加载中...
共找到 37,643 条相关资讯
Operator: Welcome, ladies and gentlemen, to the First Quarter 2026 Earnings Conference Call for Organogenesis Holdings, Inc. [Operator Instructions] Please note that this conference call is being recorded, and the recording will be available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks today may contain forward-looking statements that are based on current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report and its subsequently filed quarterly reports. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Gary S. Gillheeney, Sr., Organogenesis Holdings President, Chief Executive Officer and Chair of the Board. Please go ahead, sir. Gary Gillheeney: Thank you, operator, and welcome, everyone, to Organogenesis Holdings First Quarter 2026 Earnings Conference Call. I'm joined on the call today by Dave Francisco, our Chief Financial Officer. Let me start with a brief agenda of what we'll cover during our prepared remarks. I'll begin with an overview of our first quarter revenue results and provide an update on key developments in recent months. Dave will then provide you with an in-depth review of our first quarter financial results, our balance sheet and financial condition at quarter end as well as our financial outlook for 2026, which we updated in our press release this afternoon. Then I will provide you with some closing comments before we open the call up for questions. Beginning with a review of our revenue results for Q1, our revenue results reflect the significant challenges in the operating environment outlined on our fourth quarter call in February. Net revenue declined 58% year-over-year, driven by a 63% decline in sales of our Advanced Wound Care products. Sales of our Surgical & Sports Medicine products were flat year-over-year. And as expected, the withdrawal of the LCD coverage policies for skin substitutes announced on December 24 and comments regarding discarded products on December 30, resulted in clinicians' confusion and material disruption in the market during the first quarter. Our team performed well during this period of unprecedented disruption in the skin substitute market. As a leader in the industry, we expect to gain share in this new environment as we leverage the largest, most comprehensive portfolio across multiple FDA classifications. Despite the significant decline in our product revenue in the first quarter, we believe we enhanced our market share position as our unit volume outperformed the declines that have been reported across the industry. This is encouraging in isolation, but it's even more impressive when viewed in light of the significant impact on utilization of our PMA-approved product over the first 4 months of 2026 as a result of CMS' commentary on December 30. As discussed on our fourth quarter call, we believe the comments on December 30 regarding product wastage were intended to proactively address activity from certain competitors in the market that were attempting to exploit the new payment policies by focusing on larger sized skin substitute products, specifically amniotic products. The initial market response to these comments was significant clinician confusion and uncertainty. Unfortunately, these market headwinds have not abated. Rather, in some cases, it has resulted in clinicians moving away from skin substitutes entirely. While CMS' December 30 commentary represents what we believe to be a material but transient impact on 2026 revenue trends, the harm to patients is both more severe and enduring. The impact on utilization of our clinically superior PMA-approved skin substitutes doesn't just delay healing, it exposes our most vulnerable patients to preventable complications, infections, amputations and potentially fatal outcomes. This market disruption requires urgent correction. We believe the significant clinician confusion impacting utilization of our PMA-approved products as a result of the agency's comment on December 30 will be less of a headwind as we progress through 2026. We continue to believe CMS' efforts to overhaul coverage and payment for our market represents meaningful steps towards reform. We believe that CMS should clarify the comments on discarded products to stem the unintended impact on patient access to clinically validated skin substitute products, particularly PMA products like Apligraf. While we will continue to engage with CMS on this issue, our level of uncertainty as to the timing of a resolution has unfortunately increased since the fourth quarter earnings call in February. Accordingly, we have updated our expectations for total revenue in 2026 in this afternoon's press release. Our 2026 total revenue guidance now reflects the expectation that we see more measured improvement in clinician confusion and the overall operating environment as we move through the year. While we continue to expect improvement in our revenue results on a sequential basis over the balance of the year, our overall revenue outlook reflects a more measured recovery this year. The prolonged recovery is now expected to impact our financial results over the first 9 months of 2026 with a return to more normalized profitability now expected in the fourth quarter. Given the impact on our revenue expectations as a result of the prolonged recovery, we completed a restructuring in March. The restructuring included a workforce reduction of 88 employees and the closing of operations in our St. Petersburg, Florida facility and is expected to result in cost reductions of approximately $14 million on an annualized basis. While our 2026 is off to a difficult start, I want to make it clear that I am very optimistic about our future. We continue to expect to drive significant market share gains in the second half of 2026, and we remain confident in the long-term opportunity for Organogenesis. Our overall position is very strong, and it is from this strong position that we are making capital investments that will support our company's future growth and continued leadership. Before I turn the call over to David, I wanted to provide updates on some key regulatory and clinical developments in recent months, beginning with an update of our ReNu program. On April 28, we announced the completion of our BLA submission to the FDA. This represents a significant milestone in our effort to bring a new regenerative therapy intended to treat a large and growing unmet need in symptomatic knee osteoarthritis, a serious condition affecting more than 30 million Americans. We believe ReNu has the potential to meaningfully change the treatment paradigm by offering a nonsurgical biologic option designed to address pain and improve functionality, particularly for patients with severe disease who lack an approved nonsurgical option. We initiated a rolling BLA submission in December of 2025 with nonclinical modules and have now completed the application with the submission of the clinical and chemistry manufacturing and control modules. We are confident in the progress of our regulatory engagement, and we look forward to continuing our productive discussions with the FDA during the review process. We believe gathering robust and comprehensive clinical and real-world evidence is an essential component of developing a competitive product portfolio and driving further penetration in the markets where we compete. Science and evidence have always been core to our foundation. And as coverage policies evolve, evidence will be the currency of credibility, and we intend to remain a leader in these markets. On April 6, we announced the completion of a randomized controlled trial evaluating the safety and efficacy of PuraPly AM plus standard of care versus standard of care alone in the management of non-healing diabetic foot ulcers. This was a prospective multicenter randomized controlled trial of 170 patients. The trial achieved its primary endpoint, demonstrating statistically significant wound closure at 12 weeks compared to standard of care alone with a p-value of less than 0.0477. This strong performance is an important study, which underscores the clinical efficacy of PuraPly AM in the management of non-healing DFUs. These wounds pose a significant burden to patients and are extremely costly to our health care system. We believe publication of these impactful results will strongly support PuraPly AM's inclusion in future coverage policies, underscoring its critical role in the wound healing algorithm. Further demonstrating the clinical effectiveness of our PuraPly antimicrobial technology and advancing ReNu represents further validation of our long-term strategy to invest in expanding the body of clinical evidence supporting our technology and developing regenerative medicine solutions that address significant unmet medical needs as we expand our mission to include transformative new markets for Organogenesis. With more than 40 years in regenerative medicine and a diverse evidence-based portfolio of technologies in each FDA category, we believe we are best positioned in the skin substitute market and will continue to be a leader in the space with highly innovative, highly efficacious products that deliver on our mission of advancing healing and recovery beyond our customers' expectations. With that, let me turn the call over to David. David Francisco: Thanks, Gary. I'll begin with a review of our first quarter financial results. Unless otherwise specified, all growth rates referenced during my prepared remarks are on a year-over-year basis. Net product revenue for the first quarter was $36.3 million, down 58% year-over-year. As Gary mentioned, these results came in below the expectations we provided on our Q4 call, which called for total revenue decline of approximately 50% year-over-year. Our Advanced Wound Care net product revenue for the first quarter was $29.5 million, down 63%. Net product revenue from Surgical & Sports Medicine products for the first quarter was $6.8 million, flat year-over-year. Our total revenue results for the first quarter include $1 million of income related to the grant issued from the Rhode Island Life Sciences Hub, offsetting the employee-related costs in our Smithfield facility. This compares to no impact in the prior year period. Gross profit for the first quarter was $10.5 million or 29% of net product revenue compared to 73% last year. First quarter cost of goods included $4.3 million of inventory write-down adjustments for excess and obsolete inventory resulting from a facility closure and LTD regulatory changes of $1 million and $3.3 million, respectively. Excluding inventory write-down adjustments, non-GAAP gross profit was $14.8 million or 41% of net product revenue. Operating expenses for the first quarter were $106.1 million compared to $113.4 million last year, a decrease of $7.3 million or 6%. Excluding cost of goods sold of $25.8 million for the first quarter and $23.7 million last year, our non-GAAP operating expenses were $80.3 million compared to $89.7 million last year, a decrease of $9.4 million or 10%. The year-over-year change in operating expenses, excluding cost of goods sold was driven by a $7.3 million or 10% decrease in SG&A expenses and a $6.6 million write-down of certain nonrecurring expenses, which impacted the first quarter of 2025, offset partially by a $4.5 million or 42% increase in research and development expenses. Operating loss for the first quarter was $68.9 million compared to an operating loss of $26.7 million last year, an increase of $42.1 million. Excluding noncash amortization and certain nonrecurring costs in both periods, our non-GAAP operating loss was $56 million compared to $19.3 million last year, an increase of $36.7 million year-over-year. GAAP net loss for the first quarter was $53.2 million compared to a net loss of $18.8 million last year, an increase in net loss of $34.3 million. Net loss to common stockholders for the first quarter was $56.2 million compared to a net loss of $21.6 million last year. Net loss to common stockholders includes the impact of the cumulative dividend and the noncash accretion to redemption value of our convertible preferred stock. Adjusted net loss for the first quarter was $43.7 million compared to $13.4 million last year. Adjusted net loss excludes after-tax impacts of intangible amortization, write-down of assets held for sale, employee severance and benefits as well as other exit costs associated with the company's restructuring activities and nonrecurring inventory write-down adjustments for excess and obsolete inventory. We've included a detailed reconciliation of GAAP to non-GAAP adjusted loss in our press release this afternoon. Adjusted EBITDA loss for the first quarter was $48.2 million compared to adjusted EBITDA loss of $12.5 million last year. Turning to the balance sheet. As of March 31, 2026, the company had $92.1 million in cash, cash equivalents and restricted cash and no outstanding debt obligations compared to $94.3 million in cash, cash equivalents and restricted cash and no outstanding debt obligations as of December 31, 2025. We believe we are well capitalized with our cash on hand and other components of working capital, availability under our revolving facility of up to $75 million and net cash flows from product sales. Turning to our 2026 outlook, which we updated this afternoon's press release. As Gary outlined earlier, our 2026 total revenue guidance now reflects the expectation that we see a more measured improvement in clinician confusion and overall operating environment as we move through the year. As a result, we now expect total revenue -- net revenue for the full year 2026 of $270 million to $310 million, representing a decline in the range of 45% to 52% year-over-year and compared to our prior guidance range, which assumed a decline in the range of 25% to 38% year-over-year. Note the change in our total revenue expectations is a result of revised assumptions regarding sales of our advanced wound care products. Our updated total revenue guidance continues to reflect the expectations we see sequential improvement in our revenue trends in the second quarter, however, at a more measured rate versus what our prior guidance assumed, resulting in first half revenue decline in the range of approximately 52% to 49% year-over-year. We continue to expect strong sequential revenue growth in both the third and fourth quarters of 2026. However, the low end of our guidance range now assumes a more prolonged recovery in market-related headwinds, resulting in a second half revenue decline similar to the first half of 2026. With respect to our profitability expectations, our updated guidance continues to assume improved quarterly adjusted EBITDA performance on a sequential basis and positive adjusted EBITDA generation in the second half of 2026. Given the lower revenue expectations for 2026 and the related impact on gross profit, we have adjusted our assumptions for operating expenses, excluding cost of goods sold to reduce the impact on our profitability and cash flow this year. Specifically, we now expect to reduce our operating expenses, excluding cost of goods sold, approximately 25% year-over-year in 2026, including more than 30% year-over-year in the second half of 2026. Note these updated assumptions are inclusive of estimated cost savings in the third and fourth quarters related to our recently announced restructuring of approximately $7 million. With that, I'll turn the call back over to Gary for closing remarks. Gary Gillheeney: Thanks, Dave. In closing, the first quarter was a challenging start to the year as expected. I want to thank our team for their performance and resilience during a period of unprecedented market disruption. But despite the headwinds, we believe we've enhanced our market share position, met a significant milestone by completing our renewed BLA submission and generated strong clinical evidence supporting PuraPly AM, further validating our long-term strategy. We expect the operating environment will remain difficult through the first 9 months of 2026 with sequential revenue improvement over the balance of the year and a return to more normalized profitability in the fourth quarter. We remain confident in our position as a leader in regenerative medicine with a diverse and evidence-based portfolio and more than 40 years of innovation in service of our mission to advance healing and recovery for the patients who depend on us most. With that, I'll turn the call over to the operator to open the call up for questions. Operator: [Operator Instructions] Our first question comes from Ryan Zimmerman with BTIG. Iseult McMahon: This is Iseult on for Ryan. I was hoping to start with spending some time on the first quarter performance. Could you unpack a little bit what you guys saw throughout the quarter and particularly what changed between the fourth quarter call in February and today in terms of volumes? I mean what was better or worse than expected? Gary Gillheeney: Sure. I'll start. Well, we've certainly seen a lot of disruption as we expected you normally would see with a change in reimbursement. But the level of complexity of that change was more than we've seen in the past. So you had 2 sites of care with complete changes in the reimbursement model in addition to changing the actual reimbursement for each product. We also had the issue in the first quarter around WISeR. So WISeR really did have an impact in the first quarter. We didn't expect some of the challenges that they've had technology-wise in the states in which pre-authorization is required. There was also an issue with a large MAC that was struggling to process claims the entire first quarter. In fact, we just recently started to process claims for March. And unfortunately, customers have to rebuild for claims in January and February. So all of that disruption on top of what you normally see when there's a reimbursement change. So we've typically guided to a 3-month impact of a reimbursement change. But with the additional complexity that we're seeing now and the issue of wastage, which came out in December 30, has created enormous confusion in the market, which is why this prolonged delay in market recovery. So what we've seen is a contraction of the market by about 63%. That's an enormous contraction in the market. We're certainly down less than that. We believe we've taken share. In fact, our core brands, excluding our Apligraf brand are down about 22%. So we're definitely seeing some share gain from our perspective, but just contraction in the market, the issues around wastage and the technology challenges with the MAC and WISeR are things that we didn't see when we had our call in February. Dave, anything to add? David Francisco: No, no, that's absolutely right. Let them all. Iseult McMahon: I appreciate that. And what, if anything -- or do you have any line of sight as to when we might get an update from CMS clarifying some of their comments around these wastage policies? Gary Gillheeney: We don't have any direct clarity on when they would do that. We're still engaged with them. Our objective is to either get them to exempt PMAs because of all of the confusion around the handling and the billing and usage of a biologic like our product Apligraf or to come out with an indication for use. There's been no instructions or clarity on exactly what their wastage policy is. So we don't have clarity on when they will change or when they'll bring clarity, but we're certainly bringing clarity to our customers, and we're seeing more and more comfort in utilizing the product Apligraf appropriately for patients that need it. Iseult McMahon: Got it. And then last one for me, kind of dovetails into guidance for the year. I was just curious what gives you confidence in that back half recovery? I understand this updated range accounts for more moderation through the remainder of the year. But have you seen anything through April and May that gives you more confidence? David Francisco: Yes. We did see improvement month-over-month in the first quarter, and that's continued into April. So that's one part of it. And what we've always expected here, as Gary mentioned, we're going to continue to gain share. But there's 2 things. One is the customer confusion should abate as we move through the year. And then in addition to that, we think the competition dynamics will be quite a bit different at that point as well. So that's how we've built up our forecast with sequential growth quarter-over-quarter as we move through the year. Operator: We are currently showing no remaining questions in the queue at this time. This does conclude our conference for today. Thank you for your participation.
Operator: Good day, and welcome to QuinStreet's Fiscal Third Quarter 2026 Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Vice President of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin. Robert Amparo: Thank you, operator, and thank you, everyone, for joining us as we report QuinStreet's Fiscal Third Quarter 2026 Financial Results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-Q filing. Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir. Douglas Valenti: Thank you, Rob. Welcome, everyone. Fiscal Q2 was another quarter of strong performance and progress. We grew revenue 28% year-over-year to a new company record, and we grew adjusted EBITDA 53% year-over-year, also to a new company record. Our core business is strong, and we continue to make good progress on initiatives that we expect to continue to deliver impressive revenue growth and margin expansion in fiscal Q4 and beyond. Those initiatives include dozens of active projects applying AI across our business system to our proprietary data, tech stack, integrations and workflows and to our media campaigns and interactions with consumers. AI is strengthening our already formidable competitive advantages and is driving even better results for clients, media partners and QuinStreet. As a technology-driven company with hundreds of engineers and technical product employees, we are a fast and effective developer and adopter of leading-edge AI technologies and tools. And of course, we have a proven history with AI. We have been developing and applying AI algorithms since 2008. Getting back to fiscal Q3, let me review some of last quarter's accomplishments in more detail. We set a company record for quarterly revenue, $346 million, up 28% year-over-year. We also set a company record for quarterly adjusted EBITDA, $29.6 million, up 53% year-over-year with expanding margins. We continue to be in a strong financial position with a strong balance sheet and strong cash flows. We ended the quarter with over $100 million in cash and with net debt of around $50 million, including all bank debt and seller notes. Our net debt is well less than 0.5x our annualized adjusted EBITDA, even after accounting for the full cost of the $190 million acquisition of HomeBuddy. And we expect to deliver well over $100 million more free cash flow over the next 12 months. So fiscal Q3 was an exceptionally strong quarter, and we are in an exceptionally strong market and financial position. Looking at the current June quarter or our fiscal Q4, we expect growth to accelerate even more and margins to expand even further, and we expect to set new records for quarterly revenue and adjusted EBITDA in Q4. Our early view of next fiscal year, which begins on July 1, is that we expect to again grow revenue and adjusted EBITDA at strong double-digit rates year-over-year. Looking at our major client verticals. We delivered record auto insurance revenue in fiscal Q3 due to strong carrier demand and high levels of consumer shopping activity. Carriers continue to report good results. We are confident that our full market opportunity in auto insurance is still in its early innings, and we are successfully expanding our media, client and product footprints in that important client vertical. We also delivered record quarterly revenue in home services in Q3, with revenue run rates now approaching $0.5 billion annually. The work to integrate HomeBuddy and to capture synergies is going well as we continue to successfully expand our media, client and product footprints for growth in the enormous home services market opportunity. As I indicated earlier, our success continues to be driven by our industry-leading technologies and business systems, including, at their core, our AI optimization algorithms. And we are expanding the application of AI to dozens of other areas of the business, to our massive store of proprietary data generated from billions of dollars of media spend, to our millions of permutations of campaign and marketplace variables, to our proprietary integrations with clients and media, to our thousands of proprietary workflows and to our interactions with millions of in-market consumers every month. Those efforts are already delivering big improvements in performance and productivity, and we see much, much more. Let me give you a few examples of where we are successfully applying AI to our broader business system. First example. We are applying AI to integrate new and updated carrier rates faster and at greater scale into QRP, our insurance rating platform, increasing productivity there by an estimated 50%. Another example. We are using AI to generate more and better ads for creative, improving productivity in that core essential function by an estimated 400% and resulting in faster campaign launches. A third example. Our frontline employees are using AI-enabled natural language analytics to access even more of our deep trove of proprietary data and to drive deeper analytic insights and improvements in client, media and margin results with less need for analyst support or long cycle times. And one final example here. We are, of course, applying AI to dramatically improve software coding productivity across the business and tech stack. We are also seeing exciting growth in revenue from AI media and as AI grows in media. Some examples of that. First, as AI overviews have expanded rapidly over the past year to now trigger on an estimated 50% plus of Google searches, revenue from our proprietary campaigns on Google has grown by over 100% over the same period. A second example. We are an early participant in OpenAI's advertising platform, where we are already live in both insurance and home services. And one last AI media example. We are improving consumer conversions for our media campaigns and for clients due to the use of conversational AI in our web flows, chatbots and inbound calls and in SMS and e-mail communications with end market consumers. Overall, we are and have been and expect to continue to be an AI winner. Turning to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, up sequentially to yet another new quarterly record and implying at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, also up sequentially to yet another new quarterly record, reflecting continued margin expansion and implying at least 67% growth year-over-year. With that, I'll turn the call over to Greg. Gregory Wong: Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q3 was another successful quarter, as Doug noted. It was the third consecutive quarter of record revenue for QuinStreet and also a record for adjusted EBITDA. This strong performance was driven by continued momentum and execution across our verticals. For the March quarter, total revenue was $346.1 million, up 28% year-over-year. Adjusted EBITDA was $29.6 million, up 53% year-over-year, and adjusted net income was $17.8 million or $0.31 per share. Looking at our revenue by client vertical. Our financial services client vertical represented 67% of Q3 revenue and grew 16% year-over-year to $231.8 million. Auto insurance momentum continued, delivering a record quarter and growing 27% year-over-year. Our home services client vertical represented 33% of Q3 revenue and grew 63% year-over-year to $114.3 million. Turning to the balance sheet. We ended the quarter with $102 million in cash and equivalents and net debt of $54 million. Overall, QuinStreet remains in a strong financial position, and we expect to generate strong cash flows in the coming quarters and years. We continue to have a rigorously disciplined approach to capital allocation, and we'll continue to prioritize: one, investing in new products and initiatives for future growth and margin expansion; two, accretive acquisitions; and three, share repurchases at attractive levels. We will continue to be measured in our approach and remain focused on maximizing shareholder value. Moving to our outlook. We expect revenue in fiscal Q4 to be between $350 million and $370 million, representing at least 34% growth year-over-year. We expect adjusted EBITDA to be between $37 million and $43 million, reflecting continued margin expansion and representing at least 67% growth year-over-year. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jason Kreyer from Craig-Hallum. Jason Kreyer: Doug, can you talk more about the AI actions that you've taken in the quarter? You'd highlighted some relationships with Google and OpenAI. And perhaps you can elaborate on your role there and what you expect over the long term with these partnerships. Operator: I think Jason got disconnected. Our next question comes from the line... Douglas Valenti: I'm sorry, operator. This is Doug. Let me get back in. I apologize, Jason, but yes, thank you for the question. We're applying AI across the business system, as I indicated, including in media. And one of the places in media that we are active is now in OpenAI's advertising platform. They are early, but we were -- we believe we were in the first few hundred folks to actually be engaged with them and to be active on the platform. And as I said, we're active in both insurance and in home services, running advertising campaigns there to both generate revenue, of course, and we have generated our first revenues there, but also to continue to help them pilot that platform and evolve it into a much bigger part of their business and a much bigger part of everybody -- of our business as well. So super excited. As we've indicated before, we believe the LLMs are going to be a new entry point for consumers just like AI overviews on Google have been a new component, a new entry point for consumers. And we believe that it's a new great opportunity for us to plug in and do what we do, which is to help those consumers get matched to the best service providers and generate maximum media yield and revenue for all parties, including the platform companies, whether they be Google or OpenAI or others. So that's what that's about. But again, a lot of AI opportunities and a lot of AI activity going on. Jason Kreyer: We look forward to hearing more about how that evolves. Just as a follow-up, I want to ask about the HomeBuddy performance in the first quarter. And I'm curious how you felt the HomeBuddy and Modernize assets interacted over the course of the quarter and kind of how that integration is modified as we go forward? Douglas Valenti: Yes. It's going extremely well, going certainly as we had predicted and, in some ways, better. We integrated very quickly and, in the quarter, actually generated revenue from the integrations in terms of, for example, taking media from the Modernize side, sending it over to HomeBuddy to be converted into their auction basics, which will be product for their clients and vice versa, getting revenue back. So we're -- it's going well. It's going as expected, and we continue to be very excited about the expansion of our footprint, both in product and media with HomeBuddy. So in terms of changes, I think we're a little bit ahead of schedule in terms of integrating the organizations. We are a little bit ahead of schedule in terms of doing what we -- in terms of having a -- kind of a one-platform approach to the media. And so I'd say that, again, every bit as well as we hoped and, in some places, better. Operator: Our next question is from Luke Horton from Northland Securities. Lucas John Horton: Congrats on the quarter. Just wanted to touch on the auto insurance side. It looks like spending remains strong. Could you provide a little color on size of carriers and any trends you're seeing with the major carriers versus smaller guys? Douglas Valenti: Sure, Luke. We are continuing to see strength across the auto insurance client base. One of the trends that we are seeing is continued broadening. The broader base of clients grew significantly faster than the largest client, which also grew very rapidly. So there's no issues there, just a continued increased activity and broadening of demand across the client base and across the major carriers, top 10 to 15, however you want to think about them. So I'd say if there was a trend, it was just continued strength generally and continued broadening, which we've indicated previously. Lucas John Horton: Okay. Awesome. That's great to hear. And then on the kind of early fiscal year '27 color you provided with the strong double-digit revenue and EBITDA growth. I guess, could you expand on what the kind of 2 or 3 biggest drivers underpinning that outlook would be? Or what would be the biggest risk to achieving that? Douglas Valenti: Sure. Right now, we've seen preliminary numbers for next year from pretty much all of the businesses. And we've got double-digit revenue growth across the board -- strong double-digit revenue growth across the board. And in most cases, margins growing faster than revenue. And the one place where I think that's not yet indicated, it's flat margin cash revenue, but really strong growth. So some investment going on there. So no issues with that. So again, as you would expect, home services, of course, will be particularly strong early because of the acquisition in the first couple of quarters, we expect it to be strong in the back half as well after we lap the comp on the HomeBuddy acquisition. Insurance, we see strong demand from clients and continued strong development of new media capacity, which has been a good driver of our growth and margin expansion in auto insurance over the past couple of quarters. And then we're seeing, in the credit-driven verticals, good legs of growth there as well, whether it be in credit cards where we're getting strong indications from the issuers or banking where we're seeing strong demand from the clients there, and we have strong media capabilities there. And in the -- in AmOne Financial, the personal loans and debt solutions company, we've been focused on quality of revenue there. So we have not been growing that business over the last year or so, but we've been pretty significantly expanding margins. We've had some decline. We've indicated before, some decline in revenue, but pretty flat margin dollars as we've improved the quality of the revenue, and we expect to be able to resume pretty aggressive growth next fiscal year at those higher margins. So right now, it's pretty much across the board strength as we go through the detailed planning for each of the client verticals. Operator: Our next question is from Elle Niebuhr from Lake Street Capital Markets. Elle Niebuhr: So on the home services front, given the heavier implied Q4 weighting, what are you seeing in contractor demand, lead pricing, media availability? Any of that, that gives you the confidence that the seasonal ramp is playing out as expected? Douglas Valenti: We're seeing pretty much all those things, Elle. I mean the client demand continues to be extraordinarily strong. The -- and that's been consistent for a while. We have significantly greater demand than we have capacity to fill it, which is always what you want in our business, given the way we serve clients. We are making great progress on the media side with our proprietary campaigns, with the shared media between HomeBuddy and Modernize, which are the 2 brands we have in home services. And that's an area of real opportunity as both clients -- both of us take media that we don't match as well or don't have as good a coverage for, and take advantage of the new coverage, either Homebuddy for Modernize or Modernize for Homebuddy. We're seeing good growth in new product areas, continued growth in new product areas. Consumers are -- and homeowning consumers, who are the customers there, are quite strong still. The consumers has been exceptionally resilient, given the uncertainties and inflation and gas prices. I can't really say that about the low-end consumer where we -- but AmOne has solutions to help those consumers. But as far as the homeowning consumer, which are the folks that are the customers for our contractors in home services, those folks are quite healthy and quite active. So there's not really a dimension of weakness we're seeing in home services. If you look at the components that we worry about most, which, of course, media, capacity, client demand, pricing or consumer activity, consumer demand for projects. So continued strength and advantages of having HomeBuddy now to multiply that strength. Operator: Our next question comes from the line of Patrick Sholl from Barrington Research. Patrick Sholl: Maybe just a follow-up on the AI side. Can you maybe talk about like carrier adoption on that? Is that sort of -- I guess, just how carriers are spending within, I guess, maybe either in agentic format or through kind of the ChatGPT or other tools like that? Douglas Valenti: Sure, Patrick. They -- if it works for them and it comes to our platform, they're buying it. In terms of buying direct there, not yet in terms of buying, say, directly off those platforms. From what we understand and have been told, OpenAI and others are focusing primarily on marketplace providers like us initially because of the consumer choice and the content. I do expect that, over time, as their platforms and their ad platforms develop further that, of course, carriers will spend direct and there will be opportunities for them to do that. But again, as I indicated, we're early and one of the early folks working with them and one of the early folks they want to work with to help them develop their ad revenue platform and to be in a position to be able to scale that and continue to evolve it to be a big part of the channel. And I think it will be a big part of the channel. We're excited about it, as I said, as another way for consumers to come into digital. and to shop and pursue products and service providers in our verticals. So early, not a lot of direct activity from what we've seen and what we've heard, but good active planning and activities and indications that OpenAI is going to be a big player here, and we're going to be a big part of that, just like we have been with Google since the early days of the company. We launched our first campaign with Google, gosh, as soon as they -- we had SEO with them in the early days and as soon as they went into an ad-based platform, again, we were one of the first ones in that as well. So we expect this to be a pretty similar kind of opportunity and curve. Patrick Sholl: Okay. And maybe just a quick clarification on your outlook for 2027 on the solid double-digit growth. Should we be, I guess, understanding that to be excluding acquisitions as well? Or is that on a current operations basis? Douglas Valenti: We are -- we don't have any new acquisitions in that assumption. So yes, we would expect that, that would be on the current base business. Patrick Sholl: Yes, sorry, I misspoke. I meant like would that be pro forma for acquisitions or just... Douglas Valenti: No acquisitions in that. No acquisitions in that plan. Patrick Sholl: Okay. All right. And then lastly, just on the other financial services verticals. I think you kind of touched on this a little bit, but those don't seem -- are those like being impacted at all from the rate environment or the macro, I guess? I think like some appliance manufacturers have cautioned on the consumer spending side. And I'm just kind of curious on how that might be flowing through on from consumer demand. Douglas Valenti: Sure. No, we're seeing a mixed bag, mostly good for us. The AmOne Financial business is really positioned to help consumers on the lower end of the spectrum access capital in the form of personal loan or deal with debt problems in the form of debt settlement or credit repair. And so, unfortunately, in some ways, there's still a lot of consumer demand and appears to be growing consumer demand there. Credit cards, we only really serve prime and super prime consumers. We're not in the lower income spectrum of cards or credit development cards or anything like that. So those consumers continue to be very robust, and we have not seen issues there. On the deposit side, similarly, folks have money to put into savings accounts, high-yield savings accounts or CDs or other platforms, annuities and other. They tend to be consumers that are in the middle to upper income spectrum. So continues to be strength there. We've seen some -- I guess if there was something to look out for, I'd say that there's probably a little bit less activity by source of funds clients than there would be if the interest rate path were clearer. I wouldn't say that's something that's fundamentally going to change our outlook or is a big risk to the business going forward. But I'd say that that's something that -- it's probably not as robust as it would be if everybody knew that rates were either going up or down. And you can imagine why, right? They don't want to commit to a CD rate until they know where rates are going and they have to decide what their interest margin is going to be when they develop those products and when they recruit consumers for those products. But generally speaking, what you've heard from everybody, pretty stable, strong consumers, generally, particularly middle and upper income. The consumers at the lower end of the income spectrum are getting squeezed because of inflation, because of gas prices, which disproportionately hurt them and because of relatively low wage growth. But relative to -- as you position that against our business, that's a pretty good profile for the products that we serve. Operator: [Operator Instructions] Our next question is from Naved Khan from B. Riley Securities. Ethan Widell: This is Ethan Widell calling in for Naved Khan. To start off with, can you maybe add a little bit of color on just what you're seeing on the macro side for auto? I imagine that elevated oil prices pressing on discretionary budgets might cause less driving, more -- it's better for carriers, maybe more shopping for rates, but just wondering kind of what you're seeing along those lines. Douglas Valenti: I think both of those things. What we're seeing at our level is continued real strong demand and carriers wanting us to do more and figure out how to get more. But I think, at a macro level, I think you hit on it there. The carrier loss ratios are very healthy. They -- the indications we've gotten from them and from the industry is that they feel like they're rate adequate. And I think that the effect of higher gas prices is likely to be less driving, which means less -- the rate of incidents will be lower, which is going to be good for them because, as you said -- because there's likely to be fewer incidents and fewer claims. And the other thing that is absolutely a factor in auto insurance is that consumers shop more when they're under financial pressure for auto insurance because they want to see if they can save money because they have to have it, but they want to make sure they're not paying more than they have to pay for it. So shopping activity tends to be at pretty high levels. And we have seen good strong shopping activity, certainly through the peak shopping season, which is always in the kind of February-March time frame. But generally speaking, we're seeing a good strong consumer activity. Ethan Widell: Got it. And then kind of longer term, how do you view or maybe anticipate, like, your mix shift over time as you take into account kind of various growth rates in your verticals, but also layering in HomeBuddy to that? And how do you consider that in terms of maybe long-term margin possibility? Douglas Valenti: Yes, it's a great question. I think the theme that we'll probably see over the next few periods, and I'd say that's probably certainly quarters and maybe years, is that a little bit more normalization of the mix. And what I mean by that was the spike in auto insurance really caused auto insurance to be super heavy in our mix there for a period of time. And one of the reasons our margins -- and we said before, auto insurance, at its scale and with its structure, tends to come in at a little bit lower media margin percentage than our average. And so that shifted our margins down some. But as the greater growth in auto insurance has normalized after that -- the rapid expansion of 1.5 years, 2 years ago, and the other businesses continue to grow strongly, you're seeing the mix shift back to -- gradually shift back to a more normalized level where the auto insurance won't be as dominant, which means that there will be a natural lifting of our media margin profile, which will be -- should be a natural upward tug on EBITDA margins. And I've said before that there are kind of 3 things that are going to -- that are causing us to expand margins, have caused it over the last few quarters and are likely to continue to do it, including as we forecast next quarter. One is that mix shift. After kind of getting a heavy mix of auto insurance, that mix is going to more normalize and that will be a natural upward move in our media margin profile, which translates fairly directly to EBITDA margin since our fixed cost base is semi-fixed. The second is going to be continued success in expanding our auto insurance margins, which have been -- are up 4 to 5 points this year over the beginning of the year, largely due to a lot of specific projects to do that as well as the development of proprietary media that we said we were going to develop, and we spent a lot of money and invested in developing and have very successfully developed. We're going to continue to do that. And that's been very, very beneficial to us and to our margins in auto insurance. And the third is just natural operating leverage. I mean, as we grow at these rates on the revenue and therefore, margin dollar lines, but of course, don't grow at these rates on the semi-fixed cost lines below the margin -- the media margin lines, then you have a natural expansion of margin, top line leverage or operating leverage, depending on how you want to talk about it. So those 3 factors, I think, are going to continue to play a role, certainly next quarter and probably for a considerable time going forward. Operator: There are no questions at this time. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you.
