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Operator: Good morning, and welcome to the Criteo's First Quarter 2026 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Melanie Dambre, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead. Melanie Dambre: Good morning, everyone, and welcome to Criteo's First Quarter 2026 Earnings Call. Joining us on the call today, Chief Executive Officer, Michael Komasinski; and Chief Financial Officer, Sarah Glickman, are going to share some prepared remarks. Joining us for the Q&A session is Todd Parsons in his role as Chief Product Officer. As usual, you will find our investor presentation on our IR website now as well as our prepared remarks and transcript after the call. Before we get started, I would like to remind you that our remarks will include forward-looking statements, which reflect Criteo's judgment, assumptions and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting Criteo's business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to the risk factors discussed in our earnings release as well as our most recent Forms 10-K and 10-Q filed with the SEC. We will also discuss non-GAAP measures of our performance. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release published today. Finally, unless otherwise stated, all growth comparisons made during this quarter are against the same period in the prior year. With that, let me now hand it over to Michael. Michael Komasinski: Thanks, Melanie, and good morning, everyone. One year into my role, we've made significant progress in sharpening our strategy, strengthening execution and focusing the company on what we expect will drive sustainable value creation. Our focus is clear, building Criteo into the leading commerce intelligence and AI decisioning platform for an increasingly complex and fragmented ecosystem. Our conviction is that the next phase of commerce will be defined by how decisions are made, not just where ads appear. As AI changes how people discover products and makes the ecosystem more fragmented, the real value will come from turning intent into measurable outcomes at scale. That is exactly where we are focused and where we are building our advantage. While this is not yet reflected in our results, we are making meaningful progress as we continue to transform our business. As we navigate this transition year, we executed with discipline in the first quarter, including media spend growth for the third consecutive quarter and meaningful progress across all our strategic priorities. What matters most is the pace of execution, and we are moving quickly. In the first quarter, we have advanced our Agentic AI road map, including our exciting partnership with OpenAI and increasing adoption of MCP with agencies. We also launched Criteo GO as our AI-powered self-service offering and introduced new capabilities like Page Intelligence to help retailers improve product discovery while maximizing monetization. Together, these milestones demonstrate strong progress against our strategy and reinforce the foundations for mid- and long-term growth. More broadly, AI is shaping how consumers discover, evaluate and buy, which raises the bar for relevance, trust and high-quality data. As commerce becomes more complex, the need for a decisioning and orchestration layer across multiple touch points becomes critical, and that is exactly where we believe we have a clear competitive advantage. This is powered by our unique commerce data foundation with visibility into over $1 trillion in e-commerce transactions annually and reach across billions of daily active users, products and interactions, allowing us to operate at scale. We believe this combination of data, AI and scale positions us to play a central role in the ecosystem and to capture increasing value over time. At the same time, AI platforms are emerging as a powerful new discovery channel, unlocking incremental budgets and expanding our addressable market. And for retailers, this is opening new monetization opportunities as they integrate conversational AI into their digital storefronts and create new surfaces for sponsored discovery. These dynamics are increasing demand, expanding our opportunity set and reinforcing the central role we play across the commerce ecosystem. We entered 2026 with the ambition to lead in Agentic AI, and we are already delivering on this ambition with discipline and focus. We became OpenAI's first ad tech partner, integrating our demand into ChatGPT's advertising offering with a focus on experiences that are relevant, additive and built on user trust. This positions us at the forefront of a new high-intent discovery channel for our advertiser clients. Momentum is building. We now have over 1,000 brands live with incremental budgets from both existing and new clients, strong agency traction and early expansion across international markets. We are also extending access through Criteo GO, integrating ChatGPT into our self-service cross-channel platform to enable advertisers to easily test and scale AI native media. This traction reflects the value advertisers are seeing. Traffic from AI platforms like ChatGPT converts at approximately 1.5x the rate of other referral channels, driving incremental high-quality demand to retailer and brand destinations. More broadly, as AI-driven commerce emerges, our agentic recommendation service is enabling us to demonstrate our capabilities. It has been instrumental in advancing several partnership opportunities, including driving new engagement with a broader set of partners and is now evolving into a foundational layer of our platform embedded across multiple use cases. An example is conversational ads, an innovative format we are actively developing. These enable interactive shopping experiences where users can describe what they're looking for and receive tailored product or service recommendations directly within the ad unit. In addition to being engaging, they generate richer intent signals that continuously enhance our models. We're seeing strong early interest, particularly in our travel vertical. We are also advancing sponsored recommendations within retailer AI assistant built on the same capability. This allows sponsored and organic products to appear seamlessly within conversational experiences, opening new retail media inventory across these emerging surfaces, and we look forward to sharing more. Importantly, Agentic AI is making our platform more scalable and easier to use. We are moving toward an API-first future with agentic workflows embedded directly into our solutions, reducing friction and accelerating execution for our clients. Thanks to our MCP server, dentsu has activated campaigns with Criteo from their agent using only a plain text brief. And this is a concrete example of how Agentic AI raises the bar for efficiency and interoperability, and we expect others to follow. At the same time, we are scaling agents across the platform, helping clients move faster across onboarding, audience creation, analytics and activation. Turning to Performance Media, our focus is clear: reaccelerating growth by scaling self-service, expanding cross-channel activation and extending further up the funnel. As consumer journeys become more dynamic, advertisers are increasingly looking for unified outcome-driven solutions across the full path to purchase. This plays to our strengths and reinforces our confidence that Performance Media will be a durable and growing contributor to our business over time. Against this backdrop, near-term trends reflect softer demand in specific verticals, particularly travel in Europe and reduced budgets from certain large U.S. clients, primarily driven by client-specific decisions. Sarah will provide more detail shortly. We are proactively responding by focusing on delivering strong outcomes to secure client budgets while executing against our growth priorities. While the near-term environment is challenging, it does not distract us from delivering on the strategy we believe will drive sustained growth and value. We are taking decisive actions to improve execution. Since joining as Chief Customer Officer in January, Ed Dinichert has elevated our commercial team and operating discipline, including bringing in new leadership for Performance Media in the Americas with deep experience in enterprise sales and scaling revenue. We are also deepening and accelerating our engagement with agencies to capture greater share of spend while reinforcing commercial discipline through clearer performance metrics, stronger accountability and more rigorous pipeline management. We are already seeing early signs of progress with new enterprise client wins in the U.S. Our mid-market remains resilient, and our GO self-service offering is increasingly effective in addressing the needs of smaller clients. Starting with self-service, GO launched as planned at the end of Q1. With more than 2/3 of campaigns from small clients now running through GO in the U.S., we are building on the successful transition of existing clients as we roll out self-service to new ones, supported by a comprehensive go-to-market plan, including targeted marketing campaigns with focused commercial support to drive awareness and adoption. GO simplifies activation and optimizes performance across channels, bringing together display, video, native and social into a single campaign environment. AI dynamically allocates budgets to drive outcomes, while built-in generative tools ensure consistent, high-performing creative across formats. We are also embedding agentic onboarding capabilities into GO, further reducing friction and accelerating time to value for our clients. Importantly, GO expands our addressable market, particularly among small- and medium-sized businesses. This is supported by strong industry tailwinds with AI-powered ad buying expected to grow from approximately $35 billion in 2025 to over $140 billion by 2030 according to Madison and Wall. We are already seeing strong interest and expect GO to be a multiyear growth driver. Clients running fully cross-channel campaigns are spending up to 3x more, reinforcing the value of an integrated approach. For example, Wine Country Gift Baskets increased return on ad spend by 28% and average order value by 10%, driving higher spend. We are also extending performance further up the funnel as brand performance becomes increasingly important. Discovery is how we help brands reach new audiences across channels. And as we build toward a more complete full funnel offering, we are introducing Discovery audiences in GO this quarter. Discovery typically represents at least 1/3 of media budgets, creating a meaningful opportunity to expand our addressable market. We are well positioned to capture that spend by connecting upper funnel engagement directly to lower funnel performance. Our cross-channel foundation is what makes this possible. It allows us to execute this full funnel strategy seamlessly, engaging consumers wherever they are and optimizing outcomes across channels rather than in silos. In practice, this means activating discovery across the environments where it is happening today, including social, CTV and emerging surfaces like AI platforms, all supported by AI-driven creative and optimization. Social continues to be a strong driver for our business, providing broad incremental reach and scalable performance. We are expecting -- expanding into high-impact formats like short-form video on Instagram, Facebook and TikTok, where we are seeing encouraging traction. CTV is another important growth channel. Through our recently announced partnership with Roku, we are combining premium inventory with our commerce audiences to drive better performance and simplify activation, and we expect to bring CTV into GO by the end of the year. Taken together, this positions us to capture a greater share of upper funnel budgets while reinforcing our leadership in performance, and we expect these initiatives to build momentum as we move through the year. Turning to Retail Media. We continue to build on our position as a global leader in the fastest-growing segment of digital advertising. Today, we partner with 235 leading retailers worldwide, and our focus is clear: unlock greater demand, scale high-performing formats and bring more intelligent conversational experiences to retail environments. Underlying performance remains strong with contribution ex-TAC up 24% in the first quarter, excluding the impact of the 2 previously communicated scope reductions. On the demand side, we are expanding budgets and deepening engagement with brands and agencies. We drove additional share gains in the quarter, supported by our network of 15 third-party demand API partners and marketplace integrations that continue to unlock additional demand, particularly from long-tail advertisers. We are also seeing new capabilities like conquesting drive incremental spend across multiple retailers. By increasing competition on the digital shelf, it helps brands acquire new customers and defend market share. On the supply side, we expanded our partnership with DoorDash in Canada and added Hyundai department store in Asia Pacific. We also secured many multiyear renewals, including ASOS in the U.K., reflecting the strength and durability of our retailer relationships. Innovation across formats continues to be a major growth driver and a source of share gains with existing and new retailers. Auction-based display remains our fastest-growing format, now live with more than 60 retailers, up from 49 last quarter. This is improving monetization efficiency and driving higher yields for retailers. Shoppable video is also scaling quickly as retailers adopt more full funnel on-site strategies that combine discovery and conversion. AI is an important enabler of how we drive performance and monetization. With Page Intelligence, we are introducing an AI optimization layer that helps retailers balance organic and sponsored content while improving the shopper experience and also to unlock additional revenue opportunities while maintaining full control over product selection and ranking. This positions retailers for a more AI-driven commerce future and reinforces our role as a long-term strategic partner. Collectively, these drivers are strengthening both demand and monetization across our network. We are executing with focus and remain on track for Retail Media revenue to return to growth in the fourth quarter as we move past previously communicated near-term headwinds from 2 [ client scope ] changes. We also continue to expect underlying Retail Media growth to accelerate in 2026 compared to 2025. To close, we are executing with focus in a transition year. Our fundamentals remain strong with solid margins and cash generation while we invest in the capabilities that will drive our next phase of growth. We remain highly confident in the trajectory of our business, including our expectation of a return to growth in the fourth quarter and reacceleration into 2027. We remain committed to shareholder value, including continued share buybacks, reflecting our confidence in the business and its potential. At the same time, we are advancing our portfolio and corporate structure optimization. Our redomiciliation to Luxembourg remains on track for completion in the third quarter, following strong shareholder support and will enhance our strategic and financial flexibility. As a next step, we plan to pursue a subsequent redomiciliation to the United States, which could occur as early as the first quarter of 2027, subject to applicable approvals and other conditions to make Criteo easier to invest in and better positioned for the future. We are building a more scalable Criteo, well positioned to capture the opportunities ahead and deliver sustainable value to our shareholders. With that, I'll hand it over to Sarah, who will provide more details on our financial results and our outlook. Sarah Glickman: Thank you, Michael, and good morning, everyone. Our first quarter performance reflects solid execution and financial discipline. Our first quarter media spend surpassed $1 billion for the first time. Revenue was $425 million and contribution ex-TAC was $250 million. This includes a year-over-year tailwind from foreign currencies of $9 million. At constant currency, Q1 contribution ex-TAC was down 9% as expected, reflecting a $27 million headwind related to previously communicated scope changes with 2 Retail Media clients. Excluding this impact, contribution ex-TAC grew 1% in Q1 and client retention remains high at close to 90%. Starting with Performance Media, revenue was $383 million and contribution ex-TAC was $210 million, down 2% at constant currency. This reflects mixed performance in Commerce growth, continued momentum in our Commerce Grid SSP and improving trends in Ad Tech Services. Within Commerce Grid, we have a diversified client base and a global footprint. By region, we delivered low growth in media spend in EMEA, while budgets declined in the U.S. and to a lesser extent, in APAC. By vertical, travel remains our fastest-growing category, up 20% on top of 43% growth in Q1 last year, followed by solid performance in our marketplaces. We continue to see lower spending in retail, especially in discretionary categories such as fashion, which was down 18%. As the quarter progressed, spend from certain large enterprise clients softened in the U.S., while the broader client base remained stable and resilient. In Retail Media, revenue was $41 million and contribution ex-TAC was also $41 million, reflecting the previously communicated $27 million headwind in the quarter. Excluding this impact, trends improved compared to last quarter and contribution ex-TAC grew 24% in Q1 across the underlying client base. This growth was driven by continued strength in Retail Media onsite. We benefited from the traction of our auction-based display offering and new retailers. Growth from existing clients was strong with same retailer contribution ex-TAC retention at 88% or 110%, excluding our largest retailer, driven by multiyear contracts and exclusive partnerships with most of our retailer clients. Media spend in Q1 grew 30% year-over-year, accelerating from 25% last quarter as our 4,150 global brands continue to prioritize retail media as a key channel for their investments to reach relevant audiences and sell more products. We delivered adjusted EBITDA of $65 million in Q1 2026, reflecting lower top line along with planned growth investments in our seasonally lowest quarter, partially offset by lower-than-expected RSU social charges and onetime tax refunds recognized in Q1 that were originally expected in Q2. Non-GAAP operating expenses increased 10% year-over-year, primarily driven by planned growth investments, return to office costs and a foreign exchange headwind on our euro-based cost structure with productivity gains partially mitigating the increase. AI deployment continues to improve efficiency, streamlining execution and enabling better resource allocation. Moving down the P&L, depreciation and amortization was $28 million and share-based compensation expense was $14 million. Our income from operations was $10 million, and our net income was $9 million in Q1 2026. Our weighted average diluted share count was 51 million, which resulted in diluted earnings per share of $0.15 compared to $0.66 last year. Our adjusted diluted EPS was $0.73 in Q1 2026 compared to $1.10 last year. Operating cash flow was $48 million and free cash flow was $16 million in Q1, reflecting planned higher CapEx and improved working capital in a seasonally low quarter. Criteo continues to be a resilient cash-generative business with the financial strength to invest for growth and return capital to shareholders. We have a strong balance sheet with no long-term debt. We had $889 million in total liquidity as of the end of March, which gives us significant financial flexibility to execute on our strategy and enable disciplined and balanced capital allocation. Our priorities are to invest in high ROI organic investments and value-enhancing acquisitions and to return capital to shareholders via our share buyback program. We are confident in our business strategy, and we are committed to driving shareholder value. We deployed $31 million to repurchase 1.6 million shares this quarter, and there was $190 million remaining under the current authorized share repurchase program as of the end of March. In April, we canceled a total of 1.9 million shares, increasing our capacity for additional share repurchases. Turning to our financial outlook, which reflects our expectations as of today, May 6, 2026. Our guidance incorporates softer performance media trends seen so far in Q2, while our Retail Media outlook remains unchanged. For 2026, we now expect contribution ex-TAC to decline by low single digits at constant currency. This reflects the previously communicated Retail Media client scope reductions as well as a more cautious view of the volatile macro environment and the reduced budgets from certain large enterprise performance media clients in the U.S. At the midpoint, our full year outlook is down approximately 300 basis points, reflecting several factors impacting Performance Media. About half of that or roughly 150 basis points relates to indirect macro impact. Our direct exposure to the Middle East is limited at around 1% of our business, but we are seeing broader effects. This includes slower travel growth in Europe, which has been the region's fastest growth driver, softness in discretionary retail due to inflation and weaker consumer sentiment and slower adoption of newer products as advertisers concentrate spend on established solutions in a more cautious environment. It's important to note that these dynamics are largely concentrated in our international markets, EMEA and Asia Pac, which represent close to 2/3 of our media spend for commerce growth. The remaining approximately 150 basis points is driven by U.S. client-specific dynamics. Taken together, these factors are pushing our return to growth into the fourth quarter. Excluding the $75 million Retail Media headwind, underlying contribution ex-TAC is expected to grow at a mid-single-digit rate. Our guidance does not assume any material revenue contribution from Agentic AI initiatives given their early stage, although we are seeing strong early traction. We estimate ForEx changes to drive a positive year-over-year impact of about $6 million to $8 million on contribution ex-TAC for the full year. In Retail Media, we are confident in our outlook that remains unchanged. We continue to expect media spend growth ahead of the market with contribution ex-TAC declining in the mid- to high teens year-over-year at constant currency due to the $75 million client scope reduction impact. Excluding the 2 clients, the underlying Retail Media contribution ex-TAC growth for 2026 is expected to accelerate towards the high end of the high teens to 20% range that we previously provided compared to 16% in 2025. In Performance Media, we now expect contribution ex-TAC to be flat to up low single digits at constant currency in 2026. This reflects the expected ramp-up of GO over the course of the year, offset by macro headwinds and reduced spend from certain large U.S. clients. We have taken actions to reinforce execution, including new sales leadership. Overall, we continue to anticipate an adjusted EBITDA margin of approximately 32% to 34% for 2026. Despite lower top line, we expect to maintain margins in line with our prior view through disciplined cost management and productivity gains, while we continue to invest in Agentic AI and key growth initiatives and absorbing foreign exchange headwinds on our euro-based costs. We anticipate that the investments we are making this year will position us for sustainable top line growth and strong cash flow generation for the coming years. We expect a normalized tax rate of 27% to 32% under current rules, driven by our evolving revenue mix and certain onetime items related to our redomiciliation. As previously communicated, we anticipate higher CapEx in 2026, primarily related to the renewal of certain data centers with total CapEx expected to be approximately $190 million. We expect operational cash flow conversion from adjusted EBITDA to improve to approximately 85% in 2026, up from 76% in 2025, driven by continued improvements in working capital. We also expect free cash flow conversion of about 35% of adjusted EBITDA. For Q2 2026, we expect contribution ex-TAC $260 million to $264 million, down 11% to 9% at constant currency. Our range reflects a more volatile environment shaped by geopolitical tensions and reduced spend from certain large U.S. Performance Media clients, which has translated into softer April trends. We estimate foreign exchange to be a modest headwind in Q2, reflecting more unfavorable rates compared to 3 months ago. We now expect up to a $2 million negative year-over-year impact on contribution ex-TAC in Q2, about $3 million worse than under the rates assumed in our prior guidance. We expect adjusted EBITDA between $67 million and $71 million, reflecting lower top line, continued high ROI investments in Agentic AI and growth areas, annualized employee costs and our annual promotion cycle and foreign exchange rate headwinds on our European cost base. We are pleased that our proposed redomiciliation for Luxembourg and direct listing are progressing as planned, following strong shareholder support. This is expected to enhance our flexibility for share repurchases by removing current structural constraints. We remain on track to complete the redomiciliation in the third quarter of 2026. Looking ahead, we plan to pursue a subsequent redomiciliation to the U.S. as early as the first quarter of 2027, subject to applicable approvals and other conditions with the objective of further broadening our access to U.S. capital markets. In closing, we have strong conviction in our strategy. We are excited for Agentic AI, and we are laser-focused on disciplined execution and capital allocation while delivering strong margins and cash flow generation. And with that, I will open up the call for questions. Operator: [Operator Instructions] Your first question is from Mark Kelley with Stifel. Mark Kelley: I appreciate all the color on the macro headwinds that you're seeing by vertical and by region. I guess I had 2 questions there. One is, is it fair to assume that the majority of the headwinds are outside of retargeting? Or is it kind of spread across the whole performance business? And number two, you mentioned slower adoption of some of the newer products given some of the worries that people have out there from a macro perspective. I feel like we've been worried about collectively across the digital advertising industry. We've been worried about a lot of things for a handful of years here with ongoing conflicts and plenty of things to be mindful of. I guess what do you think your clients need to see in order for them to start adopting some of these newer tools that you've put into the market a bit more -- in a more meaningful way? Michael Komasinski: Yes. Sure, Mark. Happy to take that, and Todd probably add a little color to some of the product adoption parts of that question. The slowdown with the U.S. clients is across the Performance Media segment at large. So not just retargeting sort of across the whole portfolio. And that sort of leads to maybe the more important point, which is there wasn't any common denominator of those decisions. No sort of red thread running between them other than we need to build a stronger pipeline. We need to execute better with the way that we convert that pipeline on large U.S. clients. And that's something that we think we've already addressed. We've got a great new leadership team in place. We brought on a new Chief Customer Officer and Ed Dinichert at the beginning of the year. And Ed, in turn, has revamped his entire commercial organization globally, in fact, but especially in the United States, where he brought on several key hires, many of whom started in the March or April time frame. So we feel like we've got the right team in place to jump start growth with that portfolio. And it's really more at an account level, just making sure that we're right there with our clients, driving strategic decisions, maintaining the right share of budget across our product set. And in terms of adoption of new clients or products, and Todd, if you wanted to comment on that part. Todd Parsons: Yes, I can add to that, Mark. We're seeing a very healthy mix of new and existing advertisers adopting the capabilities that we're shipping. And as Michael said, we're shipping a lot of product at a very quick rate here. What you're seeing is early days in that adoption. And with large clients, it really goes to our commercial and selling motion and the work that Dinichert and the new organization are doing. With self-service products like GO, it's just simply early. We're a month into it. our focus is what you'd expect from a launch, very tight feedback loops from our users, continuous improvements in customer experience and so forth, and we're seeing all positive signs there. Operator: Your next question comes from Matthew Cost with Morgan Stanley. Matthew Cost: Maybe one for Michael, one for Sarah. Michael, just on the ChatGPT partnership, you talked about incremental spend, which is very encouraging. How are you defining success for that product? And what are the milestones that investors should be watching as you continue to work through that launch? That's question one. And then for Sarah, you've talked about how travel in Europe is softer, but EMEA was still a growth driver in 1Q. And obviously, that's been -- travel in Europe has been a very fast-growing category for you, as you pointed out. So what are your assumptions for the rest of the year for that category? And how conservative are you choosing to be given the uncertainty in the macro? Michael Komasinski: Sure. Thanks, Matthew. I can start with the OpenAI question and then the second part to Sarah. On OpenAI, definitely the leading KPI right now is client count. And that's why we published the update yesterday on the 1,000 clients that we now have live. And we expect that number to continue to scale nicely over the course of the year as they open up additional markets. And what's going to be really interesting is how our value proposition coexists along OpenAI as they develop their own self-service platform, right? And so we continue to see really strong engagement with clients where they need our expertise and our service to help them with adopting a new ad unit, a new surface, right? How does it work? How do they optimize? How should they think about that alongside their other investments and touch points? We're developing our data management feeds to help them scale their product data into that environment because that's a real key part of driving ad performance in that unit. And then, of course, the cross-channel setup will always be a unique proposition that we'll be able to offer. And so we're really excited about getting that supply into our cross-channel setup and go over the course of the year. And that is something that we'll continue to provide updates on publicly in terms of making progress on that product rollout. So a lot to be excited about. I think key client count is the main KPI for now as we get into '27, we probably would start to guide more around contribution and some additional disclosure. But Sarah, do you want to take the second half of Matthew's question? Sarah Glickman: Yes. So just on travel, that was our highest growing vertical this time last year at 43% and in Q1, it was at 20%. We did anticipate growth, including in the Middle East. We actually won some really good new clients there, and they just have been floated for obvious reasons. So we are taking a prudent approach on travel, assuming that we won't see the growth profile that we had anticipated. And maybe if I can just take one minute on other verticals. We talked about fashion being down kind of year-on-year. Last year, that was down about 6%. This year, it's down like 18%. So we are seeing these trends from our clients. Even if I just go one more marketplaces, real estate classified was an amazing growth driver for us last year. And it's just much more muted. So that's what we've put into our guide, and we've just assumed a European and Asia Pac impact as well as a U.S., I would say, slower spend impact as well. Operator: Your next question comes from Justin Patterson with KeyBanc. Justin Patterson: Great. I appreciate the details on Agentic. I guess one thing that our team has been wondering is that how you think about some of the new device types and multimodal search, more visual search as an opportunity in there. Is that something Criteo can address today? Or is that just another area you would need to invest in down the road? And then separately, the 1,000 clients is a nice milestone with Agentic. I'm curious how that's changed the pipeline of of client engagements and how you think that might build up over the course of the year? Michael Komasinski: Yes. So I can jump in to start with. So the answer is absolutely yes. We see that as an opportunity for us, and it's a very natural one, Justin. Our job overall is to bring performance discipline to the LLM surface. And as Michael laid out, that's not just client count, but from a product functionality standpoint, it's relevance, it's outcomes, it's measurement. Those surfaces or additional creative types or ways that users are engaging them are absolutely baked into our strategy. But at the core, we're really focused on enabling those 3 things consistently