume leverage is pretty normal for the business. Stephen Volkmann: Okay. And then it sounds like you've adjusted price. You obviously have a big forecast for the fiscal fourth quarter. Are we like where we need to be today in terms of price? Or will there be more price that sort of flows through in the fourth quarter and maybe even later into the summer? Sanjay Chowbey: Yes. Steve, this is Sanjay. As you know, this is a very dynamic situation that we are managing, and we'll continue to monitor how that moves. As even the last call, you talked about that how it was moving on a daily basis, hourly basis. So that's why we will just tell you that we are looking at different market variables. And our -- definitely, our goal here is to fully offset the cost implication of tungsten. Patrick Watson: I would just add to that, we did put price in here in the market, various states by region, but effectively in the April, May time frame. Stephen Volkmann: April, May... Operator: And the next question comes from Steven Fisher with UBS. Steven Fisher: Congrats on managing all the complexities here. Just a follow-up on that last question. Just curious about the differences between metal cutting and infrastructure. I know with infrastructure, it does tend to be fairly quick to capture that pricing. I'm just curious -- confidence that you can really fully pass on the price increases within the metal cutting and what the frequency of timing you can put that through? Essentially, are the customers that are going to these distributors, are they really seeing a 35% increase on the shelf there from these products? Just curious if there's any real differences there in dynamics between metal cutting and infrastructure. Sanjay Chowbey: Yes, sure, Steve. I think, first of all, like in the past, we have talked about the metal cutting is a list price business. And also when you look at the material flow, even there is more lag in that, but infrastructure sees that first. And based on the different product, we also have like different content of how much tungsten is used. So that will reflect -- when you look at the growth numbers, sales growth numbers by different end markets within the different segments, you will see, in some cases, very, very high number. Many cases, those are driven by the higher content of tungsten. So we have in infrastructure, many customers who are on the index price basis, but many others are not. And we do move relatively quicker on infrastructure pricing. In metal cutting, there's a 3- to 6-month lag generally. And then based on the list price change, we implement that. Steven Fisher: Okay. And then maybe just a little more color on what you're seeing in energy and how you see that evolving for the next few months. Just curious what you are hearing from your customers there? And is that something you're preparing for kind of a bit more of a ramp-up? Sanjay Chowbey: Yes. On the energy, I'll divide the equation into two pieces here. First is the AI power generation-related energy demands, which we see more so in the metal cutting side. Definitely, as you know, there's a lot of industrial activities driven around the world, but a lot in the U.S. also. And we are very well positioned with our innovative solutions, application support and custom solutions for our customers, and we are doing a pretty good job in winning share there. And I do believe that, that will continue. And as you have seen in even this quarter report, we talked about that quite a bit. When it comes to the other side of energy, which is more or less, let's say, oil and gas, it will definitely touch a little bit metal cutting, but a lot more in the infrastructure side. As we talked about it, that there is a little bit of optimistic view, but it's cautiously optimistic view. The rig count projection right now has gone from 527 to 532. But if you look at the market, there are 2 camps. There are people who are saying that there will be a lot more investment coming up here. And there are people who are saying that this is temporary and things like that. But our overall conclusion based on what we see, the trough is behind us, and we should see some steady improvement going forward. Operator: And our next question is from Julian Mitchell with Barclays. Julian Mitchell: Just maybe a first question, just to try and clarify the tungsten related sort of tailwind to EPS, I think you said $2.45 for fiscal '26 in aggregate. In the fourth quarter, is it around $1.75? Is that roughly the right math? Just wanted to check that. Patrick Watson: Yes. I think if you kind of back into that, Julian, we had about an EPS terms of about $0.16, I think, in Q2, $0.39 here in Q3. And so we just forced the rest out of Q4. Julian Mitchell: That's great. And then maybe, Pat, help us understand those moving parts around the sort of cash flow, year-ending leverage, when you might look to resume the share repurchase program? Help us understand what that free cash flow in the fourth fiscal quarter is looking like? And how quickly does it sort of reverse following that based on where tungsten is today? Patrick Watson: Yes. So I would think about it this way, and we talk about this from a -- how does the cost structure lag from an income statement perspective, that obviously, the balance sheet is following that, too. So as tungsten has ramped, we're going to continue to see inventory build on a valuation basis here in the fourth quarter. That's really what's driving that negative free operating cash flow for the full year. And so as that kind of builds up, we would anticipate you get about a quarter or two out. Again, from a change in tungsten, we would kind of get flatlined. The business would then move back to its normal pattern in terms of its cash generation ability. Obviously, as I said kind of in the scripted remarks here, the magnitude of what we're dealing with here is just significantly larger than what we've seen in the past, right? Think about that from a share repurchase perspective. Look, we've been very committed to returning cash to shareholders through the dividend program as well as through our repurchase program. Our desires have been at a minimum to offset dilution from equity compensation programs. We just fundamentally think that's good housekeeping. In the current environment, what would we want to see to really resume that? We really want to see some stabilization and clarity about where tungsten is headed. Our obvious thesis here at the moment is that tungsten should be relatively stable. That being said, it's a very dynamic marketplace today. Operator: The next question is from Steve Barger with KeyBanc Capital Markets. Steve, you may be muted on your side. Steve Barger: You talked about good activity in aerospace and defense and some share gains in infrastructure and earthworks. But at the same time, I think you said some competitors are turning away orders, presumably on price cost. So can you talk about what you think is happening with prebuy and just people scrambling to get product due to inflation? And then how does that map to the longer-term durability of share gains? Sanjay Chowbey: Yes. Steve, this is Sanjay. I'll take that first. First of all, we did see some prebuy, but it was mostly in the infrastructures earthwork construction business. Beyond that, there was not much material impact on prebuys in the rest of the business. We did see opportunities also in the earthworks business within infrastructure and also in aerospace and defense in metal cutting, where we did see some evidence, where we were able to capture, where competitors were not able to either provide proper lead time or even just meet the demand. So that's how we saw that. Does that answer your question? Steve Barger: I think so. Just so I'm clear, why do you think the competitors are not able to meet demand right now? Sanjay Chowbey: Yes. What we have seen some competitors are definitely having problem in getting raw material. And even if they're getting raw materials, they're also pretty booked and they're putting longer lead times. So in some cases, we are able to provide a better lead time, and that's how we got it. Patrick Watson: I would say that, I mean, the opportunity, obviously there, Steve, is that there is short-term disruption in the marketplace. That gives us an opportunity to quote and win business that maybe we wouldn't normally have seen the same opportunities on. The opportunity for us and the challenge to our sales organization, quite frankly, is to convert that to permanent long-term share capture. Sanjay Chowbey: Yes. One more thing, Steve, I will add to that. I think for investors who may be listening to us first time, I do want to mention that this situation that we have with tungsten is not driven by higher demand. It is driven by supply constraints. As in past, you have seen some of the times, tungsten went up. At the same time, oil and gas and some of the other industry, which consumes a lot of tungsten went up. This time, it is because of supply constraints and also export controls. So just simply, in a big portion of market, there is less supply right now. Steve Barger: Yes. Understood. That actually is a good segue to my next question. If I heard you right, you're slowing facility closures. And last quarter, you expected restructuring savings of $125 million. Now that's $110 million. Are those 2 things related? And if so, why -- maybe I missed it, why are you slowing facility closure? Sanjay Chowbey: Yes, very good question. As we said in the prepared remarks, and I will clarify that a little bit more. Obviously, we are seeing right now more growth opportunities, which is driven by all 3 factors: market improving, then also share gain through our routine strategic growth initiatives that we have talked about it in the past. And on top of that, a window of opportunity from the tungsten situation. So we look at how we can create the best value for all our stakeholders. And we feel right now that allocating more resources on growth opportunities and driving our routine business leverage will create more shareholder value for now. And that's how we are making the shift. However, we are not stopping the work on footprint optimization. We'll continue to work on it. Time line will shift a little bit. We'll come back and give you more information on that at appropriate time. Operator: Our next question is from Tami Zakaria with JPMorgan. Tami Zakaria: First question is on tariffs. I think IEEPA got struck down. Do you expect to file any refunds? And if so, what kind of -- what amount of refund would you expect to collect? Sanjay Chowbey: Yes, Tami, First of all, as you know, this is also one of the very dynamic situation. We still have tariffs in place. And so we are not taking any hasty action on this yet. I think we'll continue to monitor. And based on that, we'll make decisions. So nothing more to share at this point in today's call. Tami Zakaria: Understood. That's fair. And my second question is, for the fourth quarter, I just wanted to clarify, do you expect volume growth to be in that 2% to 3% full year range or it could come in above that? Patrick Watson: Yes. It's the full year range. I would say it's depending on where you're at in that range, Tami, it's going to be low to at the high end, maybe up into the mid-single digits. You obviously factor in 35% price we talked about from a script perspective. Don't forget, we had a divestiture in the prior year, and you got a little bit of FX in there as well. So that kind of is the math there in terms of you think about the top line. I would emphasize, as we just think about the profitability that obviously, we're going to see sequentially profitability step up pretty significantly here based on that price raw. And given the circumstances that we're in today, it is unusual, we're going to have some of that price raw realization in Metal Cutting, too. So when you think about, again, the margin performance of the business as a whole in the two segments, pretty big ramp-up for both of them. Operator: And the next question comes from Angel Castillo with Morgan Stanley. Angel Castillo Malpica: Just maybe first, I wanted to start out on the market share gains. That's been a meaningful driver, I guess, of the organic growth that you've been seeing. Just curious if you could unpack that a little bit more. I guess I'm trying to understand if it's possible to, I guess, separate how much of the share gains you think was maybe driven by value proposition or project wins that tend to be a little bit stickier versus where it's maybe related to kind of competitor supply constraints. And in particular, I guess, to the latter bucket, curious if you kind of expect that over time as kind of supply perhaps normalizes, if you would expect to kind of get that back or if there's any kind of stickiness to some of those shifts that we might be seeing on the kind of supply-driven angle? And also if you could comment on the promotional campaigns you talked about as well, that would be helpful. Sanjay Chowbey: Yes. Sure, Angel. First of all, again, it is a combination of all 3 factors: market improving, and we think that, that should continue. Then second will be in our strategic growth initiatives, and we have talked about in the past, those will include, for example, what we have done in aerospace and defense and energy and general engineering, earthworks and so on and so forth, how we have gone about winning bigger share of wallet with existing customers, but also going out and winning business at different tiers of the supply chain or our customer value chain. And those I will tell you that are very sustainable because we're winning those using our core competencies from product and innovation and our commercial excellence and our operational capabilities. Now the third piece of the volume that we have also talked about, the window of opportunity we have from tungsten Dynamics. We also think that those are sustainable, at least in the near term that we see that. In the long term, we'll see how that plays out. But we are being very strategic about which opportunities that we go and capitalize. We are selective on what opportunities we think are going to be longer-term sustainable for us. So all in all, of course, it's a mix of 3 things, and I won't be able to quantify break down or don't want to disclose it in public domain on that. But I can tell you that as we have talked about in past, that driving growth above market has been one of our strategic imperatives, and it will continue to be. In last 2 years, 3 years, actually, I will go a little bit beyond that, we have shown our ability to outperform or at least hold our own in our metal cutting business where we have in public peer data. And this is going to continue to be one of the focus. So in short, I will just say that it is going to be a meaningful piece of our overall volume story. Angel Castillo Malpica: Very helpful. And then if you could bear with me, I guess, a 3-part question here just on tungsten. Hoping to better understand, I guess, a couple of things. One, any more color you can add in terms of the sourcing that you're doing and how that differs versus competitors that allows you in a market that you described as very competitive in terms of sourcing to make sure that you're able to have the right amount of supply. So just any color you can add on that? And then maybe a little bit more longer term or medium to longer term, on the tungsten side, I think your preliminary fiscal year '27 outlook talked about that as being kind of stable at current levels. Just anything you can add in terms of the supply-demand that you're seeing progressing from here in terms of -- I think there might be some capacity that's coming online in 2027. So just to the extent that, I guess, any implications from that or the recently kind of lower prices of tungsten in China as to what -- where that commodity heads in 2027? And then just kind of lastly, implications of that to the price and the market share gains that you talked about on the supply basis. Patrick Watson: Yes, certainly. So I'll try to take each one of those in terms. When I think about the advantages we have, I want to go beyond, quite frankly, just the sourcing aspect. And from a sourcing perspective, -- as we've talked about in the past, we do not use significant amounts of Chinese material outside of our Chinese operation. Outside of China, we've got a diversified supply base and partners we've been with for a long period of time in getting material from Bolivia, other East Asian sources and as well as a nice slug of recycled material. But a lot of the strength that we have as a company vis-a-vis some of the competition that's out there is also the integrated nature of our supply chain, right? So we are -- we have the ability basically to take in tungsten materials at various stages and turn them ultimately into a final product. You think about that from our ability to take raw materials, which is virgin ore in and process that, there is only a handful of companies in the industry that can do that as well. And so that provides us, I think, a durable strategic advantage here in this set of circumstances. As you think about where it is from an overall pricing perspective, yes, our assumption at the moment is the tungsten prices are stable. I think the last couple of quarters that we've gone through in terms of the magnitude of this price change, I don't think that many market participants would have envisioned us going from a couple of hundred dollars a ton to over $3,000 a ton, excuse me, as