Operator: Good afternoon, ladies and gentlemen, and welcome to Informa TechTarget First Quarter 2026 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference call over to Charles Rennick, General Counsel and Corporate Secretary. Please go ahead. Charles Rennick: Thank you, and good afternoon, everyone. The speakers joining us here today are Gary Nugent, our Chief Executive Officer; and Dan Noreck, our Chief Financial Officer. Before turning the call over to Gary, we would like to remind you that in advance of this call, we posted a press release to the Investor Relations section of our website and furnished it on an 8-K. You can also find these materials on the SEC's website at www.sec.gov. A replay of today's conference call will be made available on the Investor Relations section of our website. Following opening remarks from Gary and Dan, they will be available to answer questions. Any statements made today by Informa TechTarget that are not historical, including during the Q&A, may be considered forward-looking statements. These forward-looking statements, which are subject to risks and uncertainties, are based on assumptions and are not guarantees of our future performance. Actual results may differ materially from our forecast and from these forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, including those discussed in the Risk Factors section of our most recent periodic report filed on Form 10-Q and the forward-looking statement disclaimer in our earnings release filed earlier today. These statements speak only as of the date of this call, and Informa TechTarget undertakes no obligation to revise or update any forward-looking statements in order to reflect events that may arise after this conference call, except as required by law. Finally, we may also refer to certain financial measures not prepared in accordance with GAAP. A reconciliation of certain of these non-GAAP financial measures to the most directly comparable GAAP measures to the extent available without unreasonable efforts accompanies our press release. And with that, I'll turn the call over to Gary. Gary Nugent: Thank you, Charlie, and good afternoon, everyone. As always, we appreciate you taking the time to join us today. I am pleased to share our Q1 2026 results, which demonstrate continuing progress with our strategy and our commitment to delivering top and bottom line growth on an ongoing sustainable basis. In Q1 2026, we delivered revenues of $106 million, representing a 2% increase year-over-year, whilst achieving an adjusted EBITDA of $7.4 million, an increase of 27% year-on-year. These results reflect the durability of our business model, a model that is built upon our proprietary first-party market data and our permission membership data. They are also the reflections of the early returns of our combination program completed in 2025. From today, we also report the results of our 2 operating segments, Intelligence and Advisory; and Brand to Demand, offering deeper insight into the makeup of the business and the key drivers of growth. I see durability as Q1's results, and I suspect the remainder of this year are set against the backdrop of ongoing geopolitical and macroeconomic uncertainty in addition to the broader digital transformation that is accelerating across B2B markets as AI changes, how buyers are informing their buying journey and how sellers are reaching out and trying to stand out to prospects and customers. I spent much of Q1 and April on the road, meeting with clients and colleagues. It's always my favorite thing to do. In the main, our clients who are B2B technology vendors are in good health. However, they continue to prioritize capital to R&D investment as they seek to stay current with the AI arms race. This is subduing investment elsewhere for now, specifically in go-to-market. However, as a future indicator of demand for our business, it is incredibly positive. And ultimately, they will need to seek a return on those R&D investments. Our story of the indispensable partner with the breadth and scale to enable our clients and address their ambitious growth objectives resonates loudly. And it's clear that we are only just scratching the surface in terms of how and where we can help them accelerate their growth and in doing so, drive our own growth. The trends we are observing and the needs and wants of our clients directly correlate to our strategic focus. First, -- our clients are themselves experiencing the impact of the shift from a search engine economy to an answer engine economy. And as such, their ability to raise awareness and generate demand by and of themselves is becoming more difficult. And with that reality, they are increasingly recognizing the value of working with a partner that itself has direct reach and relationships and influence with the prospects and customers. Second, there is a growing realization that better marketing outcomes are achieved when the marketing effort is aligned and integrated across the life cycle, from strategy through to execution and that the breadth and scale of Informa TechTarget makes us one of the few companies that can deliver value across that life cycle. This is encapsulated in our unified demand playbook that we launched at the beginning of Q1 and which has been very well received in the marketplace. And finally, we're seeing clients prioritize working with partners that can integrate seamlessly with their sales and their Martech landscape and then join the dots in terms of attribution to demonstrate measurable performance and return on investment from their marketing investments. Again, that is something that we can provide and are getting increasingly good at, further differentiating us from others. In numbers, revenues from our strategic focus on our largest customers, who are the largest players in the industry we serve were up double digit as a result of this focus and the investments in product, sales, delivery and customer success in Q1. Staci Gullotta, our new CMO, has gotten her feet well and truly under the table, launching a bold and ambitious marketing strategy designed to raise awareness and generate demand in the broader $20 billion addressable market. As a part of this, we recently leveraged the Forrester B2B Summit in Phoenix to showcase how we are leveraging the breadth and scale of Informa TechTarget to partner with our clients and transform their go-to-market and deliver tangible results. One example of this was the work that we've been doing with Tanium. Tanium are a cybersecurity company that helps enterprises manage and protect mission-critical networks. Tanium partnered with Informa TechTarget to move beyond a fragmented siloed marketing approach towards a fully integrated always-on, go-to-market model, choosing us not just as a vendor but as a strategic partner for our unmatched audience access, high-quality intent data and ability to influence buying groups before their sales teams are engaged. By activating our platform across portal, BrightTalk, content syndication and targeted editorial environments, they were able to precisely identify and engage in market accounts at scale. The results were substantial, over 5,000 leads delivered, equating to $1.2 billion of influence pipeline, an ROI of over 2,800 times. And importantly, this has translated directly into real revenue growth. As a result, they signed a new 2-year deal immediately following the program, representing over a 50% increase in their annual investment. On the subject of our membership and our audience members, as buyers increasingly rely on AI-powered research and zero-click search behaviors, we fundamentally adapted our operational approach to meet them where they are. Our content creation and distribution strategies now prioritize AI discoverability while maintaining the editorial excellence and thought leadership that our audiences have come to expect. With a focus on quality over quantity and engagement over acquisition, this dual-focus continued to deliver for us in Q1 with our permission membership continuing to grow in low single digits and our active membership in priority personas, such as Chief Information Officers and Chief Information Security Officers, up high single digits in the quarter. This all being despite ongoing disruption to traffic. In addition, we added four leading U.K. media-based brands to our portfolio through the period. Accountancy Age, the CFO, Bob Guide and the Global Treasurer. This expands our first-party permission members in the financial services and Fintech space and is in line with our strategy to grow by extending our vertical audiences into new geographical markets, and we're already seeing strong engagement from these new community members. And in recognition of the power and the value of our authoritative, trusted and original content in the age of AI, our editorial teams recently won 3 coveted awards at the B2B Industries Oscars, the Neal Awards. And we've also been shortlisted for 15 awards at the forthcoming ASB Nationals. On the product front, our investment in the product pipeline continues to bear fruit. By popular demand, we launched the new BrightTalk nurture demand product with 12 customers piloting this new offering in Q2. We also announced to the market the commercial partnership and technical integration of our NetLine demand product with the Demandbase ABM platform. In direct response to the shift from a search-based to an answer-based economy, we have leveraged all of our experience as a digital publisher to launch our AI LLM content audit and consulting services designed to help clients understand how discoverable and citable their content is and to work with them and how to improve upon it. And only last week, we launched the Omdia AI Search Assistant, a further example of how we are leveraging AI technology to improve our products to improve upon how our customers discover and consume our original authoritative content and extract maximum value from their subscriptions. The Omdia AI Search Assistant enables our clients to submit natural language queries to the Omdia Knowledge Center and receive answers that are in an intelligent composite of all Omdia's data and analysis. They can also return those answers in over 70 languages, increasing the global applicability of our product. This launch builds upon what were already very encouraging KPIs in the Omdia business, with users, user engagement and the Net Promoter Score all up double digits in the first quarter. And as we move through to the second and the third quarters, you will see more examples of how we are applying AI technology, specifically conversational interfaces to our data and content that will improve discoverability, ease consumption and unlock value for our clients and our members. And in June, our AI search for our audience members will undergo a significant upgrade based upon the lessons learned from the pilot of the past 6 months, further improving the audience experience. We're also leveraging automation and AI technology and tools extensively across the business to improve upon our productivity and quality in marketing, and sales, and research, and editorial, and operations, and our experience is that this is a game of continuous improvement, and we're already banking clear benefits. By way of example, in Q1, our time to first lead for our core demand products decreased by 38% year-on-year, accelerating time to value for our customers and accelerating time to revenue for ourselves. I think Q1 demonstrates delivery to our plan financially, strategically and operationally, growing our revenues and adjusted EBITDA, simplifying and focusing the business, embracing and capitalizing upon the opportunities that AI presents. Our priorities for 2026 are clear: deliver value to our customers and growth for our shareholders. This will give us the momentum and put us in a strong position to continue to invest in innovation and build upon our core strength of trusted expertise, proprietary market and permissioned audience data and a unified portfolio of products with the breadth and scale to deliver for customers across their life cycle. We are wholly committed to this plan and to growing revenues and adjusted EBITDA in 2026. I look forward to updating you on our continued progress in the quarters ahead. And now I'll turn the call over to Dan to discuss our financial results and guidance in a little more detail, and then we'll be happy to take your questions. Daniel Noreck: Thanks, Gary, and good afternoon, everyone. In the first quarter of 2026, we delivered revenue of $106 million, representing approximately 2% year-over-year growth compared with the first quarter of 2025. While market demand remains subdued and the environment cautious, our results reflect solid execution and early benefits from our sharpened operating focus following the combination and organizational realignment. As Gary mentioned earlier, we are now reporting our results through two operating segments. In brand and demand or the B2D segment, which represented around 70% of total revenues and is where we generate revenues by providing clients with services that help them raise brand awareness, engage with buyers and target more qualified potential customers, we saw good revenue growth of around 5% year-over-year with particular strength in our unified demand offering. In Intelligence and Advisory or the I&A segment, which represented around 30% of total revenues and is where we generate revenues primarily through subscription services to our intelligence products, including first-party data and specialist analyst research content as well as advisory services that provide clients with strategic support and bespoke solutions, our revenues were around 4% lower year-over-year, primarily reflecting a decrease in our go-to-market strategic consulting. Both segments improved profitability in terms of segment operating income, which we define as being revenue less allocated direct and indirect costs, but prior to unallocated costs such as central functions, facility and related overhead expenses. Operating margin also improved for both segments. Encouragingly, we delivered company adjusted gross -- adjusted EBITDA growth of 27% year-over-year to $7.4 million with an adjusted EBITDA margin of 6.9% compared with 5.6% in the prior year. This improvement reflects continuing cost discipline, the streamlining of operations and the initial realization of integration efficiencies following last year's combination plan even as we continue to invest selectively in growth, product innovation and go-to-market capabilities. On a GAAP basis, our net loss narrowed to $70.8 million. This included a $45 million of technical non-cash impairment of goodwill as well as ongoing acquisition and integration costs and other non-cash charges. Turning to the balance sheet and liquidity. We are in a strong financial position. We ended the quarter with cash and cash equivalents of $47 million and had almost $130 million undrawn on our $250 million revolving credit facility, giving us liquidity of approximately $178 million. Our net debt at the end of March of around $72 million represented around 0.8 adjusted EBITDA for the prior 12 months, similar to the leverage level at the end of 2025 and the end of 2024. Our free cash flow in the quarter reflected the seasonal dynamics of the business as well as the phasing of integration and restructuring activities from 2025. On an adjusted basis, we delivered meaningful cash flow, demonstrating the attractive underlying cash generation characteristics of our business model. Turning to guidance. We are reiterating our commitment to deliver growth in 2026. To this end, we are maintaining our full year 2026 adjusted EBITDA guidance of $95 million to $100 million. We are pleased with the progress we've made simplifying the business, improving operational efficiencies and positioning the company for growth. While the macro environment remains uncertain, we continue to see opportunities to expand customer engagement, increase wallet share and improve margins as the year progresses. In summary, Q1 represented a solid start to 2026 with revenue growth, adjusted EBITDA improvement and continued progress integrating the business and sharpening our operating focus. We believe we are well positioned to execute through the remainder of the year and deliver on our financial objectives. As a reminder, our financial model is built to scale efficiently. As we return to growth, every additional dollar of revenue delivers substantial incremental margin, giving us the ability to grow profitability and free cash flows significantly over time. And with that, we're now happy to answer your questions. Operator, will you please open up the line for Q&A. Operator: [Operator Instructions] Your first question is from Bruce Goldfarb from Lake Street Capital. Bruce Goldfarb: It's Bruce. Congratulations on the solid quarter. So the first is, are any inflationary pressures in the business that would put your $95 million to $100 million EBITDA guide at risk? Daniel Noreck: Bruce, thanks for the question. This is Dan. I don't think we're seeing anything out of the ordinary from inflation that would put that at risk right now. We're still very confident, which is why we reiterated the $95 million to $100 million adjusted EBITDA target. Bruce Goldfarb: Great. And then how are growing AI search volumes impacting your membership sign-ups and paid subscriptions? Gary Nugent: So I'll take that one, Bruce. Nice to talk to you. Well, I mean, we've talked about this on occasion actually in the past. We've certainly seen the shift in traffic and the mix of traffic that we receive as a business as search has become disrupted and Answer engines are becoming more prominent. We continue to see that Answer engine traffic converts at a much higher rate to membership than search traffic used to. But interesting enough, we're also seeing search traffic conversion rates improve as well. I think that's largely as a result is that what we're now getting from search is still more qualified. Effectually, what you're beginning to see is that the effect of an Answer engine environment is that it qualifies out people who are not really serious researchers and serious buyers. So actually, the reality is that whilst traffic might be disrupted and down, because conversion rates are up, we're still seeing solid membership and therefore, our membership is modestly growing. And in particular, the membership and the activity of members who are the key personas is growing quite nicely. Bruce Goldfarb: My next one, how are churn rates trending in the small to medium enterprise market segment? Daniel Noreck: Bruce, this is Dan again. So from a churn perspective, obviously we don't show those metrics. But what I would say is that the churn is still higher, clearly because our portfolio accounts have grown. So we are seeing a bit more churn at the lower end of the range. But what I would say to that is we're starting to see a stabilization of that. And so it gives us confidence as we look out for the rest of the year as it relates to those particular client segments. Bruce Goldfarb: Great. And my last question, how is business trending internationally in EMEA and APAC? Gary Nugent: I'll take a look at that. I spent a couple of weeks. I was on the road for some time. I was actually in APAC traveling through Singapore and then through Shenzhen and Beijing in China before finishing off in Seoul in Korea. I would say that actually, the environment was encouragingly optimistic and building. I mean the vast majority of our business in that part of the world is the intelligence and the advisory business. But there's certainly a huge amount of demand from APAC companies to grow their business internationally and to expand into markets such as the United States and Europe, and that's a great opportunity for us. And similarly, there's still an appetite from big American brands to build their business, particularly in markets like Japan and Korea. So generally speaking, I was actually really encouraged by the demand there. And I would say that the business has been trending inline with the rest of the business actually in the first quarter, no sort of material difference in pattern. The one obvious exception to that is the Middle East and Africa region as a result of the ongoing situation in Iran. That there, we've definitely seen customers begin to slow down their investments and slow down their decisions. Operator: Your next question is from Jason Kreyer from Craig-Hallum. Unknown Analyst: This is Thomas on for Jason. I know you touched on it a little bit, but could you give a little more commentary on the environment you're seeing for software sales, particularly like a Priority Engine that has more of a recurring nature to it? Do you feel like tech companies are still sort of hesitant to lock-in longer-term deals? Gary Nugent: I actually -- I'm going to pick up on that subject more broadly. I would certainly say that we've definitely seen the multiyear environment is not as strong as it was 2 years or so ago. That's definitely true. We're seeing customers, and we've said for some time that customers are shortening their contractual commitments really through 2025 and I don't think that's really -- it's not picked up in 2026. It's interesting in what is potentially an inflationary environment because usually, there's a bit of tension in the marketplace between customers wanting to lock in pricing for multiple years vis-a-vis making those long-term commitments. So it will be interesting to see how that plays out. I think generally, in terms of commitments to software in general across the marketplace, I haven't really seen a lot of change in the customer's appetite. But one of the things that we have spoken about is the need for us to actually integrate our data directly into our customer's platforms. especially in the intent space as customer's Martech stacks and sales tech stacks have become more mature and more settled, it's absolutely imperative that you are able to integrate and play nicely with their environment. So we -- you heard us talk about this a lot when we're talking about the investment in the Intent product is that actually a lot of our investments are now on the subject of integration and -- integration, not just with APIs, but also increasingly with MCPs in the AI world. And that's really where I think the game is being played now and the game will be played in the future in 2027. Unknown Analyst: Great. That's helpful. And then maybe just one follow-up. With the moves you made to position NetLine in a more down market, does that carry any incremental churn or volatility? Or do you still have pretty good visibility into NetLine production? Gary Nugent: NetLine continues to perform incredibly well for us. It's a very exciting story within the company, and it's going from strength to strength. As we said, we have done a very thorough analysis -- forensic analysis to see whether it was cannibalizing any of the business elsewhere. And actually, that's not the case. These are different customers. They are different personas within our existing customers. They are different budget pools. It forms part of the unified demand portfolio and in actual fact, the unified demand story that we're now telling where we have, I think, the broadest portfolio of demand products to meet any demand problem a customer might have is playing really nicely for us. Operator: [Operator Instructions] There are no further questions at this time. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may now disconnect your lines.
Operator: Good evening, and welcome to PRA Group First Quarter 2026 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Mr. Najim Mostamand, Vice President, Investor Relations for PRA Group. Please go ahead. Najim Mostamand: Thank you. Good evening, everyone, and thank you for joining us. With me today are Martin Sjolund, President and Chief Executive Officer; and Rakesh Sehgal, Executive Vice President and Chief Financial Officer. We will make forward-looking statements during the call, which are based on management's current beliefs, projections, assumptions and expectations. We assume no obligation to revise or update these statements. We caution listeners that these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that could cause our actual results to differ materially from our expectations. Please refer to our earnings press release issued today and our SEC filings for a detailed discussion of these factors. The earnings release, the slide presentation that we will use during today's call and our SEC filings can all be found in the Investor Relations section of our website at www.pragroup.com. Additionally, a replay of this call will be available shortly after its conclusion, and the replay dial-in information is included in the earnings press release. All comparisons mentioned today will be between Q1 2026 and Q1 2025, unless otherwise noted. During our call, we will discuss certain financial measures on an adjusted basis. Please refer to the appendix of the slide presentation used during this call for a reconciliation of the most directly comparable U.S. GAAP financial measures to non-GAAP financial measures. And with that, I'd now like to turn the call over to Martin. Martin Sjolund: Thank you, Najim, and thank you, everyone, for joining us this evening. We are excited to be holding today's earnings call in our new Charlotte office, surrounded by some of our new colleagues who will help us transform our IT, AI and data analytics strategy. I wanted to start by providing a quick overview of our financial results for the quarter. As you can see on this slide, we have had a strong start to 2026, building on the success we achieved last year. Let's start with cash. Cash collections grew 11% year-over-year, driven by the continued momentum of our operational initiatives, especially in the U.S. This was supplemented by our continued strong performance in Europe. Cash efficiency improved to 62% from 61% last year, and that's with a $15 million increase in legal collection costs. As seen recently, these legal investments have been generating significant cash collections in the quarters following our investment. We expect our investments in legal collections to continue to generate cash for years to come. Turning now to portfolio purchases. Over the past 2 years, we've invested $2.6 billion in new portfolios, and this included our highest and third highest annual investment levels in company history. In Q1 of 2026, we purchased $221 million of portfolios globally as we remain disciplined with our buying and take a long-term approach focused on net returns rather than growth for growth's sake. This investment amount is in line with our expectations, both in terms of volume and expected returns. We did also take the opportunity to invest in some adjacent lower cost-to-collect segments where we saw good returns. This is part of our strategy of carefully investing into new segments that meet our net return thresholds. Net income increased to $28 million, building on the strong momentum we have been generating over the past couple of quarters. Adjusted EBITDA for the last 12 months was up 14% to $1.3 billion, growing faster than cash collections once again. This suggests that we continue to gain operating leverage even as we increased investments in the legal channel. Due to the continued strong growth in adjusted EBITDA and our disciplined purchasing, our net leverage continued to tick down, ending the quarter at 2.7x. As you can see, we've started 2026 with solid momentum. I wanted to provide some perspectives on the health of our customers, especially in light of the current macroeconomic and geopolitical backdrop that has led to elevated energy costs and gas prices. To start with, our customers remain stable in the U.S. and Europe and global cash collections in Q1 performed in line with expectations. Based on our analysis of call recordings, we haven't really been hearing customers cite gas prices or inflation as reasons for not being able to pay. While we can't predict what will happen, I can tell you that we are monitoring this very closely, and we can draw on lessons from what we've seen in the past based on our 30 years of data. I've been in the company for 15 years. And across that time, I've seen many different situations play out from the war in Ukraine to Brexit to COVID. Here's my perspective. Number one, my observation is that historically, our customers have tended to be fairly resilient across multiple economic downturns. Many of them want to resolve their debt and are on payment plans that they can afford. Others are under court judgment to pay their debts. So, the proportion of paying customers has tended to remain fairly stable through various economic situations, and this is particularly true in many of our markets where we have a strong share of legal collections. At times of stress, we do sometimes see fewer large payments and settlements, which reduces the average payment size. This phenomenon tends to be temporary, and we would normally expect to recover the cash eventually as these customers have demonstrated their desire to clear their debt. Second, customer dynamics vary greatly by market as do government responses. We operate across 18 different markets, and we have seen that macro changes can affect different markets in very different ways. In past energy cost dislocations, such as the start of the war in Ukraine in 2022, we saw that different countries were affected depending on where they source their natural gas from as well as the propensity of the government to intervene. It is impossible to predict exactly how markets will be affected. And ultimately, we benefit from the aggregation of many local market situations into a global pool, which helps protect us from single market risk. We have a long experience of dealing with economic cycles and customers who are experiencing difficult financial circumstances. And thirdly, there's the other side of the coin to consider, as seen by the chart on the right of the slide. Economic stress tends to drive up charge-off rates, and we often observe charge-off rates rising by a larger factor than the impact on our collections, and this creates buying opportunities over time. We are well positioned to capitalize on this scenario should it occur. So currently, we believe that the situation is manageable, given our global diversification, but we're monitoring it with heightened awareness. Let me now spend some time providing an update on our PRA 3.0 strategy, which we unveiled in March. This long-term strategy has 3 important vectors. The first vector is capital and investing. Here, we focus on leveraging our global scale and diversification to invest with discipline and allocate capital to the highest return opportunities. It also means delivering a strong financial profile through the cycle, one that generates more predictable net income and creates a more flexible cost profile. We intend to maintain our strong funding profile with a focus on reducing leverage to the mid-2x area over time, and we will maintain our thoughtful capital allocation strategy. The second vector is operations, technology and data. This is all about becoming more flexible, tech-driven and leaner. It starts with balancing the benefits of our internal platform with flexible external capabilities. It also means modernizing and standardizing our technology, which is already happening in Europe and making significant progress in the U.S. We will continue to leverage our massive amounts of data, customer insights and AI to drive improved processes, cost savings and enhanced customer service. We will also remain disciplined in our cost management, shifting more toward a variable cost structure as we continue to grow our legal capabilities, call center offshoring and external debt collection agencies or DCAs, globally. The third and final vector is people and culture. As I said last quarter, the strategy is only as good as the people who execute it, which is why we are focused on establishing a winning culture by nurturing our highly talented team of people. Together, these 3 vectors serve as our blueprint for transforming PRA into a high-performing technology-enabled global allocator of capital. Let's now turn to some of the ways we have executed against this strategy in recent months. Starting with capital and investing. We remain disciplined in our portfolio investments with a focus on driving returns. We also successfully refinanced our European credit facility, which Rakesh will talk about later. Turning to our second vector. We continue to drive digital innovation to enhance our engagement with customers. Just a few weeks ago, we launched the first iteration of our new mobile app in the U.K. It was encouraging to see customers already starting to use and make payments through the app. As it relates to AI, we have been piloting a number of initiatives across the U.S. and Europe to drive better processes and greater automation in our call center, digital and legal channels. These initiatives and others that are currently in the pipeline are expected to generate value for PRA over time as we continue to discover and implement new solutions for modernizing and transforming our operations. We see opportunities to leverage AI in a number of ways. This includes developing in-house capabilities, which can leverage external AI models to link our business processes and data. It also includes working with external partners to leverage off-the-shelf tools. We are on a multiyear journey to completely transform our U.S. technology platform. This will bring cutting-edge capabilities, make our processes more efficient, leverage AI and also reduce costs over time. We've been making good progress in our U.S. IT modernization road map and are on track to have one global cloud platform and cloud-based contact platform by the end of this year. As I mentioned on the last earnings call, I see cost control as a mindset, not just a one-off project. We remain very focused on our cost base and are continuously looking at cost savings opportunities. In addition, we're shifting towards a more variable cost structure, leveraging more of our offshore and DCA capabilities. Finally, as it relates to people and culture, I'm excited to be sitting here with the team in Charlotte following the opening of the talent hub in Q1. Charlotte has a vibrant financial services sector and being here gives us access to a wider talent pool to supplement our great teams in other locations. We have communicated the new 3.0 strategy to the entire organization, and our teams are focused on execution. We have also reviewed our compensation schemes and made adjustments to create stronger alignment between management incentives and shareholder interest. I'll now turn it over to Rakesh for a summary of our Q1 financial results. Rakesh Sehgal: Thanks, Martin. We purchased $221 million of portfolios during the first quarter with $119 million in the U.S., $92 million in Europe and $11 million in other markets. This was in line with our expectations as we continue to focus on driving higher returns and net income while balancing investments with leverage. Our global purchase price multiple remained steady in Q1 with a small downtick in the U.S., offset by an uptick in Europe. Our U.S. core purchase price multiple was slightly lower this quarter due to us investing in a higher portion of portfolios that have a lower cost to collect. These included some investments in adjacent product segments. As a reminder, purchase price multiples measure gross dollars collected per dollar invested and are not on their own a measure of profitability. They can vary due to multiple factors such as product, geography, age of portfolio and collection channel used with each having a different level of cost to collect. Portfolios that have a lower cost to collect generally have a lower purchase price multiple. Our focus continues to be on net returns after taking into account the cost to collect, funding costs and timing of cash flows. Our investments in adjacent segments this quarter met our net return thresholds even though they have a lower purchase price multiple. As we look ahead to the next 12 to 18 months, we expect portfolio supply to remain relatively stable in the U.S. and Europe. Credit card balances in the U.S. continue to hover around $1.1 trillion, while charge-off rates remain above 4%. ERC at quarter end was $8.5 billion, up 10% year-over-year, with the U.S. accounting for 43% of ERC and Europe accounting for 51%. This diversification helps mitigate risk from any single market and economic cycle. The replenishment rate defined as the amount we would need to invest over the next 12 months to maintain current ERC levels based on the average purchase price multiples in the first quarter of 2026 was $1 billion. Cash collections for the quarter grew 11% year-over-year to $552 million, driven by the continued growth in our U.S. legal collections channel, coupled with strong performance in Europe across multiple markets. In addition, our digital channel continues to show significant momentum with global digital cash collections up 19% year-over-year. U.S. cash collections grew 11% in the first quarter. U.S. legal cash collections grew 27% to $141 million as we continue to benefit from investments made in the previous quarters. Legal is not the channel that we lead with, but in cases where we are not able to get customers to engage with us through other channels, we will eventually consider an account for legal collections. The legal channel typically provides greater collections certainty and a higher overall amount of cash collected versus other channels. Legal accounted for 53% of U.S. core cash collections in Q1 compared to 46% in the prior year period. Europe's cash collections grew 15% in the first quarter with growth distributed across several of our core markets. Comparing cash collections versus expectations, globally, cash collections exceeded our expectations by 3% with the U.S. exceeding by 1% and Europe exceeding by 8%. Moving to a summary of our income statement. Total revenues increased 17% during the quarter, driven primarily by the growth in portfolio income. Portfolio income, which is the more predictable yield component of our revenue, grew 12% in the quarter to $270 million. We expect portfolio income to continue growing and contributing to net income as we drive improved cash performance from our operational initiatives, especially in the legal and digital channels. Changes in expected recoveries were $44 million in the quarter. Of this amount, 52% or $23 million came from cash over performance or cash received above our expectations and the remaining 48% or $21 million was from changes in expected future recoveries or the net present value of changes to our ERC. Turning now to the rest of the income statement. Operating expenses were $211 million for the quarter, up $16 million. Legal collection costs, which are variable, accounted for $15 million of the increase with the remaining OpEx items in aggregate staying flat while we delivered cash growth. Our investments in the legal channel are yielding strong cash collections and the growth in the legal collection cost is expected to moderate this year versus the last 2 years. Overall, we continue to gain operating leverage as we build a more variable cost structure. Compensation and benefits expense was down $3 million this quarter. This was driven primarily by rightsizing our agent headcount, leveraging more external collections resources, including offshore agents and eliminating more than 115 corporate roles in Q4 last year. Communication expense was also down $1 million in Q1 after being down $7 million in all of 2025. These decreases were driven by a growing shift to lower-cost digital strategies instead of sending letters to customers. The work that we have been doing in the digital channel is starting to bear fruit with digital cash collections growing double digits while helping to lower costs. Net interest expense was $64 million for the quarter, up $3 million year-over-year, primarily due to a higher debt balance. Our effective tax rate was 22% for the quarter. For the full year 2026, we expect our effective tax rate to be in the mid- to high 20s, depending on the income mix from various countries and other factors. We generated $28 million in net income for the quarter or $0.73 in diluted earnings per share, demonstrating the strength of the global franchise with improved performance in the U.S. and Europe. This was up $25 million year-over-year and follows the strong $35 million in adjusted net income we delivered in Q4. While there will be variability in our net income on a quarterly basis, our focus remains on growing the bottom line and improving returns. You can see that on a 4-quarter average basis, our profitability is trending in the right direction as we continue to improve our core operations, reduce overhead and invest further in legal, digital and offshoring to transform the business. We are focused on building on this momentum by continuing to execute against our PRA 3.0 strategy. In addition to net income, we also focused on adjusted EBITDA, which we believe provides a more cash-driven perspective on our operating success. Adjusted EBITDA for the last 12 months was $1.3 billion, up 14% year-over-year, exceeding cash collections growth of 11%. Our net leverage, defined as net debt to adjusted EBITDA continued to tick down, ending the quarter at 2.71x compared to 2.73x as of December 31 and compared to 2.82x in the prior year period. This is due to the strong adjusted EBITDA growth, coupled with disciplined purchasing. In line with our 3.0 strategy, our goal is to have our net leverage continue to decline over the next few years as we aim to land in the mid-2x area. In terms of our funding, we have ample liquidity and a strong capital structure that is well diversified between bank and bond debt. As of March 31, we had $3.1 billion in total committed capital under our credit facilities with total availability of approximately $1 billion, comprised of $714 million available based on current ERC and $282 million of additional availability that we can draw from subject to borrowing base and debt covenants, including advance rates. We continue to proactively strengthen our capital structure. Last month, we refinanced our $730 million European revolving credit facility. We are pleased that we completed the transaction well in advance of its maturity in November 2027. The new facility has a 5-year term, further staggering our debt maturity profile with no change to the commitment level and pricing. Our funding profile remains strong with ample liquidity and no maturities until 2028. We want to thank our lending partners for their continued support as we deliver on our strategy. Lastly, we saw an opportunity to undertake another share buyback during the quarter and repurchased $10 million of our shares. This is in addition to the $20 million we repurchased in 2025. We will continue to evaluate share repurchases as part of our overall capital allocation strategy and consistent with covenant restrictions. Overall, Q1 was another solid quarter as we continue to execute our operational initiatives, improve our financial profile and deliver higher returns while reducing leverage. I'll now turn it back to Martin. Martin Sjolund: Thanks, Rakesh. So, to summarize, we've started the year on the front foot, executing with rigor, discipline and speed across many parts of the business. We continue to gain momentum in the U.S., especially in legal and digital channels. Europe continues to deliver strong results and innovation, helping us diversify across many markets. And lastly, we believe that we're in a good position to execute on our new 3.0 strategy, deliver against our financial targets and generate value for our shareholders over the next few years. Thank you, everyone, for tuning in and for your time, support and continued confidence in our future. And with that, we'll open it up for questions. Operator: [Operator Instructions] And your first question comes from the line of Mark Hughes with Truist. Mark Hughes: Martin, you talked about buying paper in kind of an adjacent or new area in keeping with your strategy of doing test buys and starting small. Is that an area that could potentially expand into something more meaningful? Martin Sjolund: Yes. So, what I talked about there was really part of our strategy, which is that we're -- overall, we're focused on disciplined purchasing in the core business, but that we will test our way into adjacent product segments. So, we're looking for areas where we can leverage our operating capability, our underwriting capability and so on, also our great seller relationships that we have. So, we did this quarter get into some areas that are adjacent. They're not hugely different, but they have a slightly different cost to collect structure, and that's what we called out in terms of the impact on the multiple mix there. And we are investing in areas where we think there could be future opportunity. But as I've been saying, we like to test into it to get data, learn the products and before we go large. But we do see bigger opportunities in the future in some of these areas. Mark Hughes: And talking about your outlook for the balance sheet, you look for the debt leverage to decline over time. As you execute more on the 3.0 strategy, is it possible that you could be in a position where you'd accelerate again the purchasing activity if you're generating better returns based on your internal initiatives, could, in fact, you go in a different direction, keep your leverage as is and pick up the pace of portfolio buys? Martin Sjolund: Yes. I mean, as we laid out, our focus is really on being disciplined allocators of capital. So, we have -- in the first quarter, we ended up with a volume that met our plan and also our return thresholds. So, we are focused on that. If something were to really change in the market, we have a very strong funding profile and an ability to adjust that. And the targets we've laid out for our buying really are based on the market conditions that we see right now. So that is our plan, and that's what we've laid out in 3.0. But with things happening in the macro environment, if they were to continue to accelerate and there was a big change in the volume available, we would be in a position to consider that. But our basic plan based on our current outlook is the one that we've outlined in the 3.0 strategy. Rakesh Sehgal: Yes. And Mark, if I could add to that, we have ample liquidity, right? We've got $1 billion of liquidity, but we've also set a target out there that we want to get to the mid-2s leverage over the next few years. But as Martin said, should the opportunity arise where we are seeing portfolios that meet our thresholds, we would invest more. We put a target out there that we would be investing between 1 to 1.3 over the next few years as part of our 3.0 plan. Mark Hughes: And then one more question. How would you characterize your progress on the 3.0 strategy, just thinking about the technology and the systems. And I think, Martin, your goal was to somewhat replicate the success you had in the international realm in Europe and bring that same sort of approach to the broader platform. How far along are you? How much time before you get to the place where you want to be? Martin Sjolund: Yes. That's a good question. We -- as we talked about, we've been investing in the technology platform in Europe for some time. So, we're on one common cloud. We have one common contact platform. We've streamlined our collection systems and so on. There's still more work to do there. And I mentioned earlier, we just launched a mobile app in the U.K. as an example of how we're trying to innovate. So that's in good place. On the U.S. side, this transformation has been going on for some time. So, it didn't just start last quarter when I laid out the strategy. But it has brought, I think, a heightened focus on the strategy. So, we expect to -- some elements of this will fall into place even later this year. So, we have -- for example, we expect to be in one cloud instance in -- one global cloud instance by the end of the year. We'll also have one common cloud-based contact platform. So that will also be in place in the U.S. market later this year. So, on those fronts, we're making really good progress. And then there's a lot of like longer-term opportunities that we're also investing in ranging from AI to ways of improving our core platform. So, we're going to -- I think we're going to start to see some of the benefits even this year, but then there are other projects that will take longer time before we're fully in place. And that's kind of why we laid this out as a multiyear journey. Operator: The next question comes from the line of Robert Dodd with Raymond James. Robert Dodd: Kind of on the topic of unifying that global platform and the other IT investments you're making, et cetera. Is that what kind of is allowing expanding into the other adjacencies? Is a more uniform platform and a more uniform kind of use of data perhaps encouraging you to look at those other adjacent markets because you have the same tools, but the more the data is analyzed globally in uniformly, the more you can learn about additional adjacencies? And would you expand further into those other markets once all these IT investments are made? Or is it just coincidental that it's occurring at the same time? Martin Sjolund: Yes. No. I mean, in the European markets, we are already in, I would say, a broader set of segments than we are in the U.S. So, we've been doing it for some time there. And that's just been something we've developed over time is getting data, tuning our underwriting, building our operational confidence in a particular area and then scaling up if we see the opportunities. On the U.S. side, I do think that these investments that we're making will give us a more lean operating platform. We'll be able to provide better service to customers. We'll have more automation. We'll have better ways of leveraging the data and so on. So, it will be bringing improvements -- and I do think over time, it will make us more flexible in terms of handling other segments. But it's not just the technology platform. There's other capabilities that we've put in place. For example, building up a network of external debt collection agencies. 2 years ago, that wasn't something we really did in the U.S. It's something over on the European side, we've been doing for a while. And that's just another way of creating capabilities. They don't all have to be in-house, but they would enable us to go after segments that we may not be focused on currently. Robert Dodd: Got it. And if I can add one more. On the legal now in the U.S., I think it was 53% of collections, if I heard that right, it was 46% a year ago. I mean how -- there's been a number of steps on utilization of the legal channel you've taken over several years, optimizing the actual collections when there's a lean things like that. I mean how much of the growth is just you've spent more on that channel versus it's a consequence of the optimization steps themselves rather than just -- and I don't mean that in the wrong way, but putting more pure financial resources in terms of spending behind it. Martin Sjolund: Yes. I would say it's a combination there. I mean the first thing that we always point out is that we don't lead with legal. We do first work very hard to engage with customers through digital and through call centers and so on. But if people won't engage and if we conclude that they should be able to make repayments, we will pursue the legal channel. And over the past couple of years, we have made significant improvements in our capabilities all across the kind of legal collections chain. So, on one hand, we've been doing that. That makes it more efficient for us to use that channel, and it just makes the returns better if we do it. But on the other hand, we've also been investing significantly in it, as you pointed out. And that kind of creates that, I would say, a virtuous cycle where we have more data, we're investing more. We're seeing better results as we build these capabilities. So really both sides come together. It's both a matter of investing. It's a matter of better scoring to understand the economics on an individual account basis, but also those capabilities, which are rooted in technology and other capabilities that help make us more efficient on legal. Rakesh Sehgal: Yes, Robert, it obviously starts with us improving our processes, the life cycle, and that's what's given us confidence to continue to invest. So, the growth in Legal was 40% going into '25. And then last year, it grew another 30%. And the important thing is that before we put that account into the legal channel, we obviously will score those accounts. They have to meet certain return thresholds and that's when we decide if it's meeting those return thresholds, the account will go into the legal channel. And keep in mind, there's greater certainty on the cash that we collect as well as the cash that we will collect. The amount is higher versus some of the other channels. Operator: [Operator Instructions] I'm showing no further questions at this time. I would like to turn it back to Martin Sjolund for closing remarks. Martin Sjolund: Okay. Thank you. Well, as you can see, we're off to a good start in 2026. We've got good momentum on our 3.0 strategy. And we're going to be attending a few investor conferences over the next couple of weeks, including Barclays and Truist conferences. So, I hope to see some of you there. So, thank you very much. Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Thank you, everyone, for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Financial Results Conference Call. [Operator Instructions] And now I would like to turn the call over to Steve Webb, the Senior Vice President of Marketing and Communications. Please go ahead. Steve Webb: Thank you, operator, and welcome to Serve Robotics First Quarter 2026 Earnings Call. With me today are Serve's Co-Founder and CEO, Ali Kashani; and our CFO, Brian Read. During today's call, we may present both GAAP and non-GAAP financial measures. If needed, a reconciliation of GAAP to non-GAAP measures can be found in our earnings release filed earlier today. Certain statements in this call are forward-looking statements. You should not place undue reliance on forward-looking statements. Actual results may differ materially from these forward-looking statements, and we do not want to undertake any obligation to update any forward-looking statements we make today, except as required by law. For more information about factors that may cause actual results to differ materially from forward-looking statements, please refer to the press release we issued today as well as the risks and uncertainty described in our most recent annual report on Form 10-K and in other filings made with the SEC. We published our quarterly financial press release and our updated corporate presentation to our Investor Relations website earlier this morning, and we ask you to review those documents if you haven't already. And with that, let me hand it over to Ali. Ali Kashani: Thank you, Steve, and good afternoon, everyone. Thank you all for joining us. We are in the early days of this robotics revolution, but our first quarter results show how quickly this market and Serve are moving. Q1 revenue was nearly $3 million, above our expectations and up nearly 7x year-over-year and nearly 3.5x sequentially. Last year, our focus was deploying 2,000 robots across 20 cities while also seeding the work to open new revenue streams and new market opportunities for our technology. This year, those investments are beginning to compound. Fleet revenue grew by an order of magnitude from about $200,000 in Q1 of last year to nearly $2 million this quarter. In addition, about 1/3 of our total revenue during Q1 was from software services, and just under half of total revenue is now recurring. Last quarter, I said that 2026 would be a year of compounding return. Three months in, we are on track to deliver the $26 million of 2026 revenue we guided to on our last earnings call. Q1 is a clear proof of Serve's evolution. We are at the forefront of physical AI, not by just making big promises but by launching real robots in the real world at real commercial scale. With this early mover advantage, our focus now is growing the revenue streams that we've already built while also creating new one. At the same time, we are advancing our technology, deepening our moat, introducing our platform to new markets that expand our opportunity and strengthening Serve's data and AI flywheel with new proprietary data. So let me go a level deeper. First, our autonomous food delivery operation continues to scale. Our deployed fleet is now 7x larger than in Q1 of last year, while daily active robots are up 10x and daily supply hours are up 13x over the same period. Put differently, as we expanded the total sidewalk fleet over the last 12 months, we activated robots more quickly in each market and generated even more hours from each robot. Combined, Moxie and Serve robots now provide over 10,000 robot supply hours to our partners every day with more than 800 robots active every single day. To be clear, I don't expect every quarter to look like Q1, where we increased the active fleet and the fleet revenue by an order of magnitude year-over-year. Periods of growth often follow periods of investment, and they often need to be followed by more investment to support future growth. We expect Q2 growth to be slower as we work on expanding our geographic coverage and partnerships and capabilities in anticipation of the second half of the year when the growth picks up again. Case in point, in the first half of the year, we are not deploying additional sidewalk robots beyond the 2,000 that are already in the fleet. Our focus is on operational growth and efficiency instead. That is getting the full delivery fleet running daily and improving utilization by activating more merchants as well as integrating more delivery platforms and expanding into new cities and neighborhoods. That is the worst that's in front of us now, and we expect it to drive significant growth over the course of the year, in line with our $26 million revenue guidance for 2026. Our health care business, Diligent Robotics, we joined at the start of this year, is also performing in line with the plan that we laid out at announcement. The combined company is generating revenue and momentum across 2 distinct domains as we build toward a single autonomy platform. Since this is the first quarter Diligent is reflected in our results, I want to spend a moment on that business. Since closing, I spent a lot of time with Andrea and the Diligent team. A few observations that stand out. First, the team is excellent. They have long-standing experience operating in some of the most demanding environments in robotics, and they're also already teaching us a lot about indoor environments. Second, the financials are in line with the plan that we laid out and the hospital pipeline for new business is healthy. Finally, Diligent continues to operate and grow, and I'm excited about the possibilities that are ahead. First, to bring our technology to more hospitals and over time, to extend it to additional indoor and outdoor environments. Now looking at the overall business again. The combination of our sidewalk and health care operations now gives us a footprint across 44 cities in 14 states with nearly 2 million deliveries completed across these domains. That is a meaningful expansion from where we ended 2025. The growth came from 3 sources: new autonomous delivery markets that went live, including Buckhead, Fort Lauderdale and Alexandria, which we previewed previously; the hospital networks that came in with diligence; and continued expansion in our existing markets. I also want to say a word about safety. Our robots share space with people every day and earning the right to operate in those spaces is the foundation everything else is built on. To put the scale in perspective, during our operating hours each day, our robots collectively travel a distance greater than walking from New York to Los Angeles. That's every single day. And they do that with a stellar safety record. Our robots have orders of magnitude less kinetic energy than cars. And to date, we've never had an incident resulting in a serious injury or anything approaching one. Every delivery completed by one of our robots is a delivery not made by a car. That matters for cities, for pedestrians and for our mission of making cities we operate in safer and more pedestrian-friendly. We are holding ourselves to a very high standard of safety across all environments we operate in. So to sum up, in operating terms, Q1 was a strong proof point. We are running a scaled footprint, growing our revenue rapidly, improving margins, maintaining our reliability and safety records and expanding the markets that we are operating in. Stepping back and as we have discussed in previous calls, the foundation of everything we do is sales data and AI flywheel. Our fleet runs across more environments than anyone else in our category. The data those robots collect is richer than ever. The data trains better AI models, which makes every robot more capable. And as that suite becomes more capable, each robot can operate in more places and generate more value. Every robot will learn from every other robot even across different environments. We have discussed our long-term vision for a self-fleet reaching 1 million robots deployed globally across cities and hospitals and other complex environments where robots and people share space. Over time, robots will become embedded in the core fabric of how modern cities and economies function. On the path to 1 million robots, we are still early, but we are building the platform across more fronts and more domains and a broader footprint than ever before. That gives us a stronger foundation to create a platform for robots of many future forms and functions and to navigate safely and effectively around people as the industry advances. What we are building is genuinely hard, making one autonomy stack work across multiple physical environments at scale is one of the hardest problems in robotics today. We have always known this requires patience and persistence and rigorous execution. I'm really excited about the progress that we are making, and we'll keep sharing that progress with you every quarter. With that, I'll hand it over to Brian. Brian Read: Thank you, Ali. Good afternoon, everyone. Q1 was an important quarter for Surge. Revenue scaled meaningfully. We began integrating Diligent Robotics, and we continue to broaden ways we monetize the autonomy platform through fleet, software, branding, data and health care automation revenues. Our focus this year is straightforward: improve robot productivity, increase revenue per robot and per operating hour, grow recurring revenue and translate those operating improvements into a stronger financial model. Q1 showed continued progress as we scale. Serve is building a network of robots that can operate across multiple real-world use cases, including food and health care today with opportunities for package delivery, health care logistics and other commercial tasks. The common thread is simple, robots operating safely and reliably in complex human-centered environments. In Q1, our robot base continued to expand and our delivery network showed strong capacity growth. On an as-reported basis, daily active robots during the period was 812, up approximately 48% sequentially. Daily supply hours in the period averaged over 10,000, up approximately 54% sequentially. Those are strong capacity metrics, but the more important point is what comes next. Our objective is not simply to increase the number of robots in the field. Our objective is to convert every active robot in every supply hour into more revenue. We are managing this through specific levers within the environments we operate in, whether that is market-level density, partner integrations, merchant coverage, speed, operational productivity and most critically, the autonomy improvements that reduce human touch points. The integration of Diligent expands the same platform into health care, where robots operate in hospitals and support recurring customer workflows. It gives us another operating domain, another data source and a revenue profile that is more recurring in nature. Strategically, this strengthens the autonomy flywheel Ali discussed. Sidewalks and hospitals are different environments, but both require robots to navigate safely around people, adapt to real-world complexity and perform reliably at scale. Put simply, 2025 is about proving we could scale the fleet. 2026, the focus is converting that scale into stronger revenue per robot and better operating leverage across the platform. Total revenue for Q1 was approximately $3 million, up 238% sequentially and approximately 578% year-over-year. On a pro forma basis, including Diligent, Q1 revenue increased approximately 28% sequentially and 30% year-over-year. Fleet revenue was approximately $2 million and software revenue was approximately $1 million, continuing to demonstrate the attractive margin profile for software and platform-based revenue layered on top of the deployed robotics base. This remains an important proof point for the broader platform model. Q1 included approximately $1.4 million of recurring revenue with the remainder from usage-based, project-based and other nonrecurring revenue streams. The broader point is that Serve is no longer monetizing only food delivery. While that remains the primary growth engine, the revenue base now also includes branding, software, data and health care automation. This provides us more ways to monetize the same underlying autonomy stack and more levers to improve the long-term financial model. Gross loss for the quarter was approximately $9 million, and gross margin was negative 302%. That remains an investment-stage margin profile, but it improved materially from Q4 as revenue scaled and software revenue contributed positive gross margins. There are 2 different economic layers in the quarter. Fleet gross margin remained negative as we supported a substantially larger fleet, integrated our health care fleet and built the operating structure required for a multi-domain robotics platform. Software gross margin was positive, which highlights the benefit of layering software and platform revenue on top of the robotics base. We believe the path to an improved margin is clear and measurable, more revenue per robot and operating hour, better operational productivity and a greater mix of recurring software and platform revenue. This is why our focus this year has evolved. Total robot count is still relevant, but it is not sufficient. GAAP operating expenses were $42.8 million in Q1. Excluding stock-based compensation of $7.4 million and amortization and acquisition-related expense of $3.6 million, non-GAAP operating expenses were approximately $31.8 million. As expected, R&D remained our largest investment area. GAAP R&D expense was $19 million or approximately $15.5 million, excluding stock-based comp. This investment is directed towards autonomy development, AI model improvements, fleet softwares, data infrastructure and integration across our platforms. G&A expense was $15 million or approximately $8 million on a non-GAAP basis. Operations expense was $7 million or approximately $6.7 million on a non-GAAP basis. Sales and marketing expense was $1.9 million, approximately $1.7 million on a non-GAAP basis. Our discipline is not about underinvesting in the opportunity. It is about aligning investment with the operating milestones that matter, revenue quality, margin improvement and platform differentiation. Every dollar should strengthen the autonomy platform, improve our fleet productivity, expand our commercial reach or increase the durability of revenues. GAAP net loss for the quarter was $49 million or negative $0.65 per share. Non-GAAP net loss was $38 million or negative $0.50 per share. Net cash used in operating activities was $41.4 million, while investing cash outflows were $19.6 million, driven primarily by acquisition activity. Capital expenditures were approximately $1.4 million in the quarter. We ended the quarter with $197.4 million in cash and marketable securities. This liquidity position remains a strategic advantage. It gives us the ability to continue investing in autonomy and new market opportunities while maintaining discipline around the timing and scale of capital deployment. Turning to our outlook. We reiterate a total 2026 revenue guidance of $26 million. We continue to stay focused across the company with a priority to grow sustainable revenue quality and margin progression. We want to increase the mix of recurring revenue while continuing to bring down our unit costs through focused investments in autonomy and operational efficiencies. Accordingly, we maintain our previously communicated non-GAAP operating expense guidance of $160 million to $170 million during 2026. Let me close with this. Q1 was a quarter of integration and continued scale. On a reported basis, first quarter 2026 revenue was greater than our total 2025 annual revenues. Curve is building a robotics platform, not a single-use delivery fleet. The investments we are making today are designed to improve autonomy, expand monetization and compound the value of our proprietary data across domains. We believe this, in turn, will improve robot monetization, capitalizing on our early leadership in physical AI to create a durable operating and financial model. With that, we'll open the line for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Colin Rusch of Oppenheimer. Colin Rusch: Guys, you talked about the cadence of delivery times and speed of delivery being a key lever for you guys. Can you talk a little bit about the cadence of improvement in autonomy and how much is coming from scheduling and how you see that evolving over the course of the balance of the year? Ali Kashani: Yes. Thanks for the question, Colin. This is Ali. We are improving a number of pieces, a lot of investments going into things like autonomy, which is a big factor because robots move faster than they are using their kind of capabilities and sensors to perceive the world than any other mode. The autonomy and speed basically going hand in hand. So as the robots become more capable, they can move more quickly. And that's one of the biggest areas of investment that we've continued to make from early days, but especially now. Colin Rusch: Okay. I'll follow up off-line. And then with the communications platform that you guys have built and put together, it's clear that you've got a differentiated capability there. Can you talk a little bit about your potential to monetize that capability outside of your own internal usage? Ali Kashani: Yes, that's already in progress. Hopefully, we'll have more to share about that soon, too. But there are a number of customers already using that service. For folks who are not familiar, one of the first pieces of software that we are commercializing in our robotic platform as a whole is the connectivity layer because having robots in the field in thousands that can reliably connect to the Internet so that they can share their data, but also receive support when they need it. It's a pretty important piece that pretty much every robotic and autonomy team or company needs. And we have a piece of technology that we believe is really superior to whatever is out there. So we have been commercializing that. There's investments made, and there will be more to share in the next few months. Operator: And your next question comes from the line of Alex (sic) [ Mike ] Latimore of Northland. Mike Latimore: Great quarter, guys. I just want to start from the top with some broad strokes here. Can you talk about demand as you're seeing it? Will the market still take pretty much as many robots as you can deliver? Anything there would be great. Ali Kashani: Alex, yes, again, I can take this. This, to me, feels like the closest thing to infinite TAM because it's such an expensive thing to move things in last mile right now. And we are seeing a lot of opportunities for new use cases or new customers that have never used the service. So we haven't really seen any constraint as far as demand goes. I think the parts of the problem that has to be solved as we scale has to do with policy and societal acceptance, obviously, building, deploying robots and getting it operationalized. Also integration into services that people use every day that takes effort and time. But as far as the TAM and the total kind of opportunity, I'm very bullish on that. Mike Latimore: Great. And then also now that you're moving towards optimization more trying to increase the daily revenue per robot, what are some of the key takeaways that you've learned just from going through head down on optimization flywheel here? And are there any notable changes given that experience? Ali Kashani: I guess I'm trying to understand the question. Do you want to maybe state that differently? Mike Latimore: Yes, yes. Just from focusing on optimization, I was wondering if there are any key learnings that you can take going forward towards incorporating new robots that you manufacture or just optimizing the rest of the fleet. Ali Kashani: So from an operational point of view, I mean, the learnings come every day. It's about where do you send a robot in the morning. It's about where do you send a robot after it completes the job. It's about what's the range of deliveries you accept because if you accept longer deliveries, that means the robot is spending more time on that delivery. So you need to always kind of balance what's the distance of jobs that you accept and where do you put the limit on that. So there's a lot of interesting variables that are actually very market dependent. And as we go to new markets, we basically have to customize that per market and sometimes even per neighborhood. So I wouldn't say there's anything really large as a learning because we've been out in the market for 7 years or something doing deliveries. It's mostly kind of ongoing learnings and then enabling the platform to do those customizations, so we can make neighborhood-based adjustments. Mike Latimore: Awesome. And then just one more quick one. As you're looking to add robots in the second half, is it mainly going to be current city expansions or through adding new cities? Ali Kashani: Yes, that's a really good question. So we are looking at basically both in the markets we are, but also in new cities and even international. So we are exploring all of them. For example, just last night, City of Vancouver in Canada approved the motion to enable the robots to deploy there in a pilot. That's not a done deal yet. We still have to work with them in the province, but it's very exciting. It would be the very first such deployments in Canada. So we are very actively working on unlocking these new markets and new cities, including some international auctions. And then as any of them firm up, we would obviously make announcements. Operator: [Operator Instructions] And your next question comes from the line of Taylor Manley of Guggenheim. William Taylor Manley: Kind of expanding on that. So you mentioned Vancouver, which is very exciting. More generally, there are some markets that you are in that kind of have established regulatory frameworks such as Los Angeles? Kind of on the flip side, you've highlighted ambitions to enter cities where AV delivery doesn't exist like New York. So kind of how does regulation inform your thinking on which markets to expand to or not, if at all? Ali Kashani: Yes, it absolutely does. Our thinking is if you look at, again, the broader size of the opportunity, there's a lot of places to go and a lot of options to choose from. So we don't need to force ourselves anyway. We want to go to places that are receptive. There are really 3 kind of legs of the stool. You have the permit to operate. You have the demand, say, partners and platforms that we are working with. And then, of course, you have our operational side. We are pretty good at getting our operational set up in a new city. So the other 2 variable is what we focus on to open a new market, which is, are they receptive? Is this a place we want to be? Do they have a framework? Do we need to help them develop it? So there are a lot of investments we are making to kind of create a strong pipeline of markets. And again, that includes both in the U.S. and international. And then at the same time, working with platforms, including new platforms besides Uber and DoorDash, to access the demand in those markets. So these are all investments that we are making simultaneously. William Taylor Manley: Helpful. And then second, any insight on how to think about kind of revenue contribution from fleet services versus software services for the balance of the year? Obviously, software services was pretty strong in the first quarter. So just anything -- should we expect kind of similar mix or any changes there moving forward? Brian Read: Yes. Taylor, this is Brian. So yes, we had a really strong Q1 with respect to software services. And I think we're going to continue to invest in some of those opportunities. In the back half of the year, as we continue to scale up with the revenue per robot per supply hour focus, I think we're going to see more growth on the fleet side. Obviously, we're not going to give guidance with respect to fleet versus software, reiterating and anchoring on the $26 million overall is the objective and monetizing those robots the best we can is our first focus. Operator: And your next question comes from the line of Jeff Cohen of Ladenburg Thalmann. Unknown Analyst: This is [ Destiny ] on for Jeff. I was wondering if we could talk a bit about Moxie and the hospital segment in general. Can you just talk about how you plan on maximizing revenue per hospital or robot and then how that may contribute to the top line and the cadence of how that will contribute to the top line going forward? Ali Kashani: Yes, happy to. There's a number of, again, parts to this. So if you think about it very first principle, the main question is how much are the robots helping the staff in the hospital. So we have very explicit KPIs that we track to make sure that not only are we doing enough, we are improving and increasing the number of tasks and really deliveries that these robots complete, and that's trending always in a good way. And then, of course, as we do that, we can continue to work on the pricing with the hospital networks that we are working with. Often, what we like to do is increase the number of robots because the more productive they are, the more they can support the staff in different ways. So one of the ways to maximize that revenue is to actually increase the fleet size. Brian Read: And Destiny, this is Brian. Just to add on to that. I think to Ali's last point of increasing the fleet size, I think that's an opportunity we have for the remainder of 2026 to support the diligent efforts of the team through additional robots and thus ensuring we can grow that top line throughout the rest of the year. Unknown Analyst: Okay. Perfect. And then one more for me. You've been very successful with M&A over the last several months. I'm wondering if you could hypothesize on what other verticals you think your autonomy stack would be suitable for, but recognizing that you've been clear that you're focused on optimization, not necessarily expanding into other verticals, just theoretically. Ali Kashani: Yes. No, I appreciate that you calling that out. So we, even in the past, haven't been kind of proactively trying to look for expansion. It's been that we are very conscious of where the market is right now. A lot of investment on the private capital side has been made into various sectors in robotics. And right now, it's a very good time for consolidation. So we've been opportunistic, and we found some really amazing opportunities, obviously, Diligent being one of them. So if you want to look at it more broadly, it's really anywhere where robots and humans have to coexist in an environment, but you don't really have control to limit that environment in any way for the robots. For example, in a warehouse, you have a lot of control over the environment, you can tell people how to behave next to the robots because they're all your employees, but in a shopping mall, you don't have that choice; at an airport, you don't have that choice; on a sidewalk, in a hospital. So I would say actually most environments that we are in would classify as that. So any place where robots can help, whether they're moving things or monitoring things or just accessing in general would be a good place for this. And we'll keep our ears to the ground and when good opportunities show up, we'll react. Operator: [Operator Instructions] And there are no further questions over the audio. I would like to turn the call back over to Steve for any e-mail questions. Steve Webb: Yes. Thank you. We have one e-mail question, which is, what is the status of DoorDash? What's your relationship with DoorDash? Ali Kashani: I can take that one. So a lot of great progress there. Our delivery volume with DoorDash has been growing faster than other partners. It's been about 6x in terms of merchant count just since the beginning of this year. So we are seeing really good momentum, and we are going to continue to build on that momentum. Steve Webb: And that wraps it up. Thank you, everyone. Operator: That concludes our session for today, ladies and gentlemen. Thank you, everyone, for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance First Quarter 2026 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead. Quinlan Abel: Thank you, operator. Good evening, everyone, and welcome to the Runway Growth Finance Conference Call for the first quarter ended March 31, 2026. Joining us on the call today from Runway Growth Finance are David Spreng, Chief Executive Officer and Chief Investment Officer of Runway Growth Capital LLC, our investment adviser; Tom Raterman, Chief Financial Officer and Chief Operating Officer; and Carmela Thomson, our Senior Vice President, Finance and Accounting. Runway Growth Finance's first quarter 2026 financial results were released just after today's market close and can be accessed from Runway Growth Finance's Investor Relations website at investors.runwaygrowth.com. We have arranged for a replay of the call to be available on the Runway Growth Finance web page. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, without limitation, market conditions caused by uncertainties surrounding interest rates, changing economic conditions and other factors we identify in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate. And as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of SEC-related filings, please visit our website. With that, I will turn the call over to David. David Spreng: Thank you, Quinlan, and thank you, everyone, for joining us this evening to discuss our first quarter 2026 results. Today, I will highlight notable developments from the quarter, provide an update on recent leadership appointments and offer additional color on our approach to software investments. Then Tom will take a deeper dive into our financial performance and portfolio metrics. I want to start by saying I am truly excited about the closing of the SWK transaction last month. It is a milestone moment for our investors and our team. In tandem with the closing of the deal, we are pleased to welcome JD Tamas as a Managing Director of Healthcare and Life Sciences Investing, where he will leverage his extensive expertise to further strengthen our investment platform. This acquisition has already strengthened our position in health care and further diversified our portfolio. JD's appointment is both a logical progression and a great opportunity as we further optimize our portfolio in the coming quarters. I would also like to congratulate Avisha Khubani on her promotion to Chief Credit Officer of our investment adviser, Runway Growth Capital. Since joining Runway in 2018, she has held a range of roles across portfolio monitoring and management, analytics and valuation, bringing a deep understanding of our portfolio and credit discipline to this position. In addition, we are announcing today that Tom Raterman, our CFO and COO, who joined me shortly after I started the firm, will become Vice Chairman of Runway Growth Capital effective June 30, 2026. He will be stepping back from his day-to-day roles at the BDC, including as CFO and COO, to focus on strategic initiatives that include portfolio optimization, platform-level M&A, capital market transactions and capital formation. Tom will continue to play an integral role for the BDC, serving on our investment committee and assisting with special situation assets. In tandem with this news, we are very pleased to share that Carmela Thomson, our SVP, Finance and Accounting, will become CFO at that time. Carmela joined our firm in June 2021 from KPMG and played an integral role in our IPO later that year. Since then, Carmela has contributed meaningfully to our financial reporting processes and capital raising efforts and has managed important aspects of portfolio accounting and operations. Carmela's experience and expertise give her a strong understanding of Runway's financial strategy, capital structure and portfolio construction as we enter our next phase. Lastly, I am energized to be returning to the role of Chief Investment Officer of our adviser. Our efforts since joining the BC Partners Credit platform have put the right pieces on the chessboard, and now we're going to work with this refreshed team to maximize returns for our shareholders. To that end, I'd like to thank Greg Greifeld for his dedication over the years at Runway and wish him well in his future endeavors. We are confident in this experienced leadership team and the contributions JD, Avisha and Carmela will make, strengthening our origination and investment capabilities and financial operations and supporting our ability to deliver superior risk-adjusted returns. Turning to our portfolio activity for the quarter. It is important to note that as we work to close the SWK transaction, we temporarily slowed our evaluation of new opportunities in the pipeline to focus on integrating the SWK portfolio and post-transaction balance sheet. With the transaction now behind us, we are positioned to be very selective in capitalizing on a robust pipeline moving forward. We are even more confident in our ability to source high-quality investments across our core sectors, technology, health care and select consumer products and services. In the first quarter, Runway delivered total investment income of $29.5 million and net investment income of $10.6 million. During the quarter, we completed 4 investments in new and existing portfolio companies, representing $17.6 million in funded investments. We also completed an additional debt commitment of $46.3 million, which will be partially funded during the second quarter of 2026. These investments included the following: first, the completion of a new $7.5 million investment to HR Pharmaceuticals, a founder-owned medical products platform specializing in the development, manufacturing and supply of branded consumable products serving the acute and home care markets. We funded $5.5 million at close, along with $2 million of preferred equity financing. Second, we completed an additional debt commitment of $46.3 million to $0.13, a digitally native fragrance brand, which we expect will be partially funded during the second quarter of 2026. Finally, we completed 3 follow-on investments with an aggregate amount of $10.1 million to 3 existing portfolio companies. Subsequent to the first quarter, we continue to evaluate compelling opportunities that meet our high standards while strategically increasing our exposure to innovative health care and life science companies with durable long-term business models. We look forward to updating you on these opportunities in further detail as appropriate. Turning to the ongoing market dynamics facing the sector. As discussed during our fourth quarter 2025 earnings call, the recent debate around software and AI disruption has contributed to increased scrutiny of private credit and has been further compounded by headlines around elevated redemptions in evergreen funds. While media coverage has leaned into this narrative, it has failed to recognize the resilience of actual credit performance despite macro and rate headwinds over the last few years. Underlying fundamentals remain solid with default rates at manageable levels and broader credit metrics showing stability rather than stress. In terms of the venture market specifically, PitchBook/NDCA finds that activity remains modest overall and robust at the top end of the market with record levels of capital deployed. The data also points to resilience in early-stage investing and sustained interest in high-growth areas like AI. This suggests that while the market is selective, there are clear pockets of strength and opportunity underpinning venture activity. Overall, we believe we are well positioned for strong long-term performance despite the current sentiment, supported by our rigorous investment approach and our seasoned leadership team, which brings decades of venture capital experience. Our confidence is supported by our expanded platform, which is supported by the expertise of BC Partners Credit and further enhanced by the acquisition of SWK Holdings. With the closing of the SWK acquisition, we have meaningfully reconstructed our portfolio with attractive diversification in key sectors like health care with stronger future earnings power. Today, we have a more diversified, balanced and enhanced portfolio with the health care and life sciences sector comprising 32% of the portfolio at fair value. This transformation is an important context as we discuss the quarter's results. With respect to our software portfolio and approach to software investing, we maintain our constructive long-term thesis on software and technology, our diligent approach to portfolio construction and emphasis on risk mitigation. Across multiple economic cycles and market dislocations, our focus on high-quality late-stage companies with proven fundamentals has contributed to the resilience of our portfolio over time. We remain confident in our existing software positions and continue to evaluate compelling opportunities in the sector. Our software investments are high-quality late-stage businesses characterized by mission-critical functions, long diligence and implementation cycles and strong competitive moats, which include deep domain expertise, high switching costs and diversified customer bases. We believe these attributes position our portfolio companies to not only coexist with AI, but to leverage it to optimize operations and accelerate market penetration. We apply the same exceptional level of diligence and rigor in underwriting our software investments that we do to our portfolio at large. We remain confident in our pipeline and optimistic about the year as we realize the benefits of integrating the SWK portfolio and drive stronger outcomes for both our borrowers and our shareholders. Now Tom, over to you. Thomas Raterman: Thank you, David. In the first quarter, we generated total investment income of $29.5 million and net investment income of $10.6 million, a decrease compared to $30 million and $11.6 million in the fourth quarter of 2025. Our weighted average portfolio risk rating increased to 2.67 in the first quarter of 2026 compared to 2.45 in the fourth quarter of 2025. Our weighted average risk rating changed primarily as a result of moving 2 loans, Marley Spoon and BlueShift to Category 5 and nonaccrual status. Our weighted average risk rating calculated without these 2 specific loans moved from 2.67 to 2.37. Our rating system is based on a scale of 1 to 5, where 1 represents the most favorable credit rating. Our total investment portfolio had a fair value of $886.3 million, a decrease of 4.4% from $927.4 million in the fourth quarter of 2025. As of March 31, 2026, Runway had net assets of $438.2 million, decreasing from $485 million in the fourth quarter of 2025. NAV per share was $12.13, a decrease of 9.6% compared to $13.42 as of December 31, 2025. The NAV per share disclosed subsequent to quarter end in connection with the SWK closing of $11.93 primarily reflected estimated transaction costs of $7.7 million. In discussing our NAV for the quarter, it's important to contextualize our go-forward portfolio and the financial benefits of the SWK acquisition. On a pro forma basis, our portfolio is $1.1 billion, more than offsetting the impact of repayments in the Runway portfolio during 2025. It also drives diversification in terms of both industry exposure and the reduction of average loan size by 11%. Healthcare and Life Sciences will now account for 32% of our portfolio and 30% of our debt portfolio compared to 13% and 12%, respectively, at the end of first quarter. And we expect to see a positive contribution to the portfolio's return profile over the balance of the year. Beyond financial contributions, our strength in origination capabilities enhance our ability to source high-quality investments and selectively upsize existing commitments. Moving back to the quarter, we delivered $0.29 per share of net investment income and a base dividend of $0.33 per share. At quarter end, we had spillover income of approximately $0.65 per share. Net investment income this quarter was impacted by the acceleration of onetime deferred debt costs as well as a smaller average portfolio size due to elevated prepayments in the second half of 2025, the effects of which were further compounded by slower originations ahead of the deal close, as we described earlier. Looking ahead to next quarter, we expect contributions from the fully integrated SWK portfolio and a lag in associated management fees to benefit NII by approximately $0.03 per share. However, we expect this benefit will be more than offset by the impact of Marley Spoon and BlueShift being placed on nonaccrual late in Q1. The full quarter earnings impact of these new nonaccruals of $0.06 per share will be reflected in Q2. We are actively working with the management teams at Marley Spoon, BlueShift and Mingle Healthcare and seek to achieve optimal outcomes for the portfolio. These situations are dynamic and in the case of Marley Spoon, very complex and as we've seen in the past, can take time to fully resolve. We do not see any thematic drivers to these recent credit downgrades. There are situations we have been monitoring and decided this was the prudent course of action to take at this time. Although our team puts maximum effort into avoiding these situations, some level of defaults are unavoidable, and we're working diligently to resolve them. With respect to the dividend, we believe that it is currently set at an appropriate level. We are committed to delivering for our shareholders, and our Board continues to evaluate future distributions with the goal of maintaining consistency while maximizing returns. Our debt portfolio generated a dollar weighted average annualized yield of 14.2% for the first quarter of 2026, consistent with 14.2% in the fourth quarter of 2025 and declining from 15.4% in the same period last year. Moving on to expenses. Total operating expenses were $18.8 million, an increase from $18.4 million in the fourth quarter of 2025. We recorded a net realized gain on investments of $1.3 million during the first quarter of 2026 compared to a realized loss on investments of $380,000 during the fourth quarter of 2025. During the first quarter, we experienced full repayment and one partial repayment totaling $15 million, scheduled amortization of $1.9 million and $2.5 million in equity proceeds. We remain focused on maximizing value over both the short and long term and continue to monitor the portfolio closely. Overall, we believe that downside risk is manageable and that our portfolio is well positioned to deliver stable results. Our confidence in the portfolio is supported by several key metrics, which support a more balanced and rightsized mix of investments. Prior to the closing of the SWK transaction, our top 10 investments accounted for 54% of the portfolio and now account for only 43%. When looking at the breakdown of verticals within the portfolio, they are now more balanced across technology, financials, health care and select consumer products and services. And over half of our portfolio companies are cash flow positive, underscoring the strong fundamentals our portfolio is built on. Within our software portfolio specifically, 62% of the companies are cash flow positive. 100% of our loans have financial covenants and the weighted average fair value as a percent of cost, excluding nonaccruals, was 97% and 94% of the loans in our software portfolio are sponsored. Each position in our portfolio undergoes a comprehensive valuation process internally on a quarterly basis and periodically by a third party. For perspective, every material software investment in our portfolio was reviewed by a third-party valuation specialist in Q1. The portfolio was constructed intentionally with 98% first lien exposure and well-diversified exposure across end markets. These results underscore the strength of our software portfolio and the diligence we apply to loans in the space. Please refer to our earnings presentation for additional detail on our software exposure. As of March 31, 2026, our leverage ratio and asset coverage ratio were 0.98 and 2.02, respectively, compared to 0.90 and 2.11, respectively, at the end of the fourth quarter of 2025. Our total available liquidity was $372.3 million, including unrestricted cash and equivalents, and we have borrowing capacity of $370 million under our KeyBank credit facility. On a pro forma basis, immediately following the SWK transaction close, our leverage ratio, asset coverage ratio and total available liquidity were approximately 1.2x, 1.84x and $231.8 million, respectively. As of March 31, 2026, we had a total of $179.2 million in unfunded commitments, which was comprised of $156.3 million to provide debt financing to our portfolio companies and $22.8 million to provide equity financing through our JV with Cadma. Approximately $23.3 million of our unfunded debt commitments are eligible to be drawn based on achieved milestones. On May 5, 2026, our Board declared a regular distribution for the second quarter of 2026 of $0.33 per share. While there may be some variability in earnings on a quarter-to-quarter basis, we're confident in the long-term trajectory of our return profile and the strength of our combined portfolio. Finally, today, we are announcing a new share repurchase program for $15 million, which will expire on May 7, 2027. Thoughtful capital allocation remains a priority and at current levels, we believe Runway's common shares present a highly attractive opportunity. We expect repurchases to be partly funded by proceeds from loan repayments in the coming quarters. With that, operator, we can open the line for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Eric Zwick of Lucid Capital Markets. Erik Zwick: First, David, you mentioned a lot of kind of personnel changes and promotions. And I know Tom is on the line. So Tom, congratulations on your next position, and congrats to any of those else listening online. One, I wanted to start maybe with a question for Tom. Just trying to potentially understand the kind of onetime expenses that may have been recorded in the quarter related to both the SWK acquisition. And also, I think you mentioned some accelerated debt expense as well. Just trying to kind of drill down to maybe what a more kind of core run rate might have been. Thomas Raterman: Yes. There was about $0.02 or $0.03 related to the early redemption of our baby bonds. If you recall, at the end of January, beginning of February, we did a new baby bond offering, and we redeemed our 8% notes. So that's the number there. There were no SWK expenses directly. Most all of those would be capitalized into the transaction. There's -- could be some modest amount just in terms of allocation of personnel that caused our allocations to the BDC change a little bit, but it would be a rounding error. Thanks for the congrats. Erik Zwick: Yes, absolutely. Other one I wanted to ask just along the lines of the new share repurchase authorization, given BlueShift Labs and Marley Spoon moving to nonaccrual and creating a little bit of earnings headwind. Just how do you weigh in your minds, how do you evaluate the use of capital in terms of investing into new portfolio companies that would generate income versus buying back shares? Thomas Raterman: Yes. It's always a tough balancing act between those 2 because purchasing shares at this level at this percent of NAV is immediately accretive. And what really guides that is our excess borrowing base, if you will, and our leverage ratio at the -- that we calculate. So we want to keep those 2 in check. We want to make sure we maintain adequate dry powder. And so we'll just be biased towards -- for the deals that come in for those that have the best risk return trade-off, choose the higher-yielding ones, probably the smaller sized transactions, all within our stated risk parameters. Operator: [Operator Instructions] Our next question comes from the line of Christopher Nolan of Ladenburg Thalmann. Christopher Nolan: Echo congratulations, Tom, on your next move and congratulations, everyone got the step. What was the driver for the unrealized depreciation charges again? I think you addressed it in the comments, but I missed it. Thomas Raterman: So the changes in fair value, the impact on NAV were really related primarily to -- you put it into 2 buckets. About 1/3 or just under 1/3 was related to declines in the market multiples. But the majority of it was related to the watchlist names, primarily BlueShift and Marley Spoon. Christopher Nolan: Great. And I think you mentioned that the drag on earnings from those 2 would be roughly $0.06 a quarter? Thomas Raterman: That's correct. And our watchlist is about 6 names. A number of them are marked at that 50% range. And we think those are very fair marks. Those workouts will take varying times to sort through. They've got different levels of complexity. And so it will take a little bit of time to replace those with earning assets. But there's a game plan for each of them that's being fully adjudicated. Christopher Nolan: Okay. And then turning to SWK. I know you mentioned earlier that in earlier calls that it would be accretive to earnings. Do you have any sort of time frame when you expect it to be accretive to EPS? Thomas Raterman: It should be beginning to be accretive to EPS in Q2 and then fully accretive in Q3. And the reason I say partially accretive is because it closed on April 6 as opposed to March 31. Operator: I would now like to turn the call back over to David Spring for closing remarks. Sir? David Spreng: Thank you, operator, and thank you all for joining us today. We look forward to updating you on our second quarter financial results in August. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Nu Skin Enterprises Earnings Conference Call.[Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, B.G. Hunt, Vice President, Treasurer and Investor Relations. Please go ahead. B.G. Hunt: Thanks, Kelly, and good afternoon, everyone. I'm joined by Ryan Napierski, President and CEO; and by our Interim CFO, Chelsea Lantz. I worked closely with Chelsea for the past 15 years and can say with confidence that she brings both strong financial discipline and thoughtful proven leadership. Today, we'll be sharing Nu Skin's Q1 2026 results and providing guidance for the remainder of the year. Before I turn time over to Ryan, let me point out that on today's call, comments will be made that include forward-looking statements. These statements involve important risks and uncertainties, and actual results may differ materially from those discussed or anticipated. Please refer to today's earnings release and our SEC filings for a complete discussion of these risks. Also during the call, certain financial numbers may be discussed that differ from comparable numbers obtained in our financial statements. We believe these non-GAAP numbers assist in comparing period-to-period results in a more consistent manner. Please refer to our investor website, ir.nuskin.com for any required reconciliation of these non-GAAP numbers. And with that, I'd like to now turn the call over to Ryan. Ryan Napierski: Thanks, BG. Good afternoon, everyone. Thanks for joining us. I'm pleased to report our first quarter results, which were in line with expectations for both revenue and adjusted earnings, reflecting continued progress towards our vision of becoming the world's leading intelligent Beauty and Wellness platform. Powered by our talented global sales leaders. We made meaningful progress in Q1 with the sales leader introduction of Prysm iO and continue to build the foundation for growth in emerging markets in spite of uncertain macro environmental pressures that are impacting consumers and supply chains around the globe. From a regional perspective, we were pleased to see the hard work and dedication of our talented sales leaders across Latin America who delivered sustained growth, and we saw continued improvement in Mainland China with growing leader engagement around our Tru Face anti-aging product rollout. At the same time, a few of our reporting segments remained pressured by broader macroeconomic and industry dynamics. We were pleased with growing brand affiliate confidence and improving trends across several regions as well as year-over-year growth in new sales leaders exiting the quarter, both the which, both of which are indicators of improving energy around Nu Skin's entrepreneurial opportunity associated with our new product innovations. As I've discussed previously, our enterprise strategy is centered around 2 key growth drivers: first, advancing our intelligent wellness platform with our next disruptive innovation, Prysm iO; and second, further expansion in developing and emerging markets, including Latin America, Southeast Asia, China and India. Let me start with Prysm iO. We are seeing encouraging signs in new sales leader development across several markets as our leaders increasingly engage with Prysm iO and continue to build on our leading anti-aging Tru Face brand. These 2 initiatives are providing fuel for our sales force and our efforts to improve channel activation in the first half of the year as we work towards our return to growth in the back half. For more than 40 years, Nu Skin is focused on helping people look, feel and live better grounded in science-based innovation, our leadership-driven opportunity and our force for good culture and community. We have established a strong position in integrated anti-aging science and product innovation led by our ageLOC brand, which has generated more than $15 billion in revenue since its inception. This proprietary gene-based approach to anti-aging remains highly differentiated, and we believe this category will expand further as younger generations increasingly seek youth preservation, integrated solutions across beauty, wellness and lifestyle. As we move into the next chapter of our anti-aging journey, we believe the future will be increasingly defined by intelligent technologies that provide people with personalized insights to help them live better longer. As consumers better understand and look to close the gap between their health span and their lifespan, the need for personalization and biomarker-driven insights continues to grow, aligning directly with our Intelligent Beauty and Wellness platform vision. While nutritional health is widely recognized as critical, the ability to measure it has historically been limited to invasive, complex and slow processes such as blood or serum sampling. As we've learned with other biomarker devices, changing consumer behavior requires simple, fast and easy assessments and real data collection paired with meaningful insights and personalized product solutions. Prysm iO enables consumers to assess a critical indicator of their nutritional health through a simple 15-second fingertip scan to receive a real-time personalized wellness assessment across 4 key domains of health: nutrition, fitness, lifestyle and supplementation. Since our initial introduction of Prysm last December, we've generated nearly 2 million scans from more than 30,000 Prysm iO devices around the globe. Combined with more than 20 million historical scans from our biophotonics scanner, this rapidly expanding data set is strengthening our ability to refine our wellness algorithms, improve assessment accuracy and enhance product recommendations. As Prysm iO adoption increases and more people are scanned, we expect subscriptions to increase, which historically drives significantly higher customer lifetime value. In fact, we're already beginning to see early indicators of this dynamic. On a year-over-year basis, subscription volume is up 5% and the percent of subscribers to total customers is up 14%. We're also seeing continued strength in our broader nutritional ecosystem. Sales of products certified to raise someone's Prysm iO score are outperforming total product sales and our flagship LifePak brand grew more than 10% year-over-year, reinforcing the value of measurement-based wellness and targeted supplementation. We are in the early stages of Prysm iO and as with any new platform, adoption requires training, behavior change and broader market education. We're actively supporting our sales leaders as they shift from using Prysm primarily as a product demonstration tool to positioning it as a household wellness device, one that enables ongoing engagement through personalized insights and recommendations. We believe that every household can benefit from the access to this personal and family wellness assessment tool, and it is our ambition to do just this. This business model transition does create near-term switching costs as our leaders build new capabilities, integrate new tools and shift how they engage customers as they transition from social sellers to Beauty and Wellness consultants. Nevertheless, we believe that this is the right direction to provide wellness consumers what they are looking for as we unlock a more scalable, higher-value model over time. We are encouraged by early feedback, particularly among wellness-oriented communities such as fitness groups, physicians, clinicians and leaders who are positioning Prysm iO as a consultative wellness assessment platform. We're also continuing to integrate artificial intelligence into the Prysm iO experience. Today, AI supports scoring, data comparisons and personalized product recommendations. Future introductions of the platform are expected to provide deeper, more intuitive insights into individual wellness journeys, create a more actionable and data-driven experience over time. Prysm iO is not simply another product launch. It's a foundational platform that connects our anti-aging science product ecosystem, data capabilities, AI insights into our leadership opportunity. While adoption will take time, we believe it will become a defining part of Nu Skin's future. The incorporation of AI across our Intelligent Wellness platform will lead to improving unit economics as we leverage critical insights from data across the business to drive deeper and more meaningful engagement with our customers, affiliates and sales leaders around the globe. Now I'll turn quickly to talk about our second growth driver of expanding further into developing and emerging markets. Nu Skin has historically performed best in developed markets given our premium positioning. However, as consumers and entrepreneurs around the world become more sophisticated, we see a compelling opportunity to broaden our reach across more, a greater diverse set of markets. Latin America continues to be an important and growing region where we are providing our Nu Skin opportunity within reach, maintaining our commitment to science-backed innovation while offering localized product solutions to meet various consumer lifestyles and budgets. This includes refining our sales compensation structure to better align with local entrepreneurial segments by providing earlier compelling rewards for selling products and building their sales teams. We see additional opportunities to scale this model across Southeast Asia and throughout more areas of China, which contain hundreds of millions of emerging consumer segments seeking to look, feel and live better. And our next anticipated major market, India, holds tremendous potential in the future as we apply key learnings in this pre-market entry phase of operations to better understand the need of entrepreneurs and customers in the world's most populous market. We're working to solidify our operations, infrastructure and such ahead of plan -- our planned formal launch by the end of this year. Evolving a premium global brand to a broader market is challenging and requires thoughtful execution. However, finding the right balance that remains true to our core brand promise while helping more people around the world look, feel and live better can unlock meaningful long-term growth. What remains constant throughout all of this is the central role of our independent sales leaders. We are a leadership-driven company, and our long-term success depends on our ability to inspire, equip and align our leaders around these compelling opportunities. Next week, we'll be in South Africa with our top global sales leaders for our Team Elite trip. This will provide an important opportunity to closely engage with them as we share learnings, strengthen alignment and continue building confidence in the future we are all creating together. Now throughout all of this, operating efficiency remains a critical focus for us. We're working tirelessly to sustain growth in gross margin in spite of the headwinds associated with uncertain trade practices, which have placed significant pressures over the past many years. We're pleased with progress to date and are committed to continuing improvements in gross margin through localized manufacturing, portfolio optimization and strategic pricing actions. We will also work to optimize selling expense to reward leadership for growth and maintain disciplined controls on our G&A. This discipline allows us to invest in our strategic growth priorities while ensuring our cost structure remains aligned with revenue. So with that, let me turn some time over to Chelsea