across the surfaces so that we're not running towards an interaction or engagement that might not scale. But yes, it absolutely represents an opportunity, and we're well prepared to take advantage of it. And Justin, just on the kind of incrementality part of OpenAI, a couple of different thoughts there. One, I mean, it's been the fastest-growing partnership that Criteo has ever had. I think it's probably sort of obvious from some of the statistics that we're sharing. We do find that, by and large, the budgets that go into it are incremental. And the pipeline is increasingly incremental as well. In the early stages, a lot of existing clients then wanting to use their Criteo pipes and service model to get into that platform. But it opened up a lot of traction for us on the new business front. And so increasingly, that's net new in our pipeline. Now we need to go convert that over the course of the year and then cross-sell those clients into our cross-channel setup or to our other products. But we see a lot of potential in kind of a flywheel coming off this partnership. So helping our partners scale their product, but certainly bringing new folks into the Criteo platform more broadly. So more to come on that in the second half of the year. Operator: Your next question comes from Alec Brondolo with Wells Fargo. Alec Brondolo: Maybe two for me. On the large client softness that you've experienced year-to-date, I guess, what is the level of confidence that it's a sales execution issue and not an issue that's more structural with the underlying performance of the advertising products? So that would be a helpful place to start. And then maybe secondly, can you speak to the GO self-service rollout? Has it been a material new customer driver thus far? And could you help us understand what's implied in the guide for contribution from that product specifically in 2Q and the back half of the year? Michael Komasinski: Sure. Great questions, Alec. Yes, look, on the U.S. clients, we do not think that, that's structural. As I said, we've not lost any clients there. And as I mentioned, there really isn't like a common theme running through those other than we've got to be closer to those clients and jockey for position amongst other vendors that they work with. And as they make decisions, be able to move budget from, say, one Criteo product into another, right? If someone wants to pull budget from, say, lower funnel conversion into mid-funnel customer acquisition, we need to be right there at the table to suggest the right alternatives and move that from left pocket to right pocket. We also need to continue to build more pipeline at that scale. And we've started to do that. But we have to convert it, and we need to get those net new clients scaled up so that when we have these fluctuations, in that segment. We've got new growth and revenue coming in to offset it. So we're a little out of sync for the quarter on that. We feel like we've brought in the right leadership to address it. And the underlying metrics on pipeline growth and certainly stability with those U.S. clients is there. So we think that this will resolve itself in another quarter or two. In terms of GO, maybe I'll let Todd take that one. Todd Parsons: Yes. Just to reinforce what I was saying earlier, we're a month into the launch there, and we can't say now exactly what's going to happen for the rest of the year. But I can say that the interest for the product is outstanding. And as I mentioned, we are really focused on making sure that smooth onboarding and customer retention, so we're ensured with product market fit is there. That's the stage that we're at in launching a new product, but it looks very good at the beginning. And of course, we're brokering on a year worth of experience in G campaign success in the company. So we feel very good about that, but it's just very early. Operator: Your next question comes from Brian Pitz with BMO Capital Markets. Unknown Analyst: This is David Lustberg on for Brian. Two quick ones, if I may. The first one, just to touch on some of the macro impacts that obviously impacted the full year guidance. I was just curious if you could kind of pinpoint when you started to see those impacts kind of come on and hit the model? And then secondarily, just on the client retention, I think it's kind of remained in the strong kind of like 90% range. But just kind of curious if you can kind of touch on the customers that do churn off the platform, where are you finding that they're either replacing you or they kind of just with a vendor would be helpful. Sarah Glickman: Yes. Just -- I mean, on the macro, we started to see it within Q1. So we were seeing, I would say, March and then April, we are seeing that impact. And it does -- it is quite broad reaching, obviously, Asia PAC and especially Europe. It's definitely a conversation with our clients. And then in the U.S., notwithstanding all the comments that Michael made, we are seeing some lower growth in, for example, large U.S. department stores and some other areas. So it's a trend that we have seen over the last few months and hence, why we felt that we needed to take Q2 guide down and there for the year. Michael Komasinski: Yes, I can take the second part on the churn question. The good news on that one is that there really isn't sort of a dominant or even a couple of different places that people typically go. I think the market for performance products and even branded products to be more measurable and performance like has definitely accelerated. So when we churn something or when we lose a budget, it can go to a variety of places because even brand products are measurable these days. And thus our move into the full funnel, our plan to launch Discovery audiences next quarter, we need to be wherever those budgets are going to shift. And again, I think that's why we feel good about our strategy to be full funnel cross-channel so we can catch those dollars wherever they move. So no common denominator of where people typically churn to other than maybe, like I said, some validation of our strategy to be in the right places to catch things. Operator: Your next question comes from Mark Zgutowicz with Benchmark. Mark Zgutowicz: Sarah, just a couple of clarifications, if I could. Your PR mentioned certain large performance media U.S. clients in terms of some of the weakness that you're seeing. Is that multiple clients or 1 or 2? And if you think about the '26 guide, how wide is the scope of, I guess, those weakening budgets that you're seeing? And how does that translate into the level of conservatism that's now set in the '26 guide? And then perhaps for Todd and/or Michael, is there a first-mover advantage with ChatGPT versus a steep learning curve that you may be carrying for others to follow? And then, Michael, you mentioned regarding initial client spend being incremental there. I suspect that, that's test budgets. But as you -- as this evolves over time, why is that budget not a replacement versus remaining incremental? Sarah Glickman: Yes. So to comment on the clients, it's a -- yes, a number of, I would say, extra large U.S. clients, and they're all kind of down. So that is having an impact and some of those were key growth drivers for us. So that is the impact, but it's a number -- a small number, but a number of U.S. clients. The rest of the base is resilient. So our medium, large, small kind of clients are all resilient, but there have been some client-specific reasons why the spend is down on those certain large U.S. clients. Todd Parsons: Yes. On the ChatGPT question, absolutely. Yes, it's a competitive advantage for us in two ways. One, in terms of just time to be in market. And as Michael mentioned, we're crossing 1,000 clients on that, many of which are new to the company. That gives us a really neat advantage to grow the Criteo portfolio. Technically speaking, though, it gives us an advantage to already be at the table, having our tech and the value we add to ChatGPT's integration, developing faster than others so that when OpenAI launches new features, CPC being a good example or a new measurement feature, as you saw announced yesterday, we're ready for that. And in fact, we're ahead of the pack on that. So we're really excited about the timing of things, and we're doing what we're really good at, which is bringing performance to a new surface and making it cross channel and full funnel. So we're right in our sweet spot there and competitively, it feels quite good. Michael Komasinski: Yes. In terms of incrementality, it's definitely incremental for Criteo even as we move past test budgets because in its current format, that's a discovery budget. And so that, again, is an example of us wanting to move up funnel. This partnership accelerates that. So CPM and even the CPC model that they currently have in place, and that's why they call it a test program right now. We'll see if that's the model that they persist with. But let's take as an example, if they did move to like a full optimization model off of this CAPI that they introduced this week, that would then compete for search budgets, which again, for Criteo would be truly incremental. So we're incremental off this platform either way. If it stays a discovery surface with kind of the model that you see now or if they really go performance-oriented, that's a channel that we've been blocked out of. So I think for us, it's incremental either way. Operator: Your next question comes from Tim Nolan with [ SSR ]. Timothy Nolan: It's actually a bit of a follow-on to the last one regarding OpenAI, again, surprise, surprise. Could you please just clarify what the business model is for you? If it's a demand integration, which I understand it is, then is it a similar business model as any other partner that you'd be placing ads on or maybe not placing ads but providing the data for the ad placements? And relatedly, if OpenAI, if ChatGPT is successful with however you've explained the model may work out, how might that change the retail media business? Meaning if consumers are doing -- spending more and more of their time on ChatGPT and not doing searches and clicking links to the publisher sites and going on to the retailer sites, how does that change the retail media business model for you? Todd Parsons: So to answer your question, it's both data and placements, and it's a normal course of doing business for us. So there's really nothing to say that is out of the ordinary there, Tim, except that when it comes to cross-channel, the point -- the second point that you make, we are very set up to catch users as they traverse channels. So whether it's OpenAI or whether it's retail media or whether it's the open web, we're there with our performance setups to make sure that we find those users and we're able to convert them into outcomes for advertisers. Also, I think it's important to say that traffic continues to grow on retailer sites for us. So we're not seeing deterioration in places that would signal weakness to us, and that feels quite good. So cross-channel helps us find users where they're engaging, and we're seeing traffic go to the places where we have the greatest strength as a company. Those are 2 good patterns. Michael Komasinski: Yes. And I'll just build on that second point, Tim. I think you really see the vision that we have for how this all plays out is that retailers continue to own the transaction. And I think that, that's supported by some of the different product moves that you've seen in the market over the last few months. even with ChatGPT itself with the pullback on instant checkout. We see discovery offerings like OpenAI's product being complementary to retail media, right, providing more high-intent traffic. And so people may land in a customer journey in a different state of mind or in a different part of the sort of site infrastructure. We published some thought leadership about product detail pages being the new homepage or the new landing page. But retailers still then have the opportunity to do a lot with that high-intent traffic. There's different ad units that you can play around with on the PDP or certainly the introduction of shopping assistance conversational ads. I think the transition from keyword search to semantic interaction is a powerful trend. So as long as high-intent traffic is landing in retail environments, retailers are going to figure out ways to optimize that, both for organic and paid objectives. So we're a big believer in that future. So -- and we think that the OpenAI products are complementary to that, not cannibalistic. Operator: Your last question comes from the line of Richard Kramer with Arete Research. Richard Kramer: Just a couple of quick ones that haven't really been addressed yet. First one, activated media spend grew 8% constant currency and topped $1 billion, but contribution ex-TAC declined against that. Maybe Michael or Sarah, can you give us some details on what impacted take rates across retail and Performance Media? And then equally, excluding the headwind, you had 24% growth in retail media, and you mentioned the sort of 20% growth in retailers to 60 adopting auction-based formats. What's the pipeline look like for expanding retail media networks? And where should that 60 number get to relative to your 235 retailers that you mentioned? Sarah Glickman: Yes. I mean just to take the take rate question, it's actually quite stable on the Performance Media side. There is some mix there, but that was pretty stable quarter-on-quarter, year-on-year. The biggest impact is the retail media client impact that took the take rate down for Retail Media quite significantly, which I think we've communicated. The underlying take rate of all other clients is at the high end of the previous communicated range of the 10% to 15%. So we feel -- we do see that the only big impact being that retail media dynamic. Michael Komasinski: Yes. Happy to take the second part of that on the display product and retail. Look, it's already a key growth driver and definitely a source of share gains. It represents 64% of on-site display spend. And as we mentioned, the 60% versus the 49% last quarter in terms of retailers. We think that, that will continue to grow significantly across that client base. And what you see is a lot more monetization and growth happening in that existing base. So there definitely is still a pipeline for net new retailers standing up new networks. But certainly, the growth of the business is tilted towards new products like conquesting, like display and now some of the new things like Page Intelligence, where retailers continue to gain traffic and we'll get more out of that and make those networks work harder. Melanie Dambre: Thank you, Michael, Sarah and Todd. That concludes our call for today. Thanks again to everyone for joining. If you have any follow-up questions, we're available to assist. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to today's BrightView Earnings call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Mr. Chris Stoczko, Vice President of Finance and Investor Relations. Please go ahead, sir. Chris Stoczko: Good morning, and thank you for joining BrightView's Second Quarter 2026 Earnings Call. Dale Asplund, BrightView's President and Chief Executive Officer; and Brett Urban, Chief Financial Officer, are on the call. I will now refer you to Slide 2 of our presentation, which contains our safe harbor disclaimer. Our presentation includes forward-looking statements subject to risks and uncertainties. In addition, during the call, we will refer to certain non-GAAP financial measures. Please see our press release and 8-K issued yesterday for a reconciliation of these measures. With that, I will now turn the call over to Dale. Dale Asplund: Thank you, Chris, and good morning, everyone. Our second quarter marked a key inflection point for BrightView as our transformation strategy centered around prioritizing our employees and putting the customer at the center of everything we do has begun to yield meaningful returns and inflect sustainable and profitable top line land growth. While this is a pivotal moment for BrightView and our ongoing transformation, our momentum is building as we continue accelerating investments in our go-to-market teams as we manage the business for the long term. Total revenue grew 6% in the quarter, highlighted by a robust 4% increase in Land revenue, reaffirming that our transformation strategy is working and positions the business for sustained momentum. We also delivered record second quarter adjusted EBITDA of $79 million with a record margin of 11.3%, underscoring the strength and scalability of our business. From day 1 of my tenure, my focus has been on solidifying the foundation of our business through improving frontline turnover, driving higher customer retention and unlocking our size and scale as the industry's largest commercial landscaper. These initiatives continue to strengthen the foundation and have allowed us to accelerate investments back into our sales force, resulting in the continued momentum in our contract book of business. Now we are seeing the expanded contract book drive revenue growth in our Land segment. This, combined with outsized snow performance in the quarter positions us to raise our 2026 revenue guidance and reaffirm our commitment to delivering a third consecutive record EBITDA year. While the broader macroeconomic environment remains uncertain, we've built a resilient business model designed to perform through cycles. The recurring nature of our contract revenue, combined with disciplined pricing and cost management position us to continue driving sustained profitable growth in both the near and long term. While we're enthusiastic by the progress we've made this quarter, this marks just the beginning of our journey to drive sustained, profitable top line growth in both the near and long term supported by continued investments in our frontline employees, a growing sales force and the realization of efficiencies from our size and scale, driving meaningful shareholder value and positioning BrightView as the investment of choice. Turning to Slide 5. We continue to reduce frontline turnover with an approximately 5 percentage point improvement over the previous quarter and 35% since the start of our One BrightView initiative. Our focus remains, as it has since day 1, on prioritizing our frontline employees by creating a safe and rewarding environment, offering industry-leading benefits and providing reliable, consistent schedules. This continues to differentiate BrightView from its competition as the Employer of Choice, driving improved turnover and unlocking cost efficiencies that we're reinvesting into our frontline. Moving to Slide 6. I've said in the past, the longer we retain frontline employees, the more consistent our service delivery is. And as a result, customer retention continues to improve. Since bottoming at approximately 79% in 2023, retention has increased by approximately 550 basis points as of Q2 2026, now approaching IPO levels of 85%. This sequential improvement reflects the commitment of our frontline teams, our focus on service quality and our continued investment in the business which together are strengthening our underlying contract book and setting the foundation for sustained land revenue growth. Over the past 2-plus years, we have strengthened relationships with our customers by delivering best-in-class service and earning their trust. In light of recent macroeconomic uncertainty and rising fuel costs, our priority remains on maintaining long-term relationships with our customers and not reacting to potential short-term headwinds. As I've said since day 1, we are managing this business for the long term and customer retention remains a top priority to delivering sustainable, profitable growth. Continuing to Slide 7. I'd like to highlight the progress we've made in improving customer retention across our branch network with approximately 35% of our branches now achieving best-in-class 90-plus percent retention, a significant improvement since 2024. At the same time, the share of underperforming branches has declined with only 10% of our branches now under 70% retention. We know the branches with higher retention are yielding growth and our improvement reflects meaningful progress. But let me be clear, there is still plenty of runway for improvement as we continue to transform this business. Now to Slide 8, where we see the significant byproduct of our transformation continuing to materialize through accelerated momentum in our Land Contract book. The equation is simple: improved customer retention and the accelerated ramping of our sales force are generating growth in our net new sales, a metric that factors in both customer retention and new contract sales. As previously mentioned, customer retention has improved through our ongoing initiatives. The second part of the equation has been ongoing since the back half of 2025 and really accelerated in the first quarter of 2026. Now as our increased sales force is ramping up their productivity, we are starting to realize the true momentum that has been building over the past few quarters. The combination of these 2 metrics improving in [ unison ] has contributed to 4 consecutive quarters of net new sales growth driving 3% growth in our Land Contract book of business, a key leading indicator of future top line growth and in the recurring Land Maintenance business. Now as we move to Slide 9, we are reaching an inflection point where the momentum built in our contract book over the past year is translating into measurable results. Land Maintenance revenue grew 4% in the quarter and approximately 1% year-to-date, making the first year-over-year increase in the segment since the third quarter of 2023. This growth has been made possible by the steps we've taken to solidify the foundation of our business by investing in and prioritizing our frontline employees delivering consistent, reliable service to our customers and unlocking our size and scale as the industry's largest commercial landscaper. These efforts have driven sequential improvement in employee turnover, customer retention and margin expansion, all of which are strengthening the core foundation of our business and will continue to be key focus areas for the future. On top of this, we will continue to focus on driving profitable top line growth through accelerated sales force investments. This will be key to continuing contract book growth, providing a runway for heightened ancillary sales and increasing density within existing and adjacent service lines. As we grow our business organically, we continue to evaluate M&A opportunities that either complement our core business or help drive expansion in greenfield markets. Last quarter, I highlighted our expectation for Land growth in the back half of 2026. The acceleration in our contract book, along with other key underlying metrics give us the confidence to raise our 2026 Land revenue guidance, which Brett will discuss in more details in a few minutes. Before turning the call over to him, I want to express my gratitude to our nearly 18,000 employees. During the month of April, we celebrated Employee Appreciation Week. It was great to see pictures and hear stories of how the branches celebrated their teams. Their unwavering commitment to delivering consistent, high-quality service reinforces our position as the Provider of Choice and is just the beginning of our journey ahead. It is the customer-first mindset and relentless focus on service that defines BrightView. And we thank our employees for their continued commitment to excellence. With that, I will now turn the call over to Brett. Brett Urban: Thank you, Dale, and good morning, everyone. Our second quarter results reflect the continued momentum we are building across the business with solid execution driving another strong quarter of record financial performance, most notably in our Land Maintenance segment, where revenue grew 4%. The strategic investments we have made over the past 2-plus years in our employees, customer experience and sales force are translating into tangible results as evidenced by our improving retention, strengthening demand and encouraging results from our expanded sales efforts. We are increasingly excited about the trajectory of the business and continued momentum towards future sustainable growth. This is reflected in our updated guidance, which raises total revenue and Land revenue and reaffirms a third consecutive year of record adjusted EBITDA. Let's now turn to Slide 11 to discuss profitability in the quarter. We delivered record Q2 adjusted EBITDA and margin of $79 million or 11.3%. This represented an increase of $6 million and 8% higher than prior year as we continue to realize efficiency in our business. Higher revenue in the quarter drove incremental flow-through, while fleet refresh initiatives, enhanced procurement-driven purchasing power and continued G&A savings drove efficiencies. These benefits were partially offset by the acceleration of the investments in our sales force, which was funded by a portion of the incremental benefit from the outsized snowfall in the quarter. These revenue-generating resources underpin our growth strategy as evidenced by the 4% growth in our Land business, which was driven by our continued momentum in our Land Contract book. At the segment level, Maintenance margins grew 110 basis points, supported by the higher revenue flow-through and continued efficiencies in the business. In development, margins contracted in the quarter as a result of the timing and mix of projects. As a reminder, the margins in this segment benefited the most over the past 2 years as we implemented our One BrightView strategy and are still significantly above pre- One BrightView. Moving to Slide 12. Revenue for the second quarter was $703 million, representing a 6% increase driven by Land revenue growth and above-average snowfall in the quarter. Land revenue was a major bright spot, growing $13 million, representing a 4% increase from the prior year. This marks the much anticipated inflection in Land revenue growth, the recurring and highly resilient revenue stream of our business, driven by the continued momentum in our growing contract book and rising demand across the segment. We are highly encouraged that this result demonstrates the successful execution of our transformation strategy with benefits expected to continue in the back half of 2026 and beyond. These benefits are reflected in our updated Land revenue guidance, which I will discuss in a bit. Snow once again was a major benefit in the quarter, increasing 30% from the prior year as we saw higher-than-average snowfall in the Mid-Atlantic and Northeast geographies, slightly offset by lower snowfall in the Rocky Mountain and Pacific Northwest regions. In the Development segment, revenue decreased 13%, driven by project timing delays. To be clear, the headwinds we experienced here were timing related and should not be viewed as lost revenue over the long term. Building on that, let's turn to Slide 13 to look into our growth prospects in the Development segment. The segment was unable to get some work in the ground this quarter due to adverse weather. However, our strategic initiatives provide a balanced runway for continued long-term success. As we are building our sales force in the Maintenance segment, we are doing the same in Development, where we have about 50% more sellers versus this time last year. These sellers are already contributing to the business' underlying momentum, and we've grown development bookings roughly 15% year-to-date. This metric is the leading indicator of future development growth and drives our confidence in the long-term health of this business as we continue to sell into 2027 and beyond. At the same time, we are also enhancing our market position by leveraging our existing footprint through development cold starts with 6 currently opened and 5 more underway. These new branches located in markets where we already serve for maintenance will drive incremental development activity and result in multi-segment growth. Moving to Slide 14. I'd like to touch on snow as the winter season is now primarily behind us. Snow was a major benefit to revenue for the first half of 2026, growing approximately $85 million or 40% from the previous year as we saw record snowfall across core snow markets. This came in $70 million above the high end of our original guidance, enabling us to fund accelerated investments into our sales force, which will further drive sustained profitable top line growth. While snow was certainly a benefit in 2026, our current contract structure leans 60-40 variable versus fixed revenue contracts, and this creates a degree of unpredictability when forecasting revenue as snowfall can vary year-to-year. Since our February 2025 Investor Day, we've made progress increasing our mix of fixed tiered contracts. This shift towards a higher mix of fixed contracts will enhance revenue predictability, mitigate the impact of light snowfall and enable us to service our customers year-round. Turning to Slide 15. I'll provide a brief update on the strategic actions we've taken to fortify our balance sheet. Subsequent to quarter end, we extended our revolving credit facility, enhancing our liquidity position and extending our maturity profile. This transaction also includes a 25 basis point reduction in pricing and provides an additional $100 million of capacity to support future liquidity needs. This further strengthens our financial flexibility and reflects our continued proactive management of the balance sheet. Let's turn to Slide 16 for our updated 2026 guidance, which we have provided a reconciliation on Slide 21 in the appendix of the presentation today. Our updated guide is highlighted by raising total revenue and raising Land Maintenance revenue for the year. Total revenue guidance is now in the range of $2.745 billion to $2.795 billion, representing a 4% increase at the midpoint versus 2025 and a 3% increase versus our prior guidance. This guidance assumes Maintenance Land growth of 2% to 3%, a 100 basis point increase at the midpoint of our previous guidance. This also assumes snow revenue of approximately $290 million, an increase of approximately $70 million versus the original high end of the guide. Development guidance has also been updated to reflect timing impact of projects. Moving to adjusted EBITDA. We are reaffirming our guided range of $363 million to $377 million, which represents another year of record adjusted EBITDA and margin expansion of roughly 20 basis points at the midpoint. Included within this guidance are costs related to our accelerated investments into our sales force, which we expect to continue at a similar pace, but does not include the potential impact of fuel price volatility, which I will touch on in a minute. It's important to note that at the midpoint of our margin guidance implies an approximate 300 basis point improvement over the last 3 years, reflecting the incredible progress made on our transformation. We are also reaffirming our adjusted free cash flow guidance of $100 million to $115 million, providing us with significant financial flexibility to continue to reinvest in the business. In total, this guidance reflects a third consecutive year of record-breaking adjusted EBITDA, continued margin expansion and the continuation of Land revenue growth. To wrap up, let's move to Slide 17 to describe the potential impact of higher fuel costs in the back half of the year and the actions we're taking to mitigate against this. Through the first half of the year, fuel prices were relatively consistent with prior year. But amid recent macroeconomic uncertainty, prices have moved higher and are fluctuating daily. Given that roughly 60% of our fuel consumption occurs in the second half of the year, continually higher prices has the potential to create cost headwinds. While approximately 1/4 of our remaining fuel consumption is hedged, the unhedged portion remains exposed to market volatility. Given the volatility in the price of oil, this could mean varying impacts based on how long prices remain elevated. That said, there are mitigating factors within our control that will help us offset a portion of this impact as the year progresses. Pricing power remains a key lever for us. Ancillary work, representing approximately 1/3 of our total land revenue is priced daily and adjust in real time to reflect cost increases. Additionally, all new bids and annual contract renewals incorporate these higher costs. Alongside pricing, we are working on our own efficiencies on reducing fuel consumption through improved route density, minimizing idle time and leveraging technology to identify the most cost-effective fuel options. Before turning the call back over to Dale, I want to underscore my confidence in the momentum of the business and the ability to deliver sustainable, profitable top line growth. Our investments continue to drive measured improvements in employee turnover and customer retention and are now powering top line growth in the Land Maintenance segment, a trend we expect to build upon in both the near and long term to deliver meaningful value for our shareholders. With that, I'll turn the call back to Dale. Dale Asplund: Thanks, Brett. Before we turn to questions, I want to express my enthusiasm for the trajectory of our business, underpinned by the inflection of Land Maintenance revenue in the quarter, continued growth in our contract book and sequential improvement in our core KPIs as we execute upon our strategic objectives. This progress has been made possible by our people who are at the center of everything we do and the driving force behind our transformation. While we're encouraged by these results, this marks just the beginning of our journey to deliver sustainable, profitable top line growth and create meaningful long-term shareholder value. With that, operator, you can open the call up for questions. Operator: [Operator Instructions] We'll go first this morning to Tim Mulrooney with William Blair. Timothy Mulrooney: It be hard to limit myself to one question here, but I'll do my best. I guess I want to ask about the Land Maintenance growth because it feels like we've been -- what we've all been waiting for is finally here, inflecting in a positive territory here and a positive 4% at that, which was well above our expectations. We were actually expecting organic revenues to decline a little bit in the quarter and that's a pretty big variance relative to our expectations. So was some of this just weather related? Or how would you characterize the main drivers of this result so that we can get comfortable with underwriting, I don't know, a similar level of growth in the second half here? Dale Asplund: Yes. Thanks, Tim. I'll start off and I'll let Brett add. 30 months. 