we have over the last 12 months. Certainly, there has been some softening in China the last week or so in terms of the prices, unclear at the moment in time, whether or not that's indicative of a larger trend that will be more durable. We'll obviously continue to monitor and watch that. And then your last question in terms of what supply is coming online, yes, there's a variety of new mine projects that are out there that will come online. We would anticipate in the fullness of time, that would help moderate the tungsten prices here a little bit on a global basis. I think the other reality of the situation here is, in particular, we've got the export controls in China that are in place, number one. And then number two, we've got lower Chinese mine production over the last 2 years as it relates to -- based on some information in the public domain, lower quality ore potentially out there as well as I would emphasize lower mining permits provided by the Chinese government. So the market has been in a period of shortage, additional supply obviously would help alleviate some of that. And as that market continues to unfold, obviously, that will inform our pricing decisions and how we set, I'll say, our inventory objectives here in terms of holding inventory as well. Operator: And the next question is a follow-up from Steve Barger with KeyBanc Capital Markets. Steve Barger: Pat, just to level set expectations for the models. You said price raw timing benefit from tungsten flows through into the first half, mostly in 1Q. Is the right way to think about FY '27 kind of reverse order from this year, high point by far in 1Q trailing back down to your quarterly average of like $0.40 towards the end of FY '27. Patrick Watson: Yes. A couple of ways that I think about that. Steve, first off, just let me give you some like the basic walk, and I'll start from the midpoint, right? Midpoint of the outlook this year is $3.88. We said we've got $2.45 of price raw in there, probably have about 0.20 worth of variable compensation that would reset. So let's think of like a clean FY '26, removing those items, about $1.63 in EPS terms, right? And then kind of moving forward next year, you're going to add $0.10 in for the additional restructuring that we talked about. That gets you down to like about $1.73 before you get to, what I'll call is additional price raw, which again should exist in that first half, right? And then whatever the volume assumption is that you guys make at this point in time, obviously, we'll give some clarity about that in August. The second thing I would say about that in terms of now taking that cadence and thinking about the year, yes, I think the right way to think about this, again, this is assuming a relatively stable tungsten environment would be first half, we're going to see the benefits of price raw. Back half of that year, we'll get back to what I would call it is a normal level of profitability, right, absent the price raw tailwinds. Operator: The next question is a follow-up from Julian Mitchell with Barclays. Julian Mitchell: This will be a quick one. Maybe just flesh out a bit more the cadence of kind of volume demand. You had that very interesting chart on cumulative volumes going back several years. So that was interesting. And you've clearly seen a pickup, as you said a couple of times. There's some prebuy, I suppose, in that. So maybe give us any color you can on sort of how base volumes are performing, if you can really get to that level of detail from your channel partners and so forth? And have you seen an improvement in base demand in the last couple of months? Or it's difficult to disentangle that from prebuy movement? Patrick Watson: So I'll take that first, and then Sanjay will hit most of it. But just to clarify that chart to make sure we're all talking about the same way, right? That chart is based on a 12 trailing months basis. Julian. So based on that, you can think about it as an annualized chart, it's going to kind of flatten out any sort of short-term prebuying issues, right? Because again, we're talking about an annual type number. And with that, I'll turn it over to Sanjay. Sanjay Chowbey: Yes, Julian, with regards to rest of the drivers at this point, Q4, we are confident in what we are saying that we do see impact from improving market condition, which is again moderate. And then on top of that, our share gain opportunities that we have, those will definitely play out. I think with respect to fiscal '27, we'll come back and talk about that in August, but the initial signs are -- seems like things are definitely stabilizing. Operator: And this concludes today's question-and-answer session. At this time, I would like to turn the conference back over to Sanjay Chowbey for any closing remarks. Sanjay Chowbey: Thank you, operator, and thank you, everyone, for joining the call today. As always, we appreciate your interest and support. Please don't hesitate to reach out to Mike if you have any questions. Have a great day. Operator: Thank you. And as a reminder, a replay of this event will be available approximately one hour after its conclusion. [Operator Instructions] And today's conference has now concluded. Thank you for attending today's presentation, and you may now disconnect your lines.
Operator: Ladies and gentlemen, greetings, and welcome to the Hagerty First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jay Koval, Head of Investor Relations. Please go ahead. Jason Koval: Thank you, operator, and good morning, everyone, and thank you for joining us to discuss Hagerty's results for the first quarter of 2026. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's Investor Relations section of the Company's corporate website at investor.hagerty.com. Our earnings release, slides and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance and are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I'll turn the call over to McKeel. McKeel Hagerty: Thank you, Jay, and good morning, everyone. Spring has finally arrived in Northern Michigan, and with it comes the unmistakable sound of engines turning over after a long winter's rest. Our members have been pulling their cars out of storage, checking all the fluids and tire pressures and getting back out on to the open road. I for one drove a 1963 Corvette split window into the Hagerty headquarters this morning, and I am smiling year-to-year. And One Team Hagerty has been right there with them and with me ready to welcome a record number of new members in 2026 as the driving season gets underway. Let me jump to the headline. We are off to an excellent start to 2026. Written premiums increased 18% in the first quarter, ahead of our full year expectations. This marks 13 consecutive quarters of executing on our strategy to deliver compounding top line growth while making investments in our team, technology and members that should sustain high rates of growth in the years to come. As we discussed last quarter, 2026 marks the first year in our history that we control 100% of the economics on our own U.S. book of business. This structural milestone shows up clearly in our results, 42% growth in earned premium and a 77% jump in adjusted EBITDA. The GAAP presentation of revenue down 5% and our net loss of $13 million are temporarily different due to the new Markel Fronting Arrangement, but the underlying business performance has never been stronger. GAAP profits in 2026 are negatively impacted by the amortization of deferred ceding commissions paid to Markel in 2025 for policies written before January 1st. Think of it as settling the tab on the old structure. These deferred acquisition costs were $89 million in Q1 and wind down to 0 by the year-end 2026. With that, let me walk through our first quarter results shown on Slide 3. We added a record 112,000 policies during what has historically been a seasonally light quarter for us. Top cars added are not surprising as they are the bread and butter for Hagerty, Mustangs and Miatas, C10 Pickup Trucks and Cameros. We are also seeing a rapidly growing contribution from more modern enthusiast vehicles, including German and Japanese imports, sought after by the rising generations of drivers. Our written premium growth has been and will continue to be powered by new business count, unlike the broader industry that fluxes with the cycle. PIF growth jumped 15% as our retention rate remained steady at an industry-leading 89%. Retention at that level is not an accident. It is the product of decades of delivering on our brand promise to members who genuinely love their cars and trust Hagerty to protect them. We are delivering this growth with a careful focus on maintaining high-quality underwriting. Hagerty Re's combined ratio was 87%, and we took down our reserves by $6 million in the first quarter. Our underwriting team is one of the best in the industry, and we have been strengthening the capabilities of our in-house claims team. Our sustained market share gains are impressive and indicative of the enormous B2B opportunity for us. We are diligently working on additional partnerships as well as deepening existing relationships by earning the right to ask for more business. Hagerty is uniquely positioned to help protect the carrier's classic car book of business with automotive expertise and excellent service, and we are making the necessary investments to lengthen our lead. State Farm Classic+ is a great example of a tightly integrated partnership where both parties win. We now have an accelerating growth engine with expectations for their 19,000 agents to be selling new business in 40 states by year-end. The conversion of State Farm's existing 525,000 collector car policies to the Hagerty platform is also progressing well, and we remain on pace to convert most of these members to the new Classic+ program by the end of 2027. In addition to the white space with national carriers, our independent agency channel with 50,000 agents is ripe with potential. We are investing to make it easier for these agents to do business with us, including straight-through processing and the automated tools that help them identify enthusiast vehicles already sitting in their existing books of business, likely insured as daily drivers. Our addressable market of 36 million vehicles expands every year, and we want to empower these agents to think of Hagerty as the best solution for their customers. Let me move on to something that genuinely stopped all of us in our tracks during the first quarter. In March, Broad Arrow Auctions hosted a 2-day sale at Amelia Car Week in Jacksonville, Florida, and the results were historic, $111 million in total sales, 50% higher than any prior Amelia auction and with a 92% sell-through rate. The top lot was a 2003 Ferrari Enzo that sold for over $15 million, and we set 12 pricing records. The market for modern enthusiast vehicles has never been stronger, and every car that trades hands at a Broad Arrow Auctions is a potential Hagerty insurance policy. That is the flywheel in action. Our marketplace is not only a rapidly scaling profit center, but it is also a customer acquisition machine that gets cheaper with every car sold. I want to put that into context. In just 4 years and through the hard work of an exceptional global team, we have become one of the world's leading collector car auction houses. When you combine Broad Arrow's deep expertise with the Hagerty brand, our global community of members and our unmatched proprietary valuation data, you get results that surprise even us. And those results tell us something important about the health of our market. International demand for the finest cars is strong. Values on great cars continue to appreciate. Buyers from 23 countries do not show up to an auction in Northern Florida unless they trust Hagerty and Broad Arrow. That is all good news for Broad Arrow's transaction revenue. It is also good news for Hagerty Re as insured values rise, so to written premiums. Approximately 20% of our per policy premium growth over the last 15 years has come from our members voluntarily choosing to ensure their appreciating vehicles for higher guaranteed values. Our customers want their coverage to grow because their cars are worth more. That alignment between asset appreciation and insurance economics is absent from the standard auto market where vehicles tend to devalue or depreciate, and it is a structural advantage that compounds every year for Hagerty, augmenting our PIF-driven written premium gains. Over the same 15-year period since 2010, our regulatory rate increases for Hagerty Re has averaged only 1.5% per year, bolstering our consumer-friendly value proposition. We saw robust auction demand continue at the Porsche Air/Water auction in April with sales up 30% year-over-year and a sell-through rate of 84%. And in May, Broad Arrow will once again serve as the official auction partner of the Concorso d'Eleganza Villa d'Este with the BMW Group on Lake Como, Italy. This will be our second year at Villa d'Este, widely considered to be one of the most prestigious Concours events in the world, and we expect to build on last year's inaugural event as Broad Arrow is increasingly recognized as the trusted brand in auctions across major European markets. So in summary, our first quarter results were not only ahead of expectations, but they were far and away the best first quarter we have ever delivered. While it is only May, we are highly encouraged by how we are tracking towards our full year outlook. With that, let me turn it over to Patrick to walk through the financial details. Patrick McClymont: Thank you, McKeel, and good morning, everyone. Before I begin, let me reiterate the headline. The underlying business is performing very well. Written premiums increased 18% ahead of full year expectations with record new member additions. Adjusted EBITDA jumped 77% to $85 million, including a $6 million reserve reduction due to favorable prior year development. And Hagerty Re's combined ratio was 87%. This is what a healthy compounding specialty insurer looks like when firing on all cylinders. As McKeel mentioned, the GAAP presentation this year requires a brief reminder of what we shared on our fourth quarter call. Starting January 1 of this year, Hagerty Re assumed 100% of the underwriting risk on our U.S. book, a great economic outcome for us given the bump in underwriting profits and investment income. Under the new structure, the MGA commission revenue and the associated ceding commission expense that previously appeared gross on our P&L now eliminate against each other in consolidation, i.e., they net to 0. This is why reported revenue declined 5%, even though written premiums grew 18%. Additionally, there are $89 million of costs in the first quarter from the amortization of deferred ceding commissions for pre-2026 policies that result in a GAAP net loss of $13 million. This charge burns off entirely by year-end. With that, let me walk through the financials shown on Slide 6 and 7. Written premium in the first quarter was $289 million, up 18% versus the prior year period. This is ahead of our full year guidance of 15% to 16%, an acceleration from last year's 14% growth driven by our omnichannel approach, combined with 89% retention. Earned premium jumped 42% to $240 million, reflecting the 100% quota share retention in our U.S. book of business plus written premium growth. This is the structural improvement in our reinsurance economics that we have been working towards for a decade as we evolve our partnership with Markel. Commission and fee revenue in the quarter was $16 million. As I noted, this line is no longer comparable to prior periods given the elimination of Markel-related commissions. As State Farm conversions continue during the next 2 years, commission revenue inflects upwards. And unlike the prior Markel commission structure, the State Farm MGA fees carry no offsetting ceding commission expense falling through more cleanly. Marketplace revenue was $26 million, down 12%. We delivered record auction results at Amelia this year, but had lower inventory sales as we compared against last year's one-time sale at the Academy of Art University. Amelia cemented our position as a leader in the high-end auction market. We are investing significantly to position Hagerty as the undisputed global leader in both live and online sales. Membership and other revenue was $22 million, reflecting steady growth in Hagerty Drivers Club, paid memberships and ancillary revenue streams. Net investment income came in at $10 million, benefiting from our now larger investment portfolio at Hagerty Re that enjoys steady returns with low volatility, thanks to our focus on high-quality fixed income investments. Moving on to expenses. Let's start with losses. In 2025 and into 2026, we are seeing declines in frequency and favorable development from prior years that allowed us to reduce reserves by $6 million in the first quarter. Hagerty Re's loss ratio was 38%, resulting in a combined ratio of approximately 87%. We deliver high rates of written premium growth with excellent underwriting discipline, thanks to more than 40 years of proprietary data on 40,000 distinct makes and models, increased efficiency of acquiring and serving members and selecting members who take exceptional care of their toys. With the new Markel Fronting Arrangement, we have also adjusted our presentation of our expenses to allow investors to track and model our core insurance operations the way other insurance companies disclose their results. We will report the