Lantz, who's been a key leader for us over the past several years, a valuable contributor to our finance organization. Chelsea has been instrumental in driving cost reductions throughout our organization, and she is now leading us as interim CFO. It's also Chelsea's birthday tomorrow, so we've intentionally synced these 2 things up. So Chelsea, take it away. Chelsea Lantz: Thank you, Ryan, and good afternoon, everyone. Before I begin, I'll briefly introduce myself. I'm currently serving as Interim Chief Financial Officer and have been with Nu Skin for 15 years, most recently as Corporate Controller. In that role, I partnered closely with the executive team on operational efficiency and gross margin initiatives while overseeing the company's global financial operations and financial reporting. I'm excited to continue supporting the business as we focus on disciplined execution and long-term value creation. Today, I'll walk through our first quarter results, provide our outlook for the second quarter and share an update on our expectations for the full year. Additional details can be found on our Investor Relations website. As a reminder, I will be discussing adjusted non-GAAP measures. Reconciliations to the most directly comparable GAAP measures are available on our website. For the first quarter, we delivered revenue of $320.6 million, within the guidance range, including a 1% favorable foreign currency impact. GAAP earnings per share were $0.04, while adjusted earnings per share were $0.14, excluding costs related to our decision to wind down our separate BeautyBio business and other charges. Adjusted EPS was in line with our guidance range. These results reflect continued investment in our key strategic priorities, including the expansion of our intelligent Beauty and Wellness platform through Prysm iO as well as ongoing investment in emerging markets. We believe these investments are important for our future growth, and we're encouraged by our ability to advance these initiatives while maintaining a disciplined focus on operational execution and margin improvement. From a margin perspective, adjusted gross margin was 67.9% compared to 67.8% in the prior year, reflecting a relatively stable revenue mix between the Nu Skin core and RISE entities. Within our core Nu Skin business, gross margin improved to 76.9%, up 20 basis points from the prior year, reflecting continued progress in our operational efficiency initiatives and product mix optimization, consistent with our focus on margin improvement. Consolidated selling expense was 34.3% of revenue compared to 32.5% in the prior year. Within the core Nu Skin business, selling expense was 40.5%, up from 38.7% in the prior year, consistent with our expectations as we continue to focus on rewarding sales leaders' productivity through compensation plan enhancements. Looking ahead, we expect selling expense in the core business to remain around 40% as we continue to prioritize investment in initiatives that support top line revenue growth and sales leader engagement. General and administrative expenses declined by $9 million year-over-year on an adjusted basis, reflecting continued cost discipline while focusing on future investments. As a percentage of revenue, G&A was 29.9%, up from 28.9% in the prior year, reflecting our ongoing investments in technology and emerging market expansion, including India. As a result, adjusted operating margin for the quarter was 3.6%, down from 6.4% in the prior year. We remain focused on improving operating efficiency and aligning our cost structure with the current operating environment while continuing to invest in future growth initiatives. Now I'll turn to the balance sheet. Over the past several years, we have focused on paying down debt to strengthen our balance sheet and improve our liquidity position. During the quarter, we completed a refinancing of our credit facilities, extending maturities through 2031 and improving our overall cost of borrowing. This transaction provides appropriate financial flexibility to support our operating and strategic priorities. Proceeds from the refinance were used to repay existing indebtedness. Consistent with our disciplined capital allocation strategy, we returned approximately $8 million to shareholders during the quarter, comprised of $3 million in dividends and $5 million in share repurchases. At quarter end, we had $137.3 million remaining under our current share repurchase authorization. Looking ahead, we remain in the early stages of our key growth initiatives and are encouraged by early signs of stabilization, including improved brand affiliate and new sales leader trends across several markets. At the same time, we are mindful of potential inflationary pressures impacting consumer sentiment related to macro factors such as tariffs, recent fuel price increases and broader geopolitical dynamics. As a result, we are taking a measured approach as we evaluate the remainder of the year. We are maintaining our annual guidance and expect to provide more clarity following the second quarter. For the second quarter, we expect revenue in the range of $330 million to $360 million, assuming relatively neutral foreign currency impact, reflecting sequential improvement from the first quarter. We expect earnings per share in the range of $0.15 to $0.25, also reflecting sequential improvement. In closing, we were pleased to deliver results in line with expectations while continuing to invest in our strategic priorities. While the near-term environment remains challenging and the financial impact of these initiatives will take time to scale, we are focused on disciplined execution through managing costs, improving efficiencies and positioning the business for long-term growth. We appreciate your continued support and look forward to updating you on our progress next quarter. And with that, operator, we'll now open the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Dave Storms of Stonegate. David Storms: Just kind of wanted to start with Prysm. I know, obviously, this is still very early innings. We're still in the training process for a lot of it. Just maybe any thoughts on what the qualities of a successful leader is having in Prysm? I know you mentioned the more wellness orientation, but is there anything that you're doing or tailoring your training that is going to help them hit the ground running? Ryan Napierski: Yes. I think that's a great question, Dave. To the point, we're seeing different leaders around the world utilizing it differently so far kind of 3 to 4 months in. As I mentioned, the groups that tend to do that tend to convert best are those who are utilizing it as well as a wellness consultative or wellness assessment tool. So part of a bigger assessment, that seems to be a prevailing approach that seems to work really well. For us, it's mostly about providing them with the knowledge of what Prysm is truly measuring from a carotenoid measurement perspective and how carotenoid or antioxidants benefit the body, what sort of against oxidative stress. So there's kind of the product knowledge or the device knowledge. There's the consumer journey knowledge that's necessary to scan themselves to then learn about that scan and then ultimately lead to a subscription of products that work well. And so it's a lot of that is the product training, the behavior training. And then there's kind of the CRM side or the follow-up and kind of the persistency of being with those customers and the like. And so I'd say those are probably the 3 elements on the consumer side. On the business side, because each of these sales leaders, of course, leads the team, and it's important for that team to understand how to do the business with Prysm as well. So there's also a train the trainer approach. So we have certifications in multiple markets today, primarily in Asia, for example, in Japan, Korea, China. We don't have those certifications in place, but we are working on in other markets around the world, but we're working to bring those together based upon best practices out of these other markets. David Storms: That's super helpful. I appreciate all that color. I wanted to -- the other big growth driver here is obviously India. You mentioned that you are having a change of some things on incentives and the like, maybe get some traction there. Just curious as to how maybe aggressive you're being with really trying to grow India. Is it pretty paramount to get off on the right foot here? Or maybe how are you thinking of the growth potential there? Ryan Napierski: Yes. No, I think, in fact, we talk a lot about this because we as we said kind of from the beginning, India is, for us, a very important mid- to long-term market. The direct selling industry in India is still relatively small. It's just over USD 3.5 billion. So it places it in pale comparison to some of the other markets, but it's also the fastest growing. And so we understand that there's a lot of potential there. We also understand there's a lot of room for growth and development, I would say, in that market before it really will see kind of an explosive level of growth, at least for our business model and our product categories that we play in from an intelligent Beauty and Wellness perspective. So I would say it's very important for us to get it right. The reason we really looked at the market in this unique way of a premarket entry for about a year before we actually open doors for formal launch is precisely for us to learn about how to approach the Indian consumer and the Indian entrepreneur, highly educated, highly ambitious fairly conservative on discretionary spend and disposable income still, especially in the premium spaces. We have a lot to learn on our side as well about how to target them at the right level of spend and benefit. By the way, there's a whole host of learnings that we're gathering out of that. So we want to get it right. I think these 12 months or so have been really important for us to dial in manufacturing, quality, logistics and distribution and even product formulas to ensure that they meet the consumer properly, the business model itself aligning that. So I would say, as we look forward, we still anticipate a low, we're not forecasting a lot of revenue into our guide. It's really more learning in 2026. And of course, being so late in the year, we don't have much in the model. And then we'll begin to really ramp up year-by-year as we learn and grow. David Storms: I think that makes a lot of sense. Maybe just zooming out a little bit. You mentioned in your prepared remarks, just some of the macro headwinds. I know Chelsea, you mentioned them as well. I guess trying to think about where the most leverage is here, the consumers that you're catering to, are they most impacted by gas prices, diesel prices? Is there more leverage to the consumer sentiment number? I guess how are you thinking about where we could get the most leverage if we get some clarity over the next 3 to 6 months? Ryan Napierski: Yes. In fact, I just came from this event called Crossroads of the World and listen to some of the leading economic experts around all of this tariff pressure since 2018 and even more recently, obviously, with the conflicts in the Middle East. And it's interesting how, it's a bit of the boiling the frog where we've all been in this hot water for, geez, nearly a decade now, going all the way back to 2018 in the first tariff round. When I step back and realize the impact that has happened over time on our gross margins, on raw materials and how that transfers through to the consumer, we were looking at just general consumer goods post-COVID. And you're talking about average of 16% to 30% inflationary pressures on consumers. I mean that's enormous when we think about that up to 30%, that's 1/3 of paying 1/3 as much again on products. And so we've seen this enormous pressure on consumers. Then you add to that fuel cost, growing fuel costs that impact every good and every part of the wallet of consumers. I think consumers are highly, highly strained around the globe. I think we're still waiting to see the effects of this, and Chelsea mentioned that we're trying to forecast out. Our view is very much we need to continue to innovate our way through, providing greater value to our consumers. largely in the digital space, but also continue to deliver highly efficacious formulas in our Beauty and Wellness. And we're leaning heavily into that side of it to ensure that consumers do feel that they're getting enormous value or at least as great a value as we can provide. But there is that macro pressure that I think just really does hurt margins over time as we know. Chelsea Lantz: Yes. And I'd just add and Ryan talked about this, and I mentioned it earlier as well. As far as our guidance model, we're not currently anticipating a significant impact. But as the increase in oil prices and other macroeconomic pressures are prolonged, then we're monitoring that as well. And we're continuing to look for ways that we can optimize our gross margin to offset and navigate these uncertain times. So not currently anticipating a significant impact, but we're very aware and we're working on plans to mitigate the risk. David Storms: That's great color. I appreciate that. Maybe just one more. And Chelsea, I think you mentioned this in some of your prepared remarks as well, given some of the share buybacks, the dividends, the repayments, balance sheet looks like it's in a good spot, and we obviously push you guys to continue to perform here. How do you think about prioritizing your capital allocation? Is it more of the same where it will be maybe a smattering of everything? Or is debt paydown going to be the primary? Or are you going to look to M&A markets? Just any thoughts there would be very helpful. Chelsea Lantz: Yes. Yes. Thanks for the question, Dave. I would say it remains unchanged at this point. Our priorities are to continue to fund the business, prioritize investment in strategic opportunities to provide value for our customers and our sales leaders. We do maintain a strong liquidity profile, and we did recently refinance our debt, which extended our liquidity through 2031, which we're happy about. So we do continue to look for opportunities to return value to shareholders through dividends and repurchasing shares as appropriate. But as you mentioned, prioritizing our liquidity profile has been important to us. So we will look to pay down the debt, especially with this new facility that we have. Operator: This concludes the question-and-answer session. I would now like to turn it back to Ryan Napierski, President and CEO, for closing remarks. Ryan Napierski: Yes. Thank you. So in summary, we're making meaningful progress on our vision around our intelligent Beauty and Wellness platform, building that out with Prysm iO and expanding further into our emerging markets, both existing and new. Nu Skin's heritage has always been one that's based upon innovation and transformation, and we'll continue to do so as we navigate these uncertain times. We're very encouraged by these green shoots that we're beginning to see with our sales leaders and again, exiting the quarter with new sales leader growth on a year-on-year basis, gives us some more encouragement towards our plans of returning to growth in the second half of this year as we align and engage our leaders. And with that, we'll plan to keep you all updated in the months to come. So thank you for tuning in, and we'll speak with you in the next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the Sweetgreen, Inc. First Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Rebecca Nounou, Vice President, Head of Investor Relations. Please go ahead. Rebecca Nounou: Thank you, everyone, and good afternoon. Speaking on today's call will be Jonathan Neman, Co-Founder and Chief Executive Officer; and Jamie McConnell, Chief Financial Officer. Both will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. The earnings release is available on the Investor Relations section of Sweetgreen's website at investor.sweetgreen.com. I'd like to remind everyone that the information under the heading Forward-Looking Statements included in our earnings release also applies to our comments made during the call. These forward-looking statements are based on information as of today, and we assume no obligation to publicly update or revise our forward-looking statements. We also direct you to our earnings release for additional information regarding our use of non-GAAP financial measures, including reconciliations of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Our earnings release can be found on our investor website. And now I'll turn the call over to Jonathan to kick things off. Jonathan Neman: Thank you, Rebecca, and thank you, everyone, for joining us today. We entered 2026 focused on executing our Sweet Growth Transformation Plan, with a clear priority on strengthening our fundamentals and improving execution across our restaurants. As we communicated last quarter, this work takes time to translate into results, and we expected the first quarter to be the most challenging, given a difficult comparison to the prior year Ripple Fries launch, weather-related headwinds and more work to be done on our transformation plan. While the quarter was pressured, we saw improvement as the quarter progressed with a further step-up in April, reflecting early progress from the actions we have underway through the Sweet Growth Transformation Plan. As restaurant operations continue to improve, we are bringing innovation to market with stronger discipline. Yesterday, we launched Wraps nationwide following a rigorous stage-gate process that validated both the consumer opportunity and our ability to execute in restaurants. Test results were strong, driving incremental traffic from new and returning guests while expanding our ability to serve more occasions. Now turning to results. For the first quarter of fiscal 2026, revenue was $161.5 million, with comparable sales down 12.8%. We opened 4 net new restaurants, including 3 Infinite Kitchens. Restaurant level margin was 10% and adjusted EBITDA was a loss of $8.1 million. As we moved into April, traffic trends improved, supported by stronger execution in our restaurants, the performance of our Chicken Sesame Crunch Bowl and early contribution from Wraps in test markets, which ran in about 1/4 of our restaurants, including New York, our largest market. This reflects a deliberate sequencing, strengthening operations first to build a more consistent foundation and then layering in menu innovation to drive more durable traffic. New York is an important example of the progress we are beginning to see. Given its significance to our footprint, it has been a key focus as we strengthened leadership, improved Head Coach stability and drove more consistent execution through Project One Best Way. While we still have work to do, transaction trends improved in April, supported by better operations in the Wraps test. We view the progress in New York as an early signal of how the broader system can respond as we continue to execute through the Wraps launch and beyond. We know there is more work ahead of us, and we remain focused on executing against the 5 strategic priorities under our Sweet Growth Transformation Plan: one, operational excellence; two, food quality and menu innovation; three, personalized experience; four, brand relevance; and five, disciplined profitable investment. Starting with operational excellence, which remains the foundation of our ability to deliver a consistent, high-quality and hospitable experience for our guests. We continue to strengthen consistency across the system through Project One Best Way, which defines what great looks like at Sweetgreen across craveable food, hospitality, operational flow and people culture. The program is grounded in both customer and restaurant level performance data and is focused on building scalable systems and routines that allow every restaurant to execute at a high level, not just the best ones. Work like this takes time to translate into results, but we are beginning to see improvement in several key operational metrics, including throughput during peak periods, ingredient availability and fewer quality complaints, reflecting stronger operational readiness across the fleet. At the same time, we recognize there is still meaningful opportunity ahead, and we will continue raising the bar as performance improves. That stronger foundation has been critical as we move into the national rollout of Wraps. We have taken a disciplined stage-gate approach to get here with teams spending months in development and testing, including extensive work in restaurants to build capability, train teams and ensure operational readiness. One of the core principles for our Wraps experience is that the first bite should be the best bite. To deliver on that consistently, we refined our preparation process through multiple rounds of testing and iteration, including in-restaurant ops shakedowns to validate equipment, positioning and workflows. This work ensured we can deliver on quality while maintaining throughput at peak. We then validated the concept through a multi-month market test across approximately 70 restaurants, where we saw strong guest response alongside solid execution in the field. The energy in the field is strong, and we are encouraged by how teams are performing out of the gate. Our focus remains on execution, ensuring every wrap is made right, throughput is strong and the guest experience is consistent from day 1. This quarter, we brought our New York market head coaches together for an Impact Day focused on reconnecting our restaurant leaders to the guest experience through culture and hospitality. Two weeks ago, we also brought our area leaders together for a 2-day summit to reinforce consistent execution across markets. The focus was on 3 major themes: strengthening head coach performance, building the culture of hospitality where speed and service work together and delivering consistent food quality that drives repeat visits. Together, these sessions are helping create greater alignment on the experience we want to deliver and the standards required to deliver it every day. To continue this focus, we will bring our head coaches together for impact days across our remaining regions in the coming weeks. What stood out most to me from Impact Day and the Area Leader Summit was the importance of the connection between our restaurant support center and our field teams. Delivering a better guest experience starts with strong alignment between the teams closest to our guests and those supporting them. Our head coaches and area leaders are closest to day-to-day operations and their input is critical in helping us refine how we deliver on our standards across food, hospitality and operations. The best ideas come from our restaurants. Building on that operational foundation, one of our key priorities this year is menu innovation, led by the national launch of our Wraps platform. This represents our most significant menu expansion in several years, designed to expand occasions and introduce a more accessible entry point into the brand. We launched Wraps with a core lineup of craveable flavors, including the Classic Chicken Caesar, Chicken Jalapeno Ranch, and Cali Chicken Club, along with the limited-time KBBQ Chicken. We started with our food ethos, delivering flavors through ingredients that don't just taste good, but also make you feel good. That means preparing seasonal ingredients from scratch every day, cooking our grains, vegetables and antibiotic-free proteins without seed oils and using no artificial flavors, colors or dyes. We were intentional about every component of the wrap, starting with the tortilla. Early in development, we were unable to find a tortilla in the foodservice market that met our standards. So we partnered to create one made with only 4 ingredients: extra virgin olive oil, unbleached and unenriched wheat flour, sea salt and water, with no preservatives. Guests can taste and feel the difference with social reviews consistently highlighting the quality and flavor of the tortilla. The energy around the test leading into yesterday's launch has been incredible. Wraps are already appearing in a meaningful share of social content tagging Sweetgreen with positive sentiment of around 85%. Guests are responding to the value with entry price points starting at $10.45 and ranging up to $14.95. This launch is supported by one of our largest social marketing campaigns to date, partnering with hundreds of micro and scaled creators who authentically represent culture to drive awareness and engagement across a range of diverse communities. Our confidence in Wraps is based on the results we saw in testing. Over a multi-month period across approximately 70 restaurants in New York, the Midwest and Los Angeles, Wraps drove incremental traffic from new and returning guests, helped reengage lapsed customers, and showed strong repeat behavior. We are pleased with the combination of incremental traffic and improved customer retention, reflecting strength as a new platform and expanding how guests engage with the brand. Importantly, execution remains strong with throughput maintained and lower-than-average guest complaints. Taken together, these results give us confidence in both the strength of the Wraps platform and our ability to scale it nationally. We are also continuing to innovate and strengthen our core menu. The Chicken Sesame Crunch Bowl, which launched in March, is already our second-highest mixing salad and contributed to improving trends as the quarter progressed. It is now a permanent menu item, reflecting strong guest response. At the same time, we have rebuilt our pipeline of both core and seasonal innovation for the balance of the year, including summer and fall menu updates, new core offerings, continued expansion of the Wraps platform and upcoming collaborations with leading chefs, bringing distinctive chef-driven flavors into the menu that reflect the core of our brand. This approach allows us to stay relevant with our existing guests while continuing to bring new guests into the brand. I'm encouraged by the product innovation we're bringing this year as well as the progress we're making to elevate the quality and consistency of our core menu. We've continued to see an increase in salmon entree sales following our internal Miso My Salmon campaign, which was designed to sharpen execution and elevate quality across the system. We've taken the same approach to our other core menu ingredients. For example, we've refined our measurement of protein cook cycles and hold times to ensure dishes are served at peak freshness and have elevated 7 of our core ingredients like romaine, quinoa, carrots, napa cabbage slaw and breadcrumbs. This remains an area of focus as we continue to drive greater consistency across the fleet. Looking ahead, we will begin testing a rearchitected pricing ladder in late June. Central to this work is the introduction of clear entry price points and a new Create Your Own construct that is designed to deliver greater price clarity and a more intuitive ordering experience. Together, these efforts will make pricing clearer and make it easier for guests to choose and order, supporting incremental transactions across price points. We are pacing these initiatives deliberately using disciplined reads on guest response and P&L impact to guide rollout decisions with a focus on bringing more guests into the brand and increasing frequency over time. Turning to our personalized digital experience. Our strategy focuses on deepening our connection with customers, driving engagement and increasing customer lifetime value through more targeted one-to-one interactions. At the center of this strategy is our SG Rewards loyalty program, which enables us to deliver personalized offers, incentives and experiences that make it easier for customers to engage with the brand while driving frequency and spend. At the beginning of the year, we introduced our Craving of the Month program, a key pillar within SG Rewards and a loyalty-exclusive limited time offer available through the Sweetgreen app at a compelling value. The retention and incremental spend signals are encouraging. Of guests who redeemed a Craving of the Month offer, we see higher frequency and higher net average revenue per user. We also see that this program draws in at-risk and lapsed customers, while driving incremental visits with lighter frequency cohorts. While still nascent, this exclusive platform within our loyalty program is helping us win back customers, drive incremental transactions and incremental spend. Later in the second quarter, we will introduce lower redemption thresholds to our loyalty program, designed to be achievable in fewer visits, making the program more accessible and engaging for a broader set of customers. These new redemption thresholds will include a $3 credit at 700 points, a $5 credit at 1,200 points, and a free wrap reward at 2,000 points. Based on the current customer redemption behavior, we expect these changes to drive increased loyalty engagement and higher visit frequency, especially in our lower frequency customer cohorts. Before I close, we are excited to welcome Ryan Slemons as our new Chief Development Officer. Ryan brings deep experience across real estate, design, construction and portfolio management with a strong track record of scaling high-quality growth across leading retail and restaurant concepts. His focus on thoughtful design and site selection will be critical as we expand our footprint, reimagine our spaces and create better experiences for our guests and team members. We will also reinforce discipline around build-out costs and capital allocation, supporting consistent high-return unit growth. To close, while the quarter was pressured, we are still in the early innings of our transformation, and we are beginning to see signs that the actions we are putting in place are gaining traction. We are seeing improvement in execution across our restaurants, greater consistency in the guest experience and stronger alignment across our teams. The progress through the quarter and into April, along with the energy in the field, reinforces that we are focused on the right operational priorities and building a stronger foundation for Sweetgreen. I want to thank our restaurant teams for leaning in and embracing the higher bar we are setting on hospitality and execution, especially as we build momentum coming out of our recent Area Leader Summit. At the same time, we are operating with greater focus as we rebuild the top line. The national launch of Wraps is an important step forward and a clear example of how we are approaching innovation differently. We took the time to test, learn and ensure we could execute at a high level, and the early response gives us confidence in the opportunity to drive incremental traffic and expand into new occasions. As we move through the year, we will continue to build on this foundation by improving execution, refining our menu and pricing architecture, strengthening the guest experience and driving greater discipline in our investments. As these actions take hold, we expect to see stronger restaurant level performance over time. We are confident in the path we are on and in our ability to build a more consistent, profitable and durable Sweetgreen brand. With that, I'll turn it over to Jamie. Jamie McConnell: Thank you, Jonathan, and good afternoon, everyone. First quarter results were below our expectations with comparable sales down 12.8%. As Jonathan outlined, we saw improvement as the quarter progressed with trends continuing to improve into April. Sales in the quarter were $161.5 million compared to $166.3 million a year ago. The decline in comparable sales were driven by an 11.2% decrease in traffic and a 2.3% decline in mix, partially offset by approximately 70 basis points of menu price. Traffic was impacted by weather and a difficult comparison to the prior year Ripple Fries launch, which created a headwind to both traffic and mix. Mix declined in the quarter, reflecting strategic promotional offers to reengage guests as well as the transition to SG Rewards. Traffic improved sequentially through the quarter, supported by menu innovation and targeted loyalty offers with improvement continuing into April. As we look ahead, we expect comparable sales trends to improve as we continue to execute our transformation plan with Wraps now launched nationally. The comparisons also become easier as we move through the year. Restaurant level margin was 10%, down from 17.9% last year. Food, beverage and packaging costs in the quarter were 29% of revenue, an increase of 250 basis points year-over-year. The increase was primarily driven by higher ingredient usage, portion investment and targeted pricing and promotional investments, partially offset by supply chain saving initiatives. Ingredient usage was a headwind of approximately 140 basis points year-over-year. We have taken initial steps to improve visibility into these drivers for our field teams, which is helping us better identify and prioritize the opportunities across the system. Our focus is on improving the flow of food in our restaurants from receiving orders to inventory management, prep and ensuring accuracy at the point of sale. While we are still early, we see this as a meaningful opportunity to improve consistency and reduce variability over time. We are taking a disciplined approach. While we have made progress on visibility, there is more work to do to strengthen the tools and processes that support the field. This requires alignment between the systems and how our restaurants operate. So we are being thoughtful about how we evolve and roll this out to ensure it works effectively in our restaurant and delivers consistent results. For the second quarter, we expect food, beverage and packaging costs to be in line with the first quarter with pressure from weather-related produce costs as well as fuel surcharges. We expect the produce-related pressure to be transitory and largely concentrated in the quarter. First quarter labor and related expenses were 31.4% of revenue, an increase of 250 basis points year-over-year. This was primarily driven by sales deleverage and wage inflation. In our restaurants, we are focused on getting the right labor in the right place at the right time with work underway across staffing and scheduling to better align labor to demand throughout the day, particularly during peak hours where better coverage supports throughput and the customer experience. For the second quarter, we expect labor cost to be in the low 29% range, reflecting low single-digit wage inflation. Other operating expenses for the quarter were 18.5% of revenue, an increase of 110 basis points year-over-year, driven primarily by sales deleverage. G&A expense in the quarter was $29.3 million, a decrease of $9.1 million year-over-year. The improvement was primarily driven by lower stock-based compensation and reduced salary and benefits following our 2025 headcount reduction initiatives. Underlying support center costs, excluding stock-based compensation and onetime expenses, was $23.2 million, a decrease of $4.5 million year-over-year. We are maintaining discipline in support center spending while continuing to invest in the capabilities that matter most to the transformation. Net income for the quarter was $125.8 million compared to a net loss of $25 million in the prior year. This was primarily driven by a onetime gain from the sale of Spyce, which closed during the first quarter of 2026. Adjusted EBITDA was a loss of $8.1 million compared to a gain of $285,000 last year, driven primarily by lower restaurant level profit. We ended the quarter with $156.8 million in cash. During the quarter, we opened 4 net new restaurants and ended the quarter with 285 restaurants, of which 33 restaurants are powered by the Infinite Kitchen. Now turning to fiscal year 2026 guidance. We are reiterating our same-store sales guidance with Wraps now and Sweetgreen restaurants nationwide and comparisons easing. We expect same-store sales to be a decline in the range of negative 4% to negative 2%. We expect restaurant level margin to range from 14.2% to 14.7% and adjusted EBITDA to range between $1 million and $6 million. On unit growth, we now expect to open approximately 13 net new restaurants this year, reflecting 18 openings and a handful of lease-related closures, where we mostly see an opportunity to strengthen nearby locations. Our development pipeline is equally weighted this year and nearly half of our openings will feature the Infinite Kitchen. To close, we are still early in our transformation work, but we are beginning to see progress from the actions we have taken. As execution improves and we bring more discipline to how we operate and invest, we expect to see more consistent performance over time, supported by initiatives like the national launch of Wraps as we rebuild top line momentum and improve restaurant level economics. Our focus remains on strengthening execution in our restaurants, restoring traffic and managing cost and capital discipline. With that approach, we are focused on building a more consistent and profitable Sweetgreen over time. And now we're happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Jeff Bernstein with Barclays. Unknown Analyst: Great. This is Pratik on for Jeff. Very encouraging to hear the April traffic trends improving. And in the release, you referred to the momentum you have. Could you just level set with us what degree of improvement you've been seeing? It'd just be helpful to get kind of an embedded assumption from you for how you see the rest of the quarter playing out, even if you're not explicitly guiding to a comp number in the second quarter? Jamie McConnell: Yes. So we saw January and February -- starting with Q1, we saw some pressure with the weather. But as we moved into March, we saw about 100 basis improvement in transactions. We also have price fully rolling off, and we had some mix headwinds due to some of the promotional activities and as we launched SG Rewards. And in April, we improved to about a decline of negative 8%. And we just launched Wraps. And so we're excited about our launch from all the results that we saw in the testing, and we expect that Q2 to land around negative 4%. Operator: Your next question comes from the line of Brian Bittner with Oppenheimer & Company. Michael Tamas: This is Mike Tamas on for Brian. You talked about the improving operations and also like the incrementality from Wraps. So I guess, can you maybe just help us understand what that incrementality look like from the Wraps? And then as the year unfolds, you're talking about doing more menu innovation, but also having all of these improvement in operations that you've done so far and more to come. So what guardrails are you putting in place to sort of make sure that the operations don't deteriorate as you step up that amount of menu innovation? Jonathan Neman: Sure. Thanks for the question. So as it relates to Wraps, as I mentioned in the prepared remarks, we took a very disciplined approach, starting with an ops shakedown, a rapid ops test in 8 stores and then a multi-month stage-gate process in 3 separate markets. And we were able to both understand the operational impacts as well as the customer behavior. While I'm not going to guide to an exact number on incrementality, I'll say that we were very encouraged. It mixed in really well. We saw really high return rates of the Wraps. I think most importantly, customers were really delighted with the quality as well as the price. The Chicken Caesar Wrap, in most -- it starts at $10.45 in certain markets, and no wrap in any market is above $15. So I think both from a quality, craveability and price value, we are really delivering and customers are noticing it. So it definitely is incremental, and that was all before media. But typically, we do see a pretty nice lift once we advertise things, and we have a really one of -- probably our largest social-first campaign going live right now, getting much more awareness in trial. So we're still very early. We launched yesterday, but very encouraged by how it's mixing in, the response and the comeback rate on Wraps. As it relates to operations and menu innovation, we really spent last year instituting Project One Best Way, really building the operational foundation with a focus on people, food, feel and flow. And we've gotten much, much better. We've seen our quality complaints come down significantly. We've seen our in-stock percentages, so like our [indiscernible] go down significantly. So more -- much more in stock. So we feel good about how we're operating there. And the focus has really moved more towards culture within our restaurants and the hospitality and as well as continuing to elevate the quality and consistency of what we do. Given the stage-gate process we have, everything that we're putting out from a menu innovation perspective, both has to meet our ops sandbox requirements in terms of complexity and number of ingredients and any incremental labor hours, but also has to go through a stage-gate process to make sure it doesn't disrupt our core operation. I think, if I can leave you with anything, it's we are -- the most important thing we are focused on right now is the fundamentals of delivering an excellent customer experience. And the menu innovation is all layered on top of that. And that's what gives us confidence with Wraps and future menu innovation is we believe we've laid the operational foundation to continue to innovate. We have a robust innovation calendar coming for the rest of the year, but done in a way which really limits the complexity for our store teams and should be something that really customers love. So very encouraged by the recent momentum. But as I mentioned, we're still early in the transformation and a lot of work to do. Operator: Your next question comes from the line of Sara Senatore with Bank of America. Unknown Analyst: [ Alzera ] Austin on for Sarah. Just in the line of menu additions, it kind of seemed like protein plates were an important driver back in 2024, but kind of faded moving into 2025. Are there any learnings on how you guys will manage that with Wraps on the menu now just going through the remainder of the year? Jonathan Neman: Yes, that's a good question. One of the learnings is to consistently bring new news to a category. So what you'll see us do with Wraps is not only the launch of Wraps compelling, but continuing to support it with media, but also new news and new wrap builds. So today, we have 3 core wraps, 1 LTO. We have a couple of planned incremental wraps that we will introduce throughout the year, whether that be core or LTO. Today, it's 4 signature wraps, all can be modified. We know customers eventually want a build your own wrap, which is something that we're looking at. And plates have been successful. They've helped us grow our dinner. They have -- some of those plates do exceptionally well like our Miso Salmon plate. And so we do expect to continue innovating on the plates category. So expect some more innovation on plates. It's something that we know our customers love. Operator: The next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia: You've done so much work over the last year in different efforts to improve your value perception. And I'm curious if you have any kind of quantifiable research on how the consumer has recognized that. Do you think you're getting credit for all of the efforts you've done? And what have you done that's really landed well and where were maybe you a bit more disappointed in something that you rearchitected that the customer just didn't really appreciate? Jonathan Neman: Thank you, Sharon. So as you mentioned, we have been working on value perception through a number of different initiatives. I think first and foremost, we are proud of the food we serve. And we believe when we execute on our core fundamentals and deliver a great customer experience that given all that we do within -- from a sourcing and scratch cooking perspective, that we offer tremendous value. Having said that, we do see opportunities to offer more entry-level pricing and kind of a different pricing ladder for different consumers to drive acquisition and repeat behavior. So a few of the things that we've done that we believe are resonating. One is Wraps. If you look at the social commentary on Wraps, some of the lower pricing is really resonating, and we are seeing the comeback rate or the return rate of many of those customers as an encouraging sign. Two, we're getting more juice out of our loyalty program, both the core program as well as cravings of the month. We're seeing high adoption of that. And as I mentioned on the call, we're seeing the average revenue of those users be incremental. So it's a good activation for both new customers and lapsed customers, but those customers stick with us. We do not plan on continuing the promo and discount at this level. We do expect to really wean off of this. We are also -- the biggest price moves we're going to make, we're going to go into test come in about a month or so on a whole kind of pricing architecture change, which I described in the prepared remarks, both on our Build Your Own framework as well as testing some more entry-level pricing. As it relates to data to quantifiable research, we have now done a baseline on price value. And over coming quarters, we'll share more on how that has changed. But to leave you with anything, really the focus is delivering on the fundamentals and delivering a great customer experience. And when we do that, the food -- what we offer is really worth the money, and we're proud of that. Operator: The next question comes from the line of Jon Tower with Citi. Jon Tower: I just maybe you can help us think through, there's a lot of moving parts on the business right now and whether it's Wraps or changing the pricing architecture in the future. Like how you're thinking about incremental flow-through going forward for the business? And specifically, with focusing on lower price points, I would assume that check is going to be a little bit lower. Can you help us think through that? Jamie McConnell: Yes. So we still expect flow-through to be around the 40% range. And what we are seeing with wraps is, there is some check dilution, but we are getting the incremental transactions. And what we're also seeing is the prep for the produce that goes into the wraps is less and also the waste is less. So we're actually seeing favorable cost of goods sold on our wraps even with the lower price point. And so as we test, when we look at the menu price architecture, that's something that we're going to be very careful and sequenced about, and that's why we've paced every kind of discount and promotion that we've done because we want to measure the results and making sure that we get the return. So staying with the price architecture, we're going to be disciplined about that approach and make sure that it's working. Operator: Your next question comes from the line of Andrew Charles with TD Cowen. Zachary Ogden: This is Zach Ogden on for Andrew. So for the full year restaurant level margin guidance, it does imply about 100 basis points, maybe a little bit more in the second half of the year in terms of leverage. So can you talk about the drivers that will get you back to that margin level leverage? And then maybe talk about any pricing plans as a part of that? Jamie McConnell: Yes. So when you look at our margins for the quarter, about half of it is sales deleverage. And then we also have wage inflation of about 40 bps, but the remainder is really within our control. And so there's a lot of work being done behind the scenes, especially as it relates to cost of goods sold. And so we have just introduced visibility to the field on the waste by the different categories, but there's still a lot more work to be done to make sure that they're ordering the correct amount, they're prepping the right amount and that we're giving them the tools to be successful to properly do this. So we've just unlocked the visibility, but we plan to unlock the tools through the back half of the year, but we are seeing quarter-over-quarter improvements. And so also within labor, we have a labor study going on right now. And so we are looking at our labor as well and making sure that we have the right people staffed during the peak hour to drive the throughput and make sure that we're getting sales leverage on those transactions. So a lot of work being done behind the scenes on the margin. Operator: Your next question comes from the line of Rahul Krotthapalli with JPMorgan. Rahul Krotthapalli: Can you update us on where you are in the efforts around reestablishing like the coolness factor, if you will, on the -- as you continue to be a premium and aspirational brand while also being affordable and making progress in democratizing wellness and mindful eating? And I have a follow-up. Jonathan Neman: Thanks, Rahul. Yes, one thing I'll just point to broadly is last year, we really rebuilt our leadership team. And underneath Zip, our Chief Commercial Officer, have rebuilt much of our marketing and brand team. So we are taking a new approach to how we invest in the brand and leaning more into the lifestyle elements. The first thing that I think builds a brand, and our team hears me all the time is word of mouth on delivering a great experience in our restaurants. So first and foremost is just executing on excellent customer experience and living up to our promise around consistency, quality and hospitality. But we're also leaning into some new things. For example, with our Wraps launch, you'll see a different kind of launch with us more of a bottoms-up approach with social-first content really and other moves getting into culture. As you move into the summer, you'll see us do some really cool things leaning into some collaborations in both culture and -- both culture broadly as well as chefs, something that we've done in the past that definitely resonates with our guests. And you're also seeing us do a lot more kind of events in real life. Even tonight, we're celebrating our Wraps launch with an awesome event here in Los Angeles at our Silver Lake restaurant. So much more with creators, influencers, storytelling and leaning into the lifestyle elements of the brand. So expect to see more as the year continues. Rahul Krotthapalli: And then the follow-up is on the owned digital customers, like approaching 40% is good to see. Any insights you can share around the frequency of these customers? I know we spoke about the monthly active users in the past. How is this cohort interacting with the brand directionally? Jamie McConnell: Yes. So I would say there's a lot of work being done on our loyalty channel. So that's why we're beginning to see some momentum there, especially within our native channel. And so with the cravings of the month and then the targeted loyalty actions, we are seeing some improvements in our own channel. And we're actually also seeing increases of loyalty users signing up month-after-month. Jonathan Neman: Yes. The other thing where you're seeing the owned -- the other change in the owned digital is we've continued to see really nice momentum on people using loyalty in restaurants from a scan to pay perspective. The scan to pay has reached about 20% of in-store transactions. And that's a positive signal because once we get them into our digital ecosystem, we love them ordering in restaurant, but that gives us the benefit of ordering in restaurant and having a connection digitally where we can market to them directly. So some nice encouraging signs around the frequency, but a lot more work to do. Rahul Krotthapalli: Congrats on the Wraps launch. The KBBQ is my favorite and it's fire. Operator: Our next question comes from the line of Kelly Merrill with Morgan Stanley. Kelly Anne Merrill: I just wanted to continue on with the digital conversation and see if you had anything else to add as percent digital revenue and owned digital revenue saw a nice tick up sequentially and year-over-year. And then just one more I wanted to ask what trends have you been seeing on third-party delivery as of late? Jonathan Neman: Sure. So I mean, just to reiterate what I said before, we've continued to invest in our digital ecosystem. I think it's somewhere where we're probably best-in-class around our digital -- in the digital experience in our restaurants, not only what we do within our app, but how we support it within our restaurants. So we've been very intentional about how to build an omnichannel restaurant where we don't disrupt the in-store experience for those digital customers. And we've done a lot of work on, call it, the back end, where it be our throttle management and working on things like accuracy on time and on-time rates, so people can trust those digital channels. Continue to A/B test features. We've continued to come out with a number of new features within our app, and we have a robust road map across the rest of this year. We actually have accelerated our digital road map, especially given the advent of AI, we can move faster on a lot of those things. So customers really love and trust our digital experience. Remind me the second part of your question? Kelly Anne Merrill: Just on trends in third-party delivery recently. Jamie McConnell: Yes. So trends in our third-party delivery, that is a channel that we're very focused on right now. So we're looking -- there's a number of work streams under place to, one, make sure that we're delivering a great experience. We're not missing items or inaccurate. So we've been working on that as long -- also with our kind of our time to order and pick up. And so there's a lot of work being done behind the scenes. We've seen some good improvement on our native channel and marketing -- marketplace is starting to improve and we're seeing the trends improve into April. Jonathan Neman: Yes. Marketplace, we've seen a huge improvement into April. I think we've optimized both the paid side of the marketplace, but also the -- as Jamie mentioned, the organic side. There's a lot we can do to show up higher in the algorithm, especially around wait times, order readiness and even little things around, call it, SEO management on the marketplace. So getting smarter and sharper there, and we expect marketplace to be a strong growth channel for us as we look throughout the rest of the year. Operator: Your next question comes from the line of Brian Mullan with Piper Sandler. Brian Mullan: Just a question on development specific to next year. Not looking for precise guidance, but really just trying to understand your current appetite to build new restaurants beyond projects that are already underway during the time period that you're going through this fleet transformation plan process. So just how you're thinking about development right now? Jonathan Neman: Yes. I'd say we're taking right now a very disciplined approach, really focused on high return on invested capital restaurants that we have a high level of confidence in. We won't be -- I'd say we don't expect an acceleration in development until we start to see the flywheel working here, comps improving significantly and feel much better about the core operation. But we do -- we will continue to develop new restaurants. We're continuing to work on both the design and prototype of those new restaurants. We're really excited to welcome our new Chief Development Officer, Ryan. So expect a tempered year of development, and we'll come back with more as the year progresses. Operator: And our final question comes from the line of Dennis Geiger with UBS. Unknown Analyst: This is Paul on with Dennis. My first part is just encouraging to see the improvement in April so far. And I appreciate the color that you provided on transactions and pricing. Just wondering if you noticed any shift in consumer behavior during the past few months? And then the second part was just following up on the development pipeline question, particularly over the longer term, what is the future opening mix between entering new markets and penetrating further in existing markets? Jamie McConnell: Yes. In terms of consumer behavior, we are seeing some improvements in our younger cohorts. So the 18 to 35 has really started to pick up, which is good to see. In March, we launched our Chicken Sesame Crunch Salad. That was a huge hit. And then now we have now launched Wraps. So we're hoping to continue to see some of this momentum. And then in terms of development pipeline, I don't know, if there's anything else you want to add. Jonathan Neman: As it relates to development pipeline, we're really focused on, kind of, building out a lot of the newer markets where we have seen success. One of the bright spots in development recently has been a number of those new markets. For example, we entered Phoenix last year. We're seeing about $3.2 million AUVs in that market. We're in Sacramento with about $3 million AUVs. So some really bright spots in some of these new markets, but we still have a number of new markets where we're very lightly penetrated and have a lot of room to grow. So probably not a whole lot of net, like, totally greenfield markets and more building out those lightly penetrated markets so we can get the efficiencies around supply chain operations and brand. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may disconnect.