30 months, we've been waiting for this inflection point, Tim. And you are right. We have done everything right to build the foundation for getting us ready for growth. And even though last quarter, we had some headwinds from weather where we actually reported a slight decline in Land. We were able to actually see some of that come back. We had said roughly $6 million of Q1's decline was just temporary. We saw some of that benefit return in Q2. And then even with the weather that we saw in Q2, the outsized snow, we still saw our Land business show growth. Some of that was our ancillary revenue. But I think the big important topic in answering the second half of your question is what we see that builds momentum. When you look at everything we talked about in Q1, where we talked about our book of business being up 2%, we just reiterated that by saying at the end of Q2, now we're up 3%. Just let me do some math for everybody on the call. Our book of business is roughly $1.15 billion. If we have a 3% growth in that book of business, that means we're growing our contract book by roughly $35 million. 60% of our Land revenue will occur over the next 6 months. So that means we have $20 million of tailwind built into our updated guide going from 1% to 2% Land growth to 2% to 3% Land growth. And on top of that, the most exciting part is with our continued momentum in retention getting up to almost pre-IPO levels at 84.5% roughly. That means the longer we keep customers, the more they're willing to work with us on ancillary services. So we are very confident. We saw this coming. We tried to give a little signal to that as we went through Q1's earnings. But now I think everybody sees the inflection point is behind us. And Brett and I, I think both said the term several times, our focus is on sustained long-term profitable growth. And our Land business is key to that initiative. So Tim, great question. It's probably the one thing Brett and I are the most proud of. We've done it the right way. We've stayed focused on getting the business to be able to start growing organically the right way. And then, look, you heard me mention. I've said to all of our team, you have to earn the right to do M&A. I think our quarter here on Land shows people are starting to earn the right for us to consider M&A again. But Brett, do you want to add anything? Brett Urban: No, Tim, we're excited. Look, the inflection is here. I think we've been saying it's coming. They all said 30 months. You go back 2.5 years ago and investing in our employees, who invest in our customers and can drive that customer retention higher, the strategy is working. And now the strategy has evolved to investing in our sales force. We started that last year. We invested $6 million in our sales force in Q1, another $6 million in Q2. And I said it in the script, we're going to invest another $6 million probably in Q3 and another $6 million in Q4, because it's working. The strategy we laid out on paper 30 months ago is now inflected growth in the Land business. If you look at the kind of the first half of the year, as Dale mentioned, it's about a 1% growth in the Land business, but we're entering into our busy season. We raised revenue guidance in Land. And the back half of the year implies a 3% to 4% growth in that Land business. So we couldn't be more excited, Tim, about the inflection being here. Operator: We go next now to Greg Palm with Craig-Hallum. Greg Palm: Congrats again on the solid results. Can you maybe just talk about the competitive environment a little bit? Just -- I don't know, it seems like a lot of factors that are now coming together that would support at least the potential for not just share gains, but maybe significant share gains. So maybe you can talk about what your thoughts on that are. Dale Asplund: Yes. Great question, Greg. I think we have said from day 1, customers require quality service and your commitment to putting the customer at the center of everything you do is what's going to drive our path forward. We have to take care of what we can take care of in our control, and we've done that. When I joined in the end of '23, our customer retention was a dismal 79%. We were never going to outrun that type of loss on an annual basis. So we did that foundational work to get our branches focused on quality service to the customer, making sure the customers we had, we kept. And now after 2.5 years, we're amplifying that by bringing in more sellers. So you keep your customers you have and you grow the new sales because the environment out there, a lot of people might be getting reactionary with what's going on in the overall economy with fuel. And we just remain focused on we're going to take care of our business for the long term. We're partnering with our customers. We're working with them to look at where we want to be over the next several years. At our Investor Day last February, we made a commitment that we're going to grow this business and the targeted mid-single digits for our Land business, and we are still committed to that. And I think the trajectory that we'll exit 2026 and go into 2027 with puts us on a path for that. So we couldn't be excited about what we've done. Now what we've got to do, Greg, is continue to listen to customers. We've done great with snow this year, everybody saw. We had a big snow year, and we had a lot of customers turn to us to ask us if we can bail them out when we had a lot of snow coming down. That creates relationships and gives us the opportunity to partner with customers all year round. We want to take care of the customers we have. And when new customers come in, we want to do what we promise we're going to do. That's what's key. We've got to make sure whatever we commit to, that's what we do. But Brett, do you want to add anything for Greg? Brett Urban: No, Greg, I would just say market share, the market grows about 1% to 2% a year. This year, implied in our guide, we're going to grow at 2% to 3% a year. So yes, you're saying we're taking market share. And look, it starts with the strategy. It starts with taking care of our employees, which the minute Dale stepped in here for all 18,000 employees in this company. We put them front and center, especially the folks that service our customers. And that's driven customer retention. Now it's time to invest in our sales force, which we've been doing, which is resulting in higher growth than the market. And look, you go out into our operations, Dale mentioned we had Employee Appreciation Week not too long ago, and you see our employees with new boots, new safety equipment, new vests, new high vis safety gear. You see them with new trucks and trailers, just the business has drastically improved over the last 2.5 years. And obviously, our customers are seeing that with the result in customer retention. And now it's our time to take share, Greg, as you just said. Operator: We go next now to Stephanie Moore with Jefferies. Stephanie Benjamin Moore: I wanted to segue off of that last question, but I might ask it to be more specific here. So I mean, definitely really appreciate what you just outlined and certainly the color on improved labor and customer retention. But could you maybe talk about how you think about your long-term strategy while also navigating this heightened fuel environment? And maybe it would be helpful if you could kind of compare and contrast to 2022 and the strategy at that time, which was the last time fuel really spiked and how it's different from what you guys have outlined today? Dale Asplund: Yes. Thanks, Stephanie. It's a great topic because, obviously, a lot of people, including some of our vendors, the initial reaction is try to pass on any fuel headwinds they get to their customers. The last time BrightView did that back in 2022 when we started the year with 83% customer retention, and by doing a haphazard fuel surcharge that we just pushed out blindly across the board, it resulted in exiting the year down 300 basis points with a customer retention level at 80%. So we are going to make sure we put in the long-term view with our customers. We're going to communicate. Brett went through a litany of items we're doing to mitigate fuel. Let me give you some statistics of what we're doing that's in our control and not trying to pass along our challenges to our customers at a very volatile time. And for those of the people I'm sure that watch the news every morning, there was new news out this morning that has oil coming right back down at a rapid pace. But let's talk about what we can control. First, Brett mentioned some of this stuff. I'll give you some statistics. We have made a considerable investment in our fleet, in our route density for our employees. What else is a byproduct of that is we anticipate and what we've seen year-to-date is our consumption of fuel is down across our network between 5% and 8% in our branches. All that new investments we made are helping us use less fuel. We have to reduce idle time. We have to reduce -- we have to increase route density and reduce wasted time to make sure we're being as efficient as we can using fuel. Brett said it, we have ancillary services we're pricing every day. And this is a balance between us making sure we're still growing our ancillary business for our customers and showing them we respect them, yet pricing it at a fair level. So we have built in some fuel opportunity into our ancillary pricing. And in the back half of the year, we have roughly $300 million of ancillary work of roughly half of that, we have an opportunity to do spot pricing on. So we'll get some recovery with that. When you look at the things we've done to mitigate, in the full year, we used 20 million gallons of fuel at BrightView. We're halfway through the year, just over 7 months now for BrightView. Roughly 60% of our fuel is used across the next 2 quarters. So if you do the math on that, that's 12 million gallons of fuel that we're coming into the season with that we're going to consume. Of that 12 million gallons, we've already hedged fuel at about 25% of that. So that takes us down to 9 million gallons. If you take the improvement we've seen in fuel, that takes us down to 8.5 million gallons that we think we are potentially trying to find out how we're going to make sure, we find an offset for. In the month of April, we saw roughly $1 increase per gallon for that month, creating about $1.5 million headwind for us. But we believe we will see some recovery as we work through all the initiatives I mentioned and continue to focus on making sure as fuel prices come down, we don't damage customers long term. We are 100% focused, not on the next 90 days, but on the next several years. Our project to get to 2030 goals is still our North Star, and it's not the third or fourth quarter. Brett, do you want to add? Brett Urban: I would just add, Stephanie, we are going to be better partners to our clients than that. And that's what we're demonstrating right now. This short-term headwind that you see in the market is very dynamic. It changes every day. There was articles out this morning that drove fuel down over 10%. But we are not going to manage this business for the short term. We've said that continuously now for the last 10 quarters. And we're going to stay on that long-term focus. And back to the piggybacking on Greg's question, that's how we're going to be better partners to our customers. That's how we're going to gain market share. And I'll take one step further. If we see in our regional areas where other service providers are passing along fuel increases, we'll pick up that business without the fuel increase. So we are going to be better than that to our customers. We're going to continue to drive customer retention. We're going to continue to sell more business through our expanded sales force, and we're not going to manage this business for the short term. The best long-term decision is going to be taking care of those customers now. So 6 months from now, a year from now when this all blows over, that's what's going to be remembered that's going to continue to drive that customer retention and that Land revenue growth even higher. Operator: We go next now to Bob Labick at CJS Securities. Bob Labick: On the quarter. We're viewing it as a beat and reinvest. And kind of with that team, you've talked about it a little bit. Can you talk about the decision to keep your foot on the pedal with the hiring of the salespeople? What have you learned so far from the recent hires that keeps you so encouraged? And where do you stand in your plan? I think you outlined a plan to increase the sales force 50% or so. Dale Asplund: Yes. Yes. Great question, Bob, because it's what gives us the enthusiasm to keep looking at how much opportunity this business has. So it's a tough -- when you look at the investment to make in the sellers, we invested $6 million more year-over-year in Q1. We invested $6 million more year-over-year in Q2 in just the frontline sellers of our business. Now the way I look at those new sellers, Bob, the first 6 months, they relatively produce very little. Some of them don't produce hardly any sales as they start making customer relationships. Between 6 and 12 months, their annual run rate is closer to $500,000 to $600,000. And once they get to a year plus, that's when they're starting to produce somewhere around $1 million. A fully matured seller has been with us roughly 18-ish months, and we target about $1.5 million of new sales. Here's the exciting part. We've been able to cover that $12 million that we invested year-to-date. And we're seeing that net new growth every quarter, 4 consecutive quarters now. We started to add sellers in the back half of '25, and we really stepped on the gas pedal in Q1, and we continued it in Q2. So what gives me the confidence is it's working. We just put up 4% Land growth. We just raised our guide from 1% to 2% of Land for the year that on the last call, people questioned if we were going to be able to deliver to 2% to 3% growth. And we are optimistic that as we get into 2027, we can even do better than that. So we are not going to pause. This is our future. Growing this business is how we're going to make BrightView the Investment of Choice for our investors. Long-term profitable growth is the key for us, and that's what we have to do by making sure we're bringing in new customers and getting our arms around our existing customers and keeping them as long as we can as a great partner. Brett, do you want to add? Brett Urban: Yes, Bob, I only add the strategy is working. We're not going to slow down something that's showing positive signs and working for us. And we said during Investor Day around 15 months ago that we'd add 50% to our sales force, which is the starting point was about 1,000 in total sellers. We're well ahead of that pace. We've added just under 200 year-over-year right now. So call it, we're up to about 20% add of that 50% or 40% of the way there. So we are making significant progress much sooner than anticipated. Dale mentioned, we had the benefit of heightened snowfall, which allowed us to move quicker and pay for them. But I would just say that the strategy is working, and we are going to go as quickly as possible to get these sellers on board, ramped up and productive. Operator: We go next now to Greg Parrish with Morgan Stanley. Yehuda Silverman: This is Yehuda Silverman on for Greg. Just have a quick question on the development cold starts that are opened and the 5 more underway. Just curious how bookings have been early on and how long you expect it will take to get to a normalized backlog book there? And what gives you confidence to have success in those regions? Dale Asplund: Yes. Yes. It's great question, Yehuda. So look, I think one thing I've seen, we have -- and I've said this since the day I started, I met our teams in our development business, we have hands down some of the most talented development people in this industry. Our Development business is the largest in the industry. The jobs we do just amaze me. So our team in Development, while it's a choppy business, they do unbelievable work. And the one thing I can assure you, where we have the ability to do quality development installations and long-term maintenance service, we are a better provider, a better partner to our customers. And our customers see that. So a year ago, I said what we have to do is take those markets that we're so strong in that we have great Development and great Maintenance teams working side-by-side under our One BrightView initiative, and we have to make that in every market we can service. So we announced we're going to open 10. What we need to do to open a Development branch, we usually have real estate with our Maintenance branches. We try to get a branch manager, we get a seller into that market, and we go up. What you see as us saying we have 6 that are open, it's because we have booked backlog. They vary. Some branches have gotten big jobs, but I will assure you, every branch has a nice pipeline of open quotes that they're trying to land. The 5 that we still say are in process of opening. We've hired people. We have sellers. We have them starting to work. We haven't closed any deals there yet, but we anticipate over the next several months, we will see those go to fully open branches. We believe we need to have a Development resource helping our branches in every market that we service. And there's still so much open space for us to expand into through either M&A on the Maintenance side or through organic opportunities. So look, I think we're happy with the progress we've seen. The business of Development is choppy, to say the least, especially with some of the weather that we just saw in Q2, you can get movement between quarter-to-quarter, but we're anticipating growth in the back half of the year in that business. And our teams are focused on continuing to go after the customers every day, and we're working with our partners. So the backlog is a little bit choppy in those, but every branch that we set are now open for those 6 have now booked orders. Brett, do you want to add detail? Brett Urban: I would just echo Dale's comments. We do have the best teams, the best experts that produce unbelievable work in this business. It can be a bit choppy with timing. We saw the last 2 to 3 quarters, projects push out. But if you look at our bookings year-to-date, up 15%, you look at our remaining performance obligations, which is projects greater than 1 year, that's up 6% quarter-over-quarter. So the momentum is building in that business as well. And, look, let's not discount the fact that when we have these cold starts and they open up business and sell new Development work, that's just a leading pipeline for more Maintenance Land revenue. So converting that work also is a big opportunity for us. But we're excited about the trajectory of the business. The momentum there is building. We haven't quite got the work in the ground and the timing we anticipated, but it's coming and the leading indicators are there to show growth. And that's what's implied in our second half guidance is growth in that business. Operator: We'll go next now to Andrew Steinerman with JPMorgan. Alexander EM Hess: This is Alex Hess on for Andrew. I hope everybody is having a lovely day. I actually have a multi-parter, so I hope you'll bear with me on this. But just a couple of items that haven't yet been touched on. On fuel costs, I know there was some discussion about how that might impact ancillary. But just to be clear, you're not flowing any fuel benefits through on revenue that you aren't also flowing through on costs, correct? Just maybe to start with. Dale Asplund: Correct, Alex. We have said we didn't imply any assumptions for fuel cost outs and nor have we assumed anything on the revenue side. So you are absolutely right with that assumption. Alexander EM Hess: Understood. Then on snow, can you provide us what was the EBITDA flow-through on that snow revenue? I know it was a little muted last quarter due to some of the contract dynamics. Just trying to understand how that shift to contract -- more contract book impacts the revenue and incremental margin of snow. And that's the third one to pull out. Dale Asplund: Yes. So last quarter, we said we were under the 20% target that we had, Alex. While we don't have a fully loaded P&L for snow, obviously, we're sharing resources. We believe that our full year flow-through is about 20% right now on EBITDA for that business. Now snow has been a great story, and I'm going to let Brett comment here in a few minutes. Snow is the markets we saw a lot of snow and the markets we didn't see any snow. So when you really break down the snow season that we went through, obviously, everybody on the Eastern Seaboard felt the impact of weather, some way or shape through the quarter and through the first half of the year. In fact, some of our ancillary benefits that we saw in Land, we saw freezing all the way into Florida that those teams had to do work as we went through Q2 after those deep freezes. But the Eastern Seaboard, even the Carolinas, where we always have variable snow, saw a considerable amount of snow. On the opposite of that, Colorado had a very, very soft snow year as well as the Pacific Northwest. Both of those markets are traditionally more time and material/variable snow because of the volatility in their snow, what can do a little bit of a drag on those margins. But once again, long term, our goal is to be a better partner to our customers is our continued movement to get customers on more of an annual fixed snow agreement. We want to keep pushing that, so customers know what they're going to spend for snow. And if we get a big year like we just had, yes, maybe it's not quite as profitable, but it allows us to manage the business with them over the long term, where years where we get less snow maybe in those markets, we do a little better. So -- but Alex, to answer, it's about 20% is the way I'd look at it. I think that's a healthy margin for us and make sure we get our arms around our customers. Brett, do you want to add? Brett Urban: No, I think the takeaway there is this is our opportunity heading into next snow season with outsized snow in the Northeast and Mid-Atlantic regions to try to move more of those contracts to fixed. We are about 2/3, 1/3 variable. Now we're about 60-40 variable, so leaning towards variable. But as we have those conversations now and renewals for next season and selling into next season, this heightened snowfall, this is the opportunity for us to become more predictable in our snow model by shifting even more of that business to fixed. Operator: We'll go next now to Ryan Gilbert with BTIG. Ryan Gilbert: Great to see all the work on the revenue initiatives starting to play out in the landscape maintenance business. I think last quarter, we had talked about the potential for some of your customers' budgets to be stretched potentially due to the snowfall, and it seems like that fortunately did not materialize in the quarter. But I'm wondering if you could expand on what you're hearing from customers as to their appetite and ability to pay for landscaping services. And then just a quick housekeeping. I don't think I heard the number of sellers you added this quarter. So if you could quantify that, that would be great. Dale Asplund: Yes. What Brett had said, Ryan, is we're roughly up 200 year-over-year. We had said we're up about 180 at the end of Q1. We're saying we're up about roughly 200 on the number of sellers. So it's fluctuating every day, obviously. We continue to keep the foot on the gas as we've gone through April. So that's just your quick housekeeping. I would say what we're hearing is we talked last year as we went through Q3, some of the challenge we heard with the reactions from Liberation Day, we had heard pretty quickly from our customers how they were nervous about all the potential impact from tariffs or anything else that was coming out. Our teams are telling us there's plenty of work out there for them right now. They feel much more optimistic as we go into this summer. We have some customers that had severe snow costs. But for the most part, take that little bit of that noise out, people are much more optimistic as they're going into this summer for that discretionary spend. A lot of people know they want their properties looking good. It's the spring time. It's the time for them to start making some investments. So I would tell you, we feel more optimistic as we sit here beginning of May 2026 than we did just 12 months ago as we were facing some headwinds. And look, we're looking forward to your conference this week, and we're excited about some of your investors, and we'll see you in New York this week. But Brett, do you want to add anything? Brett Urban: No, Ryan, I'd just add, that's what gave us confidence to raise our Land guidance in the back half of the year, right? If we're seeing any type of slowdown or softness, we'd be hesitant to do that. But the momentum in our contract book, that's now 3% up year-over-year, 4 sequential quarters of net new positive growth in our contract book. We're keeping customers longer, as Dale said earlier, those customers who stay with us longer, have more confidence in us to do ancillary, spend more money with us. So those things, including the ancillary outlook for the second half of the year, gave us the confidence to raise our Land guide in the back half. Operator: We go next now to George Tong with Goldman Sachs. Alex Lakritz: This is Alex Lakritz on for George Tong. Can you provide an update on the conversion of Development contracts to recurring Maintenance contracts? And then how BrightView is tracking towards the 70% long-term target? Dale Asplund: Yes. Look, I think what we're saying is Development is choppy. We saw continued momentum. Our teams are working better than they ever have. It's relatively consistent as we went from 2025 through into the first half of 2026. So we had very few projects closed here in the first half of the year, as you can see. We have a little softer development revenue. We'll see that as work gets finalized as we go through the back half of the year, we'll see more opportunity to convert that. So it's a tough metric when all you're looking at is the development revenue, Alex, because what you actually got to really focus on how many jobs close. We had some pushouts here. We'll see those jobs close as we get into the back half of the year. And then it will create opportunity for us on the maintenance side. So we feel great about how the teams are working together. But Brett, do you want to add? Brett Urban: Alex, I'd just say our teams are working together better than they ever have in our geographies, especially where we have Maintenance and Development branches together. Those teams are partnered at the hip now under One BrightView over the last 2.5 years, and they're working better together than they ever have. And you think about our cold start strategy, we have 6 cold starts opened with Maintenance branches, Maintenance employees, a reputation for Maintenance already in those markets. That's only going to supercharge that conversion opportunity as we open up development cold starts in those areas we already have Maintenance. Operator: We'll go next now to Jeffrey Stevenson with Loop Capital. Jeffrey Stevenson: Congrats on a nice quarter. You reported strong 110 basis points of maintenance margin expansion during the quarter, benefiting from the positive revenue flow-through on the landscaping side. So although you're taking Maintenance margins down due to continued accelerated pace of new sales hires during the back half of the fiscal year, do you believe the strong March quarter margin expansion shows that the One BrightView initiatives are driving improved underlying margins as landscaping demand returns positive? Dale Asplund: Yes. Great question, Jeff. So 30 months ago, I realized we had to fix this business, and we have to get it growing. There is no question our future is about growing the top line organically, not just buying revenue, it's about organic growth for the business. And there is no question that when we can grow Land 4% through our existing branch network, that's going to create profitable margin expansion for us. Now snow didn't really hurt us. It wasn't the reason that everything happened, but we firmly believe, Jeff, that Land organic growth and the flow-through that's going to produce is our future. And that's why we are so excited about what we're predicting for the back half of the year, increasing from 1% to 2% for full year to 3% to 4% or 2% to 3% in Land growth. Just to give you a quick reference, our updated guide suggests we will grow our Land Maintenance business over the next 2 quarters between 3% and 4.5% in the back half of the year. And that's why we're excited. That's why there is no question. I am 110% committed to investing in our frontline teams and our sales force to go after market share. We have done everything needed to get the foundation of this business in a healthy spot. We're far from perfect. We need to keep pushing those customers -- those branches that don't have customer retention at 90-plus percent. You've seen now 35% of our branches are at 90%, which is great, and I congratulate those, but we still have 10% below 70%. We are hyper focused on taking care of those branches. I want to talk about the day we don't have branches below 80%. Taking care of our existing customers is my #1 priority. And on the backside of that, I am going to invest, invest, invest in growth. And there is not a reason that we should back off on our strategy because Brett said it, and I'll say it, it's working. It's producing the growth that we've been waiting for. And I am so excited about what that means, not just for the back half of this year, but '27, '28, '29, future years. We have $130 billion end market, and we are just a fraction of that end market. We are going to take share. We are going to grow this business. We are 100% focused on becoming the Provider of Choice for our customers. And that's our focus. So Jeff, great question. Brett, do you want to add? Brett Urban: Yes. I would just add quickly. Look, you think about development margins for a second over the last 3 years since One BrightView, that business has expanded EBITDA margins over 500 basis points or around 500 basis points. So huge margin expansion in Development really getting pulled into the One BrightView strategy. And you said it, Jeff, now it's time for Maintenance implied in our back half of the guide and full year guide is margin expansion and Maintenance, 30 to 50 basis points while investing in the business. We're investing $6 million a quarter into our incremental sellers and sales force. About 90% of that is maintenance related. So even despite that investment, we are seeing the outsized benefit now start to come in Maintenance margins. and for the full year guide, still expected to expand 30 to 50 basis points. Operator: And gentlemen, it appears we have no further questions this morning. Mr. Asplund, I'd like to turn things back to you, sir, for any closing comments. Dale Asplund: Yes. Thank you, operator. Look, I'll close by reiterating our confidence in the path ahead. We had some great questions today, but our transformation is starting to take hold. That's what's critical for us. Over the past 2-plus years, we've built a stronger foundation at BrightView, bringing the organization together, unlocking efficiencies and achieving good financial results. Through this period, we've consistently reinvested back into the business by refreshing our fleet, supporting our frontline teams and building a stronger, deeper sales organization. Even though we're still early in our transition, the investments we've made are translating into a growing contract book, which is the driving top line growth in our Land business long term. So once again, we said it many times, everything we've done is with one focus in long term, continued profitable top line growth across this business and make it sustainable, so we will grow this business for years to come. So we look forward to talking to everybody come Q3. Thank you again for your attention, and we hope everybody has a good day. Operator, you can now end the call. Operator: Certainly. Thank you, Mr. Asplund, and thank you, Mr. Urban. And again, ladies and gentlemen, that concludes BrightView's earnings conference call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.