balance of the year consistently with our first quarter disclosures. After adjusting for the amortization of the ceding commission for policies issued in 2025, the underlying business showed significantly improved profitability, which can be seen in our adjusted EBITDA of $85 million. We believe that adjusted EBITDA is the best metric to focus on as it reflects the true operating momentum of our differentiated business strategy. We are growing quickly and efficiently converting premium growth into cash flow. I would point out that operating cash flow of $16 million was lower than the prior year's $44 million. With the new Markel Fronting Arrangement, we are paying claims directly, while under the prior structure, Markel paid the claims and we reimbursed Markel with a lag. So in Q1 of 2026, we made both the direct payments and the reimbursement for Q4 2025 claims of approximately $65 million. This normalizes during the balance of 2026. Adjusted for this doubling up of payments, operating cash flow increased roughly in line with adjusted EBITDA growth in the quarter. First quarter loss before taxes was $21 million and includes $89 million of deferred acquisition costs. First quarter net loss was $13 million and net loss attributable to Class A common shareholders was $7 million. GAAP basic and diluted loss per share was $0.06 for the quarter based on 101 million weighted average shares of Class A common stock outstanding. Adjusted diluted loss per share, defined as adjusted net loss divided by 361 million fully diluted shares was $0.04 for the quarter. We ended the quarter with $212 million in unrestricted cash, total investments of more than $1.1 billion and total debt of $229 million, which includes $110 million of back leverage for Broad Arrow's portfolio of loans. Given the strength in our first quarter results and momentum as we head into the summer driving season, we are reaffirming our full year 2026 guidance and are trending toward the high end of these ranges. This includes anticipated written premium growth of 15% to 16%, adjusted EBITDA of $236 million to $247 million and a GAAP net loss of $41 million to $51 million. As has been our practice in prior years, we will revisit our full year outlook on the second quarter call, but we are increasingly confident in our ability to deliver great 2026 results for shareholders. Looking forward a year, 2027 should be a more normalized year for Hagerty's P&L post 2026 complexity, where revenue growth more closely tracks written premium growth. We anticipate another year of mid-teens growth in written premium. While we continue to make multi-year investments in member growth and other initiatives. These include increased capabilities around the Markel Fronting Arrangement, technology investments in our B2B distribution, build-out of our product and Broad Arrow teams, enhancements to our digital marketplace as well as expansion of our special investigation and material damage units. Early indications point to these being high-return investments that will fuel member LTV in the years to come. That wraps up our prepared remarks. Operator, we can open the line for questions. Operator: [Operator Instructions] We take the first question from the line of Pablo Singzon from JPMorgan. Pablo Singzon: Is there any seasonality considered for EBITDA through the balance of the year? It seems to me or as you pointed out, Patrick, right, it seems to me that at least through 1Q, you're running above the full year guide, and I'd expect revenues to increase through the balance of the year. So I'm just not sure if there's any offsets maybe I don't know if you're considering GAAP in the third quarter or some pick up in expenses that might sort of derail the simplistic math of just annualizing the 1Q number. Patrick McClymont: Yes. I think business is seasonal, and so the seasonal pattern has not changed. So you should always consider that in your modeling. And then we are investing in the business, and we talked about that on the last earnings call. And some of that ramps up over the course of the year. And we have the normal dynamic of inevitably in the first quarter, you don't end up filling all the headcount slots that are open. It just takes a little longer than expected. So we would expect to see some ramp-up of expenses embedded in the full year guidance. So I wouldn't just annualize the first quarter. Hopefully, that's helpful that gives you a direction. Pablo Singzon: Yes. And then the second question I had, just a broader topic, right? So competition in personal auto is increasing. I'm wondering how that's affecting dynamics in your core classic car insurance business. And then maybe just to tack on something to that, like how is the current environment affecting your thinking about the rollout of Enthusiast Plus? McKeel Hagerty: Thanks, Pablo. It's McKeel. As you may recall, we've discussed this in some of our previous calls that when rates have gone up, for example, in standard auto, it tends to create shopping behavior that we actually benefit from. As you know, we're in a different kind of cycle now with standard auto where states are -- standard auto carriers are holding pretty steady right now, if not down. But we're seeing very strong year-over-year PIF growth in the core business, not just because of the additional new partnership accounts that are coming in from State Farm and others. So in this case, just I think the flywheel effect of the business is holding our momentum strongly into this year, and we're not in any way negatively affected by the fact that the standard auto carriers are kind of in a lateral moving year from a rate standpoint. Operator: We take the next question from the line of Michael Phillips from Oppenheimer. Michael Phillips: You've talked a bit about in recent calls about your European expansion for the auction business. I guess, given the flywheel that exists in your overall business, can you talk about your appetite -- just remind us your appetite for expansion internationally for insurance business? McKeel Hagerty: Yes. Thanks, Michael. It's a topic we've discussed for years. We've had an international business for over 20 years with our first entry outside of the country was actually in the U.K. We still have that business. It's growing. It's doing well. I think this order of things that we've really discovered by unlocking these very successful sales in Europe with Broad Arrow is helping us to understand the market differently than just sort of starting with insurance and then deciding whether membership is added and then thinking about marketplace later is that the order of things for us first is understand the market with these European auctions, getting that kind of sales team in force, in place, understanding the event environment and then deciding whether insurance is something that needs to be added on the back. Something we have discussed in the past is that when we started our U.K. business back in the day, the U.K. was sort of a golden place to be able to operate throughout Europe selling insurance. So our MGA structure over there, we were able to consider writing directly into the European continent without having to create an additional entity after Brexit, that became much more difficult. So right now, we are still just operating in the U.K. We write a little bit of some larger collection business in Europe, but we're looking at opportunities, but right now, focusing on just rounding out that auction schedule on the continent. Michael Phillips: Okay. I guess I was hoping you could expand a little bit more on the -- you mentioned the strengthening of your in-house claims team and kind of what's happening there and why -- how much of that's related to the change in the structure of this quarter? How much of that is related to -- I know you wanted to expand more enthusiast market, so kind of a different book of business that's coming. But just can you talk about that in-house claims team and what's happening there and why and how it's related to the changes that's happening in your overall business? McKeel Hagerty: I'll take the high end of it and if Patrick wants to follow-up, I'll let him. So yes, we've always done claims in-house. It was a real differentiating thing for us even when we were just operating as an MGA. Of course, now having 100% of your risk, you want to be paying attention to every dollar you spend when it comes to claims while maintaining a very high level of NPS and customer satisfaction and sort of overall claim service rates. But even though this is a low-frequency claim business, the bigger you get, we will have more claims. And we decided we really needed to make the investments to upgrade that team. We have some incredible leadership on the claims side who bring sort of the best of big auto industry claims expertise, but that understand the unique nature that repairing the types of vehicles we insure in our core book is very different than repairing a sort of standard auto where you can just bolt on a brand-new part because in many cases, repairing a vintage car, it takes time. You got to find the right kind of shop. You have to sometimes fabricate parts or parts have to be sourced from a variety of different places. So we have teams of people who help find those parts very different than a standard repair shop. So I think what we're doing just sort of structurally bringing best practices from standard auto claims and kind of turnaround times and all the things that you can do to contain the leakage that can happen around claims practices while maintaining the high quality of work that our customers expect because you want to pay fast, but you don't want to rush so that they're concerned about the quality of the repair. So that's the sort of maybe structural piece. And I don't know how much it's affecting the math specifically, Patrick, or we just... Patrick McClymont: Yes, it's meaningful. The claims organization that they've changed the mix, right? The meaningfully increased the number of claims that are dealt with in-house versus using independent adjusters. And every time they've increased that baseline, they've proven that the return on that is pretty compelling. And so we sit down and decide to increase the baseline again. That's what happened over the last couple of years. And that return comes from when you're processing things in-house, velocity increases, the customer service is better and the ultimate economic outcomes are better as well. And so the overall frequency and severity trends have been -- for the industry have been positive. We think we've got more tailwinds behind that because of this strategic decision to really invest in that capability. So we view it as a differentiator because these cars are different. They need a different level of expertise, and it's driving real value. Operator: We take the next question from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question is just on PIF. How should we just think about seasonality during the year? And I think in some years, right, Q1 tends to be like the lowest growth quarter of the year. Would you expect to see similar trends this year as we think about PIF growing during the year? Patrick McClymont: Yes. So this year -- last year, this year, next year, we do have the impact of the State Farm conversions. And so that's driving a meaningful increase in PIF. And that is not seasonal, right? That's based upon the rollout schedule with our partners at State Farm. And so that's meaningful and attractive. You have to kind of put that aside from a seasonality perspective. And then we're seeing the same trends that we typically would see. The first quarter typically is a lower quarter for us in terms of PIF growth. We ramp-up starting kind of in April and now into May and through the summer months, and you see it ramp down again in the fourth quarter. So we're seeing those same -- that same underlying dynamic. But right now, we're also seeing a very attractive healthy growth in that traditional core business. Elyse Greenspan: And then my second question, you guys, I think, are typically weighted to Q2 to update full year guidance, but you did say -- and I think you made some comments that said you're trending towards the high end of the ranges. It does seem like based on the Q1, right, that you're trending favorable to most items. So anything that we should think about like reversing? I mean, I guess I'm more interested just in thinking about adjusted EBITDA, right, and written premium growth, but really any components of guidance? Or is it just being somewhat conservative and just waiting to provide an update with Q2? Patrick McClymont: It's just waiting to provide the update. That's our approach on this. We've been consistent. We've concluded that not enough chapters of the books have been written at the end of 3 months. And so we'll do our first update after the second quarter. Elyse Greenspan: Okay. And then I think you said with State Farm that you would be active, I think, in 40 states by the end of the year? And then would you expect to add the additional states in '27 to be at full capacity? Is that how to think about that? Patrick McClymont: Pretty much. There could be states that stretch a little bit beyond that just because they're more challenging from a regulatory standpoint. But by the end of 2027, we should be selling in almost all the states, and then we'll still have a little bit of a tail in terms of the conversions, right? There's always that lag where we sell new business first, you make sure that everything is working and then start the conversion process. Operator: We take the next question from the line of Gregory Peters from Raymond James. Charles Peters: McKeel, in your opening comments, it's quite envious of your description of driving the Corvette into the office this morning. And I guess I'm going to go down a path that's probably unexpected, but I recently leased out a model Y, the Tesla Model Y. And I know this isn't your classic car addressable market, but I find the experience with it shockingly positive. I'm just curious because you're a car enthusiast, what you think of these new electric cars with the self-driving feature? McKeel Hagerty: First of all, thank you. Yes, it was -- it's a super fun drive to drive the Corvette. And I'm reminded why they made some significant changes in 1964 after 1963 when you drive it. So it's a fun car, but you can't see out of the rearview mirror. I'm a huge fan of electric cars. And some car people who view it as some sort of dogmatic war going on. I don't view it that way. I think we're going to have more and more electric cars. I own an electric car. I have one of the Porsche Taycans, and I'm a big fan. I drive that year around. Like you said, shockingly impressed. They're just great. They're great. They're simple, they're fast, they're quiet. They do a lot of great things. And I think you'll see more of them, and I think we'll be ensuring more of them in years to come. Like for us, it's -- there's always this shifting process, right, even with like the daily -- the cars that we insure today were daily drivers, some number of decades ago or some number of years ago. And there's a shifting process where people decide, I like this one, I don't like that one and the ones that survive are the ones that we end up insuring. And so there is no doubt, as we do now, ensuring Tesla Roadsters that we will be ensuring certain Teslas out there in the future. And -- but finally, just on the self-driving thing, I also -- I took my first Waymo ride for what it's worth a couple of weeks ago, and I thought it was really cool and I played my own music in it and all that stuff. And I think we're going to have more self-driving cars as well. But I think there will be a world where there are human-driven cars. I think there'll be self-driving cars. And I think as that technology becomes safer and safer outside of cities right now, I think it's better off in cities personally. That it will be part of our world. So we're going to be the ones out there advocating. We're the company that was built by drivers like me for drivers, and we'll be advocating for those people. But we recognize that we will be surrounded by self-driving cars. Charles Peters: Great. I know it was a little bit off topic, but not really. I mean it's a great... McKeel Hagerty: Not really, non-topic. Yes. Charles Peters: It's a great product. It's not in your classic car sweet spot yet, but I'm sure it will be at some point. Listen, I know you spent some time in your prepared remarks and maybe in the follow-up Q&A talking about the PYD, the prior year development. Can you just revisit that and just walk us through what's the source? Is it lower severity? And maybe take the results that you reported, is there anything -- any read-through as we look forward on how the reserves are seasoning? Patrick McClymont: Sure. So the prior year is about $6.5 million reduction that we had in the first quarter. And you'll recall in the fourth quarter, we had about a $20.5 million reduction in reserves. So this is a continuation. The $6.5 million, it was predominantly the 2025 accident year. And we're starting to see that development in the fourth quarter, and that influenced what we did in the fourth quarter. But it just matured and continues to mature in a very attractive way for us. And so what we're seeing is a combination of from a severity standpoint, we're in a good spot, continue to be in a good spot. We talked about frequency before. We've talked about what we're doing in terms of claims outcomes. And