Operator: Good afternoon, ladies and gentlemen, and welcome to the Tejon Ranch Company First Quarter 2026 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand you over to Nick Ortiz. Please go ahead. Nicholas Ortiz: Good afternoon, and welcome to the Tejon Ranch Company's First Quarter 2026 Earnings Call. My name is Nick Ortiz. Joining me today are Matt Walker, President and CEO; and Robert Velasquez, Senior Vice President and Chief Financial Officer. Today's press release, 10-Q and this webcast are available on our Investor Relations website. A replay will be posted after we conclude. That site is ir.tejonranch.com. Today's remarks may include forward-looking statements. These statements are made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially. These factors are detailed in our SEC filings, including our most recent Forms 10-Q and 10-K. We assume no obligation to update any forward-looking statements. We may reference non-GAAP measures. These measures should be considered in addition to, not as a substitute for GAAP results. Reconciliations to the most directly comparable GAAP measures and reasons why we use non-GAAP are included in today's filings and are posted on our website, again, ir.tejonranch.com. After prepared remarks, we'll address questions. Shareholders were invited to submit questions by e-mail in advance. Now I'll turn the call over to Matt Walker. Matthew Walker: Thank you, Nick. Good afternoon, and thank you all for joining us. Today, I'm going to share my perspective on recent performance, then turn it over to our CFO, Robert Velasquez, who will cover our financials, and then we will answer questions from shareholders. Let me start off by saying we had a good first quarter. Revenues were up 16% from the first quarter of 2025, while operating costs were down 14%, including a $2.4 million reduction in corporate costs. As a result, net income was up $1.6 million and adjusted EBITDA was up $3.1 million with a 12-month trailing adjusted EBITDA of $27.2 million. Looking at adjusted EBITDA by segment on a 12-month trailing basis, Commercial real estate contributed $7.5 million, reflecting steady performance from our income-producing portfolio. Mineral Resources delivered $4.8 million, supported by the strength in water sales and farming contributed $2.2 million. Branch operations added approximately $1 million, benefiting from the increased membership activity. The headline number there is the $2.4 million reduction in corporate expenses, driven by lower headcount and the absence of proxy defense costs. Our first quarter results demonstrate our continued progress against our strategic goals over the past year, in particular, driving stronger cash flows. At the Tejon Ranch Commerce Center, we are especially pleased to report the groundbreaking of a new 510,000 square foot Class A industrial facility developed in partnership with Dedeaux Properties. TRCC is the nucleus of our growth, so we are excited to be moving forward, leveraging our land and our balance sheet to develop an income-producing property, which we expect to complete in the first quarter of next year. With our 2.8 million square foot TRCC industrial portfolio 100% leased, this project further capitalizes on the demand we continue to see along the I-5 corridor. In addition, as of the end of the quarter, our commercial and retail portfolio was 95% leased and the outlet to Tejon was 92% occupied. Terra Vista with 228 units now delivered, ended the quarter 71% leased and is on track for Phase 1 to be stabilized this summer. TRCC's momentum is accelerating. Outlet traffic was up 22% and sales were up nearly 12% in the first quarter compared to last year, with similar gains at our TA Petro Travel Center. We're seeing that the lease-up of Terra Vista and the opening of Hard Rock Casino Tejon are driving greater commercial activity across the center. As we approach our annual meeting next week, I'm looking forward to opening our dates to you and sharing more about the progress we've made and where we're headed. The meeting will be held on site at the ranch with options for virtual attendance. Registration details are in the proxy statement. We hope to see you there. I also want to thank our shareholders for their continued engagement and our Board for their leadership over the past year. With that, I'll turn the call over to our Chief Financial Officer, Robert Velasquez, to walk through the financials. Robert? Robert Velasquez: Thank you, Matt, and good afternoon, everyone. I will begin with a review of our first quarter results, provide some additional detail on segment performance and then summarize our current liquidity. For the first quarter of 2026, revenues and other income, including equity and earnings from unconsolidated joint ventures increased 13% to $10.8 million compared to $9.6 million in the same quarter last year. Turning to segment performance. Commercial and industrial real estate generated $2.8 million in revenue for the quarter, in line with the prior year period. Operationally, the portfolio remains strong. Equity and earnings from unconsolidated joint ventures totaled $1.3 million in the first quarter compared to $1.2 million in the prior year period, reflecting continued earnings growth despite diesel fuel margin pressure within our TA Petro joint venture. Farming segment revenues were approximately $900,000 in the first quarter of 2026 compared to $1.6 million in the same quarter last year. The year-over-year decline was due to lower carryover crop available for sale as we strategically accelerate sales of carryover inventory last quarter to capitalize on stronger-than-anticipated pricing. In addition, we planted 150 new acres of wins in April on top of the 150 acres planted in 2025 as part of our ongoing crop diversification strategy. Mineral resource revenues increased 36% to $3.5 million in the first quarter of 2026, with segment operating profit more than doubling to $1 million. Year-over-year improvement was driven primarily by opportunistic water sales executed during the quarter. Underlying royalty streams across rock and aggregate, cement and oil and gas continued to contribute stable cash flows during the quarter. Turning to liquidity. I'll look at the balance sheet. As of March 31, 2026, cash and marketable securities totaled approximately $19.4 million. Available capacity on our revolving credit facility was approximately $64.6 million. Total liquidity was therefore approximately $86 million. We believe our liquidity position provides sufficient flexibility to continue advancing development initiatives while maintaining balance sheet discipline. With that overview, I'll turn it back to Matt. Matthew Walker: Thanks, Robert. In summary, the first quarter marked a solid start to the year for us. We returned to profitability, demonstrated the value of our diversified business model and continued executing on our long-term strategic initiatives. Looking ahead, we remain focused on several key priorities, including the successful lease-up of Terra Vista, maintaining momentum at TRCC as a premier logistics and distribution hub and leveraging our diversified revenue base to deliver consistent results. With that, we will now respond to the questions that have been submitted. Please just give us a moment to get those pulled up. Nicholas Ortiz: We have received questions from shareholders. I'll start by reading the person who submitted the question and the question itself before turning it over to Matt. So our first question comes from Justin Levo. Matt, thank you for this call, and we greatly appreciate your efforts to date. In prior calls and presentations, the company cited Five Point Holdings as a positive example of the long-term master planned community entitlement and development strategy. As I am sure you know, it took five years to get their Valencia MPC across the line. Valencia has been selling lots for a few years now, yet Five Point stock is significantly lower than it was prior to Valencia's development. Overall, Five Point has been a terrible long-term investment for shareholders, and they've developed some of their NPC projects using the JV structure touted by management. Five Point stock is down 60% over the past 10 years. Howard Hughes is another publicly traded NPC developer, which has also been a terrible long-term investment for shareholders. Their stock is down 35% over the past 10 years. How are these two examples not indictment on the publicly traded master planned community development model? And how can you expect shareholders to buy into the idea of continuing to pursue Mountain Village and Centennial and continue to absorb the millions of costs related to these assets? -- knowing that even if we are able to get these assets across the finish line, the market will not reward this business model or the future cash flows generated by these assets of the question. Matthew Walker: Justin, thanks for your question. This is a humbling job. I thought a lot about some of the comments that I made during last quarter's call with respect to the public master planned community companies. And I'd like to refine my thoughts to some extent. You're right in a lot of what you said in as much as the fact of the fact in terms of investment returns. I don't believe that a joint venture structure is what's driving the other companies' poor performances. For us, I do believe that JVs are a positive tool because they allow us to monetize our land by contributing it to a joint venture while leveraging our partners' capital so that we can preserve cash. And that applies to our strategy on income-producing properties such as the new industrial building that we've just taken underway or for our MPCs. There are many lessons to be learned from looking at other companies, including things that we would do differently. What I can tell you is that I'm very much aware of the issues related to master planned community development, such as the lengthy duration and the capital requirements and the capital reinvestment on top of market cyclicality. But I also see the opportunity with the MOIC and with recurring cash flow. So for me, the takeaway is if we're going to pursue master planned community development as a public company, we need to do it in certain ways that might be different than how a private developer would approach. Nicholas Ortiz: Our next question is from David Spear. Matt, thank you for this call and your continued efforts. According to the trailing 12-month EBITDA table in the release, the company's JV investments, commercial real estate operations and Mineral Resource segment generate $33 million of EBITDA and $26 million of cash flow. These are passive investments in operations that investors typically ascribe immense value to as they can be managed at low costs while generating high returns on invested capital. Companies with similar passive operations such as Landbridge and Texas Pacific Land Trust trade at EV/EBITDA multiples over 30x and have multiple billion-dollar market caps. Companies with smaller market caps such as Aztec Land Company and [indiscernible] Land Association trade at even higher multiples. These have also been highly successful investments for shareholders. Applying 25x to 30x EBITDA multiple would result in a valuation between $800 million to $1 billion for just our income-producing assets. How can we justify pursuing master planned development projects when one could argue that selling them and focusing on our more highly valued assets and operations would result in a stock price that is 3 to 4x the current price? How can we ignore this passive capital-light option, especially considering the real estate development model has historically been punished by the stock market? That's the end of the question. Robert Velasquez: Okay. Thanks. Matthew Walker: Thanks, David. Good comments. You cited some great companies with good business models, and they performed really well in the market. I was planning to cover some of your topics at next week's Annual Shareholder Meeting, but let me give it a shot right now. You're right. Tejon Ranch Company has several business lines and segments that generate significant EBITDA through passive investments. And those businesses share many similarities with the companies that you've mentioned, all of which we've looked at to try to better understand. I should also note that there are certain characteristics of our land that are different than the land owned by the companies that you mentioned. but we also have plenty of opportunity as well. And I'm focused on growing this asset-light part of the business, as you mentioned. I'd rather place an aspirational multiple on some more conservative assumptions, but I think I understand your math. I might also add that our new industrial building is entirely consistent with the strategy that you're advocating and specifically that our JV structure allows us to earn an extremely high MOIC, especially when you look on our multiple on net invested cash. Nonetheless, we continue to believe that there's an immense amount of value to be earned from placing our master planned community project in development. And as I've reported before, this requires external capital, which I committed to shareholders last November that I would seek out, and we're going through that process over the next several quarters. Nicholas Ortiz: Our next question is from David Ross. We applaud the considerable improvements in the cost structure of the company and this effort is appreciated. Yet even with these changes, the company generated just $200,000 or $0.01 per share of earnings. If you add back the interest expense that the company continues to capitalize, GRC is still losing money each quarter and generating negative free cash flow. Given the amount of recurring passive income, we cannot build shareholder value while continuing the non-income-producing costs that are tied to the Mountain Village and Centennial development. These assets generate no income and will require hundreds of millions of future capital investment to eventually generate income. Developing these assets will prevent the company from being able to return capital back to shareholders for at least another decade. If we are focused on shareholder value and long-term share price appreciation, how can you justify holding on to these assets and pursuing the same build strategy? I think we can agree that the strategy has not worked for the last 30 years. On an adjusted basis, farming EBITDA was $185,000. But every year, the company continues to invest in CapEx towards the farming operation. While we understand the nature of fixed water obligations, this is still a cash expense. The farming operation continues to cost shareholders millions per year while factoring in PP&E CapEx and water. Why would we continue to accept these losses? Is there no better alternative for shareholders? The two questions point to the issue of capital allocation. We have been subsidizing these dream projects for decades. At what point does the leadership at TRC consider shareholder return on capital? Matthew Walker: So David, there's a lot there to consider. You've seen me present an economic case for farming in which we back out the cost of water, which we think is the right way to look at the business given our water contracts, which will ultimately support our residential and commercial development. And if you look at the remaining adjusted EBITDA, excluding the water holding cost, the picture for farming is more positive. There are also a lot of ancillary benefits that the company receives from our farming, water is part of it, access to debt capital is another. With that said, we're taking an objective look at our farming business and its ongoing capital allocation. With respect to your other comments and questions, I tried to provide an explanation of that when I was addressing Justin and David's earlier questions on the same topic. Right now, we're continuing to pursue our business plan, as I've discussed, but we will consider all alternatives and look to remain flexible going forward. Nick, do you have any other questions? Nicholas Ortiz: That concludes our questions. Robert Velasquez: Great. Thanks. Nicholas Ortiz: All right. Thank you very much for joining us. Operator, you can conclude the call. Operator: Thank you, sir. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.
Operator: Good day, ladies and gentlemen. Welcome to the Abacus Global Management First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the call over to Robert Phillips, Abacus Global Management's Senior Vice President of Investor Relations and Corporate Affairs. Please go ahead, sir. Robert Phillips: Thank you, operator, and thank you, everyone, for joining Abacus Global Management's first quarter earnings call. Here with me today are Jay Jackson, Chairman and Chief Executive Officer; Elena Plesco, Chief Investment Officer; and Bill McCauley, Chief Financial and Chief Operating Officer. This afternoon at 4:15 p.m. Eastern Time, Abacus Global Management released our first quarter 2026 results. This afternoon's call will allow participants to ask questions about our results. Before we begin, Abacus Global Management refers participants on this call to the Investor web page, ir.abacusgm.com, for the press release, investor information and filings with the SEC for a discussion of the risks that can affect the business. Abacus Global Management specifically refers participants to the presentation furnished today on Form 8-K with the Securities and Exchange Commission and to remind listeners that some of the comments today may contain forward-looking statements and as such, will be subject to risks and uncertainties, which, if they materialize, could materially affect results. For more information on the risks, uncertainties and assumptions relating to forward-looking statements, please refer to Abacus Global Management's public filings. During the call, we will reference certain non-GAAP financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under U.S. generally accepted accounting principles or GAAP. Please see our public filings for additional information regarding our non-GAAP financial measures, including references to comparable GAAP measures. With that, I'd now like to turn the call over to Jay Jackson, Abacus Global Management's Chairman and Chief Executive Officer. Jay Jackson: Thank you, Rob, and good afternoon, everyone. Having had the pleasure of speaking with many of you in the weeks following our fourth quarter earnings call, I will keep my remarks focused and direct. I want to lead with the headline. Based on what we are seeing in the business today, we are raising our full year 2026 adjusted net income guidance from a range of $96 million to $104 million to a new range of $100 million to $106 million, lifting both the low end and the high end of our range. The new range translates into $1 to $1.05 in adjusted EPS. The conviction behind that decision comes from a few drivers we are seeing in real time. We raised $288 million into our longevity funds this quarter on top of the $275 million in Q4. By way of context, we raised $630 million across all of 2025. The step change in fundraising we saw at year-end has carried cleanly into the new year, and our pipeline continues to grow. In Q1 alone, we reviewed nearly 9,000 qualified policies compared to roughly 11,000 across all of 2025. The flywheel is working exactly as designed. Increased assets under management drives origination and our infrastructure is meeting that demand. That near-term visibility is what gives us the confidence to provide a forward quarter guide alongside our full year range. For Q2 2026, we expect adjusted net income of $24 million to $26 million or $0.24 to $0.26 in adjusted EPS. I want to spend a moment in the shape of the year because the pace of our growth over the past several years has obscured a normal dynamic in how we operate. Revenue does not flow evenly across quarters. January is typically our lightest month with activity picking up through February and March, then running robustly through spring and summer. August is generally a slower month for both deployment and fundraising before momentum picks back up in the fall and builds through a strong fourth quarter finish. Q1 ANI came in at $20 million. Q2 is guided to $24 million to $26 million. The back half is historically our strongest, and that is the path to our raised full year range. Bill will walk you through business operations and financial results, and you will see that strength reflected across the metrics that matter. Elena will cover our KPIs and capital allocation. But first, let me set up the 2 dynamics that I believe define this moment for Abacus. The first is the current macro environment and what it means for our asset class. The uncertainty that has characterized Q1 has created a defining moment across the alternatives landscape. Investors are reassessing where they allocate capital. They are moving toward assets that are genuinely uncorrelated from market sentiment and credit cycles. That is precisely what Abacus offers. Our yield is mortality-driven, not rates driven. That means our returns are structurally uncorrelated. And this quarter, that distinction drove capital to us in a meaningful way. Assets under management grew substantially in Q1, fueled by capital inflows from investors who understand that we are not private credit, we are the alternative to it. Now, I want to address something that is important for investors to understand clearly, the relationship between increased demand and purchase discount rates. As more institutional capital has flowed into the asset class, buyers are competing more aggressively for policies. That competition means buyers are paying more for each policy, which translates directly into lower purchase discount rates. I want to be emphatic about this. A lower purchase discount rate in our business is a positive outcome. It reflects rising asset values and expanded long-term spreads on the contracts we already hold, and we believe this dynamic will continue through 2026. The second thing I want to highlight is what I consider one of the most important proof points this company has ever delivered, and it happened this quarter. Our LMA Income II Fund reached the end of its initial term. This is a fund we launched 3 years ago that grew to approximately $115 million in assets under management. At conclusion of its term, we returned capital to every single investor who requested it, 100% on time as promised. Returning investor capital at the end of a fund's term should be the norm. Across the alternatives industry today, it is not. At a moment when restrictions on investor capital have been commonplace, when redemption gates have become accepted norms, Abacus did what we said we would do. And here is what makes it even more meaningful. Approximately 1/3 of those investors chose to extend their investment and another 1/3 reinvested their capital into our new products. This is not just capital retention. That is an affirmation. Investors who had full optionality evaluated this asset, evaluated these funds and chose to put more capital to work with us. That is the strongest endorsement we can receive. Bill will address the balance sheet impact in detail, but I will note that this event reduces debt on our balance sheet by more than $75 million, further strengthening our capital position as we move through the remainder of the year. Looking ahead, I want to highlight 2 transformational growth opportunities that I believe will define the next chapter for Abacus. The first is our investment in Manning & Napier. This relationship continues to progress with real momentum. The strategic alliance and distribution agreements are both taking shape, and we are already working to integrate our respective platforms. Manning's existing infrastructure is robust and well suited to support what we are building together. This is not a passive investment. It is a distribution partnership that we expect to materially expand the reach of our products to a broader base of advisers and their clients. We expect early results from that alliance in Q2, and we'll have more to say as that relationship matures. The second is our securitization program. Following the success of our first securitization, we are actively targeting a second significant securitization in late Q2 or early Q3. Securitization is a powerful tool for us. It allows us to recycle capital efficiently, diversify our funding sources and demonstrate to institutional markets the quality and consistency of the assets we originate. A second transaction in this time frame would represent a meaningful acceleration of that program and further validate the institutional credibility of this asset class. We will provide updates as that process advances. With that, I will turn it over to Bill. William McCauley: Thanks, Jay. I want to cover 2 things. First, how the business operated during the quarter; and second, what our financial results reflect about the momentum Jay described. Then I'll turn it over to Elena for KPIs and capital allocation. Jay covered the headline drivers for the quarter. I want to get into the operational detail underneath them. The deployment volume Jay referenced ran through an origination process that remained highly selective. We reviewed a substantial number of qualified policies in Q1 and closed at a rate consistent with our historical standards. We did not relax underwriting to meet demand. The higher inbound flow simply gave us more to choose from. Elena will take you through the specific metrics, but the headline is that volume went up and quality held. The most direct evidence of how the operational pieces came together this quarter is the cash flow statement. We generated $91.7 million in operating cash flow in Q1 2026 compared to negative $61.6 million in Q1 2025, a swing of more than $153 million year-over-year. That reflects 3 things converging at once: policies on our balance sheet, generating cash through trading and maturities, the LMA Income II Fund completing its initial term and releasing capital and the underlying operating leverage of the platform as we scale revenue without a commensurate increase in cash costs. Cash conversion is the ultimate test of whether the model is working and Q1 passed that test decisively. On the portfolio, the short version is that quality and margin are both tracking ahead of target. Realized gains for the quarter exceeded our 20% long-term benchmark, and our seasoned assets continue to appreciate in line with actuarial expectations. Elena will walk through the detailed KPIs of turnover, weighted average life expectancy and insured age, but the directional read is clean across the board. On LMA Income II, Jay described the fund outcome and what it means for investor confidence. I want to add the financial reporting dimension. Because of the fund's initial structure, we were required under GAAP to consolidate it as debt on our balance sheet. With the conclusion of the fund's initial term this quarter, that obligation unwinds. The result is a reduction in reported balance sheet debt of more than $75 million. I want to be precise about this. It is not a corporate deleveraging event. It is the reduction of a fund level consolidation from our balance sheet. The practical effect is that our reported leverage ratios improved significantly without any change in our underlying capital structure. I will address the specific metrics next in the financial section. Turning to our financial results. Total revenue in the first quarter grew 34.6% to $59.4 million compared to $44.1 million in the prior year period. Growth was primarily driven by strong performance in Life Solutions, which generated $50.6 million, along with continued expansion in asset management fees, which reached $8.5 million, reflecting the growth in fee-paying AUM across our longevity fund strategies. Technology Services contributed $0.4 million, consistent with our continued early-stage build-out of that segment. Turning to expenses. Total operating expenses for the first quarter were approximately $34.8 million compared to $19.6 million in the prior year when excluding the impact of gain on change in fair value of debt and gain on equity securities. The year-over-year increase was primarily driven by higher sales and marketing spend in support of our distribution build-out, along with increased G&A expenses associated with our platform investments, business acquisition and special project expenses. These are deliberate investments in the growth profile of the business. On an adjusted basis, excluding noncash stock compensation, business acquisition and special project costs, amortization and changes in the fair value of investments, adjusted net income for the first quarter grew by 16.6% to $20.1 million compared to $17.3 million in the prior year. Adjusted EBITDA for the quarter grew 33.3% to $32.7 million compared to $24.5 million in the prior year. Adjusted EBITDA margin was 55% for the quarter compared to 56% in the prior year. We are committed to growing the business responsibly, which is demonstrated by our ability to grow revenue and EBITDA by over 30% while sustaining margins in that range. GAAP net income attributable to Abacus Global Management for the quarter was $7.3 million or $0.07 per diluted share compared to $4.6 million or $0.05 per diluted share in the prior year period, representing growth of 59%. Turning to our balance sheet. For Q1, adjusted return on equity was 19% and adjusted return on invested capital was 17%, both improvements from Q1 2025. As of March 31, 2026, the company had cash of $37.2 million, balance sheet policy assets of $392.8 million, and outstanding long-term debt of approximately $330 million. The reduction in reported debt from $405.8 million at year-end reflects the conclusion of the initial term for the LMA Income II Fund I described earlier, which removed approximately $76.7 million in fund level reporting obligations from our balance sheet. In summary, we are very pleased with our strong start to 2026. We delivered meaningful top line growth, sustained profitability and strengthened our balance sheet, all while continuing to invest in the platform initiatives that will drive the next chapter of this company's growth. With that, I'll turn it over to Elena. Elena Plesco: Thanks, Bill. I want to use my time today to walk through 2 things: how our balance sheet performed during the quarter and how we think about capital allocation at Abacus. Turning to the performance of our balance sheet. For Q1, our annualized portfolio turnover was 1.9x, in line with our long-term target of 1.5x to 2x. Our average realized gain was 26% for the quarter. These margins reflect rigorous origination, precise actuarial targets and patience, exceeding our target of 20%. Portfolio quality continues to be strong. Assets seasoned beyond 365 days had a weighted average life expectancy of 46 months and a weighted average insured age of 88 years compared to 45 months and 88 years last quarter. These positions reflect conviction in our underwriting, and we expect them to generate attractive returns as they continue to season. During Q1, we deployed $163.6 million in capital off our balance sheet. Our origination platform reviewed more than 9,000 qualified policies during the quarter, and we remain highly selective. This metric underpins the depth of our pipeline as last year, we have reviewed a little under 11,000 policies total. I want to spend the balance of my time on how we think about capital allocation because I believe it's one of the most important things for our shareholders to understand about this business. We think about capital allocation in 2 categories: operating and investing. Operating capital supports the day-to-day engine of the business. That means purchasing policies, acquiring other operating assets and funding organic growth across our platform. Investing capital is effectively everything else, returning capital to shareholders through dividends and buybacks, pursuing strategic M&A and supporting the growth of our asset management business, whether that means seeding new fund strategies, supporting our securitization program or providing the infrastructure for AUM expansion. These are not competing priorities. They are sequenced deliberately, and our goal is to ensure we always have the flexibility to do both well. When we look at where our capital comes from, the starting point is our balance sheet. We view our active balance sheet, our managed assets, as approximately $450 million in cash and liquid assets that we convert into cash in short order through our normal origination to monetization cycle. That is the core funding mechanism of the business, and it is self-sustaining. We do not need incremental balance sheet capital to grow our core Life Solutions business. Beyond that, we have 2 external levers, debt and equity. On debt, we're currently meaningfully under-levered. Our recourse debt-to-EBITDA ratio stands at around 2x compared to capacity, we believe extends to 4x. That gives us significant incremental borrowing ability to deploy into high-returning opportunities without diluting shareholders. On equities, we're not looking to raise primary capital outside of any potential M&A activity. Our business generates the cash flow to fund its own growth, and we intend to keep it that way. When I step back and look at the business today, the story is straightforward. We have a core origination engine in Life Solutions that continues to perform at a high level, supported by disciplined underwriting and consistent monetization. On top of that, we're building a scalable asset management platform designed to generate growing fee-related earnings for our longevity funds, our ETFs, our asset-based finance strategy and continued expansion of our distribution capability. Since inception, the new vintage of longevity funds has attracted nearly $1 billion in investor capital. Growing fee-related earnings remains a central priority. As we scale fee-paying assets across our strategies, we generate contractual high-margin management fee income without requiring additional balance sheet capital. And our capital allocation framework is designed to ensure that every dollar we deploy, whether into operations or investments is building toward that outcome. We're executing on this deliberately step-by-step with a long-term perspective. And we believe that approach will continue to create value for our shareholders. With that, I'll turn it over to Jay for closing remarks. Jay Jackson: As I reflect on this quarter, what stands out is not any single result, but the convergence of everything we have been building toward. Capital is flowing into this asset class because investors are seeking exactly what we provide: consistent, predictable, uncorrelated returns. Our operational infrastructure is meeting that demand. Our funds are performing, and our strategic initiatives are positioning us to capture a much larger share of the opportunity in front of us. The foundation is strong and the trajectory is clear. These initiatives represent the kind of strategic scaling that moves the company from small cap to mid-cap. We are executing with both urgency and conviction. I want to thank our investors for their continued confidence, our team for their exceptional execution this quarter and our partners for their commitment to what we are building. We look forward to updating you on our progress and delivering on the opportunity this moment represents. We will now turn it over to the operator for any questions. Operator: [Operator Instructions] Our first question will come from Patrick Davitt with Autonomous Research. Patrick Davitt: First on flows. Since you say in the release that the second securitization could slip into 3Q, if that did fall in 2Q, would that be incremental to the $500 million first half inflow expectation? Jay Jackson: Patrick, yes, that would be in addition to that $500 million. Patrick Davitt: Okay. Great. And could you update us on where we are in the SEC process for the interval fund? Jay Jackson: Sure. Thanks for asking. We've been working diligently with the SEC. And while we can't specifically state where and how their specific process timing is, we feel good about potentially being able to make an announcement in Q2. Operator: Our next question will come from Andrew Kligerman with TD Cowen. Andrew Kligerman: Looking at your Slide 11, I thought that was pretty interesting. So it implies that wealth advisers would move from 0 to about 25% of revenue over the next few years. Could you walk us through kind of like a little road map as to how you get to 25% of revenue? Is it Manning & Napier? Is it existing advisers? Do you expect a fair amount of deals? Just curious as to the road map there on that. Jay Jackson: Thanks for asking that, Andrew, and great to hear from you. Yes, our road map to the financial advisory/really private wealth division is really consistent with the premise that it's the build it or buy it. And we have a number of opportunities that we think will come to fruition and help us meet those targets. The Manning & Napier initial investment here, I think, made a ton of sense for us to demonstrate and show the synergies that we've talked about between sourcing contracts, sending them and processing potentially lead gen for them, and then kind of operating those synergies with additional cash flow from both entities. And we're already seeing some success there and very close to kind of finalizing our strategic alliance agreement and the go-forward agreement. And we have a number of additional opportunities in place of registered investment advisers that I think are seeking that same type of partnership, whether that's in a minority position or a full position, full acquisition. And so we're really excited about the pipeline for that. I think we'll see more of that through year-end and certainly more heavily into '27. Andrew Kligerman: Got it. Makes a lot of sense. And then just looking at Slide 27, I thought it was a nice trend to see the days held on the sold policies increased really significantly to 290, which maybe you could share with us the kinds of gains that you have by holding that for quite a bit of time. And then on the flip side, the days held on the owned policies kind of decreased meaningfully to 209. So what are you thinking about both of those metrics as we move forward? Are they right in the band where they should be? Or do you see one of them moving up or down? What are your thoughts going forward? Jay Jackson: Thank you. And I think you nailed it on the last part of the question was that we believe we're in kind of the band where we target. If you look at kind of historically where that's been at, whether it's days held and/or days held via transactions, we're finding a little bit of a sweet spot there. And there was -- in the prior quarter, we saw a little bit of shift where we had taken advantage of some contracts that were very opportunistic and moved a larger percentage of those. But I think historically, where we're trading at right now is kind of where you should see those numbers start to kind of think about modeling going forward, right? I think in the quarter, we were somewhere around 1.9x to 2x on an annual basis related to our book turnover. And I think that's reflective of the opportunities we see in the market. One of the things I'll highlight, though, is that we are seeing significant increased demand for the underlying asset, driven by certainly uncorrelated nature. But if you consider some of the volatility that we've seen in other kind of adjacent asset classes, if you will, this opportunity, I think, in this asset class has certainly been more appealing to institutional investors who are looking for maybe a little bit less yield, but they want that uncorrelated stability nature that these policies represent. Operator: Our next question will come from Mike Grondahl with Northland Securities. Mike Grondahl: I just wanted to ask about the 9,000 policies you reviewed in 1Q '26 versus the 11,000 in 2025. Would you say that's all organic growth, all inbound? Any extra marketing or anything to drive that? Jay Jackson: Sure. Thanks, Mike. It's a very astute pickup. Yes, it is organic. It's also, I would argue, a bit opportunistic from our perspective. And then we're seeing opportunities out there as we continue to have demand and increased capital related to our own funds and certainly other funds, that's driving up supply. And I think what I'm really trying to highlight there is that as we continue to raise capital on our funds, securitizations and some of these other products, sometimes that leads to the question of do we have the policies to support that demand. And I think clear evidence shows in Q1, we do. And some of that's carrying over into Q2, and we're excited about that. So that is organic. We're not necessarily turning up the advertising budget. I think the budget year-over-year was fairly stable in Q1. But instead, I also believe that the work of '25, where we did increase our budget, right, particularly Q3, Q4, you start to see that paying off in Q1 and Q2 and Q3. Mike Grondahl: Got it. And then you talked about rising asset value and the demand for those policies resulting in that lower purchase discount rate. Can you quantify that for us a little bit, Jay? Like, is that worth a point or 2? Or how do we measure that or get a sense? Jay Jackson: Sure. I think the best way to think about it, right, is when you look at the slide related to our gross trade spread margin, right? When you see that number, I think we're plus or minus around 26% for the quarter. That's the best way to quantify it. So even though you might see demand increase, which in most markets, when you have demand increase driving prices up, you would historically see those discount rates or the forecasted purchase rates compressing. In our case, what we're stating is that can actually be a good event for us, right? Because prices go up, we sell at a higher price and that demand then drives additional revenue. And my point is I believe we're going to see more of that, right? When you just look at the cash flows into our owned funds, but then demand from investors who are seeking capital sources that, again, are less volatile and correlated, those kinds of attributes, it becomes a positive outcome for us. So to be specific, if you were to kind of quantify this to kind of a percentage point, I think that's a bit of a challenge because we'll see that happen in any given quarter. But my point is that whether it's 100 basis points or 200 basis points, it's ultimately a positive outcome for us. Operator: Our next question will come from Crispin Love with Piper Sandler. Benjamin Graham: This is Ben Graham in for Crispin Love. I'm just wondering if you could share a little bit more about your current thoughts on M&A, just specifically what types of assets you're most interested in currently? And basically, would it be more on the RIA side, technology or some other areas? Jay Jackson: Yes, sure. Great question. The pipeline is fairly robust right now. And the areas that we're most interested in, you nailed it on the RIA side. We think that there are some very interesting opportunities there. And for us, we're also super selective. We want to make sure that this is the type of platform that meets our expectations culturally, that is profitable. And most importantly, and I think this is the biggest takeaway for any of our M&A, it's got to be accretive. right? It's super important that these opportunities are accretive to us both from an EPS basis, but in addition to that, accretive in relationship to our synergies. We want to show that this is the type of acquisition that's going to help grow the business into '27, '28 because I think that's what our shareholders want us to do. So we're very disciplined in that. We want accretive businesses. When we look at our technology platforms, we're still developing, I think, some very exciting things in-house that in the next probably 60 days, we're going to start announcing certainly at our Investor Day, we're going to roll some of those out that are going to fundamentally have a significant transformative shift in private wealth management. And those types of programs where we're incorporating lifespan into financial planning is starting to happen in real time and adopting different AI platforms to assist with that to accelerate that process is all happening in real time. So if we're looking at technology-type platforms, it's the type of platforms that can provide data and information to our clients that is incredibly useful for a customized solution of whether it's insurance or financial planning, but all related to their longevity data. I just spoke to the Milken Institute on this. And this was a huge, huge talking point because there's $1 trillion of wealth transferring. Our point is, wouldn't the world like to know when that's going to transfer. And you can know that better if you better understand the longevity and lifespan data behind it. So those companies are super interesting to us. Benjamin Graham: Awesome. And then just briefly on the carrier buyback program. I'm just wondering if there's anything new to call out here, new announcements, expectations for the year? And just if anything's baked into the guide there? Jay Jackson: There still continues to be a very high level of interest and structure that we're working directly with carriers on. I think in addition to the buyback, we're also working and speaking with carriers about new product issuance related to our underwriting. So it's amazing how this is really coming full circle in our partnerships and strategic partnerships with carriers as well as reinsurance companies. And when I talk about structure in relationship to a buyback, there's some structural advantages that we're working through with some of our carrier partners that can actually make that buyback more affordable as well as easier to execute on. So we're continuing that program through 2026. And we're also, in addition to that, adding to some of our carrier relationships, even potentially new product sales. Operator: Our next question will come from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: I joined a bit late here, so apologies if anything is repeated. Looking at capital deployed for policy originations on Slide 26, that number for 1Q continues or was ahead again of what we were forecasting. I guess trying to understand in 2025 in the beginning part, it was about $120 million. At these current levels of $230 million in the fourth quarter and $163 million in the first quarter, are you comfortable with this kind of being the run rate? Or are you taking advantage of opportunities? Jay Jackson: Great question. And yes, certainly opportunistic. But I would also add that we had capital demand to meet that capital deployment. Now, if we're modeling to what we think a closer range will be, we have a couple of analysts who have tracked us at a really high number, which isn't necessarily the right way to think about it either. I think where we're tracking is in that [ $130 million to $150 million ] range and certainly had a really nice quarter in Q1. The one kind of KPI we take into consideration is that you could see that number increase over $150 million like we did in Q1, if you see our capital -- gross capital inflows higher, right? So the way that I would think about it is that, that number can be correlated to the amount of demand and capital that we have to put to work. And so I'm hesitant to come out and say, "Oh, model this at [ $200 million" ] because in any given quarter, as I have highlighted, that could change a little bit. And so we're much more comfortable in this kind of guiding to that $130 million to $150 million number. And then if we surpass that by a little bit like we did in Q1, that's great. That's always our target is to exceed expectations. It's also why we raised our guidance. right? We kind of tried to put an indicator out there that says, look, we feel pretty good about what's going to happen in the remainder of '26, including capital deployed. We're comfortable in maybe the higher range of the $130 million to $150 million, and therefore, we'll increase our guidance to reflect that. Timothy D'Agostino: Okay. Great. And then if I can ask a second question on AUM, relatively flat quarter-over-quarter. I understand it's a short period just the first quarter. But as we look at the 2028 guide of $30 billion of AUM, I guess, could you walk us through again how much of that is coming from like organically and how much is inorganic? Jay Jackson: Yes. The purpose there is to get pretty close to like a 50-50 number as we get out to 2028 on organic versus inorganic. And the inorganic would be acquisition and whether that's through some very exciting opportunities on the asset management side in addition to the private wealth side, as I've spoken about before. So that's the way that we're mapping that. We see more of that taking place as we come into '27. But based upon some of the opportunities we have in our pipeline, I will tell you that we believe we're tracking at that number. Operator: Our next question will come from Patrick Davitt with Autonomous Research. Patrick Davitt: I don't think I saw it in the materials, but how much is left on the repurchase authorization? And through the lens of this M&A conversation, could you update us on how you're thinking about the stock here and repurchases from here? Jay Jackson: Sure. Thank you, Patrick. We've deployed plus or minus around 50% of the last $20 million Board-approved buyback. So we still have, I think, some -- a decent amount of powder left to execute on. And we look closely at that. I mean, what you touched on is really important because we look at where we sit on a multiple basis based upon where our earnings are, our kind of consistent performance here, certainly in relationship to our recent -- we just announced we're raising again our EPS targets for '26 and then forecasted into the '27, '28. So when we look at would we consider more stock repurchase, the answer is yes. I think that we still very much see the pricing of our stock is a very discounted price. And when we measure that against what -- where we may deploy other assets, right, we're looking at ROICs and ROEs in the high teens, low 20s. And we think that even based upon price targets from our analysts that, that is -- we're currently trading at a pretty significant discount to that. So buybacks are still very much what we believe is an important piece to -- of our kind of things that we might deploy. When that is related to M&A, you're right, right? The stock price is important to that. And I think that in most M&A transactions, a percentage of that is related to the stock. And I think what's interesting to me is that the deals that we're looking at now in our pipeline are accretive even at this pricing. And so imagine if we pick up another 10%, 15%, 20%, 30% in stock valuation, these deals even become more accretive. And so when we're looking at a deal now, we're assuming in that M&A that, hey, this is at a very favorable stock price. Is this deal still accretive? As the stock price continues to carry some upward momentum, these deals will look even better. So we're -- we think we're in a great spot on the M&A side. Operator: This concludes our question-and-answer session. I would now like to turn the meeting back over to Jay Jackson for any additional or closing remarks. Jay Jackson: Thank you. Again, we just want to express our gratitude to our partners, our analysts, our shareholders and certainly, each and every one of our employees where nearly all of them are shareholders. I think it speaks volumes into the production of our company and our ability to continue to meet these consistent goals that we have set out. We raised our targets in 2026. Our expectations are we're going to continue to push through those through '27 and through '28, and we're tracking to our $250 million EBITDA of '28. And so we are grateful and thankful for all of you to be on our journey together and look forward to our next call. Operator: Thank you. That brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Greetings, and welcome to the Amphastar Pharmaceuticals First Quarter Earnings Call. [Operator