Operator: [Operator Instructions] I will now hand the conference over to Cameron Vollmuth, Director of Investor Relations. Cameron, please go ahead. Cameron Vollmuth: Good morning, everyone. Thank you for joining us today for Acushnet Holding Corp.'s First Quarter 2026 Earnings Conference Call. Joining me this morning are David Maher, our President and Chief Executive Officer; and Sean Sullivan, our Chief Financial Officer. Before turning the call over to David, I would like to remind everyone that we will make forward-looking statements on the call today. These forward-looking statements are based on Acushnet's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations. For a list of factors that could cause actual results to differ, please see today's press release, the slides that accompany our presentation and our filings with the U.S. Securities and Exchange Commission. Throughout this discussion, we will make reference to non-GAAP financial measures, including items such as net sales on a constant currency basis and adjusted EBITDA. Explanations of how and why we use these measures and reconciliations of these items to the most directly comparable GAAP measures can be found in the schedules in today's press release, the slides that accompany this presentation and in our filings with the U.S. Securities and Exchange Commission. Please also note that references throughout this presentation to year-on-year net sales increases and decreases are on a constant currency basis unless otherwise stated. As we feel this measurement best provides context as to the performance and trends of our business. And when referring to year-to-date results or comparisons, we are referring to the 3-month period ended March 31, 2026, and the comparable 3-month period in 2025. With that, I'll turn the call over to David. David Maher: Thanks, Cameron, and good morning, everyone. As always, we appreciate your interest in Acushnet Holdings. I am pleased to report on a positive start to the year for Acushnet, highlighted by a wide range of new product launches and early season growth in our Titleist Golf Equipment and Golf Gear segments. Acushnet delivered worldwide net sales of $753 million, a 5% constant currency increase over last year. Adjusted EBITDA was $145 million in the first quarter, an increase of $6 million year-over-year. These results reflect solid execution and synergies across our product development and supply chain teams and Acushnet's continued investment to drive future growth and operational excellence. Now getting to segment results. You see Titleist Golf Equipment sales increased 7% in the quarter as our Titleist Golf Balls and Golf Clubs business continued to generate positive momentum. Titleist Balls and Clubs are helping players excel at the highest levels of the game, which affirms Titleist's 72% ball count across worldwide tours, more than 7x the nearest competitor and #1 driver positioning on the PGA and DP World tours. In the quarter, golf ball volumes increased in all regions as our team successfully launched new Pro V1x Left Dash, AVX, Tour Soft and Velocity models. We typically expect modest volume declines in the first quarter of even years when comping against a prior year's Pro V1 launch. And this year's volume growth is commentary on our team's ability to innovate and the overall strength of the Titleist golf ball lineup heading into Q2. Titleist Golf Clubs also delivered a strong first quarter, led by the successful launch of new Vokey SM11 wedges and healthy demand for GT drivers and fairway metals in their second year. The Titleist Equipment segment continues to benefit from our ongoing work at the Titleist Performance Institute. TPI, led by Dr. Greg Rose and Dave Phillips, is a powerful force within Acushnet, which informs our understanding of golfer biomechanics, is at the center of our commitment to help golfers play their best and shapes our R&D visions across golf balls, clubs and footwear. As we have talked about on recent calls, we continue to invest in and develop our capabilities across our TPI platform. Now to Golf Gear. Q1 sales were up 8%, driven by higher sales volumes in golf bags and double-digit gains in the U.S. and EMEA And our FootJoy segment is off to a good start as we operate an increasingly productive business with greater focus on premium franchises and fewer offerings at lower price points. FJ sales were down 1% in the quarter as our teams successfully launched new Pro/SL and Premier golf shoes and our spring apparel collections have been well received. FootJoy profitability, while still burdened with incremental tariffs, is on track with our internal plans. Also, in the quarter, net sales of products not allocated to a reportable segment were up slightly with continued momentum and growth from KJUS' U.S. golf business and modest gains from Titleist Apparel in Asia. Now looking at the quarter by region, you see the U.S. market was up 5% on the strength of the Titleist Golf Equipment and Golf Gear segments. Rounds of play in the U.S. were up 5% through March with gains in key Sunbelt states, Arizona, California, Florida and Texas. EMEA was up 8%, reflecting gains from all reportable segments led by double-digit growth from Titleist Equipment and Gear as we continue to generate nice momentum across the region. Japan also delivered a solid start to the year, up 6%, led by gains in Golf Equipment. And Korea was in line with our expectations, yet off 7% as the timing of their first quarter golf club launch calendar differs from other regions, which we expect to normalize in the coming months. And the Rest of World region was up 9% with increased sales across all segments. Now looking forward, and as we shared on the Q4 call, we will be launching new Titleist GTS drivers and fairway metals in the second quarter, which we see as a favorable transition from our customary Q3 launch window. New GTS metals debuted across professional tours in late March, and we are very pleased with the initial response and enthusiasm. Golfer fittings begin next week, and we are preparing for the global market launch on June 11. As you would expect, the shift from Q3 to Q2 will impact the cadence of our business in 2026, and Sean will share greater details during his remarks. In summary, we are pleased with our start to the year in what is best characterized as a product sell-in quarter. Industry fundamentals and the overall state of the game are healthy, and we point to global rounds growth in the quarter as an indicator of golf's durability and popularity. The Acushnet team is focused on providing exceptional product, fitting and service experiences to avid golfers and our trade partners as we seek to generate long-term value for our shareholders. Thanks for your attention this morning. I will now pass the call over to Sean. Sean Sullivan: Thank you, David. Good morning, everyone. As highlighted, we started 2026 with an increase in net sales of 5% over last year's first quarter. Adjusted EBITDA was $144.6 million, an increase of 4% from the first quarter of 2025. Net sales growth in the quarter was driven by continued momentum of our Titleist brand with Golf Equipment growing 7% and Golf Gear growing 8%, while FootJoy net sales declined 1% in the quarter. Gross profit in the first quarter of $355 million was up $18 million compared to the first quarter of 2025, mainly due to higher net sales, which were partially offset by higher tariff costs of $17 million year-over-year. Gross margin was 47.2% in the quarter, down 70 basis points from last year, primarily due to the tariff cost headwind of 220 basis points just mentioned. SG&A expense of $214 million in the quarter increased $13 million from the first quarter of 2025. This increase was due to higher selling expenses incurred in connection with the higher sales volumes, costs related to the expansion of our product fitting networks, higher IT-related expenses and additional A&P expenses to support new product launches. Net interest expense of $13.1 million in the quarter was down modestly from last year. Our effective tax rate in Q1 was 22.9%, up from 17.9% last year. The increase in ETR was primarily driven by changes in our jurisdictional mix of earnings and a reduced income tax benefit related to the U.S. deduction of foreign-derived intangible income. Moving to our balance sheet and cash flow highlights. Our balance sheet and cash flow positions continue to be strong, allowing us to execute our disciplined capital allocation strategy while also navigating the current macroeconomic uncertainty. Our net leverage ratio using average trailing net debt at the end of Q1 was 2.3x. As discussed on our fourth quarter call, we remain focused on maintaining net leverage at or below 2.25x on average, while we maintain flexibility to account for seasonality and other business needs as evidenced by our leverage position at the end of this quarter. With respect to inventories in the first quarter, FootJoy and Golf Gear inventories were down year-over-year. However, total inventories were up 7% as we built golf equipment inventory to support our accelerated GTS metals launch in the second quarter. Overall, we remain comfortable with our inventory quality and position. Capital expenditures were $19 million in the first quarter of 2026, up $8 million from last year, and we continue to expect full year spend to be approximately $95 million. Free cash flow in the first quarter was down $31 million compared to last year, in part related to the increased inventory levels associated with the upcoming GTS metals launch. We still expect free cash flow to meaningfully improve versus 2025 with the benefit mainly occurring in the second half of the year. Through March, we returned roughly $26 million to shareholders with $16 million in cash dividends and $10 million in share repurchases. Today, our Board of Directors declared a quarterly cash dividend of $0.255 per share payable on June 22 to shareholders of record on June 5. As of March 31, we had $231 million remaining under the current share repurchase authorization. Now let's turn to Slide 10 and review our financial outlook for 2026. We are pleased with our strong results in the first quarter, and we note that as the golf season is just about to begin in many markets around the world, there remains uncertainty in the macroeconomic and geopolitical environment. As is our practice at this time of the year, we are maintaining our full year outlook and continue to expect full year 2026 net sales to be in the range of $2,625 million and $2,675 million and adjusted EBITDA to be in the range of $415 million to $435 million. This outlook excludes any potential IEEPA tariff refunds. On calendarization, reflecting the first quarter results, we now expect reported first half net sales and adjusted EBITDA to be closer to the high end of our previous range of up mid- to high single digits. As it relates to tariffs, we previously cited a $70 million full year impact or $40 million year-over-year incremental headwind in 2026. Since then, there have been several developments, including the recent Supreme Court ruling on IEEPA tariffs, the implementation of Section 122 tariffs and changes to the application of Section 232 tariffs. Overall, we believe these changes to the tariff rate environment could be favorable in 2026. That said, uncertainty around the structure and duration of tariffs remains high, making it difficult to quantify the total impact at this time. In addition, we expect that the potential benefits from these tariff rate changes will be largely offset by higher product costs due to rising commodity prices and related raw material input and freight costs associated with the current geopolitical environment. We're monitoring these dynamics closely and taking actions where possible to mitigate impacts on the business. In closing, we are pleased with where the business is positioned amid this volatile global environment and remain focused on servicing the needs of the dedicated golfer as many global golf markets open in the second quarter. With that, I'll now turn the call over to Cameron for Q&A. Cameron Vollmuth: Thanks, Sean. Jen, could we now open up the lines for questions? Operator: [Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: My first question, it's on the shape of the year. So the first quarter, there was some margin headwind, which I would have said was expected, and it looks like you got through it relatively well. While there is uncertainty about tariffs, whether you probably are going to pay less and you could get refunds. And I do think the balance of the year, there is an adjusted EBITDA margin expansion modestly. But it feels like -- and then as you push the guidance for the first half at the high end, it feels like there's more upward pressure here than there is downward pressure. Is that fair? And then how -- I guess, it would be more pronounced in the back half as you lap some of this tariff stuff? Sean Sullivan: Yes, Simeon, I think it's a reasonable view of our comments today. Again, very pleased with Q1. Obviously, we're guiding you to the higher end of the range for Q2. I did call out, obviously, we had $17 million of tariff headwind in Q1. We're going to still have the Section 122s in Q2, which will be a headwind versus prior year. So yes, all in all, we're pleased. Again, it's early in the year. But again, I do want to be balanced and disciplined, right? We've got raw material input costs that are affected by the price of oil. We have other materials in our club business. We have freight in, freight out. So I don't want to understate that there are headwinds. But as I said in my comments, we hope that the tariff opportunity, whether it's lower relative to where we had expected to be versus $17 million. We'll see some offset from the input costs, and this doesn't factor anything related to any potential refunds. So I think you've got the outlook for the year. But again, we're pleased with the consumer, and we're pleased with the demand in spite of all of those things. Simeon Gutman: And then can I follow up on product, the driver. You've done this every year. You've seen it every year you release or every other year when you have a driver release, you have competitive release. This year, the competitive set, I think, was a little more forceful across most brands. Can you talk about that in the context of expectations around GTS, whether it's timing or sell-in, sell-through? You talked about early success on tour. Curious how that can translate in a more competitive release year. David Maher: Yes. Thanks, Simeon. So new timing for us this year, GTS, right? We typically launch Q3. We're moving to Q2. We're very excited about that. Not as easy as it may sound. You got to adjust your entire supply chain to pull it all forward a few months. So we're a couple of months ahead of schedule from our historical Q3 timing. But really starting with the product, we're just very enthused about the product, great early success across the worldwide tours, great adoption from players, which is a good indicator. As I noted in my remarks, we start fitting next week globally, and we're in market in mid-June. So I think the key takeaway separate from product, is we're going to hit the market really in a peak window, which is May, June, July, where historically, we've hit the market in the third quarter, which is clearly a less than peak window. So we like the timing. We really like the product. Yes, you're right, it's a competitive market, nothing new there. But I would say we're very, very excited about this launch. And again, the comments about what's happened on tour, that's as much about early adoption and validation, which is very important to us and our consumer, and that's really right on track. So what we've done in the last couple of months is do a lot of training of our fitters to get them ready to go out and give golfers great experiences. We've got fitting tools in the market around the world. So we're ready. And again, a key differentiator is going to be the benefit of timing in which we're launching in a peak window versus prior years. Operator: Your next question comes from the line of Matthew Boss with JPMorgan. Matthew Boss: So David, could you speak to participation and engagement? Maybe just elaborate on what you're seeing from your dedicated golfer today. Any impact at all from the volatile macro backdrop that you cited across regions so far to date? Or any pushback on any recent pricing or price increases across categories that you would call out? David Maher: Yes, Matt, we of course, we watch that very carefully, and I'll maybe give you 2 answers of what we see, one of what we see and two, just sort of our annual seasonal caveat that, hey, it's early in the season. But in terms of what we see, we're just very pleased with the game's durability and resilience right? If I look at the big 3 or 4 markets around the world, U.S. rounds up 5%, I said earlier, growth in California, Arizona, Texas, Florida, that's a great way to start the year. Here in New England, we're slow out of the gates, but frankly, we're always slow out of the gates given just weather realities. As you move around the board: Korea, nice start. Again, small basis. First quarter is not a real meaningful piece of the full year. I think it's about 15% of total rounds. Rounds are up 10% in Korea, flat to down slightly in Japan. And the U.K. was down pretty good in the first quarter. But again, it's their winter quarter and they're coming off a real outlier year last year with weather. But net-net, to sit here today and have global rounds be up low single digits, again, commentary on the health of the game and the durability of our consumer. So participation is metric one we watch. And then, of course, like everybody else, we're paying close attention to consumer spending and how they're -- just their overall behavior in light of this macro uncertainty and certainly some of the challenges vis-a-vis oil pricing pressures. But the best way to frame it would be we're generally in line with where we think we ought to be for this time of year. I've said before that the golf industry, the crystal ball gets a lot clearer in Q2 as the season unfolds in the Northeast and Midwest and around the world. But here we are early May. We like the trends. We like the state of our consumer. Of course, there's some caution. But in terms of how we're tracking versus expectations, I would say we're right where we'd like to be. And again, here we are in year 5, 6, 7 of growth vis-a-vis the game and number of golfers and participation. And I think everybody in the industry would feel pretty positive about that. Matthew Boss: Great. And then maybe a follow-up for Sean. So with this year's bottom line outlook calling for EBITDA dollar growth roughly in line with sales, maybe could you just speak to drivers for EBITDA margin expansion multiyear or beyond this year? Or just help us to think about bottom line growth relative to your low to mid-single-digit top line algorithm? Sean Sullivan: Yes. As we've talked about in the past, Matt, we're making significant investments across the globe to meet the demands of our dedicated golfer and first and foremost, around golf equipment, that's capacity, that's club assembly, et cetera. That's the fitting network, along with, obviously, a lot of technology unlocks as well, whether it be the ERP system or other digital direct-to-consumer activities. So we're in that continued phase of investing for the long term. We think that, again, we're still in the middle of that. There's no question there will be operating leverage here over the long term as it relates to the investments and the realization of those for the company. So I'm not going to get into a multiyear outlook, but given where our EBITDA growth and EBITDA margins are, we feel they're very healthy. We're making the requisite operating and capital investments, I think that will generate very positive long-term growth and margin. Operator: Your next question comes from the line of Joe Altobello. Joseph Altobello: I want to ask about the GTS launch and how we should think about this because it seems like you're implying that it's sort of a pull forward, right, that sales that normally would have happened in the third quarter get pulled into June to some degree. But is it accretive to the full year in the sense that you now have 7 months of sales versus 5 months in a normal year? David Maher: Joe, maybe Sean and I will give you a 2-part answer. But yes, we are very enthused about the timing, right, to get a driver launch into Q2 is meaningful for us. And I would say, yes, we do see -- you're going to get more months out of the driver in 2026 than you typically would in prior years. So we think that's a real positive. In terms of modeling, maybe Sean has some additional thoughts on that. Sean Sullivan: Yes, Joe. So I think that you're very familiar with our 2-year product cadence. So I guess I would bring you back to probably Q3 of 2024 might be a good starting point in terms of growth in the overall club business vis-a-vis the GT launch. Obviously, we're pulling it forward. We expect it to be accretive to the full year. But if you're looking at just first half or Q2, I think that Q3 of '24 is instructive. Obviously, we've got momentum in terms of volume, price, and we're not necessarily comping off of prior irons launch. A lot to unpack there, but I figure it was worthwhile putting that out there for you as you think about the golf club and golf equipment growth rates in light of the new accelerated launch. Joseph Altobello: I appreciate it. Maybe just kind of moving on to balls. And I know you touched on this earlier in your prepared remarks. But if you look at growth in the first quarter in a non-Pro V1 year, we sort of saw this as well in 2024, strong first quarter growth in an even year -- and it sounds like that's obviously a testament to the rest of the portfolio. But what are the other takeaways from that in terms of -- is it that your ball business is much more diversified and broad beyond just Pro V1 at this point? David Maher: Yes, Joe, I'll point to a couple of factors. One, there may have been a bit of catch-up in '24. But for '26, it's a couple of themes. I think generally speaking, our team did a terrific job with the launch with our performance models. Adding to it, we've talked over the years about our meaningful capital investment across golf ball operations. One of those investments was expanded customization capabilities. So what you'll see in our line is a whole lot more what we call AIM alignment integrated marking. So you just got a lot more features and technology and benefits embedded into the products. That's all been additive. And then we did launch a new Pro V1x Left Dash, which was new to the story, too. So add it up, I think it's part innovation, part momentum and certainly rounds of play growth is contributory as well. So yes, really like the tone and tenor and state of the Titleist golf ball business right now. Over the long haul, we do expect even years to be down slightly versus odd years in which we launched Pro V1. We've bucked that trend in the last couple of years. And again, commentary on our team's ability to innovate and bring great products to market. Operator: Your next question comes from the line of Noah Zatzkin with KeyBanc Capital Markets. Noah Zatzkin: I guess, first, just wondering what you're seeing in terms of year-over-year price increases from competitors and where you think you stack up there as well as any thoughts on the current state of channel inventories? David Maher: Yes. I guess, as it relates, Noah, to competitors, the industry, I think, a fair characterization, we saw pricing upticks last year largely in wearables across footwear and apparel. And this year, we're seeing more in clubs and balls. So I think it's been a fairly consistent pricing scheme in 2026 from key competitors. We're comfortable at a premium. And whether it's balls or clubs, we are comfortable at a premium to the pack, and that's where we are. We're either at parity or premium to the pack, number one. Number two, within our club business, too, not only is it the price of the product, but we invest a whole lot in fitting, which is reflected in the pricing as well. So very comfortable with where we are in the state of premium performance products around the world. Your second question, Noah, around competitive channel inventories rather. Its channels should be full and they are. So that's sort of a shorthand answer for. I think we're in a normalized state. The watchouts would be, is there any carryover inventory from the prior year that's clogging up the system. We don't necessarily see that. So I think, generally speaking, inventories are healthy. And again, that's codeword for full and as they should be at this time of year on the eve of the golf season really taking full flight. It's a different answer 3 months from now when you see who the winners and losers were and who sold -- which products sold through and which maybe didn't quite sell through to expectations. But certainly, here we are in early May, I would characterize channel inventories globally as healthy and in line with where they ought to be. Noah Zatzkin: Great. And maybe just one on Japan. A couple of quarters in a row of growth there. Obviously, this is a smaller quarter, but wondering if you could kind of give a quick update on that market and your opportunity there as you see it. David Maher: Yes. We've talked a bit about Japan over the last couple of years. We are pleased with the team and some of our recent investments, starting really with balls and clubs and the equipment segment, which I think has the most momentum and is driving some of that growth. We've done some repositioning within our wearables business. We actually pulled back our Titleist apparel business in that market. So some of the offsets. But I would say Japan, really, at this stage, 2 parts. One would be growth and momentum in equipment, balls and clubs and a cautious conservative view around wearables, but I think we're being smart and taking a long-term approach there. So yes, we're pleased with the momentum. We've got a team there that's really making some good sound, smart decisions and executing well. Our counts on the men's and women's tours are improving. Our counts across the amateur game are improving, which is part of our affirmation and validation story. So yes, like where we are with the direction we're heading in Japan. And the final point I'd make is, I've talked about this a lot over the years. It's a market where our percentage of fit clubs is probably the lowest in the world. We're chipping away at that, and that's certainly benefiting balls, that's certainly benefiting golf clubs. Operator: Your next question comes from the line of Doug Lane with Water Tower Research. Douglas Lane: I noticed you reiterated your CapEx expectation for $95 million this year, which is elevated. And I'm just wondering what are some of the things you're investing in this year that you may not be investing in future years? And should we look for CapEx to return to maybe something in the mid-70 range like it's been in the last couple of years after this year? Sean Sullivan: Yes, Doug, thanks for the question. Yes, I do expect it to be more in line with what you articulated over the midterm. As we've talked about here, it's very much focused on the Golf Equipment segment our investments. So we continue to add golf ball capacity, both domestically and abroad. We continue to add club assembly capacity around the world as well, as you can see from the growth of the club business. So those are our primary investments to really meet the continued demand of our products. And I think very strategic and probably more than half of the money we're spending. There's certainly investments in facilities. There's investments in technology, et cetera, that we believe are necessary and will deliver not only incremental sales, but operating efficiencies. So again, high watermark this year at $95 million, and we expect it will moderate over the next few years to a more reasonable run rate as you articulated. Douglas Lane: Okay. That's helpful. And just one follow-up on working capital. It was a pretty substantial use last year. I know it's difficult to forecast, but that sort of elevated $87 million of use last year, I assume, is also not going to be repeated and that should come down as well. Sean Sullivan: Yes. And we talked about free cash flow meaningfully improving over 2025, mostly in the back half of the year. Obviously, significant investment in working capital in Q1 due to the inventory position for golf equipment. Timing of sales was probably more end of quarter weighted versus prior year. So AR was up a bit as well. But we feel very good about the full year free cash flow generation given the seasonality of the business. So yes, it definitely will meaningfully improve this year versus '25. David Maher: Thanks, everybody. As always, we appreciate your interest in Acushnet and look forward to reporting back after Q2 in sometime this summer. Thanks again. Have a great spring. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the 908 Devices First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I will now hand the conference over to Barbara Russo in Investor Relations. Barbara, please go ahead. Barbara Russo: Thank you, and good morning. On this call, we will be discussing our financial results for the first quarter ending March 31, 2026, which were released earlier this morning. Joining me from 908 Devices is Kevin Knopp, Chief Executive Officer and Co-Founder; and Joe Griffith, Chief Financial Officer. During today's call, we will make forward-looking statements within the meaning of federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. For a discussion of these risks and uncertainties, please review the forward-looking statement disclosure in the earnings news release as well as in our most recent annual report on Form 10-K and other SEC filings. These forward-looking statements reflect management's beliefs and assumptions as of the date of this live broadcast, May 6, 2026. Except as required by law, we disclaim any obligation to update forward-looking statements to reflect future events or circumstances. Our commentary today will also include non-GAAP financial measures, which should be considered as a supplement to and not a substitute for GAAP financial measures. The non-GAAP reconciliations can be found in today's earnings press release, which is available on the Investor Relations section of our website. With that, I now turn the call over to Kevin. Kevin Knopp: Thanks, Barbara. Good morning, and thank you for joining our first quarter 2026 earnings call. We entered 2026 from a position of strength with a streamlined cost structure, a solid balance sheet and an expanding recurring revenue opportunity. In the first quarter, we continued to build on that momentum, delivering $13.4 million in revenue, up 14% year-over-year. Sales to U.S. state and local customers remained a key driver, representing approximately 50% of our first quarter revenues. This marks the third consecutive quarter that orders from these customers have exceeded our internal targets. And based on our current pipeline visibility, we believe we can continue this trend in the second quarter. Importantly, this channel is delivering consistent high-quality run rate demand, helping to drive greater visibility and predictability while complementing larger international and U.S. federal enterprise opportunities. Over the past 24 months, we have made deliberate investments to scale this segment alongside the successful integration of our RedWave FTIR portfolio, and we are now seeing those efforts translate into sustained durable growth. FTIR products are becoming a meaningful contributor to [indiscernible] expanding their approach nationally, reinforcing a broader and accelerating demand environment. In parallel, we anticipate that the passage last week of the Department of Homeland Security funding bill will provide additional support for our second half objectives. And to kick things off here in Q2, we closed a $3 million order in April with another state Department of Corrections. We are continuing to drive momentum as we execute our law enforcement narcotic strategy. On our last earnings call, we outlined 3 focus areas for 2026, scaling our proven platforms, extending our handheld leadership through differentiated capabilities and disciplined innovation and strengthening revenue durability through recurring and program-based opportunities. This morning, we are excited to announce the acquisition of NIRLAB AG. We believe this acquisition is additive to each of our existing initiatives for the year and will be a very strong strategic fit over the short and long term. This acquisition brings together highly complementary drug detection capabilities, increases our international revenue mix and provides a high retention recurring software subscription model. Just as important as the strategic fit is the cultural alignment. NIRLAB is a founder-led, highly technical organization with deep expertise in spectroscopy, data science and cloud-based AI analytics. Their mission-driven focus on enabling safer, faster decision-making in the field closely aligns with our purpose of protecting frontline responders and addressing critical public health challenges. So prior to reviewing our first quarter financial results, I wanted to walk you through a handful of slides about this acquisition and how it aligns to our focus areas and with our broader law enforcement narcotic strategy. Very simply, this acquisition does 4 things for 908. First, it expands our handheld franchise into a high-volume, widely deployable sub-$40,000 segment, unlocking about a $200 million market. This is a solution purpose-built for frontline narcotics detection, increasing accessibility and driving unit volumes in markets we know well and already serve. And while not yet at scale, it's already validated with 100-plus active customers and approximately $2 million in law enforcement revenue. Second, it strengthens and extends our leadership in narcotics for law enforcement. It builds directly on the momentum we're seeing with MX908 and complements VipIR, expanding a market-leading portfolio that's driving growth at the state and local level. Just as importantly, it completes our end-to-end coverage. With nearIR-based optical spectroscopy, which we have core expertise, we now span from everyday screening to confirmatory analysis, driving higher customer value and deeper adoption. Third, it accelerates our software and recurring revenue strategy. This is a proven high-retention subscription model, about 50% recurring revenue with a demonstrated annual retention of greater than 99%. It fits directly into our connected services vision with Team leader and NIRALAB's live cloud-connected AI-driven analysis. This gives us a faster path to scaling recurring revenue, increasing lifetime customer value and improving visibility. And fourth, this is a highly levered growth opportunity. The business today is largely international, and we see a clear path to accelerate U.S. adoption using our commercial infrastructure while also benefiting from the technical know-how to further advance our platform. So taken together, we believe this deal expands our market, strengthens our portfolio, completes our workflow and accelerates our software strategy, all tightly aligned to where we're taking 908. From a financial standpoint, NIRALAB's growth and recurring revenue mix are accretive and support our long-term margin targets as high-margin software subscriptions scale. For the remaining 8 months of 2026, we expect approximately $2.5 million in revenue, growing under our model to more than $5 million in 2027. We do expect a modest roughly $1 million adjusted EBITDA headwind in 2026 with the business planned to be profitable and contributing positively in 2027. The upfront transaction value is $15 million, $13 million in cash and $2 million in equity with up to $8 million in additional equity tied to recurring revenue and customer capture performance milestones over the next 20 months. As we step back and look at what we're acquiring, it's important to recognize that this is not just a single product or point solution, but a fully integrated platform that is ready to scale. At its core, NIRLAB combines purpose-built hardware with a cloud-connected software ecosystem and a subscription model, enabling rapid field-based chemical analysis with a simple, scalable workflow. This platform approach is what drives both adoption and long-term customer value. A key component of that value is the underlying data, know-how and IP. NIRLAB has built what we believe is the world's largest nearIR spectral database for narcotics, supported by proprietary AI and machine learning models informed by tens of thousands of laboratory characterized seized drug samples. This creates a meaningful and defensible data moat that strengthens over time as more data is collected in the field. As part of the acquisition, we're also integrating a highly specialized and mission-driven team of 15 people based in Switzerland with deep expertise across spectroscopy, software, cloud infrastructure and machine learning. Their scientific foundation anchored through the relationship with the University of Lausanne brings both credibility and continued innovation to the platform. The NIRLAB experience is designed to be simple, fast and highly accessible for frontline users with a straightforward workflow of just downloading the app from the App Store, pairing the device, analyzing a sample and then receiving results in seconds, users can detect, identify and quantify the most common illicit drug directly in the field, approximately 400 substances, including THC and CBD in cannabis, which are important analytes not covered by our Mass Spec or other optical products. For reference, the initial device will be roughly $10,000 and its required subscription will be roughly half that again per year. Note, these are approximate as pricing varies by market and is still being established. We believe nearIR's ease of use on top of that, the platform leverages AI and advanced compute to continuously improve performance. As more data is collected, the system becomes more accurate, more robust and more valuable to the end user. This creates a powerful flywheel effect with increased usage driving more data, more data driving better insights and better insights driving further adoption. From a strategic perspective, this is also highly aligned with our broader team leader software vision. It strengthens our ability to deliver connected data-driven solutions, expands our recurring revenue opportunities and enhances the overall value of our ecosystem to customers. NIRLAB is embedded in the day-to-day workflows of customers with over 1 million analyses performed to date. This level of usage demonstrates both reliability of the technology and the value it delivers in operational settings. NIRLAB's customer base spans across continents from the Australian Federal Police and Oceania to state police forces in Switzerland and Germany, local police forces in the Netherlands, Italy and Spain and more broadly across Europe to a forensics laboratory in Malaysia, customs authorities in Mauritius and anti-narcotics units in Nigeria, among many others. These are not pilot programs or limited trials. This is an active recurring use by frontline personnel who rely on the platform to make fast informed decisions in the field. That consistency of use underpins the strong retention and subscription model we discussed earlier. At the same time, this platform is early in its broader market adoption. It has not yet been scaled globally, has not penetrated the U.S. and has not been fully leveraged through a larger commercial engine, which creates a significant opportunity ahead for us. From our perspective, this combination of proven validation and early-stage scale is particularly compelling. It reduces execution risk while preserving meaningful upside as we expand adoption, especially in the U.S. and connect this installed base into our broader ecosystem. Our combined platforms provide end-to-end coverage for narcotics detection supporting the law enforcement market broadly. This is timely for 2 reasons. One, global drug markets are expanding in both scale and complexity with cocaine seizures up 68% over the past 4 years and more than 55 tons of new psychoactive substances seized in Europe alone in 2024. At the same time, over 1,000 emerging compounds, including highly potent synthetic opioids like nitazenes are driving a growing need for traceable detection in complex and hazardous environments. And two, low-cost, widely deployable colorimetric field tests are increasingly falling out of favor and a growing number of U.S. states and jurisdictions are restricting their use for arrest decisions due to accuracy concerns and lack of an electronic record. This is expected to drive a shift towards scientifically validated field-ready alternatives such as our products. With NIRLAB, we now address the full spectrum of use cases from high-frequency in-field screening to advanced confirmatory analysis. NIRLAB enables rapid frontline awareness. Our flagship MX908 supports trace level detection for high-consequence scenarios, including fentanyl and the synthetic opioid crisis and our new product, VipIR, expands our capability in bulk and unknown substance identification with its ability to identify 39,000-plus chemicals, cutting agents and more in customs and clandestine lab response settings. These platforms are becoming increasingly connected through our software ecosystem, enabling data sharing and coordination and insight across users and environments. This transforms isolated measurements into a unified actionable workflow. Importantly, this drives pull-through across the portfolio where routine screening can lead to demand for more advanced capabilities or the opposite, increasing both utilization and customer lifetime value. Overall, this positions us with a differentiated full stack solution that spans everyday to specialist use cases and is difficult to replicate. The acquisition directly aligns with the 3 strategic priorities we outlined for 2026. First, it scales our proven handheld platforms by expanding to low-cost, widely deployable segment, enabling broader adoption across law enforcement and global frontline users. Second, it extends our handheld leadership by completing the end-to-end workflow from screening to confirmatory analysis, strengthening what we believe is the most comprehensive handheld detection portfolio in the market. And third, it strengthened the quarter and our updated outlook. Joseph Griffith: Thanks, Kevin. Total revenue was $13.4 million for the first quarter 2026, increasing 14% from $11.8 million in the prior year period. Handheld product and service revenue was $12.8 million for the first quarter 2026, up 16% from $11 million for the first quarter 2025. The increase was primarily driven by our FTIR products, including more than 25 VipIR shipments, which offset a reduction in protector shipments. MX908 product and service revenue was up overall, driven by an increase in device placements but was offset by a $0.7 million decrease in service revenue. In total, we shipped 167 devices in the first quarter, bringing our installed base to 3,903. As anticipated, program product and service revenues was 0 in the first quarter of 2026 as we await funding for the next phase of the AVCAD program, and it was $0.1 million in the first quarter of 2025. OEM and funded partnership revenue was $0.6 million for the first quarter of 2026 compared to $0.7 million in the prior year period. Recurring revenue, which consists of consumables, accessories, software and service revenue represented 30% of total revenues this quarter and was $4 million, a 7% decrease over the prior year period, primarily related to the expected reduction in Mass Spec service revenue. Gross profit was $6.9 million for the first quarter of 2026 compared to $5.5 million for the prior year period. Gross margin was 51% for the first quarter of 2026 compared to 47% for the prior year period. The increase was driven by several factors: one, higher product revenue volume; two, a shift in channel mix with fewer international placements that are at a lower gross margin; and three, the decreased facility costs related to the move of our Boston facility in 2025. This was offset in part by a lower service gross margin related to the decreased service contract revenue in the first quarter of 2026. Adjusted gross profit was $7.7 million for the first quarter of 2026 compared to $6.4 million for the prior year period. Adjusted gross margin was 57%, an increase of approximately 290 basis points compared to the prior year period. The increase in adjusted gross margin was driven by the higher revenues, channel mix and the reduced facility costs, as mentioned above. Total operating expenses for the first quarter of 2026 were $19.8 million compared to $16.6 million in the prior year period. The increase was due to a noncash $3.9 million increase in the fair value of contingent consideration. All other operating expenses for the first quarter decreased year-over-year by $0.7 million, driven by a reduction in facility expenses and a $0.2 million decrease in acquisition and integration costs. Net loss from continuing operations for the first quarter of 2026 was $12 million compared to a net loss of $9.8 million in the prior year period. This increase was primarily driven by the $3.9 million noncash charge for revaluing contingent consideration, offset in part by the improved gross margins and reduced operating expenses. Adjusted EBITDA for the first quarter of 2026 was a negative $2.5 million compared to a loss of $4.6 million in the prior year period, representing a $2.1 million improvement. In the first quarter, we cut our adjusted EBITDA loss by 45% due to realizing growth at improved margins with a lower operating cost base. We ended the quarter with $111.7 million in cash, cash equivalents and marketable securities with no debt outstanding. Operationally, we are executing with discipline using only $1.2 million of cash in the quarter. Looking ahead in 2026, we now expect revenue to be in the range of $67 million to $70 million, representing growth of 19% to 25% over full year 2025. Our guidance range has increased $2.5 million and includes the following assumptions. First, we now expect handheld product and service revenue to grow 18% to 21% year-over-year, which equates to a range of $62 million to $64 million. The increase in guidance reflects initial expectations around our acquisition of NIRLAB as we integrate it into our commercial model. Second, we continue to expect OEM and funded partnerships, including contract revenue to be approximately $3 million. And third, we continue to expect revenue contribution from the AVCAD program to be in the range of $2 million to $3 million, likely in the second half of 2026. As previously stated, Smiths Detection has responded to a request for proposal and are negotiating for an anticipated spring award for an initial production run of approximately a few hundred systems with component and subsystem contributions from 908 Devices. This timing and quantities are validated by the Department of War's fiscal year 2027 Chemical and Biological Defense program public request to Congress just last week. Moving down the P&L, we continue to expect adjusted gross margins to be in the mid- to high 50% range for full year 2026. And on the bottom line, we expect to reduce our adjusted EBITDA loss to the mid-single-digit millions, making another significant step down year-over-year while we go after the growth opportunity. We expect that NIRLAB will represent approximately $1 million of the adjusted EBITDA loss in 2026. However, as Kevin mentioned, we anticipate it to be adjusted EBITDA positive in 2027. At this point, I would like to turn the call back to Kevin. Kevin Knopp: Thanks, Joe. The progress we're seeing is a direct result of disciplined execution and a strategy that is working. Only 4 months into the year, and we're encouraged by the trajectory of the business. We're executing well, building momentum and expanding from a position of strength. Our end goal is clear to be the #1 provider of handheld detection solutions globally. And every move we're making from organic investments to tuck-in M&A is reinforcing that leadership. We're broadening the portfolio with purpose, extending beyond MX and assembling what we believe is the strongest and most comprehensive suite of handhelds in this market. In parallel, we're scaling our commercial organization to match the opportunity and drive consistent execution. Every piece ties back to our narcotics and chemical detection strategy, addressing real pain points across performance and price points, expanding the market while taking share as we solve more of the problem. RedWave is a clear proof point. We identified a unique asset, moved early, integrated successfully, and we're now scaling the business through our sales model. As of March 31, 2026, RedWave exceeded its earn-out threshold, delivering more than $37 million in cumulative revenue over the past 2 years compared to $13.7 million for the full year prior to our acquisition. This demonstrates our ability to create value through integration and execution under our model. We're also adding depth to our leadership team with the addition of Kola Otitoju as Chief Business and Strategy Officer, bringing proven execution across both organic and inorganic initiatives following 6 successful years at Repligen, including growing the analytics technology business and executing more than 15 M&A transactions and strategic partnerships for the company. The takeaway is we're building a scaled category-defining handheld platform with greater recurring opportunity positioned to deliver a higher quality, more predictable and more durable growth profile. With that, let's open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Matt Larew with William Blair. Matthew Larew: Joe, I wanted to follow up on NIRLAB. It looks like a really interesting acquisition. Just curious what sort of investments you think you're going to be making this year, maybe from the team perspective, the 15 people, what the mix looks like in terms of product folks versus sales, what they're doing today from a manufacturing perspective and how you might be able to achieve some synergies there? Yes. So just thinking through sort of what the next 12 months looks like as they brought in-house and scale revenue even further. Kevin Knopp: Yes. Thanks, Matt. I appreciate the question. Yes, we're very excited to now have NIRLAB under the fold of 908 Devices. And we're really excited because it fits very clearly into our already established narcotics detection strategy. And so because of that, it really dropped right into the resources we have on the commercial side. So we're really able to leverage the great talent that we've been developing. We've seen great strength across the U.S. state and local market as we articulated in the prepared remarks and are seeing good scale across Department of Corrections and others. So we really feel that with the existing resources we have on hand from the commercial side, it's going to really be able to accelerate because they have had very little penetration in the United States. Joseph Griffith: And as Kevin mentioned, I mean, NIRLAB is subscale today, and it is mainly international revenues. In 2026 and beyond, we see it as accretive to the top line. And I know the team is excited to get their hands on the product and visit the customers. We saw a path that NIRLAB can be -- maybe breakeven in 2027 for adjusted EBITDA, leveraging the 908 channel and those investments in the software model. And on the cash flow side, with the multi-year upfront commitments on software and subscriptions, we expect the cash burn to be minimal here in 2026 and positive thereafter. So it's an exciting opportunity, existing product, solid channel to get access to the devices that really can be accretive over the longer term. Kevin Knopp: Yes. So not a significant up of investments that can all fit in with the profile Joe just described. Matthew Larew: Okay. That's great. And then just asking on the VipIR launch, 40 units in Q4 and you did over 25 in Q1. I know that was something you were excited about really ramping this year. So just curious how that kind of that first quarter matched up versus your expectations and what maybe the pipeline or funnel looks like for the balance of the year? Kevin Knopp: Yes, absolutely. So VipIR is our newest product that does unknown and solid and liquid ID. And it integrates, as you recall, probably the 2 technologies of FTIR and Raman and puts it together with what we call Smart Spectral Processing to give a nice increased capability and increased confidence of an answer. Yes, we launched it in July. We shipped approximately 50 devices in 2025. And in the first quarter of '26, we did -- as you mentioned, we shipped about 25 devices there. And our expectation is that, that will double or potentially triple the placements for 2025. So essentially, we're on track to meet that as we've previously articulated. So we do expect and continue to expect the full year impact from VipIR to be significant for us in 2026 for the FTIR growth profile. And then I also get excited from the technology front because we've got a great road map of features and enhancements planned that we think that's going to continue to increase the product value over time and make it even more compelling out there. So a lot of good things to come on that. Operator: Your next question comes from the line of Puneet Souda with Leerink. Michael Sonntag: You have Michael on for Puneet. Congrats on the quarter. My first question has to do with NIRLAB and your recurring revenue mix. I'm curious how material you think it will be to recurring revenue in 2026, what you're thinking as far as the mix? And as you're augmenting your Team Leader and software capabilities, like how should we think about maybe sort of the near-term ramp for the recurring mix growth? Kevin Knopp: Maybe I'll start with the Team Leader side and pass it to Joe on the numbers of the recurring. But thank you, Michael, for that question. I mean we're very excited because it fits very well in with Team Leader. So together, NIRLAB and Team Leader both create that connected services vision that we've been talking about. So it really accelerates our access on Team Leader. As you may recall, we've got hundreds of devices now with Team Leader and now NIRLAB really adds to that. And together, being able to position that and create more features on Team Leader that makes it a paid additional offering. So our recurring revenue over time, we think we're really putting the pieces together to drive it significantly as we go forward. But Joe, do you want to? Joseph Griffith: Yes. Maybe touching on the NIRLAB revenues as a whole, and we'll own NIRLAB for 8 months, and we increased our guidance by $2.5 million. And we see that growth to be accretive to our portfolio overall. It will likely double our current growth on our base products. Given the scale, we feel there is a healthy growth opportunity, and we expect this to really kick in, in 2027 as we plug in our U.S. sales team and build pipeline. We expect the revenues to be north of $5 million in 2027 and good growth thereafter. You asked specifically about kind of the mix of recurring and the impact to '26. So on that $2.5 million, maybe 40% to 50% is kind of recurring from the existing installed base and ramping device sales, and we'll really be focused on driving the penetration of the device placements and the ultimate opportunity of scaling that recurring revenue in the future. So definitely some pickup on the recurring side, but much more so as we get to '27 and beyond. Michael Sonntag: I got it. And then you talked about the state and local momentum you're seeing. I'm curious if you have any visibility on flow-through from the One Big Beautiful Act grant funding or if that's still to come? And what do you think about the sustainability of the growth momentum throughout 2026 based on the booking? Kevin Knopp: Yes. It's a great question. We certainly are encouraged that we now have all the appropriations bills were complete all but one essentially earlier this year. And then now as of last week, we've got the DHS department funded. As you know, DHS provides significant funding from the federal level to state and local entities. Often, that funding is multiyear funding. So we really didn't see any suppression of interest over the first 4 months of this year. I do think by having that complete, it enables some of our pipeline that we anticipate for the second half of the year, whether that's across the DHS or other related large federal and military accounts. So I think it's all very, very supportive and better than it's been in past years. Now some of that is a direct result of increased funding that's flowing down to our customers, but it's usually trickling down through a grant program metric or we'll see what continues to happen in the U.S. military side with some of the reconciliation bills and some of the increases there as well as the international conflicts that inevitably, over time, create opportunity for our types of technologies as people prepare and modernize. Operator: Your next question comes from the line of Brendan Smith with TD Cowen. Brendan Smith: Congrats on the deal. I wanted to ask maybe kind of a follow-up on kind of combining a couple of the last questions here. But can you just help us maybe understand really from kind of a pricing power standpoint, how some of these planned updates and rollouts even within VipIR and your lab integrating in, but also with Team Leader, like if you're able to squeeze some pricing premiums into any of these and really just how we should think about that over the coming quarters as some of those get to customers? Kevin Knopp: Yes. A great question. Thank you, Brendan. The pricing power, I think we are very fortunate across the portfolio to have very differentiated products and that bring a lot of value to our customers. So whether it be VipIR, very unique in the marketplace on how it combines the results, integrated them from 2 technologies to give a more confident answer, whether it's our MX, which is really the only handheld Mass Spec that's on the market. And NIRLAB, we think as well, it's quite differentiated in its capabilities, and it has a lower price point that's very, very different there. So it's about a $10,000 upfront device and then it has a required subscription that's about half of that again per year. So that then implies that each in the following years, it's 100% recurring, right, because you're just buying a subscription on a device per device look and basis. So yes, I think collectively, we feel we have a lot of levers on the pricing side. And we are combining your questions, as you said, we are really looking at this as a strategic way to increase our recurring percentage. We've talked last year that we're kind of operating in about 1/3 of our revenues. Q1 was about 30%. A lot of that was driven by service and consumables, some accessories that are in there. And we really look at NIRLAB and Team Leader and the other software components as great ways to increase the stickiness of this over time and at the same time, provide a lot of value to the customers that want that interconnectivity and want the ability to share that data. Operator: Your next question comes from the line of Dan Arias with Stifel. Rohan Walcott: This is Rohan on for Dan. Thinking about synergies, how quickly do you think your domestic sales force can begin cross-selling NIRLAB products to your U.S. and local customers? Joseph Griffith: Yes, I think it can be relatively quickly. We're super excited to plug in the -- especially our U.S. channel that is very experienced, has a great proof point that as we brought on the RedWave products, we're able to plug it in and drive growth over the last 2 years. And NIRLAB has had very few sales to date here in North America and really see it as an opportunity. So I expect to get the products in our customers' hands or I should say, in our salespeople's hands in the next week or 2 and then out on the road with customers. And it is a lot of the same customers, right? It's more that end-to-end workflow from a narcotics detection perspective. So talking to our existing customers, driving the penetration. So super excited to get out there and see a lot of synergies that we can start to plug in, and we put out that initial assessment of the $2.5 million. A good chunk of that is international, but it does assume some level of ramp-up here in the U.S., but I think there's a lot of opportunity as we move forward. Kevin Knopp: Yes. And I would just further add, it's really about that people and culture. And I think we have a good combination there and the team at NIRLAB is ready really to jump in on that. That said, it does take a couple of quarters to kind of get our arms fully around it and get it into the our understanding and get it into the U.S. markets. I think RedWave, though, is a great example, and we're going to execute that same playbook. We integrated very efficiently, and we're going to apply that same playbook here because I think that we've demonstrated that we've been able to drive a lot of growth that way and a lot of efficiencies and scale. Rohan Walcott: Okay. And you previously used your manufacturing to the U.S. to mitigate tariff impacts. With the current geopolitical climate, do you see any risk to your European supply chain for NIRLAB components? Or is this business sort of fully insulated? Joseph Griffith: Yes. It is -- a lot of the sales today are Europe-based. And as Kevin mentioned, in Oceania and APAC and not much in the U.S. We also have an avenue to source the product here in the U.S., which protects some of the device opportunities, too. So I think from a tariff perspective, it's a bit insulated, but we'll continue to monitor and learn as we integrate and ramp up. But don't see it as a major impact. Operator: There are no further questions at this time. I will now hand the call over to Kevin Knopp for closing statements. Kevin, please go ahead. Kevin Knopp: Okay. Thank you. Thank you all for your attendance today. And hopefully, you can understand that we are feeling pretty good about our momentum and trajectory and very excited to have NIRLAB and welcome them on to the team. So thank you all for the time today. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Revolution Medicines Q1 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand it over to Ryan Asay, Senior VP of Corporate Affairs. Ryan, you have the floor. Ryan Asay: Thank you, operator, and welcome, everyone, to the First Quarter 2026 Earnings Call. Joining me on today's call are Dr. Mark Goldsmith, Revolution Medicines' Chairman and Chief Executive Officer; Dr. Alan Sandler, our Chief Development Officer; and Jack Anders, our Chief Financial Officer. Dr. Steve Kelsey, our President of R&D; Dr. Wei Lin, our Chief Medical Officer; and Anthony Mancini, our Chief Global Commercialization Officer will join us for the Q&A portion of today's call. We would like to inform you that certain statements we make during this call will be forward looking. Because such statements deal with future events and are subject to many risks and uncertainties. Actual results may differ materially from those in forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 10-K and our quarterly reports on Form 10-Q that are filed with the U.S. Securities and Exchange Commission. This afternoon, we released financial results for the quarter ended March 31, 2026, and recent corporate updates. The press release and updated corporate presentation are available on the Investors section of our website at revmed.com. With that, I'll turn the call over to Dr. Mark Goldsmith, Revolution Medicines' Chairman and Chief Executive Officer. Mark? Mark Goldsmith: Thanks, Ryan. It's good to be with you this afternoon to discuss the tremendous progress we've made in 2026. This is a pivotal moment for our organization and for patients worldwide living with pancreatic cancer who are in need of new therapeutic options. It is anchored by the top line readout for RASolute 302 last month, in which daraxonrasib monotherapy demonstrated an unprecedented improvement in overall survival compared with chemotherapy in patients with previously treated metastatic pancreatic cancer. RASolute 302 results represent a transformative advance for patients. They also firmly validate our pioneering RAS(ON) inhibitor strategy and reinforce its potential to improve outcomes in RAS-driven cancers. High investor conviction enabled an historic $2 billion dual tranche capital raise that will allow us to continue our important work broadly, advancing our current portfolio of four groundbreaking clinical stage, oral RAS(ON) inhibitors and bringing forward the next wave of innovation, targeting RAS-addicted cancers, including our new class of catalytic RAS(ON) inhibitors. On today's call, following my remarks, I'll pass the call over to Dr. Alan Sandler, who will provide an overview on the recent clinical progress we've made across our portfolio including the most recent data presented at the American Association for Cancer Research Annual Meeting. Jack Anders will then summarize our first quarter financial results before we open the call to Q&A. Let me first spend a few moments talking about RASolute 302, the global Phase III trial evaluating daraxonrasib monotherapy in patients with previously treated pancreatic cancer. The top line readout for daraxonrasib marked a major milestone in this disease, significantly raising the bar and the development of new treatments for patients living with pancreatic cancer, the most RAS-addicted of all human cancers. In RASolute 302, daraxonrasib demonstrated unprecedented impact, meeting its primary and key secondary endpoints and showing statistically significant and clinically meaningful improvement in progression-free survival and overall survival compared to standard of care chemotherapy. In the overall intent-to-treat study population, which includes patients carrying tumors with or without an identified RAS mutation, daraxonrasib drove a 60% reduction in the risk of death compared with chemotherapy and with a median overall survival exceeding 1 year. Daraxonrasib was generally well tolerated and no new safety signals were observed. These are dramatic practice-changing results and our focus now is on moving with urgency to bring this potential new option to patients. We intend to submit a new drug application to the U.S. Food and Drug Administration under the FDA Commissioner's National Priority Voucher Program, and we'll also execute our plan to file with other global regulatory authorities. And last week, we reported that the FDA issued a safe-to-proceed letter allowing us to initiate an expanded access treatment protocol or daraxonrasib in patients with previously treated metastatic pancreatic cancer. This will allow us to move as quickly as possible to ensure safe and equitable access to daraxonrasib for eligible patients in the U.S. We were also pleased to announce recently that RASolute 302 will be featured in the plenary session of this year's American Society of Clinical Oncology, or ASCO, Annual Meeting in Chicago. We and the investigators look forward to sharing detailed results with the scientific community at that time. I'll now pass the call over to Alan to walk through some recent clinical program updates. Alan? Alan Bart Sandler: Thanks, Mark. The extraordinary results from RASolute 302 validate our tri-complex inhibitor platform and give us increased confidence in daraxonrasib's potential in earlier treatment lines in pancreatic cancer. This confidence was reinforced at AACR, where we shared updated clinical data from the Phase I/II studies for daraxonrasib monotherapy and in combination with chemotherapy in first-line metastatic pancreatic cancer. Both the monotherapy and combination cohorts demonstrated encouraging preliminary durability data. In the monotherapy study, while median progression-free survival and median overall survival were not mature as of the data cutoff, the Kaplan-Meier estimate at 6 months were 71% and 83%, respectively. In the combination of daraxonrasib with gemcitabine and nab-paclitaxel the Kaplan-Meier estimates at 6 months for progression-free survival and overall survival were 84% and 90%, respectively. Across both studies, daraxonrasib safety and tolerability profile remained consistent with earlier findings in this patient population with no new safety signals observed. These compelling results strongly support our decision to rapidly advance RASolute 303, our Phase III study evaluating both daraxonrasib monotherapy and daraxonrasib in combination with chemotherapy in first-line metastatic disease. The trial is enrolling globally. In addition to our first and second line daraxonrasib registrational studies in pancreatic cancer, patient enrollment is ongoing in RASolute 304, our registrational trial of daraxonrasib monotherapy in the adjuvant setting in patients with resectable disease following conventional surgery and perioperative chemotherapy. We are also making progress in 2 registrational studies for zoldonrasib, our covalent RAS(ON) G12D selective inhibitor in first-line pancreatic cancer. We have initiated RASolute 305, a randomized, double-blind, placebo-controlled registrational trial, evaluating zoldonrasib in combination with investigators' choice of chemotherapy, either gemcitabine and nab-paclitaxel or modified FOLFIRINOX compared with placebo plus chemotherapy. And we remain on track to initiate RASolute 309, our first registrational study to evaluate the RAS(ON) inhibitor doublet combination of zoldonrasib with daraxonrasib in the second half of the year. Moving to non-small cell lung cancer, another focus with development for RAS(ON) with approximately 30% of non-small cell lung cancers harboring a RAS mutation, including 18% with non-G12C mutations, unmet needs in non-small cell lung cancer remain priority that we aim to address through several ongoing and planned registrational studies. Beginning with daraxonrasib, we continue to enroll patients globally in RASolve 301, our global randomized trial evaluating daraxonrasib monotherapy in previously treated patients. Based on the strength of the Phase I results for daraxonrasib monotherapy in non-small cell lung cancer as well as additional confidence from the recent positive RASolute 302 results, we are expanding the RASolve 301 study to increase the statistical power of the overall survival component of the dual primary end point. Enrollment is going well, and we anticipate substantially completing enrollment in the expanded study this year. We also expect to disclose our plans regarding daraxonrasib combination therapy in first-line non-small cell lung cancer this year. Turning to G12D non-small cell lung cancer. At AACR, we presented updated clinical data for zoldonrasib monotherapy in a subset of patients who had previously been treated with immune checkpoint inhibitors and platinum chemotherapy. Zoldonrasib was generally well tolerated and demonstrated a safety profile consistent with previously reported findings. Zoldonrasib demonstrated encouraging clinical activity with a confirmed objective response rate of 52%, disease control rate of 93%, and a median progressive-free survival of 11.1 months. Overall survival data were immature at the time of analysis. The estimated survival rate at 12 months was 73% while the median had not yet been reached, which is encouraging data at this early look. We continue to believe deeply in the potential of zoldonrasib given its compelling safety and tolerability profile and encouraging clinical activity, which strongly support our plans to advance zoldonrasib across monotherapy and combination setting in lung cancer and other RAS-G12D-driven cancers. Building on the strength of our monotherapy data, we are preparing to initiate in the first half of this year, RASolve 308, a global double-blind, placebo-controlled registrational trial evaluating zoldonrasib in combination with the KEYNOTE-189 regimen, which is the standard of care in first-line treatment for metastatic non-small cell lung cancer compared to the KEYNOTE-189 regimen with placebo. For patients with G12C non-small cell lung cancer, elironrasib, a RAS(ON) mutant selective inhibitor has demonstrated a differentiated and compelling clinical profile in both G12C inhibitor naive and G12C inhibitor experienced lung cancer patients. We remain on track to share an update on our elironrasib registrational strategy this year. Our third RAS-addicted cancer focus is colorectal cancer, which remains an area of high unmet need and interest for the company. We have a range of combination studies underway designed to better understand this genetically complex and heterogeneous disease, including studies to evaluate RAS(ON) inhibitor doublet combination and RAS(ON) inhibitors in combination with current standards of care and with other targeted drugs. We remain on track to share combination data this year as we work to prioritize registrational opportunities. I'll conclude with brief highlights on two of our early stage programs. We continue enrolling patients in the first-in-human trial of RMC-5127, our fourth RAS(ON) inhibitor. RMC-5127 is selective for RAS-G12V, the second most common RAS variant in solid tumors. We expect to identify a recommended monotherapy Phase II dose for this compound in the second half of 2026. Finally, AACR brought with it the opportunity to showcase our new class of innovative mutant targeted catalytic RAS(ON) inhibitors. These inhibitors are designed to promote the conversion of mutant RAS in its active GTP bound RAS(ON) state to the inactive GDP-bound RAS off state. Thereby mimicking the normal physiologic regulation of wild-type RAS. These preclinical data demonstrated that at well-tolerated doses RM-055 achieved robust and durable antitumor activity across KRASG12 mutant xenograft models of pancreatic cancer, non-small cell lung cancer and colorectal cancer. Notably, tumors that had escaped prior RAS inhibitor treatment were sensitive to RM-055, which drove deep and durable regressions. Its compelling, differentiated profile warrants clinical investigation of its potential to counter emergent drug-resistant and to extend clinical benefit and we remain on track to initiate a first in-human clinical trial in the fourth quarter. With that, I'd like to pass the call back over to Mark. Mark? Mark Goldsmith: Thanks, Alan. In addition to the substantial R&D progress we've made across our pipeline, we continue to be very gratified by the build-out of our commercialization infrastructure and operational capabilities to support the company's global commercialization ambitions. We've established the operational wherewithal required to move with speed and agility focused initially in the U.S. and extending into priority international regions. We are resourcing our efforts to ensure that we have the best strategies, tactics, operational capabilities and people to bring daraxonrasib with urgency to patients pending regulatory approvals. We expect to be launched ready under best case approval timing scenarios. We have experienced and talented executives leading our commercialization team across medical affairs, market access, marketing and sales. These groups are deeply engaged in market preparedness and assessment, planning, position and advocacy engagement, sharpening operational capabilities and conducting other launch readiness activities. We recently appointed several experienced leaders across the Asia Pacific and European regions, including Neil McGregor; as our General Manager for APAC; Tetsuo Endo as General Manager for Japan; and Martin Voelkl as General Manager for Germany. I'd now like to turn the call over to Jack Anders, our Chief Financial Officer, to summarize our first quarter financial results. Jack? Jack Anders: Thanks, Mark. We ended the first quarter of 2026 with $1.9 billion in cash and investments and further strengthened our financial position after the quarter with $2.1 billion in net proceeds from our concurrent upsized offerings of common stock and convertible debt in April. Before we dive into the income statement for the quarter, I'd like to highlight that our stock-based compensation expense for the quarter was higher than usual and explain the reason behind it. Stock-based compensation expense was $87.3 million for the quarter ended March 31, 2026, compared to $25.1 million for the quarter ended March 31, 2025. In the first quarter of 2026, the company updated its equity compensation program to introduce competitive retirement benefits for employees who meet specific minimum age and service requirements. The modification of this program resulted in an incremental $44.6 million in stock-based compensation for the first quarter of 2026. This incremental expense was primarily due to the accelerated timing of recognition of stock-based compensation expense originally scheduled in future periods for outstanding eligible awards. As a result of this timing pull in, we expect higher nonrecurring lumpiness in stock-based compensation expense for the first half of 2026 with stock-based compensation expense decreasing and returning to a more normalized trajectory in the second half of the year. As a result of this change, the company is increasing its estimate of full year 2026 stock-based compensation expense by approximately $80 million, and now expects full year 2026 stock-based compensation expense to be between $260 million and $280 million. Additionally, the company is also updating its projected GAAP operating expense guidance to reflect the expected increase in stock-based compensation expense and now expects full year GAAP operating expenses to be between $1.7 billion and $1.8 billion. Moving to expenses for the quarter. R&D expenses for the first quarter of 2026 were $344.0 million compared to $205.7 million for the first quarter of 2025. This increase was primarily due to higher clinical trial and manufacturing expenses for daraxonrasib and zoldonrasib due to acceleration of the pace and expansion of these programs. R&D expenses were also higher as a result of increased headcount costs and higher stock-based compensation expense as described earlier. G&A expenses for the first quarter of 2026 were $101.3 million compared to $35.0 million for the first quarter of 2025. The increase in G&A expenses was primarily due to higher stock-based compensation expense as described earlier: increased headcount costs, increased commercial preparation activities and higher administrative costs. Net loss for the first quarter of 2026 was $453.8 million compared to $213.4 million for the first quarter of 2025. The increase in net loss was due to higher operating expenses. That concludes the financial update. I'll now turn the call back over to Mark. Mark Goldsmith: Thank you, Jack. The remarkable start to 2026 is the result of years of unwavering dedication, relentless perseverance and hard work by our team and collaborators standing on the shoulders of others. With the unprecedented performance of daraxonrasib monotherapy in the RASolute 302 study, we believe we are in a position to change the standard of care for patients living with pancreatic cancer, subject to regulatory review and approval. The global response to the RASolute 302 data has been overwhelming. The news brings with it hope and possibility for patients, physicians, and the advocacy community that have all been waiting too long for new, more effective treatment options. We are now an important step closer to fulfilling our mission of discovering, developing and delivering innovative targeted medicines to patients living with cancer. We have an extraordinary opportunity, and we take very seriously the responsibility that goes with it. Before I close, I'd like to recognize our continuing partnerships with patients and caregivers, health care providers and investors as well as the remarkable dedication and efforts of Rev Med employees. It requires the ongoing support of all of our partners and constituencies to do revolutionary work on behalf of patients. With that, I'll turn the call over to the operator for the question-and-answer portion of the call. Operator: [Operator Instructions] Our first question comes from the line of Cory Kasimov with Evercore ISI. Cory Kasimov: Congrats on all the recent very exciting progress. So I wanted to ask, you recently noted you could share data at a medical meeting that supports the rationale for RASolute 309, the Phase III front-line PDAC trial, looking at zoldonrasib plus daraxonrasib versus chemo. Would this include durability data or just response rate as we've seen with some of your initial disclosures? And maybe more importantly, how much additive efficacy would you be looking for here to say it's clinically meaningful to justify the combination over the exciting monotherapy results we've seen with both of these agents. Mark Goldsmith: Thanks, Cory. I appreciate your comments and question. It's probably too early for us to lay out what that presentation would look like. We typically don't forecast it. We'll show what we have. We think it will justify our plans, and we'll provide that in due course. The second question, also probably and unfortunately, it can't be too helpful about what's the threshold for added value that justifies doing that I mean, of course, we look at the totality of the evidence. We look at the historical benchmarks. And ultimately, as you sort of implied in your question, durability is the most important parameter. Operator: Our next question comes from Charles Zhu with LifeSci Capital. Yue-Wen Zhu: [Technical Difficulty] Mark Goldsmith: Charles, we're not able to pick up what you're saying. Stacy, I don't know if there's anything you can do on your side to improve the audio quality. Operator: Charles, are you in a good position to speak with us? We'll get Charles back queued up. Our next call comes from Michael Schmidt with Guggenheim Securities. Michael Schmidt: Again, congrats on RASolute 302 data, looking forward to the full data presentation at ASCO. Yes, a question on the EAP program. I know this was just announced a few days ago. But Mark, I don't know if you could comment what you're seeing so far in terms of demand for the EAP program? And what do you think -- how many patients could particularly benefit from this prior to officially receiving FDA approval? And then maybe just if you could share your view of the size of the second-line pancreatic cancer opportunity based on your market research, how many patients in the U.S. do you think would be treatment eligible for the daraxonrasib based on the 302 study? Mark Goldsmith: Thanks, Michael. Nice to hear from you. On the first question, of course, we're working hard to get in a position to be providing drugs to those who need it. The demand has been very clear from the moment that it was announced. And we don't expect that to slow down anytime soon. And we're putting all the resources that we can on it to help meet that need. I can't really give you a projection as to the number. I don't know how we can make that projection. We'll just have to play it out. I think there is clearly a widespread knowledge of awareness of daraxonrasib and those calls started coming in within minutes after the announcement. The size of the second-line opportunity. Wei, you might want to talk about this. We can't characterize it for you in a great depth, but we typically think about roughly 60,000 new cases in each year, and then maybe Wei can comment on both what's historical attrition and then also whether or not daraxonrasib might affect that. Wei Lin: Yes. Happy to do that. These are obviously just estimates based on clinical practice. As Mark commented, about 60,000 Americans are newly diagnosed each year with pancreatic cancer. About 50% to 60% of those patients are diagnosed with metastatic disease. And so those patients are eligible to receive first-line therapy for metastatic disease. And typically, because of both the aggressive nature of the disease as well as the toxicity of chemotherapy, about half of the patients received first-line metastatic treatment and received subsequent second-line treatment. So that gives you a sense of the overall attrition as well as the size. Mark Goldsmith: And just to add to that, that could certainly change in the context of first-line treatment, but we don't have anything to address on that point today. Operator: Our next question comes from Faisal Khurshid with Jefferies. Faisal Khurshid: Just wanted to ask on the RASolve 301 upsizing. Could you clarify what exactly led to the upsizing? What were you powered for before? And what are you powered for now? And does this change the time line from enrollment completion to read out? Mark Goldsmith: Thanks a lot for your question. I'm going to answer the second question, and then Alan Sandler is going to talk about the first. We don't think it will change the timing of the readout given the high pace of enrollment and where we stand today. So we don't expect to impact our projection that we'll complete or substantially complete enrollment this year. But the more subtle question about the sizing of the trial, Alan can comment on. Alan Bart Sandler: Sure. Thanks. So an important point is we've realized the importance of overall survival and given the results that we've seen in 302 and also the Phase I monotherapy data, we have a very high conviction that on our ability to obtain overall survival benefit. So as a result of that, we're going to further prioritize overall survival in 301 by expanding the enrollment, as you've noted, going from 420 to 590 patients. That will increase the statistical power of that component of what is a dual primary end point and then again, as Mark has mentioned, we -- there's a great pace in terms of the patient enrollment, and we think that we will substantially complete the enrollment, even with the expanded study this year. Operator: Our next question comes from the line of Brian Cheng with JPMorgan. Lut Ming Cheng: Mark, during the call, you said the best case timing scenario for darax at launch across the globe. How should we think about the timing and the cadence then for the filing and launches specifically across APAC and European regions? And just on the NDA application towards the FDA. Can you give us a little bit more color, a little bit more granularity in terms of the things that are left to complete? Mark Goldsmith: Yes. Thanks, Brian. I can't really give you any specific timing with regard to the filings outside the United States. But just generally speaking, we are starting with the U.S. filing as the initial priority. There will be some sequential framework for filing in other countries, and we're already engaged with regulatory authorities outside of the United States in order to make sure that we can deliver what they need and in as timely a matter as possible. For the NDA, your question was what's left to deliver? Is that how you put it? Lut Ming Cheng: Yes. What are the things that are left to complete before you complete the NDA application? Mark Goldsmith: Yes. Well, we've been fully engaged with the FDA for a long time, as you know. And of course, with the CNPB and the breakthrough designation, we've had a high level of engagement than you might otherwise have and so we are providing them information as it becomes available, mature enough to provide to them. And ultimately, the clinical package is the thing that will be provided. I can't give you a specific timing on that. There's a full throttle effort to do it. We feel the urgency around it. Certainly, the question earlier about the EAP provides a pretty strong signal about how urgent that is, and we'll continue to move this forward as fully as we possibly can. Operator: Our next question comes from Marc Frahm with TD Cowen. Marc Frahm: Maybe following up a little bit on Cory's question earlier, just on the zoldonrasib plus daraxonrasib combo. Can you maybe speak to the 309 design, particularly in light of the 302 finding and the survival data, I mean looking better than anything we've ever seen even in first line. Just why is 309 comparing to chemo the right design and -- or would it -- should it really be switched over to consider daraxonrasib monotherapy as the comparator arm there at a minimum, one, to get the contribution of parts, but also just from a clinical execution perspective, where the ball is headed -- seems to be headed in pancreatic cancer? Mark Goldsmith: Yes. Thanks, Marc. That's a good question. It's a subtle one. Of course, today, standard of care is chemotherapy. And until there's a data set that moves the FDA to approve a different treatment and a different treatment at the level that people consider the new standard of care then chemotherapy is the standard of care. I think you're sort of inviting me to comment that, of course, we think daraxonrasib has a real potential in monotherapy, but also in combinations in first line. And among those combinations, chemotherapy is one that we've already provided some early-stage data on and we're quite excited about. And that combination is in the 303 trial, so we're already going into combinations. And it's really just a question of when that bar moves. But we have high confidence that the combination can deliver something that is differentiated from chemotherapy, but also even for monotherapy. I think the other thing to keep in mind is we do a lot of things where there's overlap in the patient populations that we might be able to serve in different ways. We don't shy away from that. As you know, we've discussed that before, because every patient has his or her own specific needs and giving doctors options even if the outcomes on paper may look fairly similar across broad populations, there still may be reasons why one particular patient would benefit or be perceived to benefit from one particular combination or monotherapy approach versus another. So providing the most fulsome set that we can based on the science and then ultimately on the clinical data, it increases the chance that we're the ones that are delivering the best possible options for patients. So that's the high level of comment. Operator: Our next question comes from Jonathan Chang with Leerink Partners. Jonathan Chang: Congrats on the progress. Can you talk about your latest thinking on getting to a chemo-free option in frontline pancreatic cancer? What gives you confidence in being able to achieve this? And what do you think is the best strategy for getting us? Mark Goldsmith: Yes. Thanks, Jonathan. Nice to talk with you. Well, we just talked about one of those strategies for a chemo-free frontline, which is monotherapy daraxonrasib. And I think the data -- single-arm data that we've shown so far are compelling enough that it just -- very much justified incorporating that into the Phase III first-line trial, and we'll see how that performs. But we have every expectation that it could deliver chemo-free regimen. And then the second option is also one we just talked about, which is combining a mutant selective inhibitor with daraxonrasib, that would be a chemo-free strategy. And that specific combination of zoldon plus daraxon of course, is for the 40% of pancreatic cancer cases that are carrying a RAS G12D mutation. We have other mutant selective inhibitors directed against additional mutations that are common in -- or can be found in RAS cancer, so we could and would likely fill out that collection of regimen. It just happens that zoldonrasib plus daraxon is on the vanguard of the work because of maturity of the compound and the data that we have so far. So I think those are two very compelling chemo-free regimen. There are others that one can consider. There are immunologic agents that could be combined. There are other targeted agents that could be combined. We're already exploring, as you know, PRMT5 combination, PRMT5 inhibitor combination, et cetera. I'm sure there will be other things to come over time. Operator: Our next question comes from Charles Zhou with LifeSci Capital. Yue-Wen Zhu: All right. Perfect. I believe a bunch of clinical type questions were taken. So I'll ask one a little bit earlier, but RM-055, Nice to see your presentation at AACR as well as some of the work you helped support over at [indiscernible] lab that was just published yesterday. But can you comment a little bit perhaps on RM-055's ability to potentially address daraxonrasib's resistance mechanisms that go beyond that of a KRAS amplification. And can you also talk a little bit about perhaps how you might be achieving what appears to be at least preclinically a wider therapeutic window for RAS mutants over RAS wild types over that, which directs daraxonrasib can achieve. Any color as to how you're accomplishing that mechanistically? And if you can also kind of see that in your preclinical models as you advance that into the clinic? Mark Goldsmith: Thanks, Charles. Sort of loud and clear. Yes, Steve Kelsey, I think, will comment on both of those important topics. Stephen Kelsey: Sure. Yes, I think the RAS amplification can be received as a stand-alone mechanistic basis for escaping daraxonrasib, but it also acts as a surrogate for increasing flux through the RAS pathway generally. And in most of the experiments that we've done, RM-055 is a better inhibitor flux through -- increased flux through the RAS pathway. Generally, particularly when it's going to go through G12 mutation. So I think there is a general principle of escape from daraxonrasib occurring through reactivation of RAS pathway signaling. It's not just amplification of the mutant allele that can do that. And I think there's every reason to believe that RM-055 may be effective beyond just pure RAS mutant amplification. Your point about therapeutic index, it's all to do with the relative importance of hydrolysis of RAS(ON) back to RAS(OFF) between cancer and normal tissue. Normal tissue, most of the RAS in normal tissue was already in the off-state anyway. But it's being catalyzed -- the active RAS is being catalyzed back to RAS(OFF) very effectively by the naturally occurring gaps. And the whole point of RAS mutation cancer is that, that just doesn't happen. The ability of the mutant RAS to withstand that catalytic hydrolysis back to RAS(ON) state is very different. And it varies from mutation to mutation. But what we've done is very selectively targeted the inability of particularly as a G12 mutant RAS to be hydrolyzed back to RAS(OFF) by forcing it to be hydrolyzed back for RAS(OFF). And it really has very -- this drug has almost negligible effect on normal tissue in that respect and a very significant increased deactivation of mutant RAS in cancer cells. Operator: Next question comes from the line of Michael Yee with UBS. Michael Yee: Congrats on the progress. Two quick ones. On the colorectal cancer data coming up, can you help guide expectations on how to think about combination with EGFR given overlapping rash and how to think about mitigation or how to interpret results given higher efficacy, but also trying to mitigate rash in that strategy. And then also in the first-line PANC study, which is enrolling, we definitely get huge feedback that it's going to enroll superfast in a number of different sites. Is it safe to assume that there's probably an interim in that study as well eventually once you complete enrollment? Mark Goldsmith: Thanks, Michael. Nice to hear from you. Who wants to address the CRC? Maybe I'll just