so it's really just looking at the historical book of losses and as those are maturing and layering into that what we've done to make sure that we're delivering from a claim's standpoint, it's all adding up to that we end up in a better position. That's our market-to-market as of right now for prior years. We'll see how the balance of this year unfolds, but we think we're in a solid position right now. Operator: We take the next question from the line of Mark Hughes from Truist Securities. Mark Hughes: Patrick, you had mentioned that you probably see another year of mid-teens growth in written premium next year. Any early thoughts on EBITDA growth when we think about expenses that may be either ramping up or being leveraged? How should we think about EBITDA in 2027? Patrick McClymont: No, no early thoughts on that. We're going to stick to sort of the focus on the prompt year in terms of guidance. Hopefully, what came through in those comments, this is a business that continues to grow at that sort of very credible mid-teens type rate, so we feel good about that. And it's also a business that we have demonstrated that we've been able to expand margins over time. And then it's also a business that we're choosing to invest in to make sure that we deliver that growth, not just for the next year, the next 2 years, but for the long haul. And so that's the balance that we're constantly striking. Mark Hughes: And then, McKeel, you talked about the higher guaranteed value that, that is a benefit over time. Is there a specific number that you would throw at that? Is that kind of a low single-digit tailwind? Or how should we think about how much that helps year-to-year? McKeel Hagerty: Yes. Well, thank you. What's interesting when we go back -- what's interesting to compare it against is that when I think of the few times in my career where the market has taken some sort of dip. So for example, all the way back to, believe it or not, the dot-com crisis, the great financial crisis, we know COVID was -- had the exact opposite effect is that I was sort of looking at, okay, which cars kind of held steady and which cars kind of went up. And we certainly have seen for the last 15 or so years where sports cars, sports racing cars, Ferraris, Porsches, that sort of thing, of earlier generations were the ones that showed the greatest amount of increases year-over-year, while the rest of the book kind of held steady, which is still differentiated from a standard brand-new daily driver book of business that would be depreciating over time. But definitely, what we're seeing right now is this sort of more modern supercar, hypercar segment that we're seeing in the Broad Arrow business. Those are the cars that are most sought after. And they're lifting everything around them. So when we were seeing cars from -- so when I think modern supercars, I think cars from the '90s, even the 2000s. And these are Ferraris and similar types of cars that were that are just -- they're being purchased at a higher price point by new entrants into the market, but also by older well-heeled collectors. And so it's that double effect where you get maybe new money deciding to come in there and pay 10%, 15%, 30% more than the car was worth or in a few cases, just multiples of that. But it's also that well-heeled collector that had an earlier generation of cars who they step up and say, well, I don't want to be left without the new hot thing. So I'm actually willing to lighten up on my other parts of my collection, so I can go buy the latest and greatest or they're just continuing to add to their collection. So in general, it's sort of single-digit steady growth on those types of cars, but you get these just wild examples of like the 2003 Enzo that we sold for $15 million. I mean that was a $3 million to $5 million car a couple of years ago, and it's just astonishing. Patrick McClymont: Yes, Mark, we've looked at all that over the last 15 years, as McKeel described, on average, it ends up being low single digits. In those 15 years, there's only 2 years where it ticked down a little bit, and that can happen. And then some years, it's mid-single digits or even high single digits. But in the long run, it ends up being that low single-digit type number. Mark Hughes: Very good. Well, I'll tell my own story I parked in church next to Camaro Z28 and it looked sort of like a beer, but it was still in pretty good shape. And when he pulled out it had the license plate and peak auto is intriguing and also since I had that car when it was new, I felt a little antique as you drove away. So anyway. Patrick McClymont: We don't call that a beer. We say it has patina. McKeel Hagerty: It has patina. Yes. It's -- those are wisdom marks. As the 63 Corvette was, I must admit a little slow cranking when I was turning it over. And then I realized like, well, you're a couple of years older than I am, and I'm feeling a little slow cranking myself. So that's all right. Operator: We take the next question from the line of Mike Zaremski from BMO Capital Markets. Michael Zaremski: Maybe just back to the excellent PIF growth and revenue growth question. It sounds like if you agree that underlying seasonality did take place. So the kind of the overlay was the State Farm conversions. I'm just trying to kind of help dimension the impact State Farm's having. Is that a fair way to think about it? Patrick McClymont: Yes, that's accurate. McKeel Hagerty: Yes. Michael Zaremski: Okay. Great. And I can see there was a $50 million in proceeds from a loss portfolio transfer in the quarter. Any color on what happened there, any implications for capital return, et cetera? Patrick McClymont: So that's part of the overall transition evolution of our relationship with Markel. And so for the prior periods, we did a loss portfolio transfer. So they transferred to us $50 million. We've assumed all those liabilities. And keep in mind, this is the 20% or so because some of the prior years where we were taking a little bit less of the risk. But it really just represents that. So it's risk that we already had. We're just topping it up for those prior period. And so we received that cash. We put the liability on our balance sheet. As you go through the queue, you'll see that we're assuming that there's a gain associated with that. And then that gain amortizes into the income statement over the expected settlement of those claims, which in the aggregate will take, I don't know, call it, 4 years or so, but it's pretty front-end loaded. And so that will flow through. This is not a risk transfer transaction, so it's a financing. And so it hits down on the other income and expense line item. Operator: We take the last question from the line of Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: When we look at the mid-teens premium growth in the guide this year, is there a roughly even split between the core legacy Hagerty business, State Farm and Enthusiast Plus? Or is there one of those contributing more than the others? Patrick McClymont: Yes. We're not going to kind of break it down by the different lines that you just described. What I will say is this year, 2026 and then 2027 are going to be big years for State Farm conversion. I think between new and converted, we're already in excess of 100,000 policies. But in total, it's 500-plus thousand policies. And so we're kind of in the thick of it right now. So that is a meaningful driver this quarter and it will be this year and next year. And then the core business continues to grow at the kind of rates that it has been for the last handful of years. So very consistent there. And then E-Plus is still very, very small. So that's not much of a driver at all right now. Thomas Mcjoynt-Griffith: Got it. And then switching gears. As we track the large national carriers start to file for rate decreases in some instances, we understand that probably doesn't impact the core Hagerty business, but does that at all impact your outlook for Enthusiast Plus, just where there's a bit more overlap with the daily drivers? Patrick McClymont: You're right for the core business, when we look at what our rate increases have been over the long haul, it's again, low single digits, right? So we're not -- and that's continued over the last couple of years. We've done some things on the liability front and address that. But our rate increases are pretty modest. As we think about the E-Plus business, it's hard to say because that's the current environment right now. E-Plus, we're in one state in Colorado, right? And so we're rolling this out over time. And we're learning in Colorado, and we'll learn in the other states in terms of what the right approach is on pricing and what that means in terms of the liability of the product and the profitability, I should say. So it's hard to say that the current market is heavily influencing our plans there just because of where we are in the rollout plan. Operator: Ladies and gentlemen, with that, we conclude the question-and-answer session. I now hand the conference over to McKeel Hagerty for closing comments. McKeel Hagerty: Thank you, operator, and thanks to everyone on the call for your continued support. I want to close today by coming back to where we started this morning. Hagerty has never been better positioned to serve the community of auto enthusiasts who trust us to protect what they love. We have a fast-growing recurring revenue model built around specialty insurance that delivers combined ratios of 90% year after year. Our high-quality underwriting and rapidly scaling business allows us to price at a meaningful discount to traditional carriers. What we are building at Hagerty is incredibly unique in the insurance world, making us the partner of choice because there is no one else who can do what we do for their customers, helping the retention and protecting their bundled business. We also have a fast-growing auction and marketplace business that did not exist 4 years ago and is setting world records all over the world. And we have a membership community approaching 1 million paid members that love our member-centric products and services. Thank you, One Team Hagerty. The results we deliver are the product of your passion, excellence and hard work, and I cannot wait to see what this amazing team can accomplish over the coming years as we to double PIF count to 3 million by 2030. We look forward to seeing some of you at Villa d'Este in May, and we hope many of you will join us at our annual investor event in Greenwich, Connecticut on May 29, where we will share an update on our progress towards delivering compounding profit growth for our shareholders. Invites will follow, but please reach out to us for more details or to our SVP. Until then, never stop driving. Operator: Thank you. Ladies and gentlemen, the conference of Hagerty has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Welcome to the Primoris Services Corporation First Quarter 2026 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. To ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. I would now like to turn the call over to Blake Holcomb, Vice President of Investor Relations. Please go ahead. Blake Holcomb: Good morning, and welcome to the Primoris Services Corporation First Quarter 2026 Earnings Conference Call. Joining me today with prepared comments are Koti Vadlamudi, President and Chief Executive Officer, and Ken Dodgen, Chief Financial Officer. Before we begin, I would like to make everyone aware of certain language contained in our Safe Harbor statement. The company cautions that certain statements made during this call are forward-looking and are subject to various risks and uncertainties. Actual results may differ materially from our projections and expectations. These risks and uncertainties are discussed in our reports filed with the SEC. Our forward-looking statements represent our outlook only as of today, 05/06/2026, and we disclaim any obligation to update these statements except as may be required by law. In addition, during this conference call, we will make reference to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures is available on the Investors section of our website in our first quarter 2026 earnings press release, which was issued yesterday. I would now like to turn the call over to Koti Vadlamudi. Koti Vadlamudi: Thank you, Blake. Good morning and thank you for joining us today to discuss our first quarter 2026 financial and operational results. Our first quarter results reflected the impact of a small number of solar projects that experienced cost pressures resulting in lower reported gross profit and margins for the period. These impacts were driven by execution-related factors including specific labor issues, project redesigns, adjustments to sequencing, and weather-related disruptions. The majority of the impacted projects were subsequent to the project discussed in our Q4 earnings call, which experienced cost overruns driven by unforeseen underground conditions. Through our review, we identified two primary drivers behind these challenges: preconstruction planning and the complexity associated with new geographic labor markets. The rapid pace of growth in the solar market placed increased demands on our organization and, in a limited number of cases, this resulted in gaps during the early planning, estimating, and construction phases. Importantly, since these contracts were executed in 2024, we have taken decisive actions to address these areas. We made targeted leadership changes and added experienced talent to strengthen our preconstruction, estimating, and project management functions. In addition, we have adjusted our market expansion approach and have not pursued new work in the geographies where first-time entry contributed to these outcomes. We are confident these actions position us well to mitigate similar risk on projects booked in 2025 and beyond. All of the impacted projects are progressing toward completion and are expected to be substantially complete in 2026, with several concluding within the next month and the final project scheduled for completion in 2026. In addition to the margin impacts associated with these projects, we have also seen the timing of new project bookings and starts shift to the right. As a result, we now expect certain bookings originally anticipated in the second quarter to move into the third quarter, and revenue from projects booked late in 2025 to be recognized later than previously forecasted. Based on these timing dynamics, we now expect Renewables revenue to be approximately $2.3 billion for 2026. Despite the challenges associated with this limited number of projects and the timing shift in new project starts, we remain very optimistic about the solar market outlook. We continue to see meaningful opportunities ahead this year and beyond to build backlog, and we are confident in our ability to put these issues behind us and return to our strong, consistent track record of delivering profitable projects supported by our industry-leading safety and quality performance. I will now provide additional comments on our segment performance for the quarter. Starting with the Utility segment, we had strong year-over-year top-line growth and solid operational performance leading to improved margins in the quarter. The first quarter is typically a seasonal low point in utilities, so we would expect to see further revenue and margin expansion as activity accelerates in the second quarter. In gas operations, revenue was up double digits, supported by new awards in the Southeast and higher design-build volumes in the Midwest. Gross profit was also up, while margins were slightly lower due to a difference in project mix in 2026 compared to last year. In communications, revenues were mostly flat compared to the prior year, but profitability meaningfully improved driven by improved productivity and a reduction in indirect labor costs. Communications continues to see increased opportunities in fiber associated with data center build-out and we are exploring new opportunities for splicing and fiber work within the facilities, which would further expand our addressable market. We do anticipate lower volumes in fiber-to-the-home programs beginning in the second quarter as we transition from legacy programs toward BEAD-related build-outs in certain markets. Power delivery continued its strong execution on increased activity with revenue and margins growing double digits. We are seeing meaningful volume increases in Texas and the Southeast, particularly in transmission and substation work, which is generally accretive to margins in the business. To support this growth, we remain focused on attracting, developing, and retaining the skilled talent we need while maintaining the highest standards of safety and quality. The labor market is competitive, but our strong market position, culture, and robust backlog continue to be an asset attracting and retaining talent. Turning to the Energy segment, despite the challenges outlined in renewables, the rest of the segment delivered solid performance with increased gross profit year-over-year. Industrial margins improved meaningfully, driven by higher natural gas generation activity. Looking ahead, we expect a significant increase in project awards across both natural gas generation and solar in the coming quarters. Most of these projects are in limited notice to proceed status, and we anticipate final awards beginning in the second quarter and accelerating further in Q3. The funnel of opportunities continues to expand, and these upcoming