Instructions] Please note that certain statements made during this call regarding matters that are not historical facts, including, but not limited to, management's outlook or predictions for future periods are forward-looking statements. These statements are based solely on information that is now available to us. We encourage you to review the section entitled Forward-Looking Statements in the press release issued today and in the presentation on the company's website. Also, please refer to our SEC filings, which can be found on our company's website and the SEC's website for a discussion of numerous factors that may impact our future performance. We will also discuss certain non-GAAP measures. Important information on our use of these measures and reconciliations to U.S. GAAP may be found in our earnings release. Please note, this conference is being recorded. Our speakers today are Mr. Bill Peters, CFO; Mr. Dan Dischner, Senior Vice President of Corporate Communications; and Mr. Tony Marrs, Executive Vice President of Regulatory Affairs and Clinical Operations. I will now turn the conference over to your host, Mr. Dan Dischner, Senior Vice President of Corporate Communications. Dan, you may begin. Dan Dischner: Thank you, Paul. Good afternoon, everyone, and thank you for joining Amphastar's First Quarter 2026 Earnings Call. Before we begin, I'd like to recognize the continued dedication of our employees across Amphastar. Their commitment to ensuring reliable access to essential medicines remains central to who we are and how we operate. Our first quarter performance demonstrated the continued strength and balance of our underlying business amid a rapidly evolving market landscape with solid commercial execution across our branded and differentiated portfolio alongside meaningful progress in our pipeline. We are actively managing near-term pricing and competitive pressures across certain legacy products with discipline and focus and remain confident that the strategic investments we are making today in our branded portfolio, biosimilars, complex generic pipeline and manufacturing infrastructure are building the foundation for durable long-term growth. We reported net revenues of approximately $171.2 million for the first quarter, reflecting a return to growth, driven primarily by contributions from recent product launches, while overall performance across the base business remained stable. We saw continued strength in key areas. partially offset by pricing pressure, product mix shifts and increased competition, trends that are broadly consistent with the current market environment. We continue to deploy capital towards initiatives that we believe will drive long-term growth. And while the full benefits of these investments are not yet visible in our financials, we remain confident in the value they will create. From a strategic perspective, our focus remains centered on 3 key priorities: one, strengthening the resilience of our business; two, expanding and optimizing our branded and differentiated portfolio; and three, advancing our pipeline of complex and proprietary products. First, strengthening the resilience of our core business. We continue to see variability in pricing and competitive intensity across certain legacy products. We remain disciplined in managing costs and focusing on operational efficiency, ensuring supply reliability and maintaining our position in essential product categories. This stability provides the foundation that supports both our near-term performance and our ability to invest in future growth. Second, expanding and optimizing our branded and differentiated portfolio. Products such as BAQSIMI and Primatene MIST remains center to our long-term growth strategy and continue to demonstrate underlying demand in the first quarter. BAQSIMI generated approximately $32 million in revenue this quarter. While reported revenue was impacted by higher rebates, channel mix and increased utilization of government programs, these dynamics did not reflect the underlying demand. It is also important to note that rebate pressure across these channels is an industry-wide dynamic and not unique to our portfolio. Demand trends remain positive with U.S. sales unit volumes increasing approximately 8% year-over-year. We are actively addressing these factors through investments in rebate management, contracting strategy and program optimization. We expect these pressures to moderate over time and remain confident in BAQSIMI's long-term growth trajectory. Primatene MIST generated approximately $30 million in revenue in the quarter, with performance driven by sustained consumer demand, continued commercial investment and brand strength. The brand maintained strong momentum with store level sales increasing approximately 6.5% year-over-year, reflecting incremental consumer adoption and an ongoing impact of our marketing program. In addition, we recently received FDA approval for AMP-007, our Ipratropium Bromide inhalation product and successfully launched the product in April. The launch is progressing as planned and reinforces our ability to execute across development, regulatory approval, manufacturing and commercialization in technically complex product categories. Importantly, our product is currently the first and only generic Ipratropium inhaled inhalation product on the market. Which we believe positions us for a meaningful near-term commercial opportunity. Third, advancing our pipeline of complex and proprietary products. We are continuing to expand our efforts towards higher-value opportunities, including proprietary and biosimilar programs, which now represent a significant and growing portion of our pipeline. Our strategy is built on a foundation that we have developed over many years, combining regulatory expertise, vertically integrated manufacturing and commercial capabilities to efficiently advance complex products from development through commercialization. This integrated platform allows us to move efficiently while maintaining control over quality, time lines and cost. We continue to make steady progress across key programs, including our insulin aspart biosimilar and our GLP-1 ANDA program, both of which remain on track for planned commercial launches in 2027. At the same time, we continue to develop our next-generation proprietary assets, including programs in oncology and immunology. While these programs remain in early stages, we are encouraged by the progress to date and are focused on advancing them through IND submissions and into clinical development. Together, these efforts reflect our broader objective of expanding into higher-value therapeutic areas over time. Our continued investment in these programs is underpinned by a strong financial position. The cash flow generated by our commercial portfolio supports ongoing internal R&D while allowing flexibility in how we allocate capital. This enables us to advance our proprietary programs in a disciplined manner without relying on external financing or partnerships. We also continue to actively evaluate targeted acquisitions and licensing opportunities that align with our existing capabilities, and our balance sheet provides the capacity to pursue these in a disciplined and selective manner. Looking ahead, we expect the operating environment to remain dynamic, particularly regarding pricing and competitive pressures. Against this backdrop, we are focused on disciplined execution while continuing to invest in the capabilities that underpin our long-term strategy. We believe this balanced approach grounded in diversification, operational rigor and sustained investment in our proprietary pipeline positions us to navigate near-term variability and support durable long-term growth. Over the next 12 to 18 months, we expect continued contribution from our commercial portfolio, supported by BAQSIMI, Primatene MIST and the recent launch of our ipratropium bromide. In parallel, we are focused on executing the next phase of our pipeline strategy with several important regulatory and development milestones ahead. This includes progress across our biosimilar programs as well as our continued advancement of our emerging proprietary assets, which we believe are centered to the long-term growth profile. We have updated the corporate presentation on our website with time lines for our proprietary candidates. I will now turn the call over to Bill Peters, our CFO and Executive Vice President of Finance, for a more detailed financial review of the first quarter. William Peters: Thank you, Dan, and good afternoon, everyone. In my comments today, I will discuss the first quarter results and then update some of our assumptions for 2026. Revenues for the first quarter increased to $171.2 million from $170.5 million in the previous year's period. BAQSIMI's revenues decreased 15% to $32.4 million compared to $38.4 million in the prior year period as a result of lower average selling prices, which were partially offset by an 8% increase in units sold. The lower average selling price of BAQSIMI was driven by higher rebates and higher 340B pharmacy discounts, some of which may have been duplicated. Primatene MIST sales grew to $29.8 million in the first quarter, up 2% from $29.1 million in the first quarter of last year. Epinephrine sales increased 3% to $19.2 million from $18.6 million as increased demand for our prefilled syringe product was partially offset by increased competition for our multi-dose vial products. Glucagon injection sales declined 56% to $9.2 million from $20.8 million due to increased competition and a shift to ready-to-use products. Other finished pharmaceutical product sales increased 34% to $67.1 million from $50 million, primarily due to recently launched products, including an increase in albuterol sales of $2.8 million, iron sucrose sales of $1.4 million and teriparatide sales of $2.2 million, which we launched in August 2024, August 2025 and December 2025, respectively. Dextrose sales also increased due to shortages from other suppliers, while phytonadione sales declined due to increased competition. Cost of revenues increased to $100.8 million from $85.3 million. Gross margins declined to 71% of revenues in the first quarter of 2026 from 50% in the previous year. The primary drivers of the change were a lower average selling price for BAQSIMI as well as lower sales of glucagon, phytonadione and epinephrine multi-dose vials, which are higher-margin products. Additionally, increased costs at our Amphastar facility negatively impacted margins. Selling, distribution and marketing expenses were relatively unchanged at $11.9 million. General and administrative spending increased 13% to $18 million from $16 million, driven by higher legal expenses, salary and personnel-related expenses and expenses related to the implementation of our new ERP system. Research and development expenditures increased 33% to $26.7 million from $20.1 million due to the $2 million upfront payment made to in-license a new corticotropin product and spending on our insulin, inhalation and proprietary product pipeline. Our nonoperating expense of $3.6 million compares to a nonoperating expense last year of $6.4 million, primarily due to foreign currency fluctuations as well as mark-to-market adjustments related to our interest rate swap contracts in the quarter. Net income decreased to $6.4 million or $0.14 per share in the first quarter from $25.3 million or $0.51 per share in the first quarter of 2025. Adjusted net income decreased to $19.5 million or $0.42 per share compared to an adjusted net income of $36.9 million or $0.74 per share in the first quarter of last year. Adjusted earnings exclude amortization, equity compensation and onetime events. In the first quarter, we had cash flow from operations of approximately $47.8 million. During the quarter, we accelerated our share repurchase program and bought back $29.5 million worth of shares, which represents about 3% of our share count. Before I turn the call back over to Dan, I would like to update some of our guidance for 2026. We now believe that BAQSIMI revenue growth will be flat to up low single-digit percentages compared to last year due to the previously mentioned pricing pressures. In response to these pricing dynamics, we have taken additional steps to strengthen the durability of this business, including engaging a third party to support data-driven identification, validation and resolution of potential 340B duplicate discount. Additionally, we have implemented a 3% list price increase on BAQSIMI as of May 1. Importantly, even with this revised outlook for BAQSIMI, we are maintaining our overall corporate sales guidance of mid-single-digit to high single-digit unit growth. This reflects the strength of our broad portfolio, including ipratropium bromide inhalation, which we launched in April and currently does not face any generic competitors. I'll now turn the call back over to Dan. Dan Dischner: Thanks, Bill. In summary, our first quarter performance reflects our resilience and ability to execute in a dynamic market and environment. Growth was supported by new product launches and stable performance across our base portfolio while actively managing pricing and competitive pressures. BAQSIMI and Primatene MIST continue to demonstrate solid underlying demand, and we are taking targeted actions to improve net pricing and optimize performance over time. The recent approval and launch of our ipratropium bromide inhalation product adds an important near-term growth driver. We remain on track with late-stage programs, including our insulin aspart biosimilar and our GLP-1 ANDA, both expected in 2027, while continuing to advance our early-stage proprietary pipeline. With a strong financial position, we are focused on executing against our strategy, navigating near-term variability and positioning the business for sustained long-term growth. With that, we will now take your questions. Operator? Operator: [Operator Instructions] Our first question is from Serge Belanger with Needham & Company. Serge Belanger: A couple of questions on BAQSIMI. So obviously, there were some headwinds in the first quarter. Just curious how much of it was seasonality peculiar to the first quarter? How much of it will continue to linger into the continuing quarters here? Specifically on price, can you talk about the price decrease and where you think you can get it to with the activities you'll be undertaking? And last one on BAQSIMI. In the past, you had talked about discontinuing commercialization in some international markets. Has that started to occur? And what impact would that have on the top -- on sales levels? William Peters: Yes. So the pricing issue that we've been encountering appears to be potentially the increase of -- there's multiple things going on there. One, there's some increased rebates, but also potentially, we believe some duplicate rebates, which seems to be a 340B pharmacy issue. So what we've undertaken is to engage an outside consultant or outside firm to basically validate these claims before they're paid. So we believe that in doing that, we will stop that practice. We just engaged that firm and that process began at the beginning of May. So that trend continues into April, but we hope that changes in May. Additionally, the 3% price increase that we took is also effective May 1. So we believe that we could get at least part way back to the pricing where we were last year or most of the way back later this year, but part of the way back this quarter. And seasonality did not have anything to do with that. And as far as the discontinuation from certain international markets, we've talked about withdrawing from a handful of markets. The -- that situation is that we have given notice in some countries that require a lengthy notice period. And also, we have some inventory in other countries that we plan to discontinue. So the discontinuation would begin in July, but it's not going to be all at once because some -- like I said, so some countries are going to have inventory that might extend into August or September and others with a notice period requirement will keep selling probably through the end of this year and into the first quarter of next year. So it's not going to be a falloff. And remember, we've also characterized this as 80% of our sales were in the United States last year, only 20% were foreign, and we're only going to drop out of a handful of countries out of the 20-something foreign countries. So we're going to remain in most of the foreign countries, including all of the top-selling markets. So it's not going to be a significant decrease in the third quarter. And also the other way to think about it is that last year, U.S. sales were 80%. This year, they're probably going to be closer to 85%. Operator: Our next question is from Dennis Ding with Jefferies. Anthea Li: This is Anthea on for Dennis. We just had 2 on the pipeline. First, on the synthetic corticotropin, I see in your slides that you're thinking to go into Phase I in 2027. I'm curious if you've met with the FDA and had regulatory alignment there and whether there could be an accelerated path? And then second, any updates on 004, the insulin aspart? I think the prior PDUFA was planned for 2026. So just curious on any additional color there. Dan Dischner: Okay. I'll take the first one, the update on 004. It's -- we're just -- it's still in progress and nothing has changed. We still plan on commercializing it in 2027. On your other question regarding -- yes, Tony, if you can take that one? Tony Marrs: Sure. Sure. For 110, we have not met with the agency for that. We think the possibility is there for -- among these pipeline products for expedited approvals, but we haven't met with the agency, and we don't have alignment with them on that. Operator: Our next question is from Ekaterina Knyazkova with JPMorgan. Ekaterina Knyazkova: Actually, another one on AMP-004. Just can you remind us how you're thinking about the size of that opportunity and just how quickly it could ramp in '27? And then second question is just on glucagon. Is the Q1 number a good kind of tailwind for the product? Or would you expect sequential erosion from that Q1 number? William Peters: Yes. So for the first one, this is a product that still has over $1 billion in sales. So we think that it's going to be a relatively large product for us and a meaningful product for us when we launch that. We do think it will take a little time to get sales and also will depend on whether we have the interchangeability or not, which we would like to get right away. So there's going to be a couple of different drivers, and we should have a little more idea of that timing and pathway next year. And as far as glucagon, I will say that, no, we have not reached the bottom of that yet, but I'll say the rate of decline is slowing significantly. So it will decline from here, but not at the same rate that it's been declining. Operator: Our next question is from David Amsellem with Piper Sandler. Naoki Martin: This is Naoki on for David. So first on Primatene MIST, how should we think about generic competition? And do you have any updates regarding life cycle management? So that's number one. Number two, how should we think about revenue contribution from 007 and the extent of the opportunity here? Dan Dischner: Well, Primatene MIST, we have not been notified or have no visibility on whether or not there is a generic in place. We've always taken the position that we believe it would be very difficult to genericize this product. Primatene MIST has 60 years of brand recognition. The product would be -- it's over the counter. It would be difficult regulatory-wise. It's not a similar -- it's not -- because it's retail and it's over-the-counter, it has -- it's different market dynamics than what you would see with a typical generic. So we haven't really -- we have no visibility outside of that. As far as our next generation, we have -- as we said, we have in our pipeline, we have a green version that we're working on. We have one patent already and another one pending, and we continue to advance that through development. William Peters: Yes, on 007, we haven't given anybody -- we haven't given a sales forecast on that. However, we have said that, that would be our biggest growth driver this year, and we had a couple of different scenarios. And we said that even when we thought that there might be a generic competitor on the market with us. As of today, there isn't, and we launched this in mid-April. So right now, we're almost a month into it without a generic competitor. So that's one of the reasons why we're able to maintain our high -- our mid-single-digit to high single-digit sales growth guidance for the year that I believe that this product will outpace our original assumptions. Operator: There are no further questions at this time. I would like to hand the floor back over to management for any closing remarks. Dan Dischner: Thank you, Paul. Thank you all for your questions and your continued interest in Amphastar. We remain focused on executing against our strategy and advancing the initiatives we discussed today. We appreciate your continued support and look forward to updating you on our progress next quarter. Have a great day. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, and welcome, everyone, joining today's Heritage Global Inc. First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this call is being recorded, and we are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to John Nesbett, IMS Investor Relations. Please go ahead. John Nesbett: Thank you, and good afternoon. Before we begin, I'd like to remind everyone that this conference call contains forward-looking statements based on current expectations and projections about future events and are subject to change based on various important factors. In light of these risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this call. For more details on factors that could affect these expectations, please see our filings with the Securities and Exchange Commission. Now I'd like to turn the call over to Heritage Global's Chief Executive Officer, Mr. Ross Dove. Ross, please go ahead. Ross Dove: Thank you, John. Good afternoon, everyone, and welcome, and thank you for joining. As always, I will add a bit of color, and then I will turn the call over to Brian to drill down line by line and dime by dime. For me, I can tell you, I now really understand the saying, "a million bucks ain't what it used to be". I can hear my mom saying, "just okay, isn't okay". And I hear you mom. Q1 earning $1 million NOI was the story really truly in two parts. It was a respectable profit but less than our goals and leaving us with some ground to make up as we move forward. Personally, I like this better not having as fast a start and having the challenge of making it up than worrying about fizzling later on. I feel good about where we're at. We're used to a challenge here at HG and excited to get the job done. The 2-part story was a solid growth performance across our existing business units and a loss that was larger than expected or anticipated in our newest DebtX acquisition. It is truly not unusual to get out of the starting gate slow right after an acquisition, and I believe that's just the story here. We have fine-tuned our growth plans and set goals across not just DebtX, but they're company-wide. After you hear from Brian, I will give you somewhat of an inside look at some of those ongoing programs that have not only begun but are in progress. Brian, you're up now. Brian Cobb: Thank you, Ross, and welcome, everyone. We started 2026 with a profitable quarter that reflects both the resilience of our core segments and the expansion of our financial asset capabilities, positioning us for improved performance over the course of the year. Consolidated operating income was approximately $1 million in the first quarter of 2026 compared to $1.4 million in the prior year quarter. Our Industrial Assets division reported steady performance with operating income of approximately $1.2 million in the first quarter of 2026 compared to $1 million in the first quarter of 2025. And in our Financial Assets division, we reported operating income of $1 million in the first quarter of 2026 compared to $1.7 million in the prior year quarter. Our Industrial Assets division saw a continued trend of high-volume auction activity throughout the quarter with limited opportunity to execute large-scale auctions. Against that backdrop, our Auction and Liquidation business saw sequential quarter-over-quarter growth while capitalizing on our real estate investment in Huntsville, Alabama. We realized a positive impact to operating income of approximately $400,000 as a result of the seller and tenants repurchase of the real estate assets in early March. The final exit of our investment in Huntsville related to the machinery and equipment is expected to occur within the next few months. In our Refurbishment and Resale business, our continued focus on upgrading inventory quality is now translating into tangible results, including faster turnover and increased profitability. Our Financial Assets division saw a sequential improvement over the fourth quarter of 2025 as well, as NLEX continues to see strong activity across key consumer asset classes, including subprime auto, where elevated delinquencies and charge-offs are driving asset supply. The first quarter transactions reflected meaningful contribution from this asset class, and we remain well positioned given our deep seller relationships and consistent execution. In January, and as mentioned on our fourth quarter 2025 earnings call, we acquired substantially all of the assets of the Debt Exchange, a leading full-service loan sale adviser that expands our capabilities in the growing secondary loan market. DebtX reported a first quarter operating loss of approximately $600,000, reflecting the seasonal nature of the business where transaction activity is typically lowest. That said, we remain excited about the segment's prospects for the remainder of 2026 and beyond, particularly as we integrate the platform and expand our business development capacity to drive incremental opportunities across our broader Financial Assets division. Additional consolidated financial results include the following: revenue was $12.7 million in the first quarter of 2026 compared to $13.5 million in the first quarter of 2025. Adjusted EBITDA was $1.4 million compared to $1.8 million in the prior year period. Net income was approximately $700,000 or $0.02 per diluted share compared to $1.1 million or $0.03 per diluted share in the first quarter of 2025. Our balance sheet is strong with stockholders' equity of $67.8 million as of March 31, 2026, compared to $67 million at December 31, 2025, with net working capital of $11.6 million. Our cash balance reflects a total of $11.6 million as of March 31, 2026, and after removing amounts due to our clients or payables to sellers on our balance sheet. Our net available cash balance was $6.2 million. And lastly, we repurchased approximately 107,000 shares in the open market during the first quarter of 2026 at an average cost per share of $1.32. We have approximately $7.4 million in remaining aggregate dollar value of shares that may be purchased under the 2025 repurchase program. And with that, Ross, I'll turn it back over to you. Ross Dove: Thank you, Brian. So our commitment across the board is entirely to growth right now. That is 100% of our focus, and I'll give you a few reasons why I think we're right on track. Not counting DebtX, everyone else had a quarter where they grew and everyone else has a pipeline where they believe they can grow throughout the rest of the year, looking at everything they're doing. We've made investments in technology. We've made investments in people. We've added sales and business development people almost across the board, and we're still in a hiring and training phase where we believe that headcount will matter and getting more people out there in front of more people is really the answer. There are a lot of openings right now. Just a few examples of some openings. NLEX had a record quarter in the subprime auto sector. It is a rapidly growing sector, one we're very good at and really believe can be the needle mover this year, and we anticipate a record year in the subprime auto sector, and we're very confident about it. HGP has added four business development sales personnel, and we believe that not too far down the road, that will expand our reach. Our valuation group is bringing in more team members going after more sectors, focusing on both the banks and also with a harder push into the nonbanks. Overall, we're comfortable with our plan. We're comfortable with our prospects, and we're comfortable with our position in the marketplace. So really, at this point in time, it is all about execution and making a solid push for growth. And that is my role as the leader, and that's what my team and I are putting every bit of effort into. Thank you for sticking with us. We look forward to talking to you throughout the year and showing you how we grow this business. Best to you all, and we're here to answer questions now or any time you wish. Operator: [Operator Instructions] And we will take our first question from Jacob Stephan with Lake Street Capital Markets. Jacob Stephan: So it seems like overall, the debt market is -- you have a solid positioning there. I'm just curious, I would like to hear a little bit more on the trends that you're seeing, notably in NLEX and also the DebtX business on the commercial residential side. Ross Dove: So on the NLEX side, we have a really, really strong pipeline now. It's led by subprime auto. It changes quarter-to-quarter and year-to-year based upon everything out there and where the supply is. We still have plenty of headroom in the credit card sector. We have plenty of headroom and some new wins in the buy now, pay later sector. And we have some of our clients that are expanding the amount of assets they're giving us. So overall, I think it's a very healthy place to be right now. We're very busy on all fronts. If you said, what are we leading with right now? I think the subprime auto loans would be at least our leader over the next quarter or two of where we think there's the most expansion, but we're looking at everything there. And we're also doing some HELOC loans and a lot of diversified loans. On the DebtX side, -- we had a slow start that's rapidly picking up. We're looking right now at very high prospects for Q2 that we're excited about bringing to fruition. The slow start sometimes can just be after an M&A deal, and it can also be after the fact that sometimes the lenders and everybody just don't get out the gate selling. They get out the gate figuring out what they want to sell. So a lot of times, you have a first 90 days where they're doing the in-house analytics and then bringing the product to market. That sales staff is out every day talking to people. We've signed up a bunch of business I don't think there's any one single CRE sector that's dominated. And that's kind of good news that it's very diverse and across the board. We have some very large deals and some smaller deals. And on the good side, they're coming from not just banks, but they're coming from specialty lenders and nonbanks and insurance companies. So we've really got a broad-based offering in Q2 and beyond. And it's kind of why we're optimistic. I'll end it there. Jacob Stephan: Great. And maybe just one more. It seems like gross margins were pretty solid this quarter. I'm curious, as we look forward with better kind of revenue, it sounds like in the future, especially from DebtX, what's kind of a good gross margin kind of level that you feel like you can reach? Ross Dove: Brian, I'll let you handle that one. Brian Cobb: Yes. So our margins -- our gross margin this quarter was improved if you look at a year ago. That really has to do with higher-margin service revenue coming from DebtX or other sides of the Financial Asset business division. So the more revenue we generate at DebtX, the higher the margins should go. We've historically had a mix of industrial and financial margins between 50% and 70%. I think as we get higher to 70% is a good target with a strong performance from the financial side. Operator: And at this time, this concludes our question-and-answer session. I will now turn the meeting back to management for closing remarks. Ross Dove: Thank you all for listening in, and thank you all for paying attention. I feel good about where we're at. I would have liked to have delivered a larger profit in Q1. But at the same time, I'm very proud that we delivered a respectable profit, although not as large as we hoped. I think as the year moves on, we have lots of upside to improve from here. We're very ambitious to do so and very bullish on our products as the year moves by. So stay tuned, and we're going to get to work. Thank you. Operator: Thank you. This concludes today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to Consensus Q1 2026 Earnings Call. My name is Paul, and I will be the operator assisting you today. [Operator Instructions] On this call from Consensus will be Scott Turicchi, CEO; Kipp Kilpak, Vice President of Finance; Johnny Hecker, CRO and Executive Vice President of Operations; and Adam Varon, CFO. I will now turn the call over to Kipp Kilpak, Vice President of Finance at Consensus. Thank you. You may begin. Unknown Executive: Good afternoon, and welcome to the Consensus investor call to discuss our Q1 2026 financial results, other key information and our Q2 2026 quarterly guidance. Joining me today are Scott Turicchi, CEO; Johnny Hecker, CRO and EVP Operations; and Adam Varon, CFO. The earnings call will begin with Scott providing opening remarks. Johnny will give an update on operational progress since our Q4 2024 investor call, then Adam will provide Q1 2026 financial results and our Q2 2026 guidance range. After we finish our prepared remarks, we will conduct a Q&A session. At that time, the operator will instruct you on the procedures for asking a question. Before we begin our prepared remarks, allow me to direct you to our forward-looking statements and risk factors on Slide 2 of our investor presentation. As you know, this call and the webcast will include forward-looking statements. Such statements may involve risks and uncertainties that would cause actual results to differ materially from the anticipated results. Some of those risks and uncertainties include, but are not limited to, the risk factors that we have disclosed in our regulatory filings, including our annual 10-K and quarterly 10-Q SEC filings. Now let me turn the call over to Scott for his opening remarks. R. Turicchi: Thank you, Kipp. I'd also like to welcome Adam on his first earnings call as our Chief Financial Officer. I'm very proud of the momentum that our team carried into 2026 and the results that we posted to begin the fiscal year. As I stated last quarter, the next phase of Consensus has begun. While we did post three consecutive quarters last year of revenue growth, it was minimal. However, in Q1 2026, we exceeded our expectations in both our Corporate and SoHo channels of revenue and had a 1.5% consolidated revenue growth compared to Q1 of 2025. In fact, this is now the second consecutive quarter that we have demonstrated year-over-year growth in all four of our key financial metrics: revenue, adjusted EBITDA, non-GAAP EPS and free cash flow. Before turning the call over to Johnny, who will provide you with more detail regarding the quarter, I would like to note a few items. Our Q1 financial results were driven by an 8.2% revenue growth in our Corporate channel, driven by record usage as well as a continuation of customer acquisition across our continuum. This is the highest growth rate for our Corporate channel since Q4 of 2022. The SoHo channel also beat our forecast as we saw improvement in customer acquisition during the quarter and had a significant improvement in the year-over-year rate of decline experienced in Q4 2025. Our adjusted EBITDA margins remained consistent with Q1 of 2025 and above the midpoint of our range of 50% to 55%. This is due in part to the timing of hiring relative to our budget expectations. We plan to close the hiring gap throughout the year and would expect our adjusted EBITDA margins to track more to the midpoint of our range for the remainder of the year. We started the year with a strong Q1 free cash flow of $38.5 million, which allowed us to repurchase approximately 600,000 shares of our stock during the quarter while maintaining cash balances such that we can fully borrow under our credit facility and term loan. We do not have any substantial maturities on our debt until late 2028. However, we are monitoring both the bank and debt markets to see if an opportunistic refinancing can be achieved before late 2027. We expect free cash flow to approximate the record level of 2025 and look to continue to be buyers of our stock, given the free cash flow yield on our stock is approximately 3x that of our debt costs. I'll now turn the call over to Johnny. Johnny Hecker: Thank you, Scott, and hello, everyone. Last year, I described 2025 as our foundational year, a period of deliberate realignment to favor high-value, high durability Corporate revenue. Today, I want to share how that transformation is accelerating in a way that confirms the core of our platform thesis. In times of uncertainty and a tight macroeconomic environment, particularly within Healthcare, we're actively intensifying our go-to-market execution, focusing relentlessly on intent-driven customer acquisition to increase deal volume. I am pleased that we're seeing this strategy come to fruition. In Q1, our teams participated in several of the most important industry conferences in our sector, and the results validated this targeted approach. The record lead volume and intensity of interest we captured at these events confirmed that the ongoing migration to the cloud represents a structural opportunity for Consensus. Our eFax brand has proven to be a highly effective magnet in this space. It is the strategic entry point that allows us to lead the conversation around digital transformation. For these organizations, migrating to our platform is no longer a discretionary tech stack update. It has become a mandatory operational upgrade. Our Q1 results substantiate once more that our center of gravity has shifted. The Corporate channel delivered record revenue this quarter, generating $58.7 million. I'm excited to report an 8.2% year-over-year growth rate over the $54.3 million of Corporate revenue in Q1 of 2025, a significant acceleration from the 7.3% we reported last quarter. This sustained increase in our momentum is the primary takeaway here as it demonstrates the compounding strength of our strategy and keeps us firmly on path towards double-digit Corporate growth. While we also saw a solid 3.4% sequential increase coming out of a record fourth quarter, it is the consistent year-over-year expansion that validates our thesis. This trajectory is driven by the continued execution of our barbell strategy reflected in our Corporate base of approximately 65,000 customers, which has grown roughly 7% year-over-year. While we have maintained this level since Q3 of 2025 as we prioritize high-grading our portfolio towards larger enterprise accounts, the annual growth proves the scalability of our acquisition power. More importantly, that upmarket momentum is directly feeding our expansion economics. Our Net Revenue Retention rate exceeded 102% this quarter, a 76 basis point improvement over Q4 of 2025 and the highest NRR rate since we reached the target of 100% in Q4 of 2024. It proves our customers are finding more value in our solutions. They're adding more volume and adopting our solutions more broadly as they integrate deeply into our ecosystem. This lift results from a powerful utilization tailwind as our largest enterprise clients route more uninterrupted data flows through our network with ever-increasing volumes that consistently exceed our internal targets. As evidenced by our native integration into major EHR vendor platforms, eFax has developed into an operational dependency within the clinical workflow. This shift underscores our move to an embedded infrastructure layer. We're seeing a similar trend in the public sector where our FedRAMP high certified ECFax solution continues to gain traction. Our Q1 results give us confidence that we can meet or exceed the $9 million VA contribution to 2026 revenue we projected last quarter as that engagement continues to scale and integrate into their daily operations. Capturing volume is the foundation. The next phase of our growth is about value extraction, moving from being a transport layer to being an intelligence layer. With that in mind, last month, we soft launched a rearchitected eFax platform for our Corporate and SoHo e-commerce offerings. This launch, which brings the identity of our recent brand refresh directly into the product experience, serves as our new workflow and AI monetization framework. It is an infrastructure upgrade specifically engineered to remove friction from the customer journey and provide a seamless on-ramp for our advanced technologies. As part of a continuous deployment, this architecture will eventually enable our clients to layer on eFax Clarity AI capabilities at scale, moving at the pace of their own digital transformation. In our last call, I emphasized that we are no longer just selling a connection. We're tackling a labor problem. This product evolution is how we deliver on that promise. Our customers, particularly in Healthcare, are facing severe staffing constraints and margin pressure. They can no longer afford to have high-value staff performing manual data entry. By combining our platform with Clarity, we're extracting actionable data from unstructured documents and routing it directly into the EHRs and back-office systems. These automated workflows give our customers the time back, reduce manual errors and accelerate the revenue cycles. While last month's launch is just the beginning, we expect this infrastructure to improve deal conversion rates and serve as a lever to our path to delivering sustained double-digit growth in our Corporate channel. We are prioritizing these workflow and solution propositions because they resonate deeply with our prospects, helping us capture new market share while simultaneously locking in our existing base for the long term. Moving to SoHo. As we have consistently stated, we manage that channel as a Strategic Cash Engine. We're not managing SoHo for subscriber longevity. Our priority remains yield, efficiency and maximizing the contribution margin that funds our high-growth Corporate expansion. SoHo revenue for the quarter was $29.7 million, representing a managed 9.5% year-over-year decline. I am happy to report that this is a significant improvement over the minus 11.1% we experienced last quarter in line with the rate of decline we experienced in Q3 of 2025. In summary, Q1 has proven that our go-to-market strategy is functioning exactly as intended. Our SoHo business is providing disciplined cash flow, while our Corporate channel is delivering record results with growth accelerating past 8%. None of this is possible without the dedication of our global team, who executed exceptionally well and with high energy this quarter. I also want to thank our partners and customers for their continued trust and collaboration as we capture these high-stakes operational opportunities together. With that, I'll hand the call over to Adam to provide the financial details. Adam? Adam Varon: Thank you, Johnny, and good afternoon, everyone. We will discuss our Q1 2026 results, guidance for 2026 as well as guidance for Q2 2026. We expect to file our 10-Q later today. Moving to Corporate results. During the first quarter of 2026, our Corporate business achieved record-breaking revenue of $58.7 million, representing an 8.2% increase or $4.4 million compared to the previous year. This performance indicates our accelerating momentum when compared to the 7.3% revenue growth last quarter. Notably, this 8.2% year-over-year expansion also represents the strongest year-over-year growth rate our Corporate business has realized since Q4 of 2022. With our record Corporate revenue in Q1 2026, we achieved a trailing 12-month Net Revenue Retention rate of 102%. This reflects a sequential rise of 76 basis points and an approximate 100 basis point gain compared to the same period last year. Our Corporate customer base of approximately 65,000 customers, was up 7% over the prior comparable period. Propelled by higher volumes, specifically within the upper tier of our customer continuum, Corporate ARPA for Q1 2026 rose sequentially by approximately 3% to $306 and was roughly flat year-over-year. Moving to SoHo results. As Johnny mentioned, we continue to manage the SoHo channel as a Strategic Cash Engine, focusing on customer acquisition yield and contribution margin to generate cash flow that funds our accelerating Corporate business growth. SoHo Q1 2026 revenue of $29.7 million decreased $3.1 million or 9.5% over the prior year, slowing from the Q4 2025 decline of 11.1%. Moving to consolidated results. As Scott stated, this is the second consecutive quarter that we have demonstrated year-over-year growth in all four of our key financial metrics. number one, revenue; two, adjusted EBITDA; three, non-GAAP EPS; and four, free cash flow. Consolidated revenue of $88.5 million represents an increase of $1.3 million or 1.5% over Q1 2025 and $1.4 million or 1.6% increase sequentially. Additionally, this represents the fourth consecutive quarter of year-over-year consolidated revenue growth. Adjusted EBITDA of $47.9 million versus $47.3 million in Q1 2025 delivered a consistent year-over-year EBITDA margin of 54.1%, driven by revenue flow-through, partially offset by marketing spend and personnel-related expenses. Adjusted net income of $28.9 million is an increase of $2 million or 7.3% over the prior year, primarily driven by the items mentioned plus favorable net interest expense on lower debt balances. Adjusted EPS of $1.52 is favorable to the prior year by 10.9% or $0.15 driven by the items mentioned above and a lower share count from equity repurchases. The Q1 2026 non-GAAP tax rate and share count were 20.5% and approximately 19 million shares, respectively. Moving on to capital allocation. Free cash flow was a robust $38.5 million driven by Q1 2026 performance which fueled a 14% or $4.7 million year-over-year increase. We ended Q1 2026 with $92.3 million in cash, an increase of $17.6 million when compared to Q4 2025. Q1 2026 CapEx of $7.4 million was in line with the prior year and expectations. On equity repurchases program to date, we have utilized $72 million to repurchase 2.7 million shares, leaving $28 million available under our $100 million Board-authorized equity repurchase plan. This includes our successful Q1 2026 activity where we bought back 600,000 shares for approximately $17 million. Our Q1 2026 total debt balance stands at approximately $560 million, comprised of the following components: $348 million of 6.5% high-yield notes, $148 million of delayed draw term loan and $64 million on our revolver. Our net debt-to-EBITDA ratio for Q1 2026 was 2.5x, and we held our total debt-to-EBITDA ratio steady at the Q4 2025 level of 3x. Moving to 2026 guidance. We are reaffirming our full year 2026 outlook as follows: for revenue, we anticipate between $350 million and $364 million, representing a $357 million midpoint. Adjusted EBITDA is expected to range from $182 million to $193 million with a midpoint of $187.5 million. Our adjusted EPS guidance remains between $5.55 and $5.95 or $5.75 at the midpoint. Finally, we estimate our full year income tax rate will be between 19.7% and 21.7% with 20.7% at the midpoint with approximately 19 million shares. Moving to Q2 2026 quarterly guidance. We are issuing the following guidance for the quarter. Total revenue is projected to be in the range of $87.9 million to $91.9 million, representing a midpoint of $89.9 million. Adjusted EBITDA is expected to fall between $46.4 million and $49.6 million with $48 million at the midpoint. Adjusted EPS is anticipated to range from $1.43 to $1.53 or $1.48 at the midpoint. For Q2 2026, our estimated income tax rate is 19.7% to 21.7% with 20.7% at the midpoint with an expected share count of approximately 19 million. That concludes our formal comments. Now I'd like to turn the call over to the operator for Q&A. Operator: [Operator Instructions] Thank you, and the first question today is coming from David Larsen from BTIG. Jenny Shen: This is Jenny Shen on for Dave. Congrats on the quarter. Just looking at the reaffirmed full year 2026 guide, was that not raised mainly due to conservatism? And what do you expect revenue and earnings growth, the cadence to be for the rest of the year? R. Turicchi: So, we set the range of guidance just a quarter ago. And obviously, though there's a width on it on both revenues, EBITDA and adjusted EPS. Certainly, if you look at the first quarter results, where we've had the most positive movement from the mean would be in the adjusted non-GAAP EPS. So right now, we see even if you migrate towards the upper end of the range, that's still being sufficient. We only change our range of guidance, whether it's for all the metrics or a single metric when we are highly confident we will be exceeding one or more of them. So, it's too early in the year to do that. So, it's neither a conservatism. It's really more a philosophical principle on which we construct our guidance on an annual basis. I think you get a sense in terms of the second question, though, given that we do give quarterly guidance, what you see in Q2. But the one thing I would note and caution people on, as I said in my opening remarks, is one of the benefits that flowed through in the first quarter was not only more revenue, which is clearly a good thing. And I'd say most of that incremental revenue relative to our expectations went to the bottom line, but we did not hire as much in Q1 as we had budgeted. And I do anticipate that, that will pick up as it already has in the early stages of Q2 throughout the end of the year. In fact, I want it to pick up. So while we had 54% EBITDA margins in Q1, I do not expect that to repeat, and I do not want it to repeat; because I want to see us fill out the hiring that we have, which is primarily in the go-to-market operations, which is Johnny's area, and in the product area and the engineering, which is Jeff Sullivan, our CTO. So, if we are successful in our hiring, a lot of those people will not be immediately contributing revenue within the calendar year, they're really more setting up for 2027. So that's the basis on which we constructed our reforecast for the balance of the year, also played into account Q2 guidance. And then we'll take a much deeper dive as we hit the midway point once we report Q2 results for the back half of the year. Operator: And there were no other questions from the lines at this time. I'll now hand the call back to Scott Turicchi for closing remarks. R. Turicchi: Okay. All right. I was just checking to see if there's any questions that came by e-mail, give us a second, Paul. Okay. All right. Well, we know it's a crowded day for reporting. So, we appreciate those that have been able to listen live. And if not, hopefully, you'll listen to the rebroadcast of it that will be available on our website. Look for some releases at some various conferences that we're likely to be at over the coming weeks. Obviously, if you do have questions, you know how to reach either myself or Adam or Laura, and we'd be happy to address those. also set up one-on-ones even outside of any formal conference. And then without any further news, we would be planning to release Q2 results sometime in the first probably 10 days of August. So, look for that press release as we get closer to that actual release date. And then as Adam mentioned, we're looking to file the 10-Q for Q1 this evening, so it should be available, if not tonight, by tomorrow morning. Thank you. Operator: Thank you. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.