make the comment that it is true that daraxonrasib itself has essentially overlapped with the eGFR antagonist from a perspective of suppression RAS signaling that drives the skin side effects. So that is a harder combination to contemplate. That really doesn't apply at all with mutant selective inhibitors and that's why the G12C selective inhibitors that launched the field essentially sotorasib and adagrasib and now others can be combined pretty readily. And it really fundamentally addresses the whole gap in the eGFR coverage that occurs in the RAS-mutant tumors and the whole reason why EGF receptor antagonism is contraindicated typically in RAS mutant tumors, you really need the RAS inhibitors. So that combination is in principle something that can be pursued. Stay tuned. We'll talk about it when we're able to do so. The question about the first line, I forgot the tail end of the actual question part of it. Jonathan Chang: Do you have an interim analysis? Mark Goldsmith: Do you have an interim analysis. Wei, do you want to comment on that? Wei Lin: Yes. At this current state, we don't mind to disclose the analysis plan. Mark Goldsmith: Okay. So you've heard it from our Chief Medical Officer. Operator: Our next question comes from Laura Prendergast with Stifel. Laura Prendergast: I was curious, what are some of the top variables still under consideration for daraxonrasib in first-line lung cancer as far as strategy goes, and then on the back of RASolute 302, showing such a unprecedented OS, what kind of pricing power are you guys thinking this could unlock? And are there any benchmarks for pricing that you guys are most focused on? Mark Goldsmith: Yes. Laura, nice to hear from you. I don't think we can really comment on the pricing. Of course, the OS impact is something everybody is interested in starting with patients and their families and all the way up to insurers and payers in other geographies. So it will be relevant to their considerations, but that's about all we could say about pricing today. And then your question on first-line non-small cell lung cancer. Which was what? Oh I see. With regard to daraxonrasib in first line. Well, we've alluded to it. We commented that there are a couple of things going on. Probably one of the most important is that we're now dosing patients with ivonescimab, which may become -- we're all waiting to see how that progresses. But it points towards potentially becoming the new standard of care for frontline non-small cell lung cancer, in which case, that's something we need to take into account, which we hadn't really taken into account before we had the real relationship with [indiscernible] that's now very much active and we're dosing patients. That's probably the main variable. I think the other thing just conceptually to comment on is the mutant selective inhibitors are already pretty well established simply because of the G12C inhibitors that launched the field. And that's sort of a paradigm that lung cancer doctors are now used to thinking that G12C as its own disease, which means G12D will be its own disease and G12B will be its own disease and pretty quickly you've covered most of the locations in RAS lung cancer. We happen to have a G12D selective inhibitor, which is performing particularly well. We happen to have a G12C selective inhibitor, which is quite differentiated and compelling. We have a G12V selective inhibitor that's in the clinic now, and we expect good things from that. So there are multiple ways to cover that. And it is in a field in which it's already broken down by genotype. That's one possible strategy. So those are kind of several of the major considerations. Operator: Our next question comes from Jay Olson with Oppenheimer. Jay Olson: Congrats on all the progress and thanks for providing this update. How would you like to set expectations for the upcoming ASCO plenary presentation in terms of where you'd like investors to focus their attention? Mark Goldsmith: I think my main expectation is it's just going to be crowded. I'm not sure really how to help you on that. I mean we'll be providing, I think, through the investigators of a full update on it. And the update will be consistent with what we've said so far, but provide significantly more information that the experts in the field needs to see and evaluate in that setting. Operator: Our next question comes from Kelsey Goodwin with Piper Sandler. Kelsey Goodwin: Congrats on all the progress recently. I think two quick ones for me. First, I guess, any additional color that you're providing on the sales force. And then secondly, I think, building on one of your prior answers in this question-and-answer session. I guess as we start to think about that front line to second line attrition rate once daraxonrasib comes on to the market. I guess, do you have a sense what percent of that 50% of patients that don't proceed to second line are unfit for therapy altogether versus ineligible or unwilling to take another chemotherapy just as we start to model that out a bit more refined? Mark Goldsmith: Yes. Thanks, Kelsey. Anthony, do you want to just comment on the sort of sales organization more broadly? Anthony Mancini: Yes. So thanks for the question, Kelsey. I think for the U.S. region, we're in the final stages of building out our field-based teams all across different functions in the field, med affairs, market access and sales. We've had an MSL team and a thought leader liaison team in place for quite some time. We also have a market access account team that's been in place, that's been engaging with payers and organized customers, really around the unmet need in pancreatic cancer, around the pipeline and the early clinical data for daraxonrasib through pre-approval information exchanges, and we're really pleased to say that we're in the final stages of onboarding our U.S. sales force. We're pleased with the team. They have deep expertise in solid tumors across GI malignancies and in oral oncology, and they'll be fully trained and ready to go with HCP engagements if we were to receive an FDA approval. Mark Goldsmith: Thanks, Anthony. And on the first line, the second line, it's a good question. It's an important question. It's a little bit hard to get a detailed and clear understanding of because in reviewing records and so on, it's not always clear. In fact, it's surprisingly how common it is that it's not clear why somebody hasn't gone on to second line. You don't always identify an obvious performance status issue or concurrent illness or disease status that would prevent somebody from moving on. And therefore, they might have decided not to proceed because of intolerability or they might have decided not to proceed because of perceived intolerability before they tried it or because they want to focus their life at this stage on family and not on chemo infusions. There's a wide variety of reasons. And then sadly, it's also true that patients who start chemotherapy in first line sometimes don't survive to second line. So it's a great devastating illness as everybody knows. So there are a lot of different reasons. Some of those could be addressed by a regimen that is more convenient, that is better tolerated. A once-a-day pill that really is generally well tolerated and safety issues are manageable, could sure impact somebody's decision. We don't know whether or not it will. We'll only know that if we get to the finish line with an approval and see how patients do in that context. Operator: Our next question comes from Kalpit Patel of Wolfe Research. Kalpit Patel: Congrats on the trial again. So for RASolute 303, how should we think about that study's enrollment ramp versus the second-line study that you just completed in terms of timing of enrollment completion. And then can you remind us if crossover is allowed in that RASolute 303 study? And separately, any comments on potentially starting a registrational trial with daraxonrasib and a PRMT5 inhibitor? Mark Goldsmith: Thanks very much for your questions. The timing of completion. We can't comment on that now. We're just not at a stage where we can project the time line with any confidence, but maybe the even more important point would be we know there's very, very high interest in this. And sites that have activated or enrolling, but there are plenty of sites that still are yet to be online, and there are patients lined up at many of these facilities. We're aware of that. So we expect there to be very high demand for this for a variety of reasons, not the least of which is the disclosure of the 302 key findings, which people do it. Crossover is not allowed in the trial design. As you know, of course, it's up to any individual patient, they can cross over on their own if there is an approved therapy to crossover too. But in terms of actual crossover design, we can't really provide it when OS is the standard, and that's the sort of conundrum of a Phase III trial for which overall survival is the endpoint. And where we're currently kind of in the process of transitioning from Equipoise to out of Equipoise and where we stand in that is sort of -- it's a matter of judgment and it's really a question for the regulatory agency. They have to make that determination. And as long as OS is required, it's very difficult to achieve that with the crossover design. Maybe you want to talk to those points, Alan? Alan Bart Sandler: The only additional comment I would make, again, because of the concern for overall survival being a primary endpoint is we've established a broad geographic footprint in order to mitigate the potential for impact of second-line therapy with daraxon moving forward. So smaller U.S. footprint, larger ex U.S. moving forward. Mark Goldsmith: Good comment. And then the last thing was with regard to PRMT5. We don't have any update to provide on that today. We're enthusiastically engaged in collaboration with several companies now who are evaluating PRMT5 inhibitors in combination with RAS inhibitors, and we're keenly interested in how that will go. Operator: Our final question comes from the line of Alec Stranahan with Bank of America. Alec Stranahan: I guess, two from me. First, I would be interested to hear from your experience whether the initial ORR with daraxonrasib was a good metric for predicting PFS and OS benefit in larger studies? Like does the higher numerical ORR translates to better survival or is duration of response or time on therapy, maybe more telling for this? Just trying to think through some headline numbers we're seeing from others in the space. And quickly, will you be allowing third line plus patients into the EAP as well? Mark Goldsmith: Thanks, Alec. On the last question, yes, the eligible population includes previously treated and it goes beyond the pure second line that are in the -- that were in the 302 trial. Is ORR predictive of PFS or OS, who wants to comment on that? Stephen Kelsey: We don't show analysis of that. The -- it's broadly correlative with PFS, ORR, it broadly correlates with PFS. It's not such a tight stoichiometric relationship that you can actually say that the ORR is 5 percentage points higher than the PFS is going to be 5 percentage points higher. But it is broadly correlated. There are better ways of predicting PFS, which involve multiparametric analysis that include ORR but are not restricted to ORR. We have not made those broadly available to other people because obviously, it's a competitive advantage for us to know that and not share it with our competitors. But definitely, ORR is a component of that framework for sure. So I think it's -- we're learning more. And you're right, I mean, we're learning a lot more now, now that we have decent drugs for pancreatic cancer. We're learning a lot more about the relationship between all of these outcomes. But I mean, in other diseases, like lung cancer, breast cancer, colorectal cancer, it took years and years and years to figure out these relationships, and they're still not totally clear. So yes, I think that you will see relationships emerging, whether they're causal or otherwise. But I wouldn't draw too many straight lines. Mark Goldsmith: Yes. That's -- I'll pile on that. There's obviously some relationship, but what you can do with that and how you should interpret ORR data and have vision for what that's going to translate into premature. Stephen Kelsey: And the other thing is, of course, with RAS inhibitors, the numerical value are at any point in time isn't very accurate anyway. Patients can take up to and sometimes beyond 6 months to fulfill the RECIST definition of response. So at any given point in time, there still be people who might become responders who have not yet become responders. And the RECIST definition of responses in a particularly robust endpoint in [indiscernible]. So there's a lot of wiggle room and uncertainty around all of these analysis. It's very tempting to believe that the overall response rate determined by RECIST is a pure and absolute accurate measurement, but it absolute -- I can tell you absolutely is not. If you look at those CT scans and trying to compute the unidimensional measurements of the target lesions then you'll realize just how broad uncertainty surrounds the whole thing. Mark Goldsmith: Also, I'm glad you answered. Operator: This does conclude the question-and-answer session. I'd now like to turn it back to Mark Goldsmith for closing remarks. Mark Goldsmith: Thank you, operator, and thank you, everyone, for participating today and for your continued support of Revolution Medicines. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Najat Khan: Good morning, everyone, and thank you for joining us. Since stepping into this role, I've been focused on a singular question: how do we harness the full power of AI to consistently and with urgency create better medicines for patients? That requires bold ambition and a lot of focus and discipline to create value for patients and shareholders. And therefore, our approach has been deliberate. First, we're focusing on signal over noise, generating proof and proof points across our both wholly owned programs and our partner programs with the goal to showcase where AI can truly make a difference in creating value. Second, we are continuing to evolve our platform into a repeatable, AI-driven product engine, not tech for the sake of tech, but tech that creates products of value. And third, underpinning it all is a strong commitment to financial discipline and thoughtful capital allocation, ensuring we're constantly being data-driven to prioritize and invest in our highest conviction opportunities to deliver durable value. Today, I'm excited to share some of our updates. We're making meaningful progress across all these fronts, which I, along with Vicki and Ben, will share more with you today. With that, let's dive in. But before we do, please note that today we'll be making forward-looking statements on this call, and therefore, please refer to our SEC filings for more information. To put the progress in context, I think it's worth briefly stepping back to how we built the foundation to enable it. Look, Recursion has been on an intentional and, in many ways, a pioneering journey. Early on, Recursion recognized both the immense potential of AI in drug discovery as well as the reality that, unlike many other domains, the underlying foundation, whether it's data, compute, in biology, and broadly in science, is still being built. The map is still not complete, and that fundamentally changed how you think about applying AI. So we made a deliberate choice to invest ahead of the curve, to generate and curate proprietary data, which we'll talk about more today; to build a scaled compute infrastructure; to integrate automation; and very importantly, to develop models that are purposeful and in a true closed-loop, lab-in-a-loop system, a phrase that has become much more in vogue now, designed not just to predict, but to test, validate, and continuously learn. That has led to a differentiated foundation, which we continue to expand and refine today. But in parallel, what's critically important is our focus now on translating that foundation into tangible proof, advancing programs, high-quality candidates, and overall demonstrating repeatability as we evolve toward a truly product-focused AI engine. But let's make this all much more concrete. As a result, where are we today? What are some of the facts? So first, we have established our clinical proof of concept, our first clinical proof of concept, with our REC-4881 allosteric MEK1/2 inhibitor focused on FAP. We showed significant reduction in the precancerous polyps that are a huge driver of the progressive nature of the disease, as well as showing durability, something that's quite unique in the data we've shared to date. And why is this important? These are patients that have no therapeutic solutions to date and require life-altering surgeries and have near-inevitable CRC risk. This is a great example of how we can translate AI-directed insights from our platform into true outcomes. More on the latest there shortly. But look, this is not just a single asset story at Recursion. We now have 5 wholly-owned programs, each with clear inflection points over the next 12 to 18 months, creating not just a consistent cadence of catalysts, but then also a way for us to test, learn, and also be disciplined in our areas of programs that we invest in. And we'll share more data from one of these programs, REC-1245, our RBM39 degrader. But this momentum is not just in our wholly-owned pipeline. It also extends in our partnered portfolio. With over $500 million in inflows, and more importantly, I would say, 10 milestones delivered to date, I underscore that, it's one thing to announce partnerships, but we are really focused on delivering value from these partnerships, including many of which are first in industry. This underscores a track record of delivering tangible, differentiated outcomes, and we are deeply grateful to our partners for their close collaboration in everything that we do. Underpinning all of this is, of course, our platform, an end-to-end AI-native product engine across biology, chemistry, and clinical development, powered by proprietary data and a lab-in-the-loop system, and designed for repeatability. And I'll share some of the latest stats from our platform later in the presentation. And then importantly, look, we have to do this with focus and discipline, extending our runway into early 2028, while reducing our operating expenses by 30% year-over-year. This is how we are moving from promise to proof. So let me walk you through how it all comes together. How do we pull this together for the ultimate goal of delivering better medicines for patients? At the foundation is an AI-native product engine that combines proprietary multimodal data, integrated wet and dry labs, purpose-built models, and scale compute. Now we hear those words a lot, but what differentiates us is not one model, it's not one data set, it's not one program. It's the integration of our tools, technologies, and our teams. Look, our proprietary multimodal data has both proprietary data that we have generated in our labs, which we also integrate with public data. We sit in the sweet spot of leveraging both. Our automated wet labs in Salt Lake City and Milton Park, Oxford, for those that are not as familiar with Milton Park, are interconnected with purpose-built AI models, and we have in-house supercompute resources to rapidly build those algorithms and learn from them. And I have to say, and it's not just words, we truly mean it. Spanning all of this is our greatest resource, you've heard me say this over and over again, bilingual talent. AI researchers who appreciate the humility in making medicines and who bring a completely different take to how we can make medicines, and drug developers and drug hunters with reps under their belts that have seen what it really takes to make a drug from start to finish, and who are open-minded about unlocking the potential of AI. Make no mistake, the culture and the talent and the integration it takes is one of the hardest things to do in this space, and I'm excited that we've made so much great progress there. Now all these ingredients come together in a vertically integrated AI native platform, starting first, biology. So we can simulate and understand biology much more effectively. And we really want to move away from the stats that we only -- the industry only understands about 10% of biology. This is what allows us to identify novel targets. This is where we're pushing the boundaries to really understand the root cause of disease. The next click, this really came from the integration with Exscientia, applying generative chemistry and active learning and many other approaches to design precisionly created, differentiated molecules. This is what helps us create both first-in-class programs for those novel targets, as well as really high-value, best-in-class programs. For instance, optimizing therapeutic index for programs that have been around but haven't fully maximized their potential to date. And third, this is something we've built over the last year or so, applying our data and insights to also inform a smarter, more effective, and patient-centric path to all of clinical development. Look, all of this is great to have, but we take it together to build a broad and diversified portfolio, both internally and with our close partners, with the ultimate goal of developing differentiated medicines for patients with significant unmet need. We do it faster, and we want to do it better. But how do we do this? Our strategy remains unchanged from what you've heard the last time. We want to be clear, focused, disciplined, while being ambitious. First, translating proof to products. We are advancing our deep pipeline learnings, and the goal is to have revenue-generating medicines for patients. And we do it by applying a rigorous data-driven prioritization approach. so that we only invest behind the most highest confidence opportunities. Second, as you heard me say, scaling a differentiated AI-native product engine. Look, the platform is the heartbeat of so much that we do, where each prediction and experimentation allows us to compound our learning and advantage to drive repeatability in creating better products. And third is pairing that bold ambition with disciplined execution. Rigorous capital allocation is something we think about constantly, ensuring that there's operational focus and that our milestones are measurable to sustain that long-term value creation. You'll hear more about that shortly. So let's just dive in into one of our first pillars, which is our wholly-owned pipeline. Look, I'm proud to share how this strategy is beginning to translate into early signals of pipeline progress. What you see here is a broad and increasingly diverse set of programs built on 2 key areas: number one, clear rationale for differentiation, that's coming from a platform; and second, a defined path -- a rapid and defined path, I should say, to upcoming milestones and decision points. And the differentiation across these programs takes 2 forms: one, in some cases, it starts with a novel biological target or novel mechanistic insights. You'll see more of these coming from our discovery part of our platform; and then the other is driven by differentiated molecular design. And then the third, more recently, as we built up the clinical development AI platform, how we design, which patients do we pick, how do we design our protocols, and how do we execute in the clinic. Let me double-click some of the latest highlights from the last quarter on these slides, a period that is marked by strong and accelerating clinical momentum. So let's start with REC-4881. This is our allosteric MEK1/2 inhibitor. As you recall, this program is rooted in a novel mechanistic insight with the potential to become the first precision therapy for FAP. As I mentioned earlier, and I can't mention it enough, a serious and [ underserved ] condition where patients often face very limited treatment options and no medical or therapeutic options to date. We have generated compelling proof of concept, and we're continuing to advance the program with urgency and vigor, including we've already initiated FDA engagement to define a potential registrational path forward. We're very excited to share more update on this in the second half of this year. Next, turning to REC-1245. This is our platform-derived first-in-class target and degrader with the potential to address multiple solid tumors and lymphoma. We're excited to share today early clinical data around the safety, tolerability, and PK profile, as promised. To date, we have observed a well-tolerated profile with no dose-limiting toxicities to date. And we're continuing to advance the program with additional data expected later this year. In a few minutes, Dr. Vicki Goodman, our Chief Medical Officer, will walk through the details -- more in detail. And finally, REC-4539. This is our LSD1 inhibitor for the potential treatment in solid tumors, including small cell lung cancer and also in AML. What differentiates this program is the underlying molecule designed with our generative platform to overcome some of the treatment-limiting on-target toxicity seen to date in earlier LSD1 inhibitors. We've now initiated our Phase I clinical trial and dosed our first patient with additional updates coming second half of 2027. I'll talk more about the program, the biology, unmet need, as well as the platform insight shortly. All of the other programs remain on track. Now we're also continuing to see strong, consistent execution across our partner pipeline, where our platform is being applied in close partnership with our esteemed partners whose deep expertise, collaborations, and capabilities, we are deeply grateful for. And what's emerging, I want to highlight, is 2 potential unlocks. As an example with Sanofi, the unlock is use of AI on the chemistry design side, taking difficult and diverse protein targets in immunology and oncology, using our platform and AI in partnership with Sanofi to drug these challenging -- historically challenging targets. These programs are progressing towards key inflection points over the next 12 months, including a potential for development candidate, which is a big unlock in terms of potentially onboarding that asset to partners' portfolio. And with Roche and Genentech, the unlock is on the biology side. Roche and Genentech have been pioneers in really thinking about leveraging biology perturbation at scale to really take large-scale multimodal maps and translate them into actionable and validated programs. So the unlock here is you hear a lot around large-scale data sets being generated across the industry. Well, the unlock is how do we translate that using foundational models that we're building and robust experimental target validation into not only validated targets, but potential first-in-class programs, something the field has long aspired to do. So we have a potential first on track in the next 12 months or so. Look we've talked a lot about our wholly owned programs, our partnered programs, excited about the momentum we're building here, and about our platform that underscores it. But the secret sauce of any organization is talent. Talent is critical to everything we do, and continuing to build a strong, experienced, ambitious, and humble team is a key part of how we drive value. And with that, I'm really pleased to introduce newest member of our executive leadership team, Dr. Vicki Goodman, our new CMO. Vicki comes to us with an incredibly strong track record of delivering transformational medicines for patients across many parts of the industry, starting at the FDA, large pharma, and biotech. You can read about all her credentials on the slide, which I won't go through in detail. But simply put, Vicki is the right person with the right skill set to lead Recursion's clinical development in this next chapter of the journey, but more importantly, with the right heart and perseverance to go through the trials and tribulations that's drug discovery and development. With that, I'm going to turn it over to Vicki. Vicki, why don't you kick us off with a few words about joining Recursion and then more details about REC-1245. Vicki Goodman: Thank you, Najat, for the kind introduction and for the opportunity to work with you and the rest of the Recursion team. One of the reasons I joined Recursion is because the breadth and differentiation of our pipeline represents one of the most exciting opportunities to translate AI advances into meaningful therapies for patients. Today marks exactly 1 month since I joined. And even in that short time, I've found Recursion to be a place where scientific rigor, intellectual curiosity, and a deep spirit of innovation are brought to bear on the creation of new medicines that matter. It's wonderful to be part of the team, and I look forward to continuing this important work. Today, I have the privilege of presenting an exciting clinical update for REC-1245 from the ongoing DAHLIA Phase I study, including preliminary safety and pharmacokinetics. REC-1245 is an RBM39 degrader currently in Phase I for the treatment of patients with solid tumors and lymphomas. RBM39 is a novel target, which plays a central role in splicing fidelity. When RBM39 is degraded, it induces widespread splicing defects to which tumors that are already under stress, such as those with DNA damage repair deficiencies, global genomic instability, or replication stress, may be particularly sensitive. Additionally, RBM39 is highly expressed in certain tumors and is associated with disease progression and poor survival. The relevant patient population is estimated to be over 100,000 patients in the U.S. and EU5. So that's the why RBM39 is an interesting target. The how we came to be working on RBM39 is a story we've touched on before. It's an example of how the biology element of our AI-driven platform enables the identification of novel therapeutic targets. Using genome-scale phenomic mapping, our maps of biology, RBM39 emerged as a functional analog of CDK12. This novel relationship, which came from an unbiased platform insight, was not obvious from sequence homology or traditional pathway analysis. CDK12 is a well-known oncology target for its role in DNA damage response modulation, but it has generally suffered from challenges in selectivity because of how homologous to CDK13 it is. Following our insight, we developed molecular glues and degraders for RBM39, and we showed that these phenotypically mimic CDK12 loss but not CDK13. This provides a druggable potential analog for CDK12 without the CDK13-driven toxicity. We progressed from target ID to IND-enabling studies with roughly 200 compounds synthesized in 18 months, which is significantly faster than traditional approaches. We then needed to correlate our insights with the mechanism of action for RBM39 to translate them into clinically actionable hypotheses. We confirmed through in vitro studies that there is a greater sensitivity to REC-1245 in cell lines that have higher replication stress and DNA repair vulnerability versus cell lines that don't have higher replication stress. And in the panel on the right, you can also see that in vivo tumor regression in an MSI-high ovarian CDX model was also demonstrated. We've carried these insights forward into the design of our DAHLIA Phase I/II clinical trial. Our early clinical strategy focuses on tumor types with those same characteristics that suggested sensitivity in our preclinical experiments. The safety and PK data we are sharing today is from 16 patients enrolled across the first 4 dose levels. All patients have advanced solid tumors, and 7 of the 16 have MSI-high or mismatch repair deficient tumors. Importantly, REC-1245 is well-tolerated. Across the dose levels evaluated to date, there have been no dose-limiting toxicities reported. The most common treatment-related adverse events that have