awards will help soften the impact of the troubled projects in 2026 and set us up for strong growth in 2027. Pipeline services also had a solid start to the year, with revenue and gross profit up more than 20%, indicating that we are on track to emerge from the cyclical trough we experienced in 2025. We are still expecting growth this year, with new awards beginning to materialize in the coming quarters. That said, and as we have previously alluded, the more substantial revenue and margin growth opportunity is likely to come in 2027 and 2028 as the market strengthens and our backlog conversion ramps up. We successfully completed the acquisition of Paynecrest on May 1, in line with our expectations. As previously announced, Paynecrest is a St. Louis-based union electrical contractor that provides design, construction, and service solutions to a blue-chip customer base. Their customers span a diverse set of end markets including data centers, industrial, power and renewables, and commercial. Approximately 40% of revenue is generated from data centers with another 40-plus percent tied to industrial, power, and renewables infrastructure. We believe this well-balanced mix of end markets and customers enhances opportunities for cross-selling across our platform and expands the breadth of services Primoris Services Corporation can deliver in these growing markets. While the majority of Paynecrest’s work is performed within a 500-mile radius of St. Louis headquarters, the company has successfully executed projects in more than 25 states, providing flexibility to expand geographically as opportunities arise. With the transaction closing within our anticipated time frame, our expectations for revenue and earnings contribution remain unchanged. That said, we see meaningful upside potential should additional scope with a large hyperscaler customer be finalized in the coming months. We are excited to welcome the Paynecrest team to Primoris Services Corporation and see significant long-term growth potential for this business as part of our organization. In summary, we remain optimistic about the opportunities ahead despite the unexpected renewables execution challenges that impacted our first quarter results. I want to emphasize that the majority of our portfolio remains very healthy and we believe the underlying fundamentals of our business are strong. As projects continue to ramp, and near-term awards are finalized, we would expect to see improvement across revenue, margins, and backlog as we progress through 2026. Now I will turn it over to Ken to discuss our financial results. Ken Dodgen: Thanks, Koti, and good morning, everyone. Revenue for the first quarter was $1.6 billion, a decrease of $88.2 million or 5.4% from the prior year. This was primarily driven by lower revenue in the Energy segment partially offset by solid growth in the Utility segment. The Energy segment was down $152.9 million or 13.8% from the prior year, primarily driven by the timing of renewables projects including slower-than-anticipated start of new projects, partially offset by growth in pipeline revenue. The Utility segment was up nearly $70 million or 12.3%, supported by continued growth in our power delivery and gas operations compared to the prior year. Gross profit for the first quarter was $134.7 million, down $36 million or 21.1% from the prior year due to lower revenue and margins in the Energy segment partially offset by higher revenue and margins in the Utility segment. Gross margins were 8.6% for the quarter compared to 10.4% in the prior year. Turning to the segment results, in the Utility segment, gross profit was $62 million, up $10.4 million compared to the prior year. This improvement was driven by higher revenue in power delivery, supported by increased transmission and substation activity, as well as new service program awards for gas utilities. Gross margins in utilities increased to 9.8% from 9.2% in the prior year. Margin expansion was driven by the revenue growth in both power delivery and gas operations, along with improved gross profit across all three business lines within the segment. We expect to see margins increase in Q2 and Q3 driven by normal seasonality and trend towards the midpoint of our target 10% to 12% range for the full year. In the Energy segment, gross profit was $72.7 million for the quarter, a $46.4 million decrease from the prior year. This decline was primarily driven by lower gross profit in our renewables business stemming from the previously discussed cost overruns and delays on certain projects and was partially offset by improved performance in our industrial and pipeline services businesses. As a result, gross margin for the segment was 7.6% compared to 10.7% in the prior year. We anticipate Energy margins to begin improving in the second quarter supported by new project starts in natural gas and renewables as well as incremental contributions from the Paynecrest acquisition. For the full year, we expect Energy segment gross margins to be in the high-9% to low-10% range. Turning to SG&A, first-quarter expenses were $105.8 million, an increase of $6.3 million compared to the prior year. The increase was driven by higher personnel costs, including increased stock compensation expense. As a percentage of revenue, SG&A was 6.8% compared to 6% in the prior year, largely reflecting the decrease in revenue this quarter. For the full year, we continue to expect SG&A to be in the mid- to high-5% range. Net interest expense for the quarter was $4.6 million, a decrease of $3.2 million from the prior year driven by lower debt balances. For the full year, we now expect net interest expense to be $35 million to $38 million compared to our prior guidance of $23 million to $26 million, reflecting the approximately $400 million increase in the term loan to fund the Paynecrest acquisition. Our effective tax rate was 12.7% for the quarter due to a one-time tax benefit on equity compensation recognized in the quarter. Our second quarter tax rate is expected to be approximately 29% with a full-year effective tax rate around 28% to 29%. Moving on to cash flow for Q1, cash used in operations was $122.6 million, representing a year-over-year decline of $188.8 million. The decrease was primarily driven by a reduction in accounts payable as well as lower operating income during the quarter. Looking at the balance sheet, we maintained strong liquidity of $676.5 million at the end of the quarter. In conjunction with the close of the Paynecrest acquisition, we increased our revolver to $750 million and we expect our net debt to EBITDA ratio to remain just under 1.5x. This positions us with a strong and flexible balance sheet, providing capacity to continue investing organically to support growth while also maintaining the flexibility to pursue strategic M&A opportunities that meet our financial and operational objectives. With respect to backlog, we ended the quarter with $11.6 billion in total backlog compared to $11.9 billion at year-end 2025. The Energy segment backlog decreased $780 million primarily due to the timing of new natural gas generation, pipeline, and solar awards, which we expected to be softer in Q1 after a strong Q4. As Koti mentioned, we are confident we will see meaningful Energy segment bookings as natural gas generation and solar projects progress from limited notice to proceed to final contract awards this year. Historically, our conversion rate from LNTP to FNTP on these types of projects has been very high, even though the exact timing of contract execution can vary. Based on our current expectations for new award signings in the Energy segment, we anticipate our segment book-to-bill to exceed 1x for the full year 2026, with the majority of those bookings occurring in the second half of the year. Utilities backlog increased by $476 million year-over-year, driven by continued growth in MSA work. We are seeing rising customer demand, particularly in power delivery, as utilities accelerate capital programs focused on grid reliability and capacity expansion, driving higher volumes and supporting backlog growth. Closing with guidance, we are updating our full-year outlook to reflect the lower revenue and margin impact discussed earlier and the inclusion of the Paynecrest acquisition. For the full year, we expect earnings per fully diluted share to be between $4.05 and $4.25 and our adjusted EPS to be between $4.80 and $5.00. Our adjusted EBITDA guidance is $480 million to $500 million for 2026. Our guidance does not include the potential benefits from storm restoration work, which is typically accretive to margins, nor upside to our assumptions for Paynecrest revenue and adjusted EBITDA. We expect to see higher revenue and improving margins beginning in Q2, with continued improvement in the back half of the year as we reach substantial completion of the impacted renewables projects. While our first quarter results were below our expectations, we are encouraged by the strong demand environment across our end markets and by our ability to reestablish revenue growth and margin expansion in the quarters ahead. With that, I will turn it back over to Koti. Koti Vadlamudi: Thanks, Ken. Prior to opening the call for questions, I want to recap the key takeaways from the quarter. First, I want to reiterate that we believe we have taken the necessary steps to improve performance going forward in solar with enhanced oversight in project planning and execution. We have also refined our geographic expansion approach to avoid locations that could present similar execution risks. We have not executed any new contracts in these geographies since 2024 and are confident in the leadership and talent additions we have made on the front end of projects, both within our existing backlog and work we expect to book in 2026. Second, we are seeing a number of positive trends in the portfolio that we believe position us well to drive higher revenue and margins over time, including within our solar, battery storage, and EVOS businesses. Our Utility segment continues to perform at a very high level, and the tailwinds, particularly in power delivery, appear to be strengthening. In addition, we are experiencing the most favorable conditions for natural gas generation in more than a decade, along with an improving market for pipeline services, both of which we expect to be accretive to company revenue and margins. Finally, we expanded our electrical service platform through the acquisition of Paynecrest, which was well aligned with both our strategic and financial acquisition objectives. The transaction adds accretive revenue and margin growth and exceeds our return thresholds. As Ken noted, we continue to maintain a strong balance sheet, providing significant flexibility and optionality in our capital allocation strategy, including the ability to pursue additional acquisitions that meet our disciplined criteria. Overall, I am confident in our team's ability to remain nimble and capitalize on favorable end market conditions, effectively navigate near-term challenges, and consistently deliver safe, high-quality service to our customers while generating long-term shareholder value. We will now open the call for questions. Operator: At this time, I would like to remind everyone, in order to ask a question, simply press star then 1. Our first question is from the line of Lee Jagoda with CJS Securities. Please go ahead. Lee Jagoda: [inaudible]. Ken Dodgen: Yeah, Lee. The $110 million, it is kind of in three buckets if you think about it. We talked about the revenue pushout and the lower revenue in renewables. That is about $400 million for the year, and so at kind of our normal gross margins, that is about $45 million, give or take. Then the cost overruns on the jobs in Q1 are about $35 million to $40 million of it. And then there is about another $25 million or so that will just be lower margins as we finish out the jobs over the course of Q2, predominantly Q2 and Q3. There is one job that will linger into Q4, but that is about it. So those are really the three buckets. Koti Vadlamudi: And then I think, as you can imagine, these jobs will still have a margin effect on our Q2 and then less so in Q3. So Q2 is going to be kind of a recovery quarter for us with respect to renewables. Q3 will be kind of gravitating back toward normal and ideally by Q4, we are back in that 10% to 12% range for renewables. On the renewable revenue forecast, the pull forward of that one project that we talked about all last year—one project that was supposed to be in 2026—got pulled forward to 2025. And then the balance of it, frankly, is mostly just continued ripple from all the disruption last year. As we talked with our clients last year, we were under the impression from them that it would mostly be resolved by 2025. But unfortunately, clarification on what is qualified for the tax credits, the need to reengineer projects a second and a third time in light of safe harboring of certain panels, just involved our clients taking more time and having to delay the start of certain projects. The good news is the funnel is as strong as ever, and we have a large number of projects across renewables and energy where we have been verbally awarded and should sign in the next two to three quarters. We have verbal awards of $1.1 billion in the second half of this year, and another $2.8 billion that will sign. So the end market in renewables is still very strong for us, and we have optimism for growth going forward. Operator: Our next question is from the line of Adam Robert Thalhimer with Thompson Davis. Please go ahead. Adam Robert Thalhimer: [inaudible]. Koti Vadlamudi: On power delivery, we have articulated in our growth strategy that we felt strong secular tailwinds, specifically around transmission and substation. We are seeing some anchor clients—customers that do capital planning on a longer cycle. What you are seeing in the MSA backlog improvement is a reflection of these customers’ CapEx, and then I will let Ken talk to the margins. Ken Dodgen: The growth cadence is still similar to what we have seen in the past. We had a good Q1 that is reflecting that growth cadence as well as some good weather in the quarter. And the margins should be in line with what we have expected and, with some storm work, we could even end up in the upper half of our 10% to 12% range for the year. Koti Vadlamudi: On Paynecrest and mix, first, we are excited about welcoming Paynecrest to the Primoris Services Corporation family. Often, the talking points are about the data center exposure, which we are certainly excited about—how they can bring their expertise inside the facility is a great opportunity for us to expand. But they also have industrial facility exposure, and their market and skill sets are fungible, so we are really excited about their opportunity to grow. With a particular hyperscale client that they have cultivated over the last few years, there are additional opportunities and line of sight to some major program spends that are well within their wheelhouse and geography, so we are excited about the opportunity for growth there. Operator: Our next question is from the line of Sean Milligan with Needham & Company. Please go ahead. Sean Milligan: [inaudible]. Koti Vadlamudi: We still have a deep conviction on the end market with gas power generation. Last quarter, we articulated that the overall funnel is actually up, and we are talking about verbal awards because we see near-term visibility to adding to backlog. Specifically in this end market, we have nearly $800 million in verbal awards that are imminent to be added to backlog. In 2026, that funnel is an additional $3 billion that we are pursuing. If I do not restrict that to 2026 and take it further out, that funnel is over $7 billion, up from $6 billion that we talked about last quarter. So it is a really strong end market for us and we are excited about the opportunity to grow. We did see some project starts slip to the right. They have not been canceled—just delays due to clients doing more due diligence on cost and addressing investment decisions. On renewables revenue, with the pull-forwards last year, we had expected this year to be sort of flattish given that move to the left of those project accelerations. What we are seeing now is some project delays slipped to the right. We had some projects that we thought were going to be awarded that straddled the quarter. We expected going into the year to be flat and now we see it is going to be a little bit down based on portfolio shifting to the right. Overall, that market remains very strong; the funnel we see in 2026 and beyond right now is over $15 billion. On confidence in the guide, we feel confident. We have risk-assessed the portfolio and identified the quantum for the projects that are in this distressed state. The projects last quarter where we identified subsurface conditions are now behind us; we achieved mechanical completion and are doing punch list items. On the ones going forward, many of them reach substantial completion in the next few weeks, with the balance one project finishing at the end of this calendar year. We feel confident we have done appropriate risk assessment of the portfolio and we are excited about winning further backlog. We have also made changes in preconstruction planning, project management, project controls, and being more discriminating around geographies where we pursue work, all of which give us confidence in achieving our forecast targets. Operator: Your next question is from the line of Julien