Operator: Ladies and gentlemen, once again, I do really appreciate your patience. Good afternoon, and welcome. My name is Aaron. I will be our conference operator for today, and I would again like to welcome you to the Q1 2026 Yelp Inc. Earnings Conference Call. [Operator Instructions] And with that, let's go ahead and begin our call. It's my pleasure to turn our call over to Kate Krieger, Director of Investor Relations. Kate, with that, you can go ahead. Thank you. Kate Krieger: Good afternoon, everyone, and thanks for joining us on Yelp's First Quarter 2026 Earnings Conference Call. Joining me today are Yelp's Chief Executive Officer, Jeremy Stoppelman; Chief Financial Officer, David Schwarzbach; and Chief Operating Officer, Jed Nachman. We published a shareholder letter on our Investor Relations website and with the SEC and hope everyone had a chance to read it. We'll provide some brief opening comments and then turn to your questions. Now I'll read our safe harbor statement. We'll make certain statements today that are forward-looking and involve a number of risks and uncertainties that could cause actual results to differ materially. Please note that these forward-looking statements reflect our opinions only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events. In addition, we are subject to a number of risks that may significantly impact our business and financial results. Please refer to our SEC filings as well as our shareholder letter for a more detailed description of the risk factors that may affect our results. During our call today, we may discuss adjusted EBITDA, adjusted EBITDA margin and free cash flow, which are non-GAAP financial measures. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with generally accepted accounting principles. In our shareholder letter released this afternoon and our filings with the SEC, each of which is posted on our Investor Relations website, you will find additional disclosures regarding these non-GAAP financial measures as well as historical reconciliations of GAAP net income or loss to both adjusted EBITDA and adjusted EBITDA margin and a historical reconciliation of GAAP cash flows from operating activities to free cash flow. And with that, I will turn the call over to Jeremy. Jeremy Stoppelman: Thanks, Kate, and welcome, everyone. Yelp continued to accelerate its AI transformation in the first quarter. We are making local discovery increasingly conversational, delivering tools to help businesses succeed and expanding the reach of our trusted content through new partnerships. Our progress in the quarter resulted in the recent rollout of more than 35 new features and updates, including a new Yelp Assistant that now works across all categories. At the same time, local businesses have continued to face a challenging economic environment. First quarter net revenue increased by 1% year-over-year to $361 million with a net income margin of 5% and an adjusted EBITDA margin of 22%. Underlying our top line results, Services Ad revenue increased by 1% year-over-year and RR&O ad revenue decreased by 11% year-over-year. We've increased our focus on growing a number of AI-driven revenue streams this year and other revenue grew 75% year-over-year as a result. Moving to our product initiatives. We are reconceiving how consumers and businesses connect on Yelp through a conversational experience that provides answers and enables actions. In the first quarter, Yelp Assistant connected more consumers and service pros than ever before, with its growing adoption accounting for approximately 15% of Request-A-Quote projects. We recently rolled out a new Yelp Assistant that supports local discovery across every business category on Yelp, delivering trusted recommendations while surfacing relevant reviews, star ratings and other helpful details. While still early, we are seeing positive signals and believe Yelp Assistant can ultimately drive deeper engagement. In addition to evolving our product offerings, we are expanding our partner ecosystem to help consumers complete tasks like initiating a reservation or booking an appointment. In the first quarter, consumers took advantage of the hundreds of thousands of new restaurants available for food ordering and delivery through our DoorDash partnership with food ordering revenue up 88% year-over-year. More recently, we announced new integrations with Vagaro and Zocdoc to enable users to book beauty, wellness, fitness and health care appointments. We are delivering AI tools that help service pros and other local businesses grow, operate and succeed. For advertisers, this showed up in the form of improvements to the ad experience and business owner platform, where we've introduced a new AI-powered support chatbot that streamlines administrative activities. Our team continued to scale Yelp Host, our AI-powered call answering service for restaurants, which surpassed an annual run rate of 1.5 million calls handled in April, more than doubling from January. We plan to roll out new improvements and functionality, including the ability to place food orders over the phone. Overall, we estimate there is a market opportunity of over $1 billion in the United States for Yelp Host. With our best-in-class offering and expansive distribution, we believe we are well positioned to capture meaningful market share. We also accelerated our strategy in this area for Services businesses through the acquisition of Hatch in February and have been pleased with the team's early progress. Notably, Hatch's annual run rate revenue exceeded $34 million in March, up 92% year-over-year. Looking ahead, we see considerable opportunity for significant growth, and we have added Yelp go-to-market and engineering resources to advance Hatch's growth initiatives. Lastly, we are extending our reach to power local discovery across the AI ecosystem through data licensing. In the first quarter, we secured new licensing agreements, including with OpenAI and expanded our integrations with existing partners. Consumers can now find licensed Yelp content on Amazon Alexa, Apple Maps, Microsoft Bing, Meta.ai and Yahoo, among many other platforms. We expect the operating environment for local businesses to remain challenging this year. As such, we have allocated meaningful resources to drive growth in other revenue through AI-driven offerings such as Yelp Host, Hatch and data licensing. As these accretive revenue streams continue to gain traction, we are targeting an annual run rate of $250 million in other revenue by the end of 2028, more than double the run rate delivered in the first quarter of this year. In summary, we continue to make significant progress transforming Yelp with AI in the first quarter as we focus on deepening the connection between consumers and businesses. We're confident in our plan for the year and believe that our initiatives will position us to drive profitable growth over the long term. With that, I'll turn it over to David. David Schwarzbach: Thanks, Jeremy. Turning to our first quarter results. Net revenue increased by 1% year-over-year to $361 million, $6 million above the high end of our outlook range. Net income decreased by 27% year-over-year to $18 million, representing a 5% margin. Adjusted EBITDA decreased by 7% year-over-year to $79 million, $15 million above the high end of our outlook range, representing a 22% margin. As Jeremy mentioned, local businesses have faced a challenging operating environment, which is reflected in our advertising metrics for the quarter. Services ad revenue increased by 1% year-over-year to $234 million, while RR&O ad revenue decreased by 11% year-over-year to $99 million. A decrease in both services and RR&O locations resulted in an overall decline of 6% year-over-year in paying advertising locations to 485,000. Ad clicks declined by 10% year-over-year in the quarter, driven by lower consumer demand in RR&O categories, partially offset by a slight increase in services categories. Average CPC increased by 8% as advertiser demand outpaced consumer demand. Moving to other revenue. Other revenue increased by 75% year-over-year to a record $29 million. This strong growth was driven by the inclusion of revenue generated by Hatch as well as significant growth in revenue from data licensing and food ordering. Turning to expenses. In 2026, we're investing behind high-return areas that we believe will transform Yelp and reaccelerate growth. As Jeremy mentioned, we believe we can drive significant growth in other revenue, and we have reallocated resources behind these high-growth areas to better capture the opportunities ahead. At the same time, we see substantial opportunities to unlock operational efficiencies and increase employee productivity with AI, giving us increased confidence in the margin potential for our business. As a result of these top and bottom line efforts, we believe we can drive strong growth in adjusted EBITDA margin over the next several years. We reduced stock-based compensation expense as a percentage of revenue by 2 percentage points year-over-year to 8% in the first quarter. We expect the impact of this effort, combined with continued share repurchases to stack over time and benefit GAAP profitability in the years to come. We also continue to expect that we will reduce stock-based compensation expense to less than 6% of revenue by the end of 2027. Our approach to capital allocation remains focused on three priorities: investing in strategic transactions, driving traffic acquisition and returning excess capital to shareholders through share repurchases. In the first quarter, we repurchased $125 million worth of shares at an average price of $24.58 per share, reflecting our disciplined approach and contributing to a 12% year-over-year decline in diluted shares outstanding. As of March 31, 2026, we had $414 million remaining under our existing repurchase authorization. We plan to continue repurchasing shares in 2026, subject to market and economic conditions. Turning to our outlook. We anticipate that the challenging economic environment for local businesses will persist into the second quarter and continue impacting advertising revenue across categories. At the same time, we expect our investments in our strategic initiatives to drive strong growth in other revenue. As a result, we anticipate second quarter net revenue will be in the range of $363 million to $368 million. For the full year, we continue to expect net revenue will be in the range of $1.455 billion to $1.475 billion. Turning to margin. We expect expenses will increase sequentially as we invest in our AI transformation and increase marketing spend. As a result, we anticipate second quarter adjusted EBITDA will be in the range of $70 million to $75 million. For the full year, we continue to expect adjusted EBITDA will be in the range of $310 million to $330 million. For the second quarter and full year, our expected adjusted EBITDA ranges exclude accrued acquisition and integration-related payments for continuing Hatch employees of approximately $4 million and $13 million, respectively, which we do not believe are indicative of our ongoing operating performance. In closing, Yelp's first quarter results reflect continued product momentum as we invest in our AI transformation. We continue to believe in the opportunities ahead and our ability to create long-term shareholder value. With that, operator, please open up the line for questions. Operator: [Operator Instructions] Our first question for today comes from the line of Sergio Segura with KeyBanc. Sergio Segura: Maybe just starting out on the quarterly performance and the full year guide. Congrats on achieving revenue and EBITDA above the high end of your guidance outlook for Q1. Just curious why the guide was maintained here? Was Q1 from a macroeconomic perspective, a little bit better and Q2 a little bit worse? Could you just explain the reasoning why Q1 came in better than expected, but you're maintaining your full year outlook? David Schwarzbach: Sergio, this is David. Thanks for the question. Q1, we were pleased with the performance in Q1. That being said, we did see a dynamic in the March month around the conflict in the Middle East, which had an impact on budgets from advertisers. And -- just as a reminder, the dynamics that we saw in 2025, they did persist into the first quarter, but we saw that further playing out in March. So while we've seen improvement in April, and it's more in line with our typical seasonal ramp, we are operating under the expectation that, again, these dynamics are going to continue to play out over the course of the year. And some of that March softness does persist into the second quarter. So it does carry through. So that's how we are thinking about the performance plus the continued uncertainty, which is reflected in the overall guidance for the year. Sergio Segura: Understood. That makes sense. And then maybe a bigger picture one. I appreciate the $250 million run rate target you gave for other revenue by the end of 2028. Maybe if you could just elaborate on kind of the drivers and main components you see to achieving that target by that time frame. David Schwarzbach: Absolutely. So we see three components there, and I'll talk just a little bit about how they contribute and then turn it over to Jeremy to talk more strategically about the approach that we're taking. In the first quarter, as we mentioned or just to step back, as a quick reminder, other revenue consists of three components. One is transaction revenue. In the first quarter, we saw that grow 88%. As Jeremy already mentioned, that's around the DoorDash partnership. We continue to see momentum in the second component, licensing, which we're very pleased with and continue to see a large opportunity there. And then third, obviously, Hatch. So we see the opportunity for all three of those areas to contribute over the next several years. Jeremy Stoppelman: Thanks, David. I'll hop in with a little bit more color. We're very excited about the opportunities we have to really ride this AI wave and take an offensive position here. With Hatch and with Host, those are really greenfield opportunities. Closed the transaction with Hatch in February. That's going really well, 92% annual run rate revenue growth year-over-year, $34 million run rate in March. So we're really pleased with that. And we've taken the opportunity to surge resources there, in particular, on the product and engineering side to support the business as well as the go-to-market side. It's a huge opportunity. There's a lot of share to be had, and we want to make sure to lean in there. We also have been developing the opportunity around our Host, which is our phone answering service for restaurants, really great response from customers, great go-to-market activity. And then we just talked about the progress we're making on the product side in the letter. And one of the major unlocks we've got coming very soon is food ordering over the phone. And so that allows us to take a market opportunity that was already exciting and makes it even more exciting, talk to lots of restaurants that maybe don't have front of house, don't need that integration that Host provides, but would love to take food orders. So we see tremendous opportunity there. And we've built out a lot of that experience. We're in live testing now. And so we'll keep you posted on that. And then finally, we've got the data licensing business, which obviously, we've been in that business for a long time, particularly with search, have had some great relationships there that have driven revenue as well as traffic. And really, our focus is to apply that playbook once again to this really exciting opportunity to power local search for AI players as well as, of course, our own products, but bringing the great high-quality human written content to all of these new large audiences, I think, is really exciting, both from a revenue standpoint from a marketing standpoint, having the Yelp brand and our great content out there. And then ultimately, there will be relevant links back where it makes sense for consumers, and that can drive meaningful traffic over the long term. So we see within that other area, just a lot of AI opportunities that are already growing really fast, and we have opportunities to go even faster. Operator: Our next questions are from the line of Cory Carpenter with JPMorgan. Cory Carpenter: I had two related to EBITDA. David, I did think it was notable you mentioned your expectation for strong growth in EBITDA margins over the coming years. Could you just elaborate a bit on that comment? How much of that is due to some of these core business efficiencies you're seeing from AI? How much of that is due to maybe perhaps a higher-margin nature of some of these emerging revenue streams you have? And then more near term, the 1Q EBITDA beat was rather significant. So just any comments on what drove the upside in the quarter. David Schwarzbach: Thanks for the question, Cory. So in terms of the longer term, we're very encouraged both on the revenue potential as well as the opportunity to drive productivity. On the revenue potential side, and again, I think we'll ask Jeremy to add some comments here. We are seeing accelerated product development and time to ship. That was already emerging, as we've shared previously, really as we move through '24 and '25. And I'd just say that our product-led growth strategy has really been working and the capabilities that are now available with AI are further enhancing that. That's particularly true about for newer products where you have more freedom to drive that change compared to maybe some of the improvements that we're making on the experience that we've had where you have a larger code base. So that's certainly something that we're excited about that ability to really innovate and deliver features more quickly and drive revenue, also respond to customer feedback, consumer dynamics. That's a really positive feedback loop there. And then obviously, we made the acquisition of Hatch, which is an AI-driven product in order to enhance lead management. So lots of, lots of opportunity to continue to push forward on the revenue side. And then on the productivity side, I already touched on what's happening in product and engineering. That's a common theme, I think, across companies. But we're really also starting to see that play out in the sales and marketing side. And we're even able to take the capabilities that we're building for consumers like our voice product in Yelp Host and apply that on our customer success side and being able to answer calls. And then I think it's still emerging, but there's certainly opportunity for productivity in the G&A function. So when you combine those, we do feel optimistic on our ability to generate incremental margin over the next few years, and we think that could be quite substantial. And then before I turn it over, just to address your question on the first quarter, as you know, over the years, as we've been able to outperform our guidance, we've flowed through that incremental revenue to EBITDA that also took place once again in the first quarter. We also saw some benefits around capitalized software development, and then there's just the normal puts and takes across some of the other operating line items. Jeremy, perhaps you could expand a little bit on what we're seeing with product development and velocity. Jeremy Stoppelman: Yes, happy to outline. We are adopting all of the modern tools, and we're starting to see signs of real productivity gains. Things like migrations come to mind where something that would maybe take three months has taken more like three weeks. So that's fantastic. I think a significant portion of our code at this point is AI generated like many others have reported. So we're very optimistic that we're going to see continued acceleration in terms of product development velocity in the coming months. Operator: Our next question is from the line of Colin Sebastian with Baird. Colin Sebastian: I have a couple of questions. I guess, first, regarding some of the disclosures around Yelp Assistant and Request-A-Quote projects. I guess any more detail on how materially different those interactions are in terms of conversion into paid leads and book jobs and ultimately advertiser ROI? And then secondly, I guess, maybe as a follow-up in terms of what you've been saying and disclosing around your relationships with other surfaces like OpenAI and Apple and others. But are these partnerships generating mostly referral traffic, off-platform monetization? Any other takeaways, I think, could be useful as those relationships become more important over time. Jeremy Stoppelman: Sure. Happy to answer that. This is Jeremy. So on the Yelp Assistant side, particularly with the services focus and Request-A-Quote, we have seen incremental projects as we've rolled out Yelp Assistant, particularly the services version that's been around now for a couple of years and seeing gains there. And in fact, we noted that of Request-A-Quote projects, 15% now are driven by Yelp Assistant, and that's up from about 5% last year. And so we feel really good about what our LLM-powered flow has been able to do to move the needle in terms of projects. And in fact, we're doubling down there and we've invested a lot more in bringing the power of Yelp Assistant across to all categories. We just launched that in April. The early signs are really good. So we're excited. Obviously, it's kind of the first inning of the rollout. We have a lot more to do in terms of weaving it into the overall product experience. But we're quite excited about it. We think it helps consumers ultimately find needles in the haystack and really get more out of the incredible depth of content that we've had. If you think about a consumer experience prior to the invention of LLMs, we might have 1,000 reviews on a particular place, but there is no possible way that a human could dig through that and really make sense of all the valuable information that's been submitted by users over the years. And now with Yelp Assistant, we can actually tap into that and provide the evidence back to the consumer of, hey, this is why it meets your needs, here's some quotes from users. I think that's really powerful. I think that our expectation and hope is that we can move the needle with that over time. And so we're just getting started there. On the partnership side, the data licensing side with some of the AI players, I think it speaks, number one, to the importance of Yelp and the overall AI ecosystem. If you want to provide a local search experience powered by AI, you really need to be grounded in reality and you need to have very high-quality human written content, and that's exactly what Yelp has. And so a while ago, maybe a year or two ago, we started highlighting that we believe that there was an opportunity here, and it's really played out along with our expectations. And we've signed with a number of big names. We talked about Amazon Alexa, Apple Maps, we've been able to see our content for quite some time, Microsoft Bing, Meta.ai, Yahoo and many others, and we've announced a deal with OpenAI. As far as the maturity of that sector, I think it's extremely early. Many of these players have not really built out their local experience yet. They're just realizing that they need high-quality human written content like Yelp. And so it's very early. But I do think there are certainly opportunities, one, for just Yelp exposure, branding, et cetera. But then there is also opportunities for traffic back where it's relevant and is helpful to the consumer. And so I think we will see that over time. But again, like some of these players haven't really even launched their experience yet. So we're even before the first inning, I would say, in this whole area. Operator: Our next question is from the line of Nitin Bansal with Bank of America. Nitin Bansal: So just double pressing on the OpenAI partnership. So when I search for restaurants or local recommendation on ChatGPT today, Yelp content appears relatively limited versus sources like Reddit, OpenTable, Tripadvisor. Can you help us understand the scope of the partnership today, specifically like how OpenAI is leveraging your data and where Yelp content is surfacing? And what needs to happen for Yelp to become more visible or primary source within these AI services? And secondly, one for David. You shared guidance on the other revenue segment like the 2028 run rate. But how should we think about the trajectory of growth in this segment over the next few quarters? And what does it mean for your advertising given the overall revenue guide remains unchanged? Jeremy Stoppelman: This is Jeremy. I'll hop in with the first question on the OpenAI partnership that we announced. At this point, we've announced the partnership. And as far as the experience that OpenAI is planning, like we can't really comment on that nor do we have all the details of their plans. Obviously, they're moving really fast and innovating quite quickly and things are changing within their own experience very rapidly. So I would just say, continue to watch that space, but I can't really comment on what they're up to. David Schwarzbach: Thanks for the question. So in terms of other revenue, again, we have the three components to it: transaction revenue in the first quarter growing 88%. Then we've shared with you the run rate revenue as of March for Hatch at 92% growth. And we do continue to sign up licensing agreements and entering into new partnerships, which contributed to the overall growth of 75%. So obviously, we've reflected that performance into our guidance for the year, and we're looking forward to continuing to execute against them. I would just say the overarching perspective on our guidance this year is the degree of uncertainty that we need to reflect given the variability that we've seen, particularly for local businesses in the United States and the dynamics that we saw, which I already mentioned playing out in March from the conflict in the Middle East. So we're combining both of those in the guidance that we're providing, and we look forward to giving you an update on the Q2 call. Operator: Thank you for your questions. Ladies and gentlemen, that will conclude our questions for today, and it will also conclude today's Q1 2026 Yelp Earnings Conference Call. Thank you all for attending. We appreciate your time. Have a great rest of your day. Take care.
Operator: Good afternoon. Thank you for attending Nerdy's Inc. Q1 2026 Earnings Call. My name is Angela, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to your host, T.J. Lynn, Associate General Counsel of Nerdy. You may proceed. T. Lynn: Good afternoon, and thank you for joining us for Nerdy's First Quarter 2026 Earnings Call. With me are Chuck Cohn, Founder, Chairman and Chief Executive Officer of Nerdy; and Atul Bagga, Chief Financial Officer. Before I turn the call over to Chuck, I'll remind everyone that this discussion will contain forward-looking statements, including, but not limited to, expectations with respect to Nerdy's future financial and operating results, strategy, opportunities, plans and outlook. These forward-looking statements involve significant risks and uncertainties that could cause actual results to differ materially from expected results. Any forward-looking statements are made as of today's date, and Nerdy does not undertake or accept any obligation to publicly release any updates or revisions to any forward-looking statements to reflect any change in expectations or any change in events, conditions or circumstances on which any such statement is based. Please refer to the disclaimers in today's shareholder letter announcing Nerdy's first quarter results and the company's filings with the SEC for a discussion of the risks. Not all of the financial measures that we will discuss today are prepared in accordance with GAAP. Please refer to today's shareholder letter for reconciliations of these non-GAAP measures. With that, let me turn the call over to Chuck. Charles Cohn: Thanks, TJ, and thank you to everyone for joining today's call. In the first quarter of 2026, we beat the top end of our revenue guidance and delivered our second consecutive quarter of positive non-GAAP adjusted EBITDA. We also translated the AI native foundation we finished building at the end of 2025 into shipped learner-facing products at a cadence we have never matched in the company's history. Revenue was $48.7 million, above the top end of our $46 million to $48 million guidance range and 2% up year-over-year. Non-GAAP adjusted EBITDA was positive $1.0 million, ahead of our guidance of approximately breakeven and improved by $7.3 million compared to Q1 2025. Adjusted EBITDA margin expanded more than 1,500 basis points year-over-year, our third consecutive quarter of sequential margin improvement. That represents roughly $30 million of annualized operating leverage on a flat-top line. Gross margin reached 66.2%, an expansion of more than 800 basis points year-over-year. We ended the quarter with $44.7 million of cash on the balance sheet. Three things stood out in the first quarter. First, the product velocity that we said an AI-native code base would unlock is now visible in shipped products with a meaningful slate of additional learner-facing releases reaching customers in the weeks ahead. Second, our cost structure is structurally not cyclically better, and AI is the reason. And third, the rate of decline in active members on a year-over-year basis narrowed for the third consecutive quarter, and we expect to return to positive growth by the end of 2026. When we finished replatforming on an AI native code base as we wrapped up 2025, we said the point of that work was not about the architecture itself. It was about the speed and quality of the products that we could ship on top of it. Q1 was the first full quarter operating in that new mode, and the cadence has fundamentally changed. The most visible expression of that shift is our new Learner Experience internally referred to as V3, which became the universal customer experience and surface for our consumer business in March. Every newly acquired customer is now onboarded directly to this new V3 experience, and we have begun migrating existing customers as well. Roughly 6,000 new customers came in directly on V3 in the back half of the quarter and approximately 10,000 existing customers have moved over from the prior experience, and we are seeing strong early signal and optimizing rapidly in response to user behavior and customer feedback, which is broadly positive with a constant point of feedback being it looks and feels like a whole different company or product. The same platform will imminently power our institutional offering, which we expect to expand the market opportunity in institutional beyond the more limited K-12 high-dosage tutoring market that business primarily targeted. Inside V3, the centerpiece for the learner is Maya, our AI concierge. Maya is the always-on guide built into the experience. She answers inbound questions, surfaces the right next step, helps the student find a diagnostic and resolves day-to-day issues like scheduling a tutoring session and she does so all without a phone call or a customer support ticket. She's available 24 hours a day with full context of each student's actual learning plan and past interactions, including past tutoring sessions, product interactions, diagnostics and practice-related engagement and the results of those and more. She now handles a meaningful share of in-product customer interactions. For a student or parent, Maya turns our platform into a relationship that feels alive, responsive and easy. Around Maya, V3 brings together the rest of the family experience. Our native mobile app launched in the App Store in Q1 and is approaching full feature parity with web with releases that shipping to mobile within 48 hours of going live. The Tutor Gallery lets families browse tutor profiles, watch introductory videos and book with guaranteed availability through Book Now. We also launched Games, a set of six math and ELA titles initially built to drive daily engagement and learning. We also launched On-Demand Courses, converting our top Live Classes into self-paced courses with supporting materials. We are launching with more than 350 of these courses that collectively span thousands of hours of live instruction. These updates shipped together as part of V3. They give families more ways to engage with our platform between live sessions, creating additional retention opportunities. And we're seeing the early signal in the numbers. Active members ended the quarter at 36,900, down 9% year-over-year, but the rate of decline has narrowed for 3 consecutive quarters and customer churn has improved meaningfully year-over-year as customers enter or experience our new platform and ways to get value out of the relationship with us. ARPM was $374, up 12% and Learning Membership revenue grew 3% to $38.9 million, 80% of total revenue. As to headline, the cohorts onboarded directly on the V3 are showing early indications that are directionally consistent with our thesis. While early, what we will say is the cohort signal is consistent across the metrics that matter and that retention is the highest growth lever we have given how small changes in extending the customer life cycle can have a meaningful impact on long-term revenue and profitability. At today's customer acquisition cost, every additional month of average tenure flows almost entirely through to contribution profit. We expect to provide a full read on our progress on our Q2 call in August. Our upcoming product releases have received strong early feedback. What has shipped to V3 today is the foundation, not the full picture. Three product areas in particular, are moving from internal development into the hands of customers in the weeks ahead with strong early feedback on all three. The first is college and career readiness. We were approached by the leadership from a top-10 U.S. school district about a need we're uniquely qualified to solve. This led to our always-on AI counselor now targeted for back-to-school 2026 release in 2 flagship high schools in that district. Early indications show other districts have similar needs. The counselor is highly interactive and guides students through post-secondary decisions. It has real-time integration with school systems, maintains persistent memory across years and is multimodal across mobile, desktop, voice, SMS and inbound and outbound calling. For consumer learners, it extends Varsity Tutors as well as tutoring specifically into a multiyear goal-setting process previously outside our reach. The second upcoming Q2 planned product release is related to daily math and reading content and practice. We're launching more than 4,600 K-8 math skills aligned to academic taxonomies achieving parity with several of the leading supplemental practice platforms with reading parity coming soon. These additions expand the lesson library, including tens of thousands of lessons all created year-to-date mapped to K-12 and college taxonomies and standards. The content integrates into V3 as structured daily practice alongside tutoring or self-study. Progress is visible to learners and parents. And for tutors, it helps ensure all tutors have prepared professional relevant content for their tutoring sessions across the millions of tutoring sessions per year on the platform. AI orchestrates and personalizes the learning experience that spans all of these product modalities on the platform in service of the learners' goals and preferences. Early feedback on sequencing and quality is strong, and we anticipate similar learner reception when we roll it out more broadly. And the third upcoming product is related to language learning, which is already a popular area for one-to-one tutoring on the platform. We're bringing to market an AI-enabled learning experience that will launch for both consumer and institutional customers, and we look forward to sharing more in the near future. I also wanted to touch upon our continuous efforts to utilize AI internally to improve product velocity and improve productivity. AI is at the center of how we're operating and expect our teams to operate. Not only is all of our software development done almost exclusively with AI, we are using it to do everything from automate our back-office workflows to handle inbound and outbound calls and help with customer service interactions on the platform and much, much more. Fixed headcount is lower year-over-year even as we enhance our existing products and build numerous new ones. These changes drove more than 1,500 basis points of adjusted EBITDA margin expansion in the quarter on roughly flat revenue. The improvements are structural with software and automation replacing manual processes. With both fixed and variable costs now lower, higher retention means new revenue flows through at a higher contribution margin rate to adjusted EBITDA. AI is how we operate. It's not what we sell. And what we sell remains that relationship between a learner and an expert that's now supported by the best technology available, and it's informed by more than 10 million tutoring sessions. Moving on to Varsity Tutors for Schools. The new Varsity Tutors for Schools platform built on the same V3 platform foundation and integrating AI-enabled tutoring and AI counseling layer and our expanded K-12 content library on the Live+AI engine that powers our Consumer business enters the back-to-school 2026 selling season as a meaningfully stronger offering than what we took to market a year ago. And now looking ahead to the rest of the year, the product velocity we have discussed, our V3 platform, Maya our AI concierge for learners, having modern mobile apps with full feature parity to web and the upcoming product releases in college and career readiness, daily math and reading practice and language learning have shipped or will be shipping before the end of the second quarter, and our customer base is only beginning to experience these enhanced features. As more of our active customers move on to the new platform and our first full V3 new customer cohorts mature, the leading indicators we are watching today should translate into inflecting active member growth later this year. A year ago, we were rebuilding the foundation. Today, we're building on it and the benefits of this increased product velocity will build throughout the year as we enhance more customer-facing services and allow for us to drive long-term growth and profitability. With that, I'll hand the call over to Atul to discuss the financials in more detail. Atul? Atul Bagga: Thanks, Chuck. Before I walk through the numbers, I'd like to take a couple of moments to share what drew me to this role. Nerdy operates in one of the most underpenetrated markets in education technology. There are over 50 million K-12 and college students in the U.S. alone, and the tutoring market remains mostly fragmented and offline. Our active member base of about 37,000 represents a fraction of what this market can support, and that gap is the opportunity. What convinced me that Nerdy can close this gap, it's genuinely AI-first culture, product velocity and a team that moves fast. And these are not just talking points. They translate directly into margin expansion and operating leverage you'll see in the results. My mandate as the CFO is clear: get Nerdy to free cash flow positive while investing with discipline in the areas that drive member growth. That is the financial thread running through everything we are doing in 2026. Now let me walk you through our first quarter results. We beat the top end of our revenue guidance range. Revenue was $48.7 million, ahead of our guidance range of $46 million to $48 million and up 2% year-over-year, driven by higher consumer revenue and partially offset by lower institutional revenue. Within consumer revenue, Learning Membership revenue was $38.9 million, up 3% year-over-year and represented 80% of total company's revenue. Consumer revenue growth was driven by higher Average Revenue per Month or ARPM of $374, which was up 12% year-over-year, primarily driven by price increases enacted in Feb 2025. As of March 31, active members were 36,900, a decrease of 9% year-over-year. This rate of decline has narrowed sequentially for the 3 consecutive quarters, and we expect to return to positive active member growth by the end of 2026. Our institutional revenue was $9.3 million, a decrease of 1% year-over-year and represented 19% of total company's revenue during the first quarter. As a reminder, the institutional revenue in the first quarter was mostly supported by the prior period bookings. During Q1, Varsity Tutors for Schools bookings were $1.1 million versus $4 million in Q1 of 2025. Gross margin was 66.2%, an expansion of 820 basis points compared to a gross margin of 58.0% during Q1 2025. The increase in gross margin was primarily due to the benefit of price increases enacted in Feb 2025. Moving to operating expenses. Sales and marketing expenses were $14.2 million, a decrease of 10% year-over-year, driven by AI-enabled productivity gains and reduced investment in our institutional business. General and administrative expenses for the quarter were $23.9 million, down 16% year-over-year. G&A costs included product development costs of $9.2 million compared to $10.7 million in the same period last year. The cost reductions are primarily driven by our focus on applying AI systematically across the tech stack, which is resulting in durable efficiency gains and better unit economics. In the first quarter, non-GAAP adjusted EBITDA was positive $1 million and ahead of our guidance of breakeven. To put that in context, a year ago this quarter, we posted a non-GAAP adjusted EBITDA loss of $6.4 million. That's an improvement of more than $7 million just in a year. Non-GAAP adjusted EBITDA margin improved by more than 1,500 basis points year-over-year, our third consecutive quarter of year-over-year margin improvement. Non-GAAP adjusted EBITDA outperformance was driven by gross profit outperformance, efficiency improvement and strong cost control across every P&L item. Moving to liquidity and capital resources. We ended the quarter with $44.7 million in cash and cash equivalents. Free cash flow was negative $3 million compared to negative $7.6 million in the same period in 2025. Free cash flow improvement was driven by non-GAAP adjusted EBITDA improvement as previously discussed and partially offset by higher working capital and by interest payment of $0.5 million on our term loan. With our cash on hand and the funding available under our term loan, we believe we have ample liquidity to fund operations and growth initiatives as we execute towards free cash flow positive. Turning to our business outlook. Today, we are introducing second quarter guidance and reaffirming full year 2026 guidance. Before sharing guidance, I want to flag 2 dynamics that shaped the Q2 revenue and EBITDA outlook. First, the decline in Q1 Varsity Tutors for Schools bookings will negatively impact Q2 institutional revenue given the lag between bookings and revenue recognition. Second, beginning in Q2, we start lapping the price increases implemented in Feb 2025, which will moderate ARPM year-over-year growth for our consumer business. We expect to see continued benefits from improving client retention to our consumer business, although that momentum builds through the year. The full year outlook assumes a more stable institutional funding environment in the second half of the year, reception of new Varsity Tutors for Schools platform and continued improvements in Consumer retention. Revenue guidance. For the second quarter of 2026, we expect revenue in the range of $42 million to $44 million. For the full year of 2026, we expect revenue in the range of $180 million to $190 million. Turning to adjusted EBITDA guidance. For the second quarter of 2026, we expect non-GAAP adjusted EBITDA to be negative $2 million to breakeven. For the full year of 2026, we expect non-GAAP adjusted EBITDA to be approximately breakeven. We expect to end the year with $40 million to $45 million in cash, inclusive of $20 million currently drawn on our term loan. To close, this quarter's result, a revenue beat, 820 basis point improvement in gross margin and non-GAAP adjusted EBITDA that improved from a loss of $6.4 million to a positive $1 million in 1 year, reflect on the progress across every line of the P&L. The work ahead is on active member growth and institutional bookings recovery. We know what we need to do, and we are executing against it. With that, I'll turn it over to the operator for Q&A. Operator? Operator: We will now begin the Q&A session. [Operator Instructions] Your first question comes from the line of Bryan Smilek with JPMorgan. Bryan Smilek: Good to see the product velocity in V3 starting to drive improved learner trends. As we go through the back half here, Chuck, can you just talk about the underlying confidence in achieving return to active member growth, just the overall durability of these new cohorts that are seeing the improved retention and engagement. And I guess, conversely as well, you mentioned, I believe, right, 6,000 new active members on V3 and then 10,000 or so of the existing members migrating there. Can you just help us walk through the timeline of migrating your overall entire member base towards V3 and when you would start to realize returns on that shift? Charles Cohn: Thanks, Bryan. Good question. So yes, we made a ton of progress on new product development in the quarter, and we're able to take the sort of base platform that we had built that we consider to be a brand-new version of the old platform, but with full parity, feature parity and AI native code base, which then allowed us to build and ship quickly. And we were able to really, I think, enhance it just over the course of the last 90 days or so in a pretty material way. So what we have seen is as we first introduced new customer cohorts to that experience, and we're able to work through the best way to onboard them to an experience that, frankly, is much more rich, much more robust and in many ways, looks like a whole new company and really optimize that onboarding experience to get them into many different non-tutoring products than we've had before, we saw sequential improvements in retention of those cohorts as they onboarded and started gaining confidence in accelerating that path to a broader rollout. And over the course of the rest of the quarter, we would expect to have -- get to 100% of the existing customers on the current experience. And broadly, what we've seen is that the new customers who come in that are then benefiting from an enhanced product suite, much deeper content and there are several more big enhancements planned over the course of the next couple of months. We have seen a pretty tight relationship between getting them into those new products and driving engagement and then that pulling through to early signs on customer retention. So, the signals are quite promising, but it's early. Atul Bagga: Bryan, this is Atul. Just adding on to that, we are seeing some very good traction with the new customers who are onboarding on -- you asked about when do we realize the benefit of this in financials. What we see with the retention, the improvement of retention is going to drive higher lifetime value of the customer, and that is going to be seen over the lifetime. So, you see that continue to build the momentum on financial improvements from retention, it will come over time. Operator: Your next question comes from the line of Greg Gibas with Northland Securities. Gregory Gibas: I wanted to follow up there. If you could add a little bit more color on the trends you saw with churn versus maybe new or additions of new cohorts within active members. That would be helpful. It sounds like you're seeing some improvements in the churn side of things, and I wanted to get a sense of how those trended within the quarter. Charles Cohn: Thanks, Greg. Good question. So, I think the consumer business has sort of shaped up collectively consistent with expectations. We're obviously still early in the year but feel good about our ability to drive growth in that business through enhancing the product and then kind of pulling it up funnel and making a lot of the product enhancements we have more visible, which we think is pretty compelling. And sort of the initial traction there is positive. Early in the year, but thus far, tracking pretty consistent with expectations. The retention benefits that we're seeing on the new platform are still early and applied to a relatively small percentage of the total business. And the recent weeks, trends and the initial sort of launch has gone well. But as it relates to deviating from expectations early in the year, I don't think we've seen that at all. So, it's been a pretty good start to the year, and the product velocity is exceeding expectations. Gregory Gibas: Got it. Great. That's good to hear. And if I could, as it relates to just the full-year guidance, would you be willing to maybe go into a little bit more depth in terms of the trends on a quarterly basis with ARPM and then active members? Atul Bagga: Yes. So we can talk about it. On active member, this is going to be a big focus for us. As you've seen, our trend on active member has been improving consistently in the last few quarters. And we do expect that to get better as we see higher retention and higher retention also translates into higher LTV, which means that improves our ability to acquire new customers more effectively. So that's one. Second, on the cost structure side, we have made some substantial improvements. So if you look at Q1 '25 to Q1 '26, we have delivered 1,500 basis points of margin expansion, 820 basis points coming from gross margin. We've improved efficiency of all our variable expenses: sales, marketing operations. And on the fixed headcount, we are seeing higher productivity. Just to give you a little context, our headcount is down about 20% year-over-year, while the revenue is roughly flat. So, we -- that momentum we expect to continue to build. We will continue to see more opportunities to lean on AI and improve our productivity. In terms of the rest of the business, Q2 and Q3, as you know, is seasonally weaker quarter for us. So, we do expect some drop in Q2 and Q3 and Q4, again, that picks up. Operator: [Operator Instructions] There are no further questions at this time. And that concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good afternoon, and welcome to Corsair Gaming's First Quarter 2026 Earnings Conference Call. As a reminder, today's call is being recorded, and your participation implies consent to such recordings. With that, I would like to turn over to David Pasquale with Investor Relations. Please proceed. David Pasquale: Thank you, operator. Good afternoon, everyone, and thank you for joining us today. With me on the call are Thi La, our Chief Executive Officer; and Gordon Mattingly, our Chief Financial Officer. Before we begin, I'd like to remind you that today's discussion contains forward-looking statements, including, but not limited to, our guidance for the second quarter of 2026 and other statements that are not historical in nature, are predictive in nature or depend upon or refer to future events or conditions. These forward-looking statements are based on our current assumptions and expectations. Actual results could differ materially. Please refer to the risk factors in our most recent annual report on Form 10-K filed with the SEC as well as today's earnings press release for a full discussion of the factors that could cause our actual results to differ. We undertake no obligation to update these forward-looking statements. Additionally, we will discuss certain non-GAAP financial measures today. Definitions and reconciliations to the most comparable GAAP measures are included in our earnings press release and the investor presentation posted to our Investor Relations website at ir.corsair.com. With that, I'd like to turn the call over to our CEO, Thi La. Please go ahead, Thi. Thi La: Thank you, David, and good afternoon, everyone. We delivered a strong start to 2026. This quarter reflects real progress in the transformation of this business, and I will frame what the results show before Gordon takes you through the details. The headline is this: first quarter record gross margin, both adjusted EBITDA and EPS well above the high end of our guidance and a meaningful improvement in profitability versus a year ago. We also generated strong cash flow, reduced net debt to near 0 and returned capital to shareholders via our share repurchase. What I want to convey is that this is more than one strong metric. It is the whole company moving in the right direction at the same time. In Gamer and Creator Peripherals, we had another excellent quarter. Revenue grew 10% year-over-year, and we absorbed real tariff headwinds in the process. The growth is structural, not cyclical, and I want to explain why. Stream Deck, our solution that combines workflow control software with a hardware innovative interface puts powerful automation literally at your fingertips. What we have built on top of that is the flywheel, a marketplace for plug-ins and digital products that connects developers with users, and it is working. underscoring our success and momentum, our Elgato Marketplace delivered double-digit sequential growth in new accounts and digital products this quarter. We are also excited to see the rise of AI-assisted development, accelerating that flywheel further, lowering the barrier for a new generation of builders. Critically, Stream Deck is no longer just a stand-alone device. We have deployed the ecosystem across our product lines with keyboards, mice and other Corsair peripherals now integrating directly with Stream Deck, turning the software layer into a connected tissue across our hardware portfolio. This integration alongside the Elgato marketplace provides unique benefits to our customers and the results show in our Q1 2026 market share gain. Wave Next is our most ambitious hardware and software integration to date, unifying audio workflows into a single ecosystem with onboard DSP and intuitive tactile control. Sim Racing also had a strong quarter. We recently signed a strategic partnership with Formula 1, naming Fanatec as a licensed F1 brand partner and F1 Esports Official Partner for the F1 Sim Racing World Championship. Fanatec was showcased at the Miami [ Grands Prix ] recently. This validates our position at the top of the market and opens meaningful doors for brand reach and product authenticity going forward. In gaming components and systems, revenue declined 10% year-over-year, and I want to be direct about why we are in a non-GPU upgrade cycle compounded by challenging memory pricing dynamics. Semiconductor supply constraints have added further headwinds on both availability and consumer demand. These are industry-wide dynamics, not Corsair specific, and we expect them to persist through near term. What I want you to focus on is how we managed through it. Despite the revenue decline, we grew gross profit 18% year-over-year to $65.7 million and expanded gross margin 670 basis points from 21.7% to 28.4%. Gordon will give you the specifics, but the point is that our team delivered real margin improvement under dynamic pressure. That reflects operational discipline and a deliberate shift toward higher-margin products. Within the segment, we're also seeing early but real demand for AI-focused workstations, particularly from prosumers and SMB customers who need high-performance locally run AI compute. This is a large and growing market, and it plays to Corsair's and ORIGIN PC's strengths. We are encouraged by the early signals and believe this has the potential to become a more meaningful contributor as adoption matures, though we want to be measured in our expectations until semiconductor availability is more established. Stepping back, the strategy we've been executing against is that Corsair's profitability improves as we continue to grow our higher-margin gaming and creator segment, leveraging our platform ecosystem and continue to exercise operational discipline. This quarter is a proof point that our strategy is working. Our 2026 priorities are clear. First, improve the quality of growth, leaning into higher-margin categories and scaling our ecosystem where we see strong momentum. Second, grow the Elgato marketplace and recurring revenue to drive lifetime value engagement and margin enhancement. Third, scale direct-to-consumer because higher-margin channels and better customer data make other parts of the business smarter. With that, I will turn it over to Gordon to take you through the financials. Gordon? Gordon Mattingly: Thank you, Thi, and good afternoon, everyone. Before I get into the numbers, I want to frame what this quarter's results represent. We are working to transform Corsair into a consistently profitable cash-generative business, underpinned by our diversified portfolio of market-leading brands. This quarter, we saw several benefits of that transformation and diversification simultaneously contributing to our strong results. These include consistent market leadership in memory products, an accelerating pace of innovation in higher-margin peripherals, platform growth in Elgato, direct-consumer expansion and disciplined expense and working capital management. Our team will continue to prioritize progress and improvements across all these areas. Now turning to our results. Revenue for the first quarter was $354.5 million, above the midpoint of our guidance. Gross profit increased 13% year-over-year to $116 million, reflecting strong execution within both our segments, while gross margin expanded to a first quarter record of 32.7%. Our Gamer and Creator Peripheral segment gross profit grew 8% to $50.3 million despite year-over-year tariff-related headwinds with segment gross margin of 40.8%. Our Gaming Components and Systems segment gross profit grew 18% to $65.7 million, with segment gross margin expanded significantly from 21.7% to 28.4%. This is an increase of 670 basis points, which was driven by our strong supply chain execution, favorable memory pricing and sequential market share gains. Though we do expect margin normalization over time, we are very pleased with the expansion we delivered in Q1. Our higher-margin Gamer and Creator Peripheral segment also grew to 35% of our Q1 revenue mix, up from 30% a year ago, which helped lift our blended company gross margin, a trend that we expect to continue. I want to call out one additional driver of margin quality. Our direct-to-consumer channel grew to 20% of Q1 revenue, up from 17% a year ago. That 3-point mix shift matters. Direct-to-consumer carries structurally higher margins than our wholesale and retail channels. As a result, this growth flowed directly into gross profit. It's a deliberate part of our strategy, and we continue to make good progress on it. Disciplined operating expense management with flat year-over-year expenses enabled gross profit growth to flow entirely through to adjusted EBITDA. As a result, adjusted EBITDA grew to $35.8 million, up 58% year-over-year and above the high end of our guidance at 10.1% of revenue. This marks our second consecutive quarter of double-digit adjusted EBITDA margin. Earnings per share improved significantly, coming in at $0.11 on a GAAP basis and $0.27 on a non-GAAP basis compared to a loss in the prior year period. Turning to the balance sheet and cash flow. We generated $29.7 million in cash from operations in Q1, driven by strong earnings with balanced working capital management. This translated into good progress on the balance sheet with our cash and restricted cash increasing sequentially by $20.9 million to $119.7 million. Importantly, we ended the first quarter with a near 0 net debt position. This will give us even greater flexibility to deploy our capital across the business and maximize future shareholder returns. In line with that, during the first quarter, we repurchased approximately $5 million of stock under our recent $50 million authorization. This reflects our view that our shares represent a highly compelling investment opportunity. We intend to continue to deploy our capital optimally, whether investing in organic growth, executing M&A, deleveraging the business or returning capital to shareholders. Now turning to our guidance. For the second quarter of 2026, we expect net revenue to be in the range of $295 million to $320 million, adjusted EBITDA to be in the range of $12.5 million to $15.5 million and non-GAAP EPS to be in the range of $0.05 to $0.07 per share. We expect revenue to be down by about 4% year-over-year at the midpoint of our guided range with expected low teens year-over-year growth in our Gamer and Creator Peripheral segment, offset by a more cautious outlook for gaming components and systems, driven by the ongoing global semiconductor shortages and related demand dynamics. The sequential decline in our revenue from Q1 reflects the normal seasonal pattern of our business. Adjusted EBITDA is expected to grow more than 70% year-over-year at the assumed midpoint of our guided range as we continue to focus on margin expansion and operating expense management. We also reaffirm our previously issued full year guidance, reflecting continued confidence in our outlook. To close, we delivered a strong first quarter with solid top line performance relative to expectations, significant profit growth together with meaningful balance sheet improvement and cash generation. As we look ahead, our priorities remain clear: continued optimization of our product mix towards higher-margin categories and sales channels, disciplined cost management and driving consistent profitable growth across our diversified portfolio of market-leading brands. We believe the progress we've made positions us well to build on this momentum through the remainder of 2026, and we remain confident in our ability to execute against our strategy as we deploy our capital optimally to deliver long-term value for our shareholders. Operator, that concludes our formal remarks. You can now open the call for Q&A. Operator: [Operator Instructions] Your first question today comes from Aaron Lee from Macquarie. Aaron Lee: Nice job on the quarter. I wanted to talk about -- maybe to start with guidance. So obviously, you beat the high end of EBITDA guidance in the first quarter. So can you just talk a bit about the decision to keep the full year outlook the same? Does that just kind of reflect -- it's early in the year, so no reason to kind of move that around? Or any other puts and takes that we should be mindful of? Gordon Mattingly: You got it absolutely right. If you look at revenue for Q1, we're a little bit above the midpoint of guidance. But from a revenue perspective, no reason to change the annual guide, we're on track. From a profit perspective, you're absolutely right. It's pretty pleasing for us to have already banked 33% of the annual guide, 25% of the way through the year. But we just back to what you said at the outset, we're pretty early on through the year. The macro situation is a little bit uncertain. So we just feel that it's right to maintain the guide that we issued before, and we remain confident in that guidance. Aaron Lee: Okay. Perfect. And then I wanted to ask about AI. You made some pretty interesting comments about the opportunity there. Can you just talk about your strategy to penetrate this TAM? And is this something that would require significant time or investment to unlock? Or can you be pretty nimble? Thi La: Aaron, on AI workstation, this is a product line that we launched about 2 quarters ago. And at the beginning, the category was still pretty new. There were a lot of education that needs to be done. Since then, a lot more LLM models became available to the market and people are a lot more familiar with using AI to do the work, to establish very complex business model. And alongside with that, we started to see a much stronger awareness of the benefit of AI computing. And then furthermore, the concern around security and the ability to just do local computing with AI, it's a lot higher and the demand started to surface for our particular solution. So a lot of the performance that we see in Q1 for the systems side is really stemming from the awareness and the need of these new consumers, we call them prosumers as well as SMB wanting to invest in the category. The category itself, we shared the TAM data in our earnings. It's a big market. It's just a question is, number one, the acceleration time line and the availability of semiconductor. Operator: Your next question comes from Drew Crum from Stifel. Andrew Crum: I just wanted to get your additional thoughts on updated expectations for when you think semiconductor supply will improve for your business. I think the language that you used was it would be constrained near term. But just any more detail there and how you're thinking about it beyond '26? And then I have a follow-up. Thi La: At this point, the data that we use is pretty much very consistent with what the market is saying is sometime in '27. Although in terms of availability, for us, we will continue to be able to have access to memory, especially DRAM. The big question is around pricing because you do see demand basically track ASP memory, for example. So for us, when we talk about availability of semiconductor, it just means that the supply-demand picture is more balanced, and you will see ASP normalize, and that's going to bring in, we believe, at this point, a much bigger acceleration in computing. And for our business, that's very beneficial to see people coming back into the market. I think we just see right now just this pent-up demand on waiting for the ASP to normalize. Andrew Crum: Got it. Okay. And then my follow-up is pertaining to the improvement in mix from DTC at 20% of revenue. I think this has been a key initiative for the company for several years now. Are there specific drivers to move that percentage higher? And do you have an intermediate or longer-term target in terms of what it can represent as a percentage of your total revenue? Thi La: Yes. We had made a deliberate goal to get the DTC business to 25%, and we communicated this a few quarters ago. And since then, we've grown from 18% now to 20% for exiting this Q1. That came from a number of activities or investments. The first one is M&A, right? A lot of our M&A companies are very strong in DTC. Number two is product strategy, where we put products on DTC versus the broader channel. And we increased marketing investment for our DTC business. The store that we opened in the Bay Area is the first retail format that we have for Corsair and all of our brands, and that's shown to be very successful. And we also kicked off AI commerce or AI e-commerce investment to basically adopt to consumers' shopping behavior with the most recent change, and that's also been paying off. Operator: [Operator Instructions] Your next question comes from Colin Sebastian from Baird. Zachary Witaszek: This is Zach on for Colin. So you disclosed the double-digit sequential growth in a few KPIs for the Elgato Marketplace. So just stepping back, what type of applications are gaining the most traction with users? And how are you thinking about the longer-term opportunity there? Thi La: Yes. We actually see a pretty broad range of products that are being submitted recently, and it's ranging from content creation, extensive use of Adobe Photoshop, for example, to gaming applications, so different kind of profiles to help you game better and even broadcasting, voice, video control and including streaming software. And because the use case is so diverse and the Stream Deck platform is very flexible, I think people are very active in terms of adding content all the time. And the bottleneck is almost to where we can curate the content and make it published fast enough. So there's -- this is the beauty of the solution is it can be anything. I think we lost Zach? Are we still on? Zachary Witaszek: Yes, that was my only question. Operator: [Operator Instructions] There are no other questions at this time. This does conclude our question-and-answer session. I would now like to turn the conference back over to CEO, Thi La, for any closing remarks. Thi La: Thank you all for joining us today. We're proud of the start that we make in 2026 and look forward to updating you on our continued progress when we report Q2 results. Have a good evening.