been observed are GI-related, constipation, nausea, and vomiting. As you can see, these are generally low grade with one grade 3 event of nausea and vomiting reported. There have been no treatment-related serious adverse events. Dose escalation is ongoing and recruitment is on track. We have an early PK/PD summary from the evaluated patients to date, and we'll have more dose escalation data and a fuller PK/PD update in the second half of the year. So far, we are seeing predictable dose-dependent exposure with exposures continuing to increase as we move through the dose levels and PK data that are supportive of daily dosing. Our initial PD data also confirm target engagement. We expect, as we move through the next 2 dose levels, to see exposures that are correlated with tumor regressions in mice. Overall, RBM39 represents an end-to-end example of how we're using AI to translate a novel insight into a potential medicine, not just identifying a target, but building a coherent biological hypothesis that informs clinical strategy. I look forward to sharing more data with you later this year. And with that, I'll turn it back to Najat. Najat Khan: Thank you, Vicki. Now moving on to LSD1, REC-4539. First, I'm pleased to share and announce that we have dosed the first patient in our Phase I clinical trial. But taking a step back, let's discuss a little bit as to why we think that LSD1 is an interesting target for Recursion. As many of you know, LSD1 is an epigenetic regulator with a range of cellular functions and a promising oncology target across multiple cancer types. However, so far, clinically, the potential of LSD1 inhibitors have not been fully met. Previous clinical attempts to drug LSD1 have shown some efficacy, but have been limited by on-target and dose-limiting thrombocytopenia. So while the biology is understood, the challenge has been at the level of the molecule. And therefore, we believe this has the potential to unlock a meaningful therapeutic opportunity, particularly in settings like extensive stage small cell lung cancer, where there are approximately 45,000 patients in the U.S. and EU5 with emerging but still limited treatment options after progression on first-line therapy. So for this program, the starting point model. And this is where our chemistry AI part of the platform really shines. We intentionally moved away from traditional bias chemistry, chemical space, and instead used a blank white sheet, active learning to explore a broader or information-rich space, which allowed us to identify novel starting points that wouldn't typically be pursued. What that led us to is identifying a new scaffold. And we iteratively refined it, ultimately arriving at the compound REC-4539, in approximately 20 months in just over 400 synthesized compounds, much faster and fewer than what is industry standard. Compare that also to what Vicki had mentioned with RBM39, 18 months and about 209 compounds synthesized to date. So you're starting to see these, as I like to call them, green shoots in terms of the number of compounds synthesized, the speed, and also the efficiency, and how we're generating compounds. The focus here, though, was designing a molecule with properties that directly address the limitations we've seen in this class to date, specifically reversibility and a shorter predicted human half-life to potentially reduce the risk of cytopenias that have been one of the dose-limiting factors for prior LSD1 inhibitors. And we're sharing here also some preclinical data in small cell lung cancer that demonstrate that this compound had more minimal impact on platelets while maintaining efficacy, which is not shown here, but we've seen that data as well, while being comparable in efficacy to other agents in the class, but having more minimal impact on platelets versus other agents in this class. In addition, there's also another feature of this compound. It's brain penetrant, which may be particularly relevant for patients with small cell lung cancer where up to 50% develop brain mets. This differentiation and the potential to improve tolerability has encouraged us to advance the compound into Phase I. We had our first patient dosed in April. This is a dose escalation study in select solid tumors, including small cell lung cancer, with expansion cohorts planned following the initial escalation phase. And I want to make one thing really clear. Vicki and team are structuring these programs to enable rapid data-driven decision-making. This is how we really manage our capital allocation, specifically to address rapidly whether the emerging clinical profile really supports the hypothesis of mitigating or reducing the risk of thrombocytopenia. We expect to share initial PK and safety data in the second half of 2027. So look, I won't -- I think I've covered most of this, but similar to what Vicki shared, here's another example where we use our AI platform to solve for design challenges around a biology that's more validated, optimizing molecules where we believe there's been limitations to date. And recall, there are no FDA-approved LSD1 inhibitors to date, despite a well-defined patient population and significant unmet need that remains for patients. We look forward to sharing more clinical data for this program next year. Now let's go to our second pillar, which is incredibly important. Beyond our portfolio, underpinning a lot of what we're doing is continuing to advance our end-to-end AI product engine, pushing the boundaries. So we continue to remain at the forefront of AI-driven innovation. Let me walk you through the platform and also some of the facts and the stats around how we're doing. We built the Recursion platform specifically to address the most persistent bottlenecks in drug discovery and development. And so we're always looking at how we're doing versus industry. So let's start with biology. Look, we have generated more than 10 high-dimensional maps of disease biology. And what's interesting here is more than half of them have been in partnership with Roche and Genentech. And these are already driving multiple novel programs that will target programs in our internal pipeline and then we're also working actively with our partners at Roche and Genentech to translate these maps into novel targets and first-in-class programs. This is an important unlock. Why are these maps important? Biology is a systems level approach. We need to understand the interconnected circuits. And therefore, enhancing our ability to identify and prioritize targets with better confidence, with better understanding of the underlying biology is critical to really determining the root causes. If we go to the next slide, we are also synthesizing, as you heard me share briefly, more and more compounds where we are designing 90% or synthesizing 90% fewer compounds than the industry benchmark. So about 330 compounds on average versus 2,500 to 5,000 compounds, which is the industry standard today, while also advancing these programs to advance in development candidates roughly twice as fast. This is a meaningful step change in both efficiency and cycle time, and something that we watch very carefully on an ongoing basis. The next point are ClinTech capabilities. Where we have deployed it, we're already seeing about 30% to 60% faster trial enrollment. This is very important for us, both for rare diseases and competitive areas such as in oncology, while increasing the eligible patient population for some of these programs from 10% to 40%. This directly impacts our time lines and speed at which we can generate high-quality clinical data. And the underpinning it all is an integrated platform with more than 50 petabytes of proprietary multimodal data. This is incredibly critical for not just building purposeful models, but ensuring that we have our data moat that we not just invest in, but continue to expand. So suffice to say, these are not theoretical or isolated improvements. These are real, tangible gains that we keep measuring and focusing on to reinforce how our platform is changing the way we are discovering and developing our medicines. Again, I always like to say there are green shoots, but this is how we are pushing the frontier of what's possible with our platform. Now let me double-click on a couple of recent examples in the biology layer where we're really pushing the next generation of our models that were recently published. Big picture, one area of focus for us in our biology platform is learning the language of biology. Sounds simple, not easy, incredibly important. And we do it across many data layers by generating perturbations at scale, whether it be genetic, chemical, and so forth. Why is that important? What is our goal? Our goal is to, a, understand biology more comprehensively; b, and then be able to predict and simulate perturbations before we are even running a single experiment. And third, that we can actually generalize beyond the data that we've already seen. That's really important with these foundation models. You want to predict responses in new, out-of-distribution contexts, such as novel targets, combinations, and cell types. And why does it all matter? Given the vastness of the biological space and how little best in industry know 10%, this has the potential to unlock areas that remain intractable today. And that becomes even more powerful when we connect different data layers, high-content cell imaging, transcriptomics, proteomics, patient data, and more, to really have a more unified view of biology. Now it's not just in theory. We're making progress here already. Step 1 is to actually develop a new generation of models. So let me share with you 2 recent advances in transcriptomics foundation models that we just published in the last month. The first is TxPert, which we recently published in Nature Biotech. TxPert is a model designed to predict how gene expression changes in response to different perturbations, essentially helping us to understand biology and how it will respond before we run the experiments. So similar to what you saw in chemistry, the reason why we can reduce the number of compounds we synthesize is because we predict and simulate more, and then, of course, we make less. And how can you do that more in biology? It's important for us to understand the systems approach in biology across different data layers and be able to predict well so that we can do less experimentation and only do the experimentation that really matters. What's particularly exciting about this model, and listen, we're still in early days, but it's great to see the progress from our teams, is learning patterns in biology. It's not just memorizing, it's actually learning the underlying patterns. The second is generalizing beyond the data it was trained on. This is an important start. It's a start to predicting responses to new perturbations, new combinations, and even new cell types. Watch this area more. I think this is going to be really, really important in biology and foundation models, just given the vastness of what we're working with. And it's an important first step towards how we think about building a virtual cell, a term that is overused. But the importance of it is, again, can we simulate and explore biology more comprehensively, more computationally before we move into the lab? This is incredibly important so that we can be more effective and efficient and ultimately improve the probability of the targets that we could put into our programs. Next is another model, which is complementary. TxFM, our transcriptomics foundation model, which represents a significant step of actually connecting lab biology to patient biology. I won't go into the details here, but just want to highlight a couple of things. First, it is built on a highly curated combination of both proprietary and public data, bringing together diverse data sets into a shared representation space. Why is this important? There's a lot of conversations, is quantity important or quality. Both matters. So you'll see from some of the early insights here that the quality and the model architecture was really important to ensure great model performance here. So what's exciting is the following: number one, the result is a model that surfaces much richer understanding of biology and reducing experimental noise. Batch effects and so forth, very, very important in this space; number two is it outperforms a lot of leading foundation models. But more importantly, it outperforms models that are trained on 100x larger datasets, demonstrating that advantage I was mentioning on just the data, data curation approach, and also model architecture. And what I like is the interpretability. That's where we're starting to go. And again, early days. It doesn't just rank genes, but it reveals the gene networks, the circuits, the patient subtypes from RNA data, so that transcriptomics can in time become a more systematic engine for understanding the mechanistic and target hypotheses that underpinning just one-off analysis. There is so much richness data, and we're driving to understand that even better. And practically, again, it's how do we get more efficient in the experiments we run? How can we do less reruns? How can we do better cross-study comparison and efficiently use our resources? So today, both these models are starting to be deployed in our platform. For TxFM, we're starting to leverage it for target identification, better mechanistic understanding, and patient stratification. So sharing some latest and greatest here, and we will, as always, in the months to come and years to come, share how this is truly impacting our platform. That's what we care about. How do we take data models to really show the translation of proof into our programs, into our partner programs, and progress better medicines for patients. With that, I'm going to turn over for our third pillar, which is how do we drive all of this important work with good discipline and good ambition. Ben? Ben Taylor: Thank you, Najat. Our core focus from a financial perspective is ensuring we have adequate runway to achieve multiple upcoming milestones. We continued our trend of operating discipline with a 30% year-over-year reduction in cash operating expenses. We were able to achieve these savings while also growing our pipeline, partnerships, and platform by focusing only on those operations that had clear and measurable impact. In addition to our operational discipline and infrastructure simplification, we also expect ongoing efficiency gains from our technology advancements and the adoption of agents. During the quarter, we received our fifth milestone from Sanofi, advancing a potential first-in-class program for a novel biological target. We closed the quarter with $665 million in cash and equivalents, which we believe provides operating runway through early 2028 without additional financing. For 2026, we are maintaining our cash operating expense guidance of less than $390 million, which fully funds our expected milestones and partnerships during the period. And to take you through those milestones, I'll turn it back over to Najat. Najat Khan: Thank you so much, Ben. And look, I'm going to close by saying we have a lot of important work ahead of us and very exciting work ahead of us. As we look ahead, we have a clear and consistent cadence of milestones, both across our wholly owned pipeline and our partner portfolio. In our wholly owned pipeline, we expect multiple clinical readouts over the next 12 to 18 months; in fact, for every single one of our clinical stage programs. Continuing to build on clinical evidence and test the hypothesis underlying our platform. In parallel, we're seeing continued progress across our partnered portfolio. I'll recap the 2 potential unlocks I mentioned: one, looking at the use of AI to develop novel compounds for difficult-to-drug targets. We're excited about our work with Sanofi here and some of the development candidate decisions coming up in the next 12 to 18 months. And with Roche and Genentech, to take all of these large, multimodal maps that's helping us understand biology better and really translating that to novel targets and first-in-class programs. Taken together, this creates a diversified sets of catalysts and also the increasing momentum, as you're seeing, month-over-month, week-over-week, as we look to take and harness all of what AI and our dramatically excellent team can do to turn that into meaningful outcomes. I'll just close by saying we are focused on building an increasing body of evidence that this approach can translate, advancing differentiated programs, unlocking new biology, and doing that work with improved speed and efficiency. And that's what gives us confidence in the path forward. The momentum you see, the work that the teams are doing, but also the system behind it and its potential to generate outcomes over time in a repeatable fashion for patients, our partners, and our shareholders. Thank you again for your time and attention, and we will open it up now for questions. Najat Khan: Great. So let's dive in. I have Vicki and Ben, who will help me cover some of these questions. So the first question is from Dennis at Jefferies and Priyanka at JPM. On the REC-1245 program. Can you talk about the level of target engagement that you feel is needed to drive efficacy and where you are relative to those levels? What are common on-target safety and tolerability issues that you're hoping to avoid with your approach? And how are you thinking about biomarkers being explored? Well, maybe I'll just kick it off and then I'll hand it over to Vicki to also share additional details. I'll go in order of second, third, and first. So what are common on-target safety tolerability issues that you're hoping to avoid? Look, first of all, we are encouraged by the favorable safety and tolerability profile that we see to date. As you saw, 90% of what we see so far are grade 1 and 2, mostly GI, and no DLTs to date. In terms of just RBM, there are areas that we would usually keep an eye on in terms of potential tox is heme tox. And to date, we have not seen any grade 3 heme tox at all. So that is encouraging. But again, we're in the middle of dose escalation. So more to come, as Vicki mentioned, second half of 2027. And in terms of target engagement, we're already -- we have some PD data that we shared, and Vicki can share more about that. But we're seeing good target engagement. We've confirmed that to date. As we have more dose escalation, what we've seen preclinically is about 70% to 80% was sufficient at efficacious doses, but we'll be tracking that as we continue further. Vicki, did you want to add anything more to those 2 questions? Vicki Goodman: So coming back to the safety and tolerability issues, I mean, again, what we've seen so far is mostly low-grade GI tox. We'll certainly continue to monitor that as we move forward. Hematologic toxicity, which is a concern here, is something we're really not seeing at this point. Again, we'll continue to monitor as we continue to increase the dose, and we'll have more data for you there in the second half of this year. Relative to target engagement, I think the estimates are spot on. I'll add that in -- we're coming close now within the next 2 dose levels to being at the exposure levels where we saw tumor regressions in mice. So I think that's an important point as well. Obviously, we'll continue to monitor the target engagement in terms of RBM39 degradation and, again, have more data, more fulsome update in the second half of the year. Najat Khan: Thank you, Vicki. And just the last question was, how are you thinking about biomarkers being explored? As Vicki mentioned during the presentation, we're looking across select biomarkers. And, of course, as the data matures, we will look at relative benefits versus not across those biomarkers. More to come second half of 2026. Thank you for the great question. All right, next question from Gil at Needham, Alec from Bank of America, Sean from Morgan Stanley, Brendan from Cowen, and others on REC-4881. Given the encouraging Phase II data for REC-4881 in FAP and ongoing FDA engagements, what are the key uncertainties around the registrational pathway? We have 3 questions here. I'll just start one at a time, so we can keep track. I'll kick it off, but Vicki, it would be great to get your thoughts. But we're very excited about the data that we see with FAP. And with every day that goes by, we engage with more FAP patients, really not just the unmet need, but how underserved these patients are is becoming even more and more apparent. We have a significant polyp burden reduction and durability that we've seen to date. I would say the main areas of focus with the FDA is what would be for any asset that's a first in disease. We have other assets in our portfolio that are best-in-class, where the regulatory approach is already very defined. For a first-in-disease, it's really around patient population, endpoint that has clinically meaningful benefit, and then, of course, dose and dose escalation. But those are the conversations. And as Vicki mentioned and I mentioned, we've already started that engagement. Anything to add? Vicki Goodman: Yes. So I think here, because there really is a lack of regulatory precedent, it's really important for us to work closely with the FDA in terms of defining the registrational path. To that end, we've already initiated that engagement within the oncology review division, also requested input from the GI division. And certainly, as we go about these, we're thinking about leveraging the rare disease framework as well. So we can derisk this program by really closely aligning with FDA on what are clinically meaningful endpoints for patients that will help us define the primary endpoint for our pivotal study. Najat Khan: The next question is still on REC-4881. Has there been any shift to timing for FAP regulatory? And when will we see additional data? So a couple of things. We're on track with it. We'd initiate FDA engagement first half of 2026. We're actually a bit ahead of schedule. We have initiated FDA engagement. And as Vicki mentioned, we expect us to be working with the FDA very closely, given it's a first-in-disease on our potential registrational study. And then when will we see additional data? Vicki, do you want to share that? I'm happy to take it. In terms of additional data, we have already initiated 18 and over patients. We're already recruiting those patients. And we'll also have potentially additional data from our Phase II that we will share either here or at a forum going forward. But we're on track. Have you leveraged any ClinDev capabilities from your platform in assembling the proposed pivotal study design? Great question. A couple of areas. Number one, if you recall, the natural history that we did in parallel with our clinical program has been really, really important for a few reasons. This is a rare disease, limited literature, natural history. This has allowed us to not just understand patient trajectory, but also helped us as we think about how do we power the study, what endpoints are important, and so forth. So it gives us a much richer contextualization understanding, and then also incorporating that in terms of our study design as well. In addition to that, for our 18 and over plus our potential registrational study, we are also going to be using our clinical development AI capabilities for recruitment. This is a rare disease. We want to be much more efficient and use these approaches to go to where patients are and recruit with speed and rigor. Great. Next question from [ Bruce, Philip, Rishabh ], and others on the platform. How does Recursion evaluate whether its platform is improving its ability to identify and eliminate lower-quality candidates earlier in the discovery process compared with prior years? Let me answer that one first. So as I shared earlier today, we look at every segment of our platform, and we're really looking at how is it that we can design better molecules faster. One of the things is you asked about lower quality candidates. This is where if you can actually simulate more, predict which compounds would actually have better versus worse ADMET properties. But this is where active learning and the multiparameter optimization, that complexity that we can do it in a very -- industry can do in a very sequential way, we do it in a much more efficient way. We simulate online and only synthesize the compounds that we have confidence in. That's where you see some of the numbers shifting pretty dramatically, cycle times becoming half and then also 90% less compounds synthesized. So that's just one example as to how we track it. The other thing I would say on the biology side, look, the maps of biology give you a lot of hypotheses in terms of potential novel targets. But we pair that with really robust experimental validation. I think that is incredibly important to do both. That allows us to look at targets that no one has looked at before. This is where novel biology is coming from. But we always pair that with rigorous experimentation. And that's where the lab, the wet and dry lab, is incredibly important for us because we can do it at speed, we can learn fast, and all that data is captured to make our models better. So we are a continuous and rapid learning organization. And I will say the integration with Exscientia has really helps there, because now you have both the biology and the chemistry side sitting side by side. And we iterate and learn from that. Okay. What are the investments you're looking to make on the platform? Compute, data generation models. Is this question from one of our leaders -- AI leaders in the company? I'm just kidding. Look, we are -- our strategy is we invest in our programs with our platform, and that platform needs to remain differentiated. So we surgically invest in areas that matter. So as an example, on the clinical development side, you've seen the investment we have made, but there's a reason. It's to make a better product. So how do we recruit faster, how do we pick the right patients. In our chemistry and design platform, we're continuously evolving and iterating on our models. And we'll share more in due time. And then in our biology platform, you've seen the investments we're making in state-of-the-art transcriptomics models. But again, they're all with a purpose. How do we improve the target that we're putting into our programs, the compounds that are high quality, and ensuring that we execute our programs with flawless execution clinically, but then also pick the right patients and increase our signal to noise. Maybe I'll take one more question. I want to take as many. I know we're a little bit over time. From Gil and Sean on partnership strategy. Any expected guidance for a potential clinical opt-in from partners? Will we receive an update on this? So actually, Ben, do you want to share on that one? Ben Taylor: Sure. Happy to. So as we continue to advance the programs along with Sanofi and begin to move different programs from Roche into the design phase, we absolutely expect to see some of those 5 programs that have hit their early discovery milestones move into the opt-in, and we're working very closely with Sanofi to make that happen as quickly as possible. I think there's also a broader point that's really important around the partnerships. If you take a step back, and we get a lot of questions on what's our partnership strategy, where do we plan to go in the future, if you take a step back to what we do, part of our mandate is how do you create a risk diversified model for being able to be an investor in the biotech space. And so we obviously have transformative potential medicines that are coming up through our internal pipeline. But you also have to look at our partnership business and see how we've been able to advance programs and do it in a capital-efficient way and really diversify that risk and diversify what the long-term benefits of that are. So we will absolutely continue to drive that partnership forward along with our internal pipeline, and we'll balance out how we're getting the upfront payments while also still maintaining a lot of that downstream economics. Najat Khan: But suffice to say, Gil and Sean, we're working actively on this, and, of course, we'll share updates in the next 2 months. Last question. You've generated over $500 million in partner-related payments to date. How should we think about the forward trajectory of platform monetization, particularly the balance between near-term milestones and retaining long-term economics and wholly-owned programs? I think it's very similar to what Ben said. Our platform is focused on generating better products. That's what we focus on, whether we do it internally or with partners. And we create optionality in terms of our wholly owned programs. Some of the programs, again, we're data-driven in our approaches in terms of could be wholly owned, could be partnered, could be outlicensed, and same goes for some of our partnered programs as well. So with that, I'll just close by saying thank you so much for your time and attention. Thank you for all of the questions. We have a lot of momentum, a lot of important work ahead, and we continue to move that forward and excited to share more updates in the coming months and years as well. Thank you again.
AI is reshaping the internet, driving growth for cloud leaders like Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN), according to Kyle Reidhead. He highlights the edge startups have in deploying AI agents, while pointing to the next phase of the trade—from data center energy demand to autonomous tech competition between Tesla (TSLA) and Uber (UBER).
Emerging markets income is having a good run. Munis are starting to make a comeback.
US Ambassador to the EU Andrew Puzder says Washington will implement 25% tariffs on cars and trucks from the European Union soon if the bloc doesn't swiftly ratify a long-delayed trade deal https://www.bloomberg.com/news/articles/2026-05-06/us-to-hit-eu-with-25-car-levy-soon-unless-trade-deal-approved
Morgan Stanley's U.S. economics team has trimmed its growth forecast for the year, and the reasoning is refreshingly specific: the pump is going to swallow the refund.
Federal Reserve Bank of Chicago President Austan Goolsbee warned against reflexively lowering interest rates in response to faster productivity growth, as the phenomenon can sometimes drive up inflation.
Although the dollar is back to where it was before the Iran war, a few things have changed under the surface.
The Investment Committee debate the surge in stocks as hopes for an Iran deal grows. They detail their next steps.
Crypto.com has launched an in-app booking service in partnership with travel infrastructure provider Bookit. Crypto.com Travel lets users book travel and entertainment directly through the company app, according to a Wednesday (May 6) news release.
Even if artificial intelligence is as transformative as advertised the U.S. Federal Reserve would still need to watch for rising inflation, Chicago Fed President Austan Goolsbee said on Wednesday.
US stock benchmarks are back on the bullish route as Axios reveals a US-Iran deal shaping up. Up 1% across the board, stock markets are back in ecstasy, and nothing seems to be stopping the rally.
Traders on prediction markets platform Kalshi give 73% odds that the Securities and Exchange Commission will end its requirement for quarterly financial reports by April 2027. They give lower odds that it will happen by January.
Portugal's largest listed lender Millennium bcp on Wednesday reported a larger-than-expected rise in first-quarter net consolidated profit of nearly 26%, driven by a stronger net interest margin and lower provisions at its Polish unit.
House Majority Whip Tom Emmer, R-Minn., discusses a Minnesota committee's failed subpoena vote for Democratic Rep.
The market has been on a tear recently. However, there are three big reasons why I think a correction (or worse) could be headed our way soon.