Dumoulin-Smith with Jefferies. Please go ahead. Julien Dumoulin-Smith: [inaudible]. Koti Vadlamudi: On the $1.1 billion of verbal awards and $2.8 billion that we said we will sign, some projects have slipped to the right, but what gives us confidence is that we are still working closely with our customers, often helping them with cost estimates and preconstruction planning, so we have good visibility to the near-term portfolio. It sets us up very well for 2026 and into 2027. We are also seeing an emerging growth trend in the BESS portfolio within renewables. Our BESS funnel, measured in megawatt-hours, has more than quadrupled year over year. We see that business with an aptitude to more than double going forward, which gives us renewed confidence despite the slip to the right. On the project issues, these were all projects bid in 2024. The common themes were underappreciation of risk, including geographies where we were less familiar with labor markets and permitting, such as soil disturbance and stormwater runoff protection. Knowing what we know now, we will use better discrimination going forward. The additions in project leadership across preconstruction, project management, and project controls will enhance risk identification and mitigation. Regarding a multiyear view for gas generation, we are on a cadence of a three-year strategy refresh now and look forward to announcing an investor day where we will lay out targets for 2027 through 2029. The gas power generation portfolio is an exciting, dynamic part of our business. Some programs we are discussing with customers are quite large. I have a CEO top-to-top next week with a customer looking at a combined-cycle plant—potentially multibillion-dollar investments—with clients seeking turnkey delivery to de-risk execution complexity. We will provide more color at investor day. Operator: Your next question is from the line of Sangita Jain with KeyBanc Capital Markets. Please go ahead. Sangita Jain: [inaudible]. Koti Vadlamudi: On the challenged geographies, we stopped taking new backlog in those areas in 2024. The total renewables funnel of roughly $15 billion gives us confidence we do not need to chase revenue in areas where we see further risk. We have strengthened our risk posture and do not need to bend it for growth’s sake. We do not believe this will impact our ability to hold and grow going forward. Ken Dodgen: On margin guidance, the impact to renewables margins will be meaningful within renewables, but the overall Energy segment impact is moderated as renewables becomes a smaller percentage of Energy and the rest of Energy grows. I expect the Energy segment as a whole in Q2 to be in the upper single digits as we continue to work this off. In terms of confidence, as Koti mentioned, we have risked these jobs, evaluated them as much as possible, and baked in as much incremental cost as we believe we are going to incur. In a couple of cases, we have completed the jobs, and the rest will be completed for the most part within the next two to three months. Operator: Your next question is from the line of Steven Fisher with UBS. Please go ahead. Steven Fisher: [inaudible]. Koti Vadlamudi: On how many projects and geographies are involved, it is a small minority of the total renewables portfolio. We will be judicious in our geographic selection given the strength of the overall market. If a core client brings us to a new area, our learnings will inform the go/no-go decision and execution approach. Most of the projects that had margin compression are nearing substantial completion in the next few weeks, with one completing in the fourth quarter of this calendar year. We have risk-assessed the overall portfolio and feel confident we have addressed the issues on these projects that were bid in 2024. Regarding risk versus reward in Utilities versus Energy, in power delivery we have anchor clients with long-term relationships. We have seats at the table with them in resource planning and execution model development. We also have organic opportunities with new customers who are looking to Primoris Services Corporation to ensure appropriate capacity. Given demand, we can be very careful and judicious about our risk posture and do not need to grow beyond our skis. Training and development of people is a key area for us, and we share lessons learned across segments so growth areas like renewables inform practices in utilities and gas generation. Operator: Next question is from the line of Philip Shen with ROTH Capital. Please go ahead. Philip Shen: [inaudible]. Koti Vadlamudi: Q1 was expected to be a softer booking quarter for renewables. The project delays are largely due to two buckets: certainty around the 48E tax credits, as customers assess how to maximize credits; and maturing engineering design for more predictability in cost and schedule. We think the added definition is ultimately a good thing. On 48E specifically, yes, that relates to the broader tax equity and implementation clarity dynamic. On the challenged projects and customer relationships, project outcomes for customers are very good—they are getting first-rate facilities and we have met our scope obligations. In some cases, we did have entitlement, but even with that, we did not meet our financial targets despite contingencies. Client relationships remain very positive. Most of our work is repeat business, and our quality and execution credibility remain strong. Operator: Your next question is from the line of Jerry Revich with Wells Fargo. Please go ahead. Jerry Revich: [inaudible]. Koti Vadlamudi: On the gas power business beyond this year, we have verbal awards of nearly $800 million that we feel confident will add to backlog. If I unrestrict the funnel in terms of years, we have line of sight to $7.1 billion of identified opportunities beyond 2026. Regarding lead times, these investment decisions are large, so we often receive LNTPs to advance equipment orders and site work. Prior to full investment decisions, clients may augment our scope, and when the program is mature, we receive FNTP for the full amount. We can begin realizing revenue shortly after verbal and LNTP stages as clients mobilize resources quickly. On renewables projects with negative adjustments, there are six projects in total with margin compression. Three will complete in the next few weeks, one in the next quarter, and one in Q4. We feel good about our risk assessment and target dates. Weather-related productivity is a remaining variable, but we believe we have appropriately vested the effort required in estimates to complete. We are not sharing prior-year revenue contribution for these specific projects at this time. Operator: Next question is from the line of Steven Fisher with JPMorgan. Please go ahead. Steven Fisher: [inaudible]. Koti Vadlamudi: We are not going to call out specific geographies. Predominantly, issues were around weather impacts. In some cases, we mobilized a workforce and then had to demobilize and remobilize. Many client contracts have schedule milestone conditions. When we remobilize but productivity is impacted by weather, we add field labor and sometimes work out of sequence, which increases hours and dollars—one thing piles upon another. In some jurisdictions, environmental requirements for ground disturbance, exacerbated by heavy rain, also impacted productivity and costs. We will record these as lessons learned and be more disciplined in growing from areas where we are more familiar with labor and environment. On contract structures, it is more about disciplined project and geography selection and maintaining a disciplined risk posture. We walked away from a recent project where we could not come to terms on risk, despite being the preferred supplier. The market allows us to be disciplined based on our solution offering. Operator: Your next question is from the line of Maheep Mandloi with Mizuho. Please go ahead. Maheep Mandloi: [inaudible]. Koti Vadlamudi: Most of these are projects already awarded from 2024, so we are not seeing margin impacts contemplated for projects booked post-2024 delivering in 2027–2028. Operator: Your next question is from the line of Manish Somaiya with Cantor Fitzgerald. Please go ahead. Manish Somaiya: [inaudible]. Koti Vadlamudi: On Utilities margins moving from 9.8% toward the 10% to 12% range, power delivery provides optimism. We are executing well with current customers and seeing opportunities to be more efficient. We also have new opportunities with new customers, and based on market demand, pricing and mix allow us to deliver higher-quality margins. MSA backlog increased nicely quarter over quarter in Utilities, providing tailwinds enhanced by our operational improvements. Ken Dodgen: Seasonality helps—Q1 and Q4 are shoulder quarters. Getting out of the gate earlier in Q1 is helpful to the upside. Our percentage of project work has started to gain traction; if that continues, it could help margins as well. Lastly, storm work during the year can provide additional upside. On operating cash flow, Q1 was heavily impacted by timing of payables and the timing of our check run—about a $100 million swing. That is mostly noise and will likely reverse some in Q2 or Q3 depending on month-end timing versus AP runs. Upfront mobilization payments also impacted BIE/contract liabilities sequentially given the cadence of new contract signings. As the verbals Koti referenced turn into signings and mobilization over the balance of the year, that will drive cash. We are holding firm on our expectation for operating and free cash flow for the year; Q1 impacts were mostly timing. Koti Vadlamudi: On capital allocation, our strategy is unchanged. We have $150 million of remaining share repurchase authorization. We are investing organically to capitalize on secular tailwinds, remaining very disciplined on leverage, and we will pursue strategic inorganic opportunities that can be catalysts for accelerated growth, evaluating them opportunistically based on market dynamics. Operator: Next question is from the line of Adam Bubes with Goldman Sachs. Please go ahead. Adam Bubes: [inaudible]. Koti Vadlamudi: In our existing portfolio, data center-related work tied to enabling infrastructure has been very solid. We booked over $400 million in Q1 related to that work compared to something over $800 million to $850 million for all of last year. Paynecrest gets us inside the facility, and roughly 40% of its portfolio is directed toward hyperscaler data center opportunities. At that percentage, that is about $112 million of the portfolio. We are building them into our plan, and recent hyperscaler CapEx announcements give us a lot of optimism as Paynecrest is a key supplier for one hyperscaler customer, creating opportunity to overdeliver versus our valuation case. On risk profile for combined-cycle and simple-cycle gas generation versus core industrial, execution fundamentals are similar. We conduct rigorous reviews based on scope and design maturity. Combined-cycle is more complex and longer in schedule; we are seeing more simple-cycle opportunities driven by timeline-to-market. Our resume includes both. We typically do not put the turbines on our paper, which drives our contract value down, but we have strong OEM relationships and frequently pair with them as part of the EPC offering to improve predictability of orders converting. Operator: And at this time, I would like to turn the call back over to Koti for closing remarks. Koti Vadlamudi: Thank you. First, I would like to acknowledge and thank our employees at Primoris Services Corporation who enable us to deliver critically needed infrastructure solutions for our clients. Despite the challenges we had in renewables, I want to emphasize the strong fundamentals across our portfolio. We have intentionally shaped our business toward secular tailwinds in our end markets, setting us up for a strong second half and, more importantly, for 2027 and beyond. Thank you for joining us today, and we look forward to updating you as we progress. Operator: Ladies and gentlemen, that concludes today’s call. Thank you for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Talos Energy Inc. First Quarter 2026 Earnings Call Conference. Following the presentation, we will conduct a question and answer session. This call is being recorded on Wednesday, 05/06/2026. I would now like to turn the conference over to Clay P. Jeansonne. Please go ahead. Clay P. Jeansonne: Thank you, operator. Good morning, everyone, and welcome to our first quarter 2026 earnings conference call. Joining me today to discuss our results are Paul Goodfellow, President and Chief Executive Officer, and Zachary Dailey, Executive Vice President and Chief Financial Officer. For our prepared remarks, please refer to our first quarter 2026 earnings presentation that is available on the Talos Energy Inc. website under the Investor section for a more detailed look at our results and operations. Before we start, I would like to remind you that our remarks will include forward-looking statements subject to various cautionary statements identified in our presentation and earnings release. Actual results may differ materially from those contemplated by the company. Factors that could cause these results to differ materially are set forth in yesterday's press release and our Form 10-Ks for the period ending 12/31/2025 filed with the SEC. Forward-looking statements are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events. During this call, we may present GAAP and non-GAAP financial measures. A reconciliation of certain non-GAAP to GAAP measures is included in yesterday's press release, which was furnished with our Form 8-Ks filed with the SEC and is available on our website. And now I would like to turn the call over to Paul. Paul Goodfellow: Thanks, Clay, and good morning to everyone joining us on the call today. To start, I want to thank our employees for their hard work, dedication, and unwavering commitment to safety and environmental stewardship in delivering the results Zachary and I have the privilege of discussing today, especially during these dynamic times. Before turning to our results, I would like to briefly provide some context on the current energy market. Recent geopolitical tensions have reminded global markets of a couple of fundamental truths. Energy security is not guaranteed, and reliable and affordable hydrocarbons remain essential to meeting the world's energy needs. We believe Talos Energy Inc., as part of the vibrant U.S. energy industry, plays a clear and increasingly important role in delivering reliable Gulf of America oil that the world requires. Our strategy is designed to build Talos Energy Inc. into a leading pure play offshore E&P company by delivering high-margin production through disciplined execution, a resilient cost structure, and building a long-lived portfolio that creates durable value across the cycle. Today, I would like to focus on three key takeaways from our results, where outstanding execution across the business drove another quarter of strong financial outcomes, generating adjusted free cash flow of $113 million on production of approximately 89 thousand barrels of oil equivalent per day. First, our disciplined operational performance remains a foundation of our financial results. During the first quarter, we delivered oil production of approximately 64 thousand barrels per day and total production of approximately 89 thousand barrels of oil equivalent per day, which just exceeded first quarter guidance. This outperformance was driven by strong new well productivity at Cardona, continued solid base performance, and high facility uptime. I am extremely proud of our team and want to recognize their tireless focus on operational excellence and identifying opportunities to maximize value across our asset base. This mindset is core to pillar one of our strategy and ultimately leads into pillar two by driving production and profitability. My second key takeaway is that execution is off to a strong start in what is an active drilling and completion year for Talos Energy Inc. In addition to efficient execution and strong performance at Cardona, we drilled and completed the CPN well in quarter one, with first production on track for the third quarter. Execution at CPN was best in class, highlighted by the fact that the well was completed with zero completion-related nonproductive time, an outstanding achievement and a testament to the high-performance team here at Talos Energy Inc. The plan for remediation work to begin on the Genovese well is on track for quarter two with a return to production midyear, slightly ahead of schedule. Lastly, on the execution front, drilling is underway at the Monument project operated by Beacon Offshore, with first oil on track by late 2026. Our relentless focus on improving the business every day has strengthened our position as a low-cost E&P operator in the Gulf of America while also delivering top-decile EBITDA margins across the sector. Over the last three years, as industry cost structures in the Gulf of America have increased, Talos Energy Inc.'s proactive cost management and production growth have resulted in a reduction in unit operating costs. In fact, for 2025, which is the most recent available full-year dataset, our operating costs were approximately 30% lower on average than the offshore peer group. Our advantaged cost structure combined with our oil-weighted production drives top-decile EBITDA margins in the E&P sector. My third and final key takeaway is that we continued this trend of low cost and high margins into the first quarter. Total company lease operating expenses were approximately $16 per barrel of oil equivalent in quarter one, which was in line with our 2025 average. It has also been an impressive start to the year for our optimal performance plan, with greater than 40% of the 2026 target already achieved. These results are broad-based, with free cash flow enhancements driven by operating cost reductions, margin improvement, and capital efficiency, which spans operations, development, and P&A activities. We expect to build on the outstanding first quarter performance and carry that momentum forward into the second quarter. We expect to spud the Daenerys appraisal well later in the second quarter. The primary objectives are to test the northern portion of the prospect and further evaluate reservoir and fluid properties. The well has been designed to penetrate multiple prospective intervals, with optionality to accommodate future sidetracks, enabling further appraisal and development. We are ready to start execution as soon as the rig returns from the current operator's well. We expect to have the well drilled and evaluated by the end of the year. Exploration is a core element of our strategy falling under pillar three: building a long-lived, scaled portfolio that supports sustainable growth. To deepen our exploration inventory for the future, we have been proactive with recent seismic investments, giving Talos Energy Inc. the most advanced reprocessed data across our core areas. This approach to leveraging modern technology enabled a successful December 2025 lease sale, with all 11 leases now awarded. The eight identified prospects among those leases, several of which span multiple blocks, represent more than 300 million barrels of gross unrisked resource potential across amplitude-supported Miocene and Wilcox opportunities. While the work is underway, and is still early, our objective is to advance these prospects toward drill-ready status, allowing them to compete for capital in 2027. For me, the bottom line is simple: a strong execution quarter delivered solid financial outcomes. With that, I will turn it over to Zachary to walk through our first quarter financial results along with the full-year and second quarter guidance. Thanks, Paul. I will focus my remarks this morning on our first quarter financial performance. Zachary Dailey: Which was underpinned by the strong operational execution Paul just discussed and our unchanged, disciplined capital allocation framework. I will also touch on our latest hedging activity before wrapping up with guidance and then opening it up for Q&A. Starting with the quarter, we invested just under $120 million of exploration and development capital and delivered oil production at the high end of our guidance range, with total oil equivalent production exceeding guidance. This strong execution across the business translated into $293 million of adjusted EBITDA and $113 million of adjusted free cash flow. Importantly, these results were achieved at a low reinvestment rate of approximately 41%, reflecting the capital efficiency of our development program and our ability to convert consistent operating performance into strong financial outcomes. While we expect the macro and commodity price environment to remain volatile, Talos Energy Inc. has the financial strength and flexibility to execute on our strategic priorities across a range of commodity price scenarios. Our 2026 plan features development projects with breakevens in the $30s and $40s, with a corporate free cash flow breakeven in the low-$50 WTI range. And although oil prices have moved higher since the Iran war began, our capital allocation priorities and our 2026 budget remain unchanged. We will continue to allocate capital in a disciplined, balanced, and focused manner, guided by the framework that underpins execution across all three of our strategic pillars. This consistency is especially important during periods of volatility, and we believe adherence to our capital allocation framework positions Talos Energy Inc. to deliver strong financial outcomes and long-term value creation through the cycle. As a reminder, our capital allocation framework calls for returning up to 50% of annual free cash flow to shareholders, and the first quarter represented another quarter of consistent execution on this front. We returned $38 million, or 34% of adjusted free cash flow, to shareholders through share repurchases. Since announcing our return of capital framework in 2025, Talos Energy Inc. has returned approximately $135 million to shareholders through repurchases, resulting in an approximately 7% reduction in our outstanding share count. Turning to the balance sheet, our liquidity remains strong and leverage is low, resulting in financial strength that underpins our ability to execute across all three of our strategic pillars. During the first quarter, cash on hand increased while net debt declined sequentially, further enhancing our financial position. In addition to approximately $1 billion of liquidity, we have no near-term debt maturities and have recently extended our credit facility, which now matures in 2030. Together, our balance sheet strength provides flexibility to invest in the business through the cycle, return capital to shareholders, and advance both our development and exploration priorities while maintaining financial discipline. Now let me share a few thoughts on hedging and provide an update on our recent activity. The end of the first quarter was marked by elevated oil price volatility, driven by geopolitical developments and broader macroeconomic uncertainty. In that environment, we remain disciplined and selectively opportunistic, acting consistently within our established hedging framework to support free cash flow while preserving upside. While we added some 2026 oil hedges at the beginning of the Iran war, our primary focus during the quarter was to begin layering in required oil hedges for early 2027, a time period in which Talos Energy Inc. was unhedged before the war began. These initial positions were added to establish protection around future free cash flow, maintain exposure to additional upside, and satisfy credit facility requirements. We view this early positioning in 2027 as prudent and well timed given the current level of market volatility and uncertainty in longer-dated oil prices. It is also worth highlighting that approximately two-thirds of our oil is sour and that we benefit from a balanced oil marketing portfolio with access to multiple physical crude pricing benchmarks. Beginning with April pricing, we saw strength in a number of Gulf Coast sours relative to historical levels, which, all else equal, should support near-term price realizations. Overall, our hedging activity during the quarter reflects a measured and steady approach, using periods of volatility to strengthen cash flow resilience and reinforce our ability to execute consistently across the cycle. For the forward outlook, all of our full-year 2026 operational and financial guidance ranges we released in late February remain unchanged. For the second quarter, we expect oil production to be in the range of 63 thousand to 67 thousand barrels of oil per day and total production to be in the range of 88 thousand to 92 thousand barrels of oil equivalent per day. Additional details describing our guidance can be found in our presentation, which is available on our website. In closing, the business is off to a very solid start to the year. With a clearly defined strategy, an advantaged cost structure, and top-decile margins, we have the financial strength and flexibility to execute on our strategic priorities while remaining anchored to our disciplined capital allocation framework. With that, we will open the line for Q&A. Operator: Thank you. In a moment, we will open the call to questions. The company requests that all callers limit each turn to two questions from each analyst, one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. It may be necessary to pick up your handset before pressing the star keys. One moment, please. Your first question comes from Greta Drefke with Goldman Sachs. Please go ahead. Greta Drefke: I was wondering if you could just update us with your latest thoughts around how different uses of free cash flow compete across holding cash on the balance sheet, leaning into share repurchases like you did this past quarter, or potential M&A here? Paul Goodfellow: Yes, thanks, Greta. Good morning. Look, I would say nothing changes. We have a very clear framework in terms of how we think about capital allocation that we have been working within over the last year, where we have seen prices rise and decline during that timeframe. That is really focused on investing in the business, making sure we maintain the strength of the balance sheet, absolutely returning cash to shareholders, but also giving ourselves the opportunity to invest in the future of the business to make sure that we have length in the portfolio. We have said that investment needs to make Talos Energy Inc. better and not bigger, and so it is not investment for investment's sake. In the same way as you see us investing in projects in 2026 and going into 2027 that have low breakevens and high returns and can deal with the volatility that we see in the macro, that is how we look for that fourth component as well. We will balance that as we go through 2026 and 2027, with no change to the overall framework in which we are thinking and operating and planning. Greta Drefke: And then just for my second question, on the longer-term outlook: if we are in a higher-for-longer oil price environment, albeit very volatile, as you are thinking about organic growth opportunities like you mentioned, is Talos Energy Inc. considering leaning into any incremental organic growth projects in 2027 or 2028 to potentially turn economic given where the oil forward curve is today relative to a few months ago? Paul Goodfellow: I would reiterate what we spoke about before, which is we look for projects that have low breakevens, and Zachary mentioned that in the comments. We are not going to chase an oil curve. We will look for projects that have resilience through the cycle. As we mentioned, we were very successful in the first lease sale that was held in 2025. All of those leases, the 11 leases, have now been awarded to us, and we are working those diligently to allow the majority of those to compete for capital in 2027, but that is normal course. It is not in reaction to where the price is today. If you look at the shape of the curve, it is still incredibly backwardated. Yes, the long end is slightly higher than where it was pre the Iran war, but it is nothing that would fundamentally change our view on how we invest in projects and the thresholds that we have for those projects to be considered to compete for capital. Operator: Thank you very much. Paul Goodfellow: Thank you. Operator: Thank you. The next question comes from Analyst with BMO. Please go ahead. Analyst: This is Ajay Bhukshani on for Phil. Thanks for taking our question. As we think about the upcoming appraisal well at Daenerys, you do a good job of listing out the objectives, but what are some of the key risks here? And assuming you accomplish these objectives, how does this inform your resource potential estimates, or is further appraisal needed to really dial this in? Paul Goodfellow: Thank you. The reason that we are drilling the appraisal well at Daenerys is to try and derisk the range of uncertainties that we have. The clear risks, as there are with any exploration or appraisal well, are whether the main objectives we are looking for are present, do we see the reservoir characteristics that we are looking for, do we see the fluid characteristics that we are looking for, and how does that all then get folded into the overall resource size and estimate and quality that can inform the next steps. Clearly, there are always mechanical risks when you are drilling deep subsalt wells such as this, but we are incredibly fortunate at Talos Energy Inc. to have one of the best drilling and completion teams in the industry. They have demonstrated that time and time again with what they have done on the first Daenerys well, on Sunspear, on Cardona, and CPN. We plan accordingly, really thinking about the risks and how we mitigate those. Outside the mechanical risks, it really is looking at derisking the reservoir and fluid properties and characteristics. From that point, we will make the determination of what further appraisal, if any, is needed. It depends on where those results come in, which, as we have mentioned, we expect to spud that well once we get the rig back from the current operator in the second quarter, with results, all being well, available before the end of the year. We will clearly be able to update you then. Analyst: Very helpful. Thank you. And for my next question, can you just talk about what you have been seeing on crude differentials through 2Q so far? There is a strong global bid for waterborne medium sour barrels. Also, what is the typical breakdown as far as barrels and key price hubs for Talos Energy Inc.? Zachary Dailey: Ajay, this is Zachary. I appreciate the question. The diffs that we have experienced in April and May have been positive to HLS. About two-thirds of our crude is sour, with a little bit higher sulfur content than a sweet barrel, so they price at Mars, Poseidon, and Southern Green Canyon. We have seen an uplift in those sour diffs in the first part of the second quarter. All else equal, that should help realizations in Q2. Hope that helps. Analyst: Thanks, very helpful, and congrats on the good quarter. Zachary Dailey: Thank you. Operator: The next question comes from Analyst with Pickering Energy Partners. Please go ahead. Analyst: Hey, good morning. Thanks for taking our questions. It does seem like the oil market might be going through a structural shift that could result in a higher mid-cycle price. Under that context, how does the Talos Energy Inc. business strategy change, if at all, in a higher pricing scenario? And if it does not change, what levers can you pull to capitalize on higher prices? Paul Goodfellow: Thanks, Michael. I think it does not change. We have a very robust strategy in terms of the three pillars that we are driving against. We have a disciplined capital allocation framework in which we will look at how to deploy capital, and that is where our focus will remain. We are laser-focused on improving our business each and every day, driving continuous improvements, and we have continued to see evidence of that through the first quarter. We are equally focused on the second and third pillars in terms of driving production profitability and building a longer-lived, scaled portfolio. There is a lot of activity going on in those spaces. Until something gets to the finish line, it is difficult for us to talk about that. Bottom line is that our strategy does not change. If anything, potential structural changes through the cycle reinforce the strategy that we have and the need for the capital discipline that we are driving. Zachary Dailey: I might just add to what Paul said. To your second point on how you capitalize on higher oil prices: we expect to be 73% oil in 2026, which drives those top-decile margins that we are very proud of. Similar to the prior question, strong differentials are a near-term benefit with the sour crude we produce. Analyst: I appreciate the context. One related area we are trying to understand is how these oil prices affect the offshore rig market. With the West Bella contract rolling and with the upcoming Daenerys appraisal as well as other prospects, presumably Talos Energy Inc. has been active in this market recently. Paul, I would be curious to hear your views in the high-spec drillship market. Are you seeing a tightening? Do you feel that there is enough availability? And maybe you could offer your opinion on how leading-edge dayrates in the Gulf have evolved over the last twelve months. Paul Goodfellow: Thanks. The trends we are seeing are the trends that were suggested six to nine months ago, which was some potential capacity in 2026, but the market tightening in 2027. I think that is what you are actually seeing, maybe a slight acceleration of that tightening given what has happened in oil prices over the last two months. It is also important to remember that, for deepwater projects and deepwater wells, the cycle time is much longer from decision to having the well online. I still think for operators like ourselves there is a degree of caution in terms of making sure the projects that we move forward with have low breakeven prices. We have been in the market with a tender for deepwater rig activity in 2027. We have had a number of high-spec rigs bid into that, and we will be making our decision in the coming weeks and months as to which rig or rigs we take on in 2027 and beyond. We are looking at our needs beyond just the very near term and starting to think more strategically about deepwater rig needs. It is also important that we have the ability to intervene quickly on wells should they have a problem, such as the Genovese well that we identified at the back end of last year. Leveraging technology and using an intervention vessel platform to do intervention work versus only relying on the high-spec rigs gives us another degree of flexibility as we think about the type of vessel and therefore the cost of the vessel to do the work that we need to do. In fact, that is one of the reasons why the Genovese well is on or slightly ahead of plan at the moment, because of our ability to execute that work off an intervention vessel versus a high-spec rig. I hope that gives you some color. Analyst: That is great. Thanks for your time. Paul Goodfellow: Thank you. Operator: The next question comes from Timothy A. Rezvan with KeyBanc Capital Markets. Please go ahead. Timothy A. Rezvan: Good morning, folks. Thank you for taking our questions. First one, maybe this is for Zachary. On the balance sheet, Talos Energy Inc. has $1.25 billion of second-lien notes out there. The company is in much better financial health than when those were issued. They are trading above par, and some are callable now, and I know the call steps down in 2027. Just curious where that is on your radar screen this year. And maybe for Paul, is that part of that $100 million cash flow uplift, getting those refinanced? Thanks. Zachary Dailey: Thanks for the question, Tim. Good morning. You pretty much nailed the state of affairs on the ’29s. It is front and center on our minds. The high-yield market is very tight, and it is a good place to be for companies like Talos Energy Inc. I would say we have lots of flexibility in our balance sheet and our capital structure right now to support the strategy that we have laid out to the market and go out and execute the plan. I do not want to get into too many specifics, but suffice it to say that it is definitely front and center and we are in a good spot. Paul Goodfellow: The simple answer to the second part of your question, Tim, is any refinancing benefit we would get is not considered in the $100 million of additional free cash flow. That is centered around the operational, capital, and supply chain efficiency world in terms of the execution of the plan today. But as Zachary said, the actions we will take around those bonds are very much front and center in our thinking at this point in time. Timothy A. Rezvan: Appreciate the details. As a follow-up, also on the capital allocation theme, Talos Energy Inc. has repurchased shares for five straight quarters. It seems to be a consistent part of your use of free cash flow, but we also, going into today at least, have shares pushing two-year highs. Should we think of that as maybe you toggle that up or down, but you expect that to be a consistent part of the program, greater than zero but opportunistic? Just trying to understand how you think about repurchase intensity with shares back at ’16. Paul Goodfellow: We think about it within the framework that we laid out. We have said we are investing in the business today, we are going to maintain the strength of the balance sheet, we are going to look for accretive opportunities to support and build the business, and we are going to return capital to shareholders through share buybacks. It is a balance of those four. That is what you have seen us do over the last four quarters, and thank you for the recognition of that in terms of the consistency of executing against the strategy that we have. That is how you will see us think about it going forward, not only in this quarter, but the quarters to come. Zachary Dailey: Tim, Paul is exactly right. I will just add that in Q1 it was about 34% of free cash flow allocated to repurchases. Within the financial framework that we want to stay consistent to, we have the flexibility of up to 50%. At any one point in time, we will be toggling in that range. As we highlighted in the prepared remarks, we have reduced the outstanding share count by about 7% over the last twelve months since the strategy was rolled out. We do want to stay consistent, but we do have flexibility within that framework. Timothy A. Rezvan: That is all I had. Zachary Dailey: Thanks, Tim. Operator: Thank you. The next question comes from Paul Diamond with Citigroup. Please go ahead. Paul Diamond: Thank you. Good morning, all. Thanks for taking the call. Just a quick one on Katmai/Tarantula. I know that there was some recent debottlenecking there. Looking at it longer term, do you see there continuing to be capital going out beyond, you know, I know it is flatlining through 2027, but going out beyond that? Paul Goodfellow: Thanks, Paul. The Katmai field is doing incredibly well. The operations team there continues to focus on safe, efficient operations and maximizing throughput. That is what we have seen as we have gone through the first quarter of this year, a continuation of what we were doing in 2025. We have said there are a number of opportunities around the Katmai field—Katmai North as well as some of the leases that we acquired in the last lease sale. As we think about maturing those, we will also consider what further debottlenecking or expansion of that facility is needed. For where we are today, we see that nice plateau, and that is where we will sit. The next level of expansion would be looping of the pipeline, which would give us additional capacity. To do that, we would want to have additional volumes coming in from near-field wells. Those are the wells the team is maturing at the moment to compete for capital in 2027. Paul Diamond: Makes perfect sense. Just a bit of housekeeping on the optimal performance plan. You talked about $100 million in savings, with about 40% achieved. How should we think about the vector of that plan? Does the low-hanging fruit come first and the rest is somewhat linear, or is it more chunky? What is the timeline on completion? Paul Goodfellow: Great question. The plan is a continuation of what we laid out last year. We set an interim target, which the teams did incredibly well to exceed in 2025, and there is an element of those that recur from 2025 to 2026. There is some lumpiness as it comes through. I would think of the vector overall as, between where we are now and the $100 million at the end of the year, we have a high degree of confidence in delivering that $100 million, and we will be looking for ways to exceed it. We are not changing that target at this point in time. Zachary Dailey: I would just add that the real prize here is instilling a culture of continuous improvement, which has been a cornerstone of Talos Energy Inc. for a long time, but now with a bit more framework and structure. That will continue well into the future. Operator: The next question comes from Michael Stephen Scialla with Stephens. Please go ahead. Michael Stephen Scialla: Good morning, guys. It looks like you will have some growth heading into 2027 with Monument coming online at the end of the year. I realize there is a lot of variability and unpredictability with your business, but can you say if you are anticipating year-over-year growth next year, barring a collapse in 2027 oil prices, or is it too early to go out that far? Paul Goodfellow: In simple terms, it is too early to go out that far. There is a lot of uncertainty in terms of the work that we have to do this year still. The Monument project has started and, with our partner Beacon Offshore as the operator, operations so far are going well, but there is a long way between now and actually getting production from those wells. There is a range of uncertainty, although the area in which Monument sits is a prolific area if you think about the Shenandoah hub, which is where it will tie back to. We also have a fairly significant redevelopment program at Brutus coming through in the second half of the year that we are getting ready to start up now, and other activities as well. We are investing this year in good-quality, low-breakeven projects that give us stability for the future, but it is too early to put a number on a vector relative to where we are in 2026. Michael Stephen Scialla: Understood. Could you talk more about the 11 new leases that you got in the lease sale that you said unlock eight new prospects? It looks like some of that is in the Wilcox and that inventory is expanded. Maybe your thoughts on the confidence in that play and what you are seeing with those new leases? Paul Goodfellow: You are right. We were successful in getting 11 leases where we have identified eight prospects, and some of those span a number of blocks. We focused them around two key areas for us—around the Katmai area and around the Daenerys location. We focused them on plays where we have deep skills, including amplitude-supported Miocene, Wilcox, and some in the Paleogene. We are now going through the seismic work. We preinvested in seismic so that we could mature those prospects and have them compete for capital in 2027. We are focused specifically in the Wilcox in a proven part of the play where we see opportunities with tieback potential, but also with upside to be standalone and hub class. Those are some of the criteria that we looked at the leases through, and we will continue to look at opportunities in future lease sales. The preinvestment in really advanced, reprocessed proprietary seismic around those key areas and fairways is important. Operator: The next question comes from Nathaniel Pendleton with Texas Capital. Please go ahead. Nathaniel Pendleton: Good morning. Congrats on the strong results. You just mentioned the Brutus wells. Can you talk about the potential you see for similar recompletion activity across your portfolio? And how do those types of opportunities compete for capital when you are looking at potentially doing a dedicated drilling program as you look out to 2027–2028? Paul Goodfellow: What we are doing at Brutus is really bread and butter for Talos Energy Inc., which is our ability to take these mid- to late-life assets, identify opportunities that have maybe been overlooked, and then execute those very efficiently and effectively to maintain the volumes and throughputs of those hosts. This is the second or third incarnation of redevelopment that we have done at Brutus, and we have had similar activities at other hubs. It is important that we have high-quality seismic over those locations, so we can look at near-field opportunities from an infrastructure point of view. They need to compete in terms of breakevens and returns relative to other opportunities that we have in the portfolio. It is also important that we are balancing the focus on larger-scale opportunities in the exploration phase with high-quality development that can maintain the high oil component of the portfolio that we are delivering at the moment—north of 70% oil cut. The Brutus program specifically will be targeting more oil opportunities than gas. In fact, some of the wellbores it will use are wells that have been gas wells coming to the end of their life, and we will use those wellbores to add additional oil into the portfolio. Nathaniel Pendleton: Got it. Appreciate the detail there. As my follow-up, I wanted to zoom out and discuss M&A. Can you talk about the opportunity you see in the Gulf of America in smaller asset-level acquisitions versus corporate M&A potential? And do you have any interest in shallow-water assets versus deepwater? Paul Goodfellow: Our focus is to become a leading pure play offshore E&P player. From a Gulf Shelf perspective, we have a large legacy position, and we will continue to operate and execute those as efficiently and effectively as we can through to end of life, being a responsible operator as we take those through to abandonment and decommissioning when the time is right. In terms of asset-level opportunities, there has been a history of asset activity within the Gulf of America. We would expect that to continue to some degree. What has happened over the last two months post the Iran war run-up in prices has created a bit of a bump in the road in terms of how buyers and sellers think about price points. I think we are getting to a new norm and an understanding of how to deal with that. There will be a continual degree of opportunities that come forward, maybe not at a super high level, as current incumbents look to optimize their full portfolios as any company, including ourselves, would do. Operator: The next question comes from Phu Pham with Roth Capital. Please go ahead. Phu Pham: Hi. Good morning, everyone. My first question is about the cost savings. You executed $72 million in 2025, and the company expects to realize in total $100 million in 2026. The slide shows you have executed greater than 40% of the 2026 target. Is that 40% of the $100 million in total for 2026? Can you quantify that a little bit? Paul Goodfellow: Thanks, Phu. The $100 million for 2026 was a new $100 million starting at zero. We have executed just above 40% of that $100 million. The $72 million was the number in 2025 attributable to activities in 2025. Some of the solutions we put in place are repeatable, and we would expect to see those continue into 2026, but the target we set for 2026 was a new $100 million target and that was built into our plan. Phu Pham: That is very helpful. My second question is about the Genovese well. Can you provide an update? I think originally we expected to bring it back in the third quarter 2026, but now it is midyear. Can you provide more exact timing for the wells? Paul Goodfellow: The team has done a great job of procuring all the equipment that is needed, including the insert safety valve, which is now here in the Gulf with us; working with the operator to make sure we have access to the control system of the well; and accessing a platform in terms of an intervention vessel. We are working toward execution. I cannot be more specific than midyear because there is still uncertainty in terms of when we actually get the vessel and the exact date we can go onto the well, working with the operator. As is the culture of Talos Energy Inc., the team has worked incredibly hard to look at every lever we can pull to get that as early as we can while still executing it efficiently. Our prime driver is to execute efficiently to get that well back online, which at the moment we see slightly ahead of the third quarter target that we gave when we first shared the Genovese update last quarter. Phu Pham: Alright. Thank you. Paul Goodfellow: Thank you. Operator: The next question comes from Noel Augustus Parks with Tuohy Brothers. Please go ahead. Noel Augustus Parks: Hi. Good morning. I was wondering about exploration in the industry. We have heard so much, especially over the last couple quarters, about onshore exhaustion and more capital heading out to deepwater globally. With exploration drilling starting to get rolling more and more, it is nowhere near its past peaks. Is there anything that you see in the Gulf that you think is particularly exciting to the point where you could be enticed to maybe take a non-op role in someone else's exploratory prospect? Is the quality of what is out there something you are excited about or more routine? Paul Goodfellow: The first thing I would say is if we were not excited about the opportunities, we would not have taken the 11 leases that we did in the first big lease sale in December 2025. We have had a strategy of not just looking for exploration, but looking for exploration opportunities that can raise the volume picture that we have. As I have said in the past, in that first lease round we now have access to some 300 million barrels of gross unrisked volume opportunity, and the individual opportunity size has gone up by roughly 50% relative to what we had prior to that. Clearly, we prefer to be an operator. We think we have great skills in operating, but if partnering opportunities are out there, we will look at those if it is the right type of subsurface opportunity that fits our skills. Our continued investment in seismic is another point—if we were not excited by the opportunity set and potential, we would not be investing in high-quality, state-of-the-art, reprocessed proprietary seismic that allows us to develop those opportunities. Clearly, we are happy to be a non-operator with the right operator, as you see with the Monument development that we are doing now. Noel Augustus Parks: Fair enough. A general macro question: when we look at the volatility we have had in oil prices in the last couple months, from your long experience, any thoughts on the 2027 strip and whether there is a big leg up ahead or whether we have seen about as much as it is going to do unless there is a huge swing one way or the other? Paul Goodfellow: The only thing that we focus on at Talos Energy Inc. is making sure that our unit development costs, drilling costs, and lifting costs are as low as they can be and that we do that as safely and efficiently as we can. Regardless of where strip goes, we know that we have a robust set of opportunities that we can execute against. We will not get caught up in trying to have our decision quality driven by what we think a strip price may or may not be. Operator: We have reached the end of the question and answer session. I will now turn the call over to Paul Goodfellow for closing remarks. Please go ahead. Paul Goodfellow: Thank you, and thank you all for joining today and for your continued interest in Talos Energy Inc. To close, the current geopolitical landscape reinforces our belief that the world will continue to need reliable and affordable oil supply to meet rising global demand well into the future. We believe that Talos Energy Inc. is well positioned as a low-cost, high-margin oil producer, executing a well-defined strategy to become a leading pure play offshore E&P company and play a meaningful role in meeting that opportunity. Thank you all. Operator: This concludes today's conference, and you may now disconnect your lines. Thank you all for your participation.