Operator: Hello and thank you for standing by. Welcome to the Nektar Therapeutics First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to hand the conference over to Vivian Wu from Nektar Investor Relations to kick things off. Please go ahead. Vivian Wu: Thank you, Crystal, and good afternoon, everyone. Thank you for joining us today. On today's call, you will hear from Howard Robin, our President and Chief Executive Officer; Dr. Jonathan Zalevsky, our Chief Research and Development Officer; and Sandra Gardiner, our Chief Financial Officer. Dr. Mary Tagliaferri, our Chief Medical Officer, will also be available during the Q&A. Before I begin, I would like to remind you that we will be making forward-looking statements regarding our business, including statements related to the therapy potential and development plans for rezpegaldesleukin, the timing and expectations for clinical data presentations, regulatory interactions and other statements regarding the future of our business. Because forward-looking statements relate to the future, they are subject to uncertainties and risks that are difficult to predict and many of which are outside of our control. For a discussion of these risks and uncertainties, please refer to our filings with the SEC, including our most recent Form 10-K and subsequent filings. We undertake no obligation to update these forward-looking statements except as required by law. A live webcast and replay of this call will be available on the Investor Relations section of our website at nektar.com. With that, I will turn the call over to Howard. Howard W. Robin: Thank you, Vivian, and good afternoon, everyone. We are exceptionally proud of the progress we've made at the company. The data we've reported over the last year from our Phase IIb studies in atopic dermatitis and alopecia areata demonstrate that REZPEG could produce clinically meaningful outcomes in 2 distinct autoimmune and inflammatory disease settings. And importantly, the data sets reported in February and April of this year highlight the potential for REZPEG to offer further improvement for patients over time. In February of this year, we reported the long-term monthly and quarterly dosing results from the 36-week maintenance portion of REZOLVE-AD in patients with atopic dermatitis. These data showed a significant durability and further deepening of efficacy and established a highly differentiated profile for REZPEG as a novel regulatory T cell mechanism. Supported by these results, we're moving quickly to initiate the ZENITH-AD Phase III program in patients with moderate to severe atopic dermatitis by July of this year. We have completed our meetings with regulatory authorities on the Phase III program and JZ will discuss the elements of the program later in the call. We expect to have the first data from the Phase III program in mid-2028 and this will support our goal of submitting a BLA in 2029. There remains a need for novel mechanisms in atopic dermatitis beyond those currently available in the treatment landscape. In the U.S., there are over 15 million people with moderate to severe atopic dermatitis and fewer than 10% are receiving biologic treatments for this chronic skin disorder with many patients not responding well to the existing agents. Roughly half of patients on existing approved agents, which includes Dupixent and other IL-13 based mechanisms, failed to respond or lose treatment effect over time. This leaves a significant opportunity for REZPEG to enter the treatment paradigm in a lead position as a novel immune modulating mechanism that could offer in both naive and experienced patients a differentiated efficacy and safety profile and monthly or quarterly long-term maintenance dosing. Turning to alopecia areata. In April, we announced positive 52-week top line results from the blinded treatment extension period in the Phase II REZOLVE-AA study. These data also demonstrated a deepening of efficacy and clinically meaningful improvement across numerous SALT measurements with twice monthly dosing of REZPEG. We believe REZPEG can now be advanced as a compelling first-in-class biologic candidate that can change the treatment paradigm for patients with this condition. Nearly 6.7 million people in the U.S. have alopecia areata and the vast majority are untreated. More than half of dermatologists have been reluctant to prescribe the only approved systemic therapies, JAK inhibitors, because of box warnings and ongoing clinical monitoring challenges. We know there remains an unmet need for an efficacious and safe biologic with a better safety, efficacy and dosing profile. Based on our KOL enthusiasm and market research, we believe there's a strong opportunity for REZPEG to capture frontline share in this indication. We plan to initiate the Phase III program in alopecia areata in the first part of 2027 to add a second potential indication to Nektar's BLA submission for REZPEG. The global markets for atopic dermatitis and alopecia areata combined are expected to reach close to $40 billion over the next 5 years. And we believe that this market has the potential to grow even further with the adoption of novel mechanisms like REZPEG. We've seen this with the introduction of new mechanisms in the psoriasis market over time where the number of patients served grew tenfold over the span of 15 years and now supports 7 blockbuster products. That growth was not only driven by drugs competing for the same patients. Each new mechanism brought in new adopting treatment physicians who were not yet prescribing systemic therapies. We believe atopic dermatitis and alopecia areata could be at a similar inflection point today and as a truly novel MOA, we believe REZPEG can transform the treatment paradigm in both these indications. And importantly, we believe that Treg biology and REZPEG has potential application beyond atopic dermatitis and alopecia areata. Nektar is now in a very strong financial position to support the advancement of REZPEG. Since year-end, we've raised approximately $783 million in net proceeds through 2 financings. We ended the first quarter of 2026 with $731 million in cash and this does not include our April financing, which adds another $350 million to our balance sheet bringing total cash and investments today to over $1 billion. With this financial strength, we could advance into Phase III in both indications with a cash runway that brings us into the third quarter of 2028, well past anticipated data readouts. I'll now turn the call over to JZ to go over our clinical programs in more detail. JZ? Jonathan Zalevsky: Thank you, Howard. Good afternoon, everyone. As Howard said, over the past year, our clinical data generated from the REZOLVE-AD and REZOLVE-AA studies have confirmed that our approach with REZPEG to stimulate regulatory T cells translates into a differentiated clinical profile; compelling efficacy, a favorable safety profile, extended dosing frequency and responses that deepen over time. Unlike therapies that block a single inflammatory pathway downstream, REZPEG acts upstream restoring the fundamental immune balance that is disrupted in autoimmune and inflammatory diseases. Last June, we reported the 16-week induction period in the REZOLVE-AD study, in which REZPEG demonstrated a rapid onset of efficacy on key metrics of EASI-75 and itch. REZPEG also achieved statistical significance on the primary endpoint of mean percent change in EASI score and for the high dose, met statistical significance on all key secondary endpoints at week 16. In the 24-week crossover data of patients originally assigned to placebo and crossover to treatment with high dose REZPEG Q2 week, we saw further deepening of response with no sign of plateau. These data bolstered our decision to advance a 24-week induction period into Phase III. In the 36-week maintenance phase where patients continued on to less frequent monthly and quarterly dosing of REZPEG, we continued to see durability of the induction responses and observed increased responses for EASI-75, 90, vIGA and itch over time. This also included up to a fivefold increase in EASI-100 rates, which represents complete skin clearance, a level of response rarely achieved for patients. A key differentiating finding from our REZOLVE-AD study was the improvement in patient-reported comorbid asthma. Approximately 25% of patients with moderate to severe atopic dermatitis also have asthma and most approved therapies do not address this comorbidity. REZPEG produced statistically significant improvements in the asthma control questionnaire or ACQ-5 scores at week 16 versus placebo, including in patients with uncontrolled asthma at baseline. Outside of Dupixent, no other approved agent or late-stage candidate has demonstrated this. We are including ACQ-5 as a secondary endpoint in the Phase III program with the goal of potentially including this in the label. In Q1 of 2027, we expect to report 52-week off-treatment data from REZOLVE-AD. These data will allow us to assess the remittent potential of REZPEG beyond 52 weeks and we are looking forward to those data. We have completed the end of Phase II meeting with the FDA and the scientific advice process with the EMA and we will initiate the first trial in the global Phase III program by July of this year. Our planned registrational program called ZENITH-AD is expected to include 3 trials in total, 2 global monotherapy studies with 510 biologic-naive patients 12 years and older in each study along with a separate study in 510 treatment-experienced patients 12 years and older. For the 2 pivotal biologic naive studies, patients will be randomized 2:1 to receive 24 micrograms per kilogram every 2 weeks or placebo during a 24-week induction phase to be followed by a 28-week maintenance period and evaluating monthly and quarterly dosing regimens through week 52. The overall design is intended to be consistent with prior registrational studies supporting approval of biologics in atopic dermatitis. The first 2 studies in biologic naive patients will begin first starting in July of this year and the third study in biologic experience will initiate a few months after that. Our market research supports usage of REZPEG as a first-line and second-line biologic therapy and we have designed the program to capture this in the potential label. In addition to these 3 pivotal Phase III studies, the program will also contain other studies to support registration. These will also include a 200-patient open-label adolescent study and a long-term extension study. Additionally, we plan to launch REZPEG with an auto-injector and the BLA submission will also include a PK bridging study to support this. The agency is not requiring a vaccine study that has been done in some prior Phase III programs in this indication. The Phase III studies are designed to support both U.S. and EU registration with an IGA-related primary endpoint for U.S. registration and an EASI-75 coprimary endpoint to support European approval. A series of multiplicity protected endpoints for itch and other important patient reported outcome measures such as sleep, quality of life and asthma control are designed into the studies as well. We expect a similar country distribution as Phase II with the addition of other selected countries in Asia to reflect the global footprint. As Howard stated, we expect the first data readout from the Phase III program in the middle of 2028. Moving now to alopecia areata. We recently reported the 52-week top line results from the blinded 16-week treatment extension of our Phase IIb REZOLVE-AA study. As a reminder, our Phase IIb REZOLVE-AA trial enrolled 92 adult patients with severe to very severe alopecia areata. Patients received subcutaneous REZPEG in 24 micrograms per kilogram every 2 weeks, 18 micrograms per kilogram every 2 weeks or placebo. The primary and key secondary endpoints were assessed at the end of the 36-week induction period, which we reported last December. These data demonstrated a proof of concept in alopecia areata and showed that REZPEG met the target product profile of standard of care low-dose JAK inhibitor. The extension phase was specifically designed to evaluate whether continued treatment with REZPEG beyond week 36 could drive additional patients to achieve a SALT Score 20 response. SALT Score 20 represents a patient achieving 80% or more scalp hair coverage, which is the established registrational endpoint in alopecia areata. This was an important question in order to determine if our Phase III program in alopecia areata should have a 36-week or 52-week primary endpoint treatment period. The data in April showed that continued treatment with REZPEG drove meaningful new responses in patients who had not yet reached SALT Score 20 at 36 weeks. 29% and 31% of the 31 patients in the 18 and 24 microgram per kilogram dose arms who entered the blinded treatment extension, respectively, achieved new SALT Score 20 responses between weeks 36 and 52 with no new responses in placebo. Across other SALT measurements we looked at, increasing proportions of patients achieved clinically meaningful hair growth thresholds. And importantly, REZPEG achieved the target product profile with 52 weeks of twice monthly dosing. Of note, nearly all of the patients or 94% who entered the blinded 16-week extension period completed treatment to week 52. And this demonstrates that when patients understand the promise of REZPEG to grow hair, they will continue on twice monthly treatment. As Howard stated, our plan is to hold an end of Phase II meeting with the FDA this quarter with the EMA scientific advice coming later this year to align on the global registrational path forward in alopecia areata. Our ongoing Phase IIb REZOLVE-AA study also has a 24-week off-treatment observation period for all patients. This data is expected in Q4 2026. These data will give us an opportunity to understand what dosing regimens of REZPEG to use beyond 52 weeks in alopecia areata patients and whether we include a less frequent dosing regimen in the registrational program. We believe the 52-week data for REZPEG is well positioned to address several key unmet needs. First, the long-term safety profile is differentiated, including the suitability for chronic use without the safety and monitoring limitations associated with the JAK inhibitor class. Second, the twice monthly dosing profile enables better potential compliance. And third, the opportunity for more durable and deepening efficacy over time. Beyond our 2 lead indications, we are pursuing the broader potential of the Treg mechanism. In type 1 diabetes, the ongoing Phase II study of REZPEG is being sponsored and funded by TrialNet, evaluating REZPEG in patients with new onset Stage 3 type 1 diabetes. TrialNet, as a reminder, is the same consortium that ran the foundational studies for Teplizumab, the only approved therapy in this setting, and they bring expertise and a deep commitment to finding better options for patients with this diagnosis. In the study, patients are randomized 2:1 to REZPEG or placebo and receive treatment every 2 weeks for 6 months across 3 sequential age cohorts starting with adults 18 to 45 and stepping down to patients as young as 12 and then 8 years of age. The primary endpoint is the change in C-peptide levels after a mixed meal tolerance test at 12 months of treatment. We expect initial data from the study in 2027. Given the challenges with administration and safety of Teplizumab, REZPEG could be well positioned for new onset type 1 diabetes. We are also planning to initiate a proof-of-concept study in at least one new indication in the second half of 2026 with initial data expected in 2027. We are analyzing the disease settings where a T regulatory mechanism has demonstrated clinical activity and this will help inform our decision on which indication to prioritize with the goal of achieving an additional data catalyst for REZPEG in 2027. And turning to our earlier pipeline programs, NKTR-0165 and NKTR-0166. NKTR-0165 is our TNFR2 agonist antibody, a molecule with very high specificity for signaling through TNFR2 on Tregs to enhance their ability to regulate the immune system. We believe this mechanism has potential across a range of indications, including MS, ulcerative colitis and vitiligo. In Q1, we announced an academic research collaboration with Dr. Stephen Hauser at UCSF to explore the role of TNFR2 agonism in neurodegeneration, neuroprotection and cell repair with a focus on patient-derived B-cell models of MS. We look forward to working with Dr. Hauser to inform the future development of this program. We expect to present preclinical data from NKTR-0165 at a scientific conference in the second half of this year. Building on the learnings from NKTR-0165, we have designed NKTR-0166, a bispecific molecule that combines a TNFR2 agonist epitope with an antagonist epitope previously validated in rheumatology. This dual mechanism gives NKTR-0166 the potential to modify disease pathogenesis across multiple autoimmune settings and we are planning IND submissions for at least one of these programs in 2027. With that, I'll turn it over to Sandy to review our financial results for Q1 2026. Sandra Gardiner: Thank you, JZ, and good afternoon, everyone. On today's call, I'll review our quarterly financials for the first quarter of 2026 and provide updated cash guidance. We ended the first quarter of 2026 with $731.6 million in cash and investments with no debt on our balance sheet. In the first quarter, we completed an underwritten public offering in sales under our existing ATM facility resulting in approximately $525 million in net cash proceeds. This does not include an additional $351 million in net proceeds from our April financing. As Howard mentioned earlier, our current cash balance exceeds $1 billion and we expect to end 2026 with approximately $800 million to $825 million in cash and investments. Now turning to the income statement. Our first quarter 2026 noncash royalty revenue totaled $10.9 million. Full year revenue for 2026 is still expected to total $40 million to $45 million. Our R&D expenses were $35.7 million for the first quarter of 2026 and we still anticipate full year R&D expense to range between $200 million and $250 million, including approximately $5 million to $10 million of noncash depreciation and stock-based compensation expense. As we discussed on our March call, we are still completing the planning and budgeting activities for the REZPEG Phase III program. We do, however, expect R&D expense to increase on a quarterly basis in 2026 as these Phase III clinical studies are initiated. Our G&A expenses were $13.4 million for the first quarter. We continue to expect G&A expenses for the full year of 2026 to be between $60 million and $65 million, including approximately $5 million of noncash depreciation and stock-based compensation expense. Noncash interest expense for the first quarter was $7.9 million and is expected to remain at a similar level for the remaining 3 quarters totaling approximately $30 million to $35 million in 2026. Our net loss for the first quarter was $44.9 million or $1.82 basic and diluted net loss per share. And as I stated earlier, we now expect to end 2026 with between $800 million and $825 million in cash and investments. I'll now turn it over to the operator for Q&A. Operator: [Operator Instructions] And our first question will come from Yasmeen Rahimi from Piper Sandler. Dominic Lorenzi: This is Dominic on for Yasmeen Rahimi. Congrats on a great quarter and appreciate all the updates. So we're excited for you to be kicking off the Phase III AD program soon. Could you just remind us of what are some of the rate-limiting steps left for those -- I guess you have the 2 trials that are starting here shortly? And then could you walk us through some nuggets of detail? I know you said there will be some sites similar to the Phase IIb. So what would the site overlap I guess look like for that? Do you have any nuggets of detail on the CRO selection? Anything like that would be very helpful. Mary Tagliaferri: Dominic, this is Mary. Thank you for your question. We too are very excited to move forward with the Phase III study. We right now are activating sites and we have the final protocol written. In terms of sites, remember in the REZOLVE-AD Phase II, we enrolled 17% of the patients from the United States and 28% from North America and we had 67% of the patients came from Europe and 5% from Australia. In the Phase III program, we're going to have a larger footprint particularly in the APAC region or the Asian Pacific region. We in general expect to enroll roughly 15% to 25% of patients from North America with a similar proportion of patients specifically from the United States as in our Phase IIb trial and then approximately 40% to 55% of patients will come from Europe and roughly 20% to 30% from APAC. We will have a number of clinical sites that participated in our Phase IIb program participating in the Phase III as well. We had roughly 130 sites that were activated for the Phase IIb trial and we'll have roughly 150 sites activated for each one of the Phase III studies. Thanks for your question. Operator: Our next question comes from Julian Harrison from BTIG. Julian Harrison: Congratulations on all the progress. On your Phase III plan in atopic dermatitis, I'm wondering if you could talk more about the decision to have a separate biologic experience study versus maybe mixing both naive and experienced patients across 2 larger studies? Mary Tagliaferri: Yes. Thank you, Julian, for that question. Obviously the cytokine blocking agents that came before us enrolled patients that were biologic naive. And we do feel it is important to be able to compare the results of the REZPEG study on the EASI-75, the IGA and other secondary endpoints directly to those cytokine blocking agents and for that reason, we do want to have just a naive patient population. In terms of the experienced patients, we do believe that we'll have similar efficacy in that population and that's certainly what has been seen in the lebrikizumab trial that evaluated patients who had previously been treated with Dupixent. The EASI-75 and the IGA score was similar to what we've seen with lebrikizumab in the naive patient population. However, we have not yet studied the biologic experience in the JAK inhibitor experienced patients yet. Likewise, there may be different clinical sites that has a larger patient population with the biologic experienced patients and it will be easier for us to find the footprint and enroll those and activate those sites for the experienced study. So we think operationally, there are advantages to do it. And likewise again having the ability to compare directly to Dupixent and lebrikizumab and trilkizumab that just enrolled the naive patients, we believe will be an advantage. So thanks for the question. Operator: Our next question will come from Jay Olson from Oppenheimer. Jay Olson: I'll add my congrats on all the progress, including getting ZENITH-AD up and running in the near term. We had a question on alopecia areata. Can you please provide some updates on your thinking around the Phase III study design for REZPEG in AA and especially in terms of the enrollment criteria in terms of age of patients and baseline SALT Score and then whether or not you think a single Phase III study is sufficient? Mary Tagliaferri: Jay, thank you for your question. We are having our end of Phase II meeting with the FDA this quarter. So we will have more information following the regulatory meeting that we're having. That being said, the Phase III study design will be 52 weeks. We will evaluate REZPEG 24 micrograms per kilogram versus placebo. We think a study roughly the size of 600 patients and 1 single study should be accepted by the FDA. The reason we believe this is that Pfizer did run 1 Phase III study for Litfulo, their JAK inhibitor, and the FDA did accept 1 single Phase III study. So we have asked the FDA to confirm this precedent would also be applied to our program. In terms of age, patients would be 12 years and older. And in terms of baseline SALT Score, we will enroll patients with severe and very severe alopecia areata, which is a SALT Score of 50 or above. Many people have asked us could we develop REZPEG for patients with moderate alopecia areata and we do think the answer to that question is yes. However, that would come after we have an approval for the severe and very severe population. And of course JAK inhibitors are not appropriate for that patient population given the black box warnings that Howard referred to and the difficulty in managing patients on JAK inhibitors. However, we think there's a huge opportunity for REZPEG in that patient population as well. Operator: Our next question comes from Cha Cha Yang from Jefferies. Cha Cha Yang: This is Cha Cha on for Roger Song. So I have a question about your earlier pipeline program, especially in T1D. Can you just tell us more about the collaboration with TrialNet and what that looks like and particularly what rights that Nektar has about data into future development rights? And then my second question related to that is can you tell us more about the baseline characteristics for the T1D study and how they might compare to the PROTECT study? Jonathan Zalevsky: Sure. So in that collaboration with TrialNet, which is part of the NIH and the NIDDK, TrialNet and the TrialNet consortium besides funding is also executing the study. So we work together on the design of the study protocol. It leverages all of their expertise, including the really large data set that they have on the change in C-peptide levels in patients that are newly diagnosed, really this patient population. We also work closely with the lead investigators. And even on our call when we announced the start of the collaboration, the 2 lead PIs joined that call with us to present the study and the concept behind REZPEG in this indication. So we'll be working with them, but they're responsible for really driving the execution of the study. The patient population is very, very typical in these studies. So there are patients that are within 100 days of their first diagnosis of type 1 diabetes. So these are patients that have really just had their first clinical episode of disease and they're enrolled into the study within 100 days. So a very typical patient population for these kind of new onset Stage III type 1 studies. And in terms of the rights, Nektar maintains the rights to REZPEG and the future development in type 1 diabetes that would come subsequent to this if this study is possible. Operator: Our next question comes from Samantha Semenkow from Citi. Samantha Semenkow: I just have 1 on the upcoming off-treatment data sets that we're expecting for both atopic derm and alopecia areata. How should we be thinking about what good data would look like in these readouts? Is there a bar for easy maintenance for example or a SALT Score maintenance that you would like to see from each of these or some other metrics that you're tracking closely? Mary Tagliaferri: Sam, so I think I'll start with alopecia areata first. We continue to dose those 27 patients for an additional 16 weeks and we just shared those data. And as you saw, there were 8 new SALT Score -- 8 new patients that reached a SALT Score less than or equal to 20. The big question that we have is what type of maintenance dosing will be best suited for these patients that have achieved a SALT Score less than 20 or have 80% of their hair regrowth. We figured that out in our atopic dermatitis program, the ideal maintenance dosing after a 16- or 24-week induction period should be 1 month and 3 months. In terms of alopecia areata, after 52 weeks of treatment, we don't yet know what the maintenance dosing should be. And so for that off-treatment data that we're going to have at the end of this year, it's going to be highly informative to us to understand how we should continue to dose patients in the alopecia areata program after 52 weeks of treatment given 24 micrograms per kilogram every 2 weeks. In terms of the data from the REZOLVE-AD study, you're absolutely right. We'll continue to follow the durability of those patients' responses in those patients who achieved an EASI-75 and EASI-90 and IGA 0 and 1 and we'll continue to look at the durability of those responses. As we saw with Q monthly dosing and Q 3 months dosing, we had exceptional durability and we also saw deepening of responses. Now with the off-treatment, we'll be able to determine are patients able to maintain those EASI-100 responses, the 30% of patients that achieved that and the IGA 0 and 1 responses. And remember, we had roughly 60% of patients who had an EASI-75 or vIGA at the time of rerandomization achieving an IGA of 0 and 1. So we'll be very eager to see the durability of maintaining the EASI-75, the EASI -100 and vIGA-01. I think this will be highly informative again to understand the dosing frequency for these patients after they're treated with 52 weeks of treatment. So you're absolutely right. The standard endpoints that we use for clinical trials will also be the endpoints that we'll look at in the off-treatment time frame. Thanks for the question. Operator: Our next question comes from Marc Frahm from TD Cowen. Marc Frahm: Congrats on all the progress getting the trials designed. Maybe just on that bio-experienced patient study in atopic dermatitis. Can you just walk through kind of how you're defining bio-experience there? Will patients be required to have overtly failed therapy or could they have discontinued for any other reason? Just how long do they have to have been off therapy, things like that? And will that include JAK experienced patients or just focused on the IL-413 pathway? Mary Tagliaferri: Thanks, Marc, for the question. So all the candidates have to require systemic therapy. So they have to have a history of atopic dermatitis for at least 12 months and they had to have had an inadequate response to topical medications. And then in addition to that, these patients have to have then had either a biologic or a JAK inhibitor. So we will be enrolling patients that have also been on JAK inhibitors. In terms of washouts for biologic, patients will have to have been off treatment for 12 weeks or 5 half-lives, whichever is longer. And then for JAK inhibitors, there will be a washout of 4 weeks. The eligibility criteria for moderate to severe atopic dermatitis is very similar for both studies, of course patients have to have an EASI score of 16 or higher, a body surface area of 10% or more and have an entry of an IGA of 3 or 4. Marc Frahm: Okay. That's very helpful. Do you think you need to be successful in all 3 trials to get approved or is 2 out of 3 enough for approval do you think? Mary Tagliaferri: Yes. I think that this is a great regulatory question. And as we unblind the data and have conversations with our regulatory advisers, I do believe that showing efficacy in 2 well-controlled randomized trials would be sufficient for regulatory approval. But we again will have to have those conversations with the FDA at the time of our BLA submission. Operator: Our next question comes from Mayank Mamtani from B. Riley. Mayank Mamtani: Congrats on the progress. Just on the prior comment on the AD off-therapy durability data. Just curious how do you expect an endpoint like EASI-100 to sort of evolve over time there? And then on the earlier stage pipeline, the 0165 specific program, JZ, just was curious how you're thinking of developing that maybe relative to 0165? And maybe just remind us what are the key milestones to watch out for those 2 programs? Jonathan Zalevsky: I can start with the last question first, Mayank. So for 0166, so as we mentioned, that it's a bispecific, right? That contains a TNFR2 agonist on 1 arm and then a validated target for rheumatology indications on the other arm. So our indications are definitely in the rheumatology setting. And then we have the opportunity to have basically multiple mechanisms, right, that we bring forward on the cell as well as adding a TNFR2 second component for a potential differentiating novel approach to treating rheumatology diseases. In terms of the main milestones that we have across that program is we have IND-enabling studies around 0165 and then the 0166 program is a little bit further behind, but it's also undergoing those same IND-enabling studies as well. And I'll turn it over to you, Mary, for the other question. Mary Tagliaferri: Yes. So as you know, we did publish data from our Phase Ib in Nature Communications and this was published in 2024. And what we did show is that patients were dosed with the highest dose of REZPEG 24 micrograms per kilogram and then those patients after 12 weeks of treatment were off therapy for a total of 9 months. And we did see that these patients were able to maintain their EASI-75 and there was remarkable durability and you can see that in the publication. So if we replicate the data from the early Phase I, we would see durability for potentially 9 to 12 months off therapy. Again I think the goal here is to find a treatment regimen that's highly differentiating from the current available therapies. And as you know with Dupixent, patients have to take an injection every 2 weeks indefinitely. And so we really believe if we can get to a dosing regimen of REZPEG that's monthly or every quarterly just like SKYRIZI 4 times a year, this will be a huge advantage for patients and quite a transformation in this field. Hopefully, the data will also show durability off treatment. And therefore, if patients go for longer than 3 months without dosing especially if they get to an EASI-100 complete clearance of disease and have this level of durability, this will be a huge advantage for patients. I think we're all eager to see the data and to see the length of time that patients can maintain their IGA 0 or the EASI-75, EASI-90 and EASI-100. So we really look forward to having those data in the first quarter of next year. Thank you for the question. Operator: Our next question comes from Arthur He from H.C. Wainwright. Yu He: Congrats on the progress. So I had 2 quick questions on alopecia areata program. So first, could you remind us how you picked the 24-week treatment period at the first place, why not longer? And also for the Phase III study, are you guys contemplating to include JAK inhibitor experienced or refractory patients in the Phase III study for alopecia areata? Mary Tagliaferri: So we chose the 24-week off-treatment period because you may know with JAK inhibitors, patients start to lose hair relatively quickly and so we felt like that was a sufficient amount of time to potentially see a differentiation between JAK inhibitors and REZPEG. And in terms of the Phase III, we are going to go with patients who are JAK inhibitor naive. However, there are multiple other ways to evaluate REZPEG in a patient population that is JAK inhibitor experienced. We do believe that in this particular indication, REZPEG could be a first-line therapy. And for those of you who were able to listen to our presentation for the 52-week data in alopecia areata, all of our KOLs said that the vast majority of patients and in fact Jonathan Silverberg said 90% of his patients would use REZPEG in the first-line setting. So we do and we are positioning REZPEG in the first-line setting for alopecia areata. And we do believe the drug will be effective as well in patients who have already experienced a JAK inhibitor and we'll find another pathway to explore REZPEG and evaluate REZPEG in that patient population as well. So thanks for the question, Arthur. Operator: Our next question comes from Andy Hsieh from William Blair. Tsan-Yu Hsieh: Just follow up on Jay's question previously. Mary, you mentioned about having to basically conduct a Phase III trial in alopecia and getting a label before conducting a trial in a moderate population. So I'm curious, one, do you have to go back to a Phase II or you can start a Phase III after that? And then the other one is really about understanding FDA's pushback. Is it -- are they not comfortable with the safety database especially now you have hundreds of patients in safety database? So just I'm curious about why there's such a regulatory pushback in a moderate population. Mary Tagliaferri: So we do have to speak to the agency about the moderate population. But after speaking with our steering committee members, the placebo effect for alopecia areata for patients who have severe and very severe disease is very low. For SALT 20, it's single digits between 2% and 5%. So running a clinical trial where the placebo effect for your primary efficacy endpoint is low and testing the same population as in our Phase IIb AA study gives us a high probability of technical success for our registrational program. Now that being said, in the moderate patient population per our KOLs and our steering committee, the placebo effect could be higher in the population of patients that have, say, a SALT Score that's actually less than 50 so in the 30 to 50 range. So we believe that the best path forward is to go with the clear regulatory precedent where there is a clear endpoint for the patient population that's with a SALT 50 or above. And we will have a conversation with the FDA about the moderate patient population. We have not gotten feedback yet through our end of Phase II or regarding the moderate population. So we have not received any pushback. We just haven't had the conversation yet, Andy. Operator: And our next question comes from Jessica Fye from JPMorgan. Unknown Analyst: This is for Joseph for Jess. It seems like you have much of the plan in place for the Phase III in alopecia. So I just wondering if you can -- what are the points that you can hammer you want to hammer out with FDA at the end of Phase II meeting? Mary Tagliaferri: Yes. Of course a lot has come up about can you run 1 Phase III clinical trial versus 2 and again there's precedent for 1 Phase III clinical trial for this indication. As we mentioned, Pfizer was able to have their JAK inhibitor approved with 1 Phase III. So I would say that's probably the most important question and answer that we want to have from the FDA after our end of Phase II meeting. In addition, we have submitted our study design and we want to make sure that the FDA agrees with the powering of our trial and the eligibility criteria. And I think the third and also important point is the totality of our safety data. As Andy Hsieh just brought up, we do have a very large safety database with over 1,000 patients dosed in an inflammatory skin disease. And so we also want alignment with the agency over the safety database for alopecia areata when we file our BLA. So those are 3 of the most important topics that we want to have clarity and alignment with the agency. Thanks for the question. Operator: Thank you. And I'm showing no further questions from our phone lines. I'd now like to pass the conference back to Howard Robin for any closing remarks. Howard W. Robin: Well, before I end the call today, I want to comment that Sandy, our current interim CFO, will be retiring on May 15. And as our interim Chief Financial Officer, Sandy has played an instrumental role in supporting Nektar over the last 3 years and we're very grateful for her contributions and we'll miss her. For continuity, we're bringing in another partner from FLG Partners, Linda Rubinstein, who will take over Sandy's role as interim CFO. Linda has 35 years of experience and has served as interim or permanent CFO leading finance and financial reporting at a number of biotechnology companies including Solexa, Five Prime, True North and most recently, Adverum. Her early career was in M&A banking. And all of us do wish Sandy the very best in her retirement. I want to thank everyone today for joining us and for your continued support. We really appreciate it. I also want to thank our employees who have worked tirelessly to advance our research in pursuit of novel treatment options for patients and together, we've transformed our scientific hypothesis into real and potentially meaningful therapeutic options. We look forward to initiating our Phase III studies in atopic dermatitis in the coming months and advancing alopecia areata into Phase III as well. And we will also be exploring other REZPEG potential in T-cell-mediated diseases. So we thank you very much for joining us today and stay tuned. Operator: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
Operator: Greetings, and welcome to HASI's First Quarter 2026 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Aaron Chew, Senior Vice President of Investor Relations. Aaron Chew: Thank you, operator, and good afternoon to everyone joining us today for HASI's First Quarter 2026 Conference Call. Earlier this afternoon, HASI distributed a press release reporting our first quarter 2026 results, a copy of which is available on our website, along with the slide presentation we will be referring to today. This conference call is being webcast live on the Investor Relations page of our website, where a replay will be available later today. Some of the comments made in this call are forward-looking statements which are subject to risks and uncertainties described in the Risk Factors section of the company's Form 10-K and other filings with the SEC. Actual results may differ materially from those stated. Today's discussion also includes some non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is available in our earnings release and presentation. Joining us on the call today are Jeff Lipson, the company's President and CEO; as well as Chuck Melko, our Chief Financial Officer. Also available for Q&A is Susan Nickey, our Chief Client Officer. To kick things off, I will turn it over to our President and CEO, Jeff Lipson, who will begin on Slide 3. Jeff? Jeffrey Lipson: Thank you, Aaron, and welcome to our first quarter 2026 earnings call. We are pleased to report a strong start to 2026 with outstanding financial results and a positive outlook for the business. In Q1, adjusted EPS was $0.77, driven by growth in revenue across the board, along with 0 new share issuance from our ATM. Adjusted ROE was 15.7%, the highest quarterly level in our history. Adjusted recurring net investment income was up 29% year-over-year to $101 million, and our managed assets were up 13% year-over-year to $16.4 billion. We continue to execute on our 2026 business plan, and we are reaffirming our 2028 guidance of $3.50 to $3.60 adjusted earnings per share and adjusted ROE of 17%. Moving to Slide 4. It's important to highlight how our Q1 results represent particularly strong performance in light of the ongoing volatile geopolitical and macroeconomic developments impacting financial and energy markets. Most notable, of course, is the Iran war, creating volatility, particularly in oil prices and jet fuel availability. Separately, the increase in power prices in the U.S. has created affordability challenges. Additionally, credit and liquidity challenges have emerged in the private credit sector with implications across financial and credit markets. Despite these challenges impacting the economy, our business has remained consistently profitable with ongoing earnings growth as we effectively address this volatility. In fact, certain of these developments reinforce the value of renewable energy and HASI's investment thesis. For example, once installed and operational, renewable energy projects have minimal operating costs and do not depend on an ongoing supply of fuels, but instead are powered by naturally replenishing resources. Renewable energy projects are less vulnerable to geopolitical volatility and bolster energy independence and national security, and they provide a high degree of cost certainty and visibility. The intermittency of renewables can be increasingly improved by continued storage development. In addition, beyond the implications for renewable energy, the recent geopolitical and macroeconomic uncertainty has also served to accentuate the prominent attributes underpinning HASI's business model of offering differentiated capital solutions to clients supported by project cash flows. This business model results in HASI offering our investors low-risk, diversified exposure to growth in U.S. energy transition infrastructure, stability and visibility of long-term predictable revenue and a proven track record of exceptional risk-adjusted returns. In the face of this backdrop, we continue to demonstrate the resilience of our business and our ability to execute at a high level with strong operating results. Turning to Page 5. We closed more than $460 million in new transactions in the quarter that will be held at CCH1 and on our balance sheet. And we increased fee-generating assets 130% year-over-year to $1.1 billion. In terms of the returns on these investments, new asset yields on portfolio transactions closed in the quarter remain over 10.5% for the eighth quarter in a row. Supported by the increase in new asset yields over this period, our portfolio yield rose 90 basis points year-over-year to 9.2%. Finally, we continue to optimize our balance sheet in the first quarter of 2026. As Chuck will provide greater detail on shortly, we were active issuing low-cost, long-duration debt and redeeming higher coupon debt while issuing no ATM shares in the quarter. Turning to Slide 6. We highlight the investment activity for the quarter, including a robust Q1 total volume of $637 million, of which $462 million will be held by CCH1 and on our balance sheet. This volume keeps us on pace for the $2 billion to $3 billion expectation for 2026 that we discussed on the Q4 call. The investments were well diversified and underwritten with attractive risk-adjusted returns. Our investment platform is continuing to deliver on our goals and fueling the continued growth in our profitability. Turning to Page 7. On Monday, we jointly announced with Ameresco the creation of Neogenyx, a newly formed joint venture representing the spin-off of Ameresco's biofuels business. We are excited about co-investing in what we expect to be the premier developer and owner-operator of biofuels projects. Ameresco has been a partner of HASI for over 20 years and across more than 60 investments, and we have tremendous familiarity and confidence in Mike Bacus and their team. This investment fits well into the HASI business model as it includes a very strong partner, an asset class renewable natural gas in which we have extensive experience, operating projects that we were able to diligence, a business model well suited to current and expected future market demand and a structure that provides a priority position on cash flows. Neogenyx' existing portfolio of operating projects allow the company to have scale from day 1 and a strong pipeline of identified development opportunities that will facilitate future growth. Our investment in the venture is initially $400 million, and we will own 30% of the enterprise with a priority position on cash distributions until a hurdle return is achieved. And our long-term expected return on investment is higher than our typical investment given the large upside potential of the business. Turning to Page 8. Our pipeline remains greater than $6.5 billion as end market dynamics, including consolidation, continue to result in a wide variety of developers and sponsors seeking project level capital. In addition, power demand continues to result in an elevated level of development activity and policy items are well understood and workable. I also want to mention a definitional change. We first introduced the concept of what we call the Next Frontier in our Q4 2024 call, to illustrate the tremendous growth opportunities for the business. We continue to pursue certain of these asset classes, and we'll disclose closings as they occur. However, from a presentation perspective, we have recategorized these into the 3 existing core segments and an Other Sustainable Infrastructure category as appropriate in order to simplify our disclosure. And with that, I would like to turn the call over to Chuck to discuss our financial results and funding activity in greater detail. Charles Melko: Thanks, Jeff. We are continuing to build off the success achieved in 2025 and have had a great start to the year. We have increased our adjusted EPS to $0.77 per share in the first quarter compared to $0.64 per share in the same period last year. Our adjusted earnings increased 31% from Q1 last year to $102 million in Q1 this year. This increase is predominantly driven from the growth in our investments in CCH1 and our portfolio. Our focus on being more efficient with the deployment of equity capital has contributed to our higher adjusted ROE this quarter to 15.7% compared to 12.8% in the same period last year. The marginal ROE that we are generating, is making an impact, and we are benefiting from the reduction of share issuances that we need to fund the growth of our business. While we achieved growth in our adjusted EPS, our GAAP results included an HLBV loss related to the timing of tax credit sale proceeds distributed to tax equity investors. And we expect this HLBV accounting will fully reverse next quarter. On the next slide, we have seen growth in our adjusted recurring net investment income of 29% to just over $100 million, and this source of income is not only generating a good base of recurring earnings, but is also growing into a larger component of our overall earnings relative to our other sources of income, as we illustrated on last quarter's call. Our gain on sale this quarter was $23 million. And as we often highlight, our gain on sale income does not increase quarter-to-quarter on a trend line. And while we do expect full year gain on sale to be similar to last year because of the higher level of gain on sale this quarter, it is reasonable to expect lower levels of gain on sale for the remaining quarters of the year. The other component of our revenues that consists of upfront fees from CCH1 and other advisory-related fees continue to increase and contributed $9 million to our earnings this quarter. On the next slide, as we close transactions, they become managed assets, which are held either on our balance sheet directly or indirectly through CCH1. These transactions can also be held in securitization trusts where we typically hold a residual interest. We generate upfront and ongoing income from these transactions and a growing base results in more earnings. Our managed assets are now at $16.4 billion, up 13% year-over-year, and we are continuing to see the high-quality performance of these assets that are reflective of our prudent underwriting with an average annual realized loss rate of less than 10 basis points. The portfolio continues to be well diversified. And in addition to the diversity of asset classes, each of the individual investments also typically consists of multiple projects with uncorrelated cash flows. The earnings power of our portfolio demonstrated by our portfolio yield has increased to 9.2% and is a result of the continued closing of transactions into our portfolio at higher yields. The CCH1 assets in which we hold 50% of the equity in our portfolio, are now at $2.3 billion and are providing a growing stream of ongoing management fees. We also just recently completed a private debt placement at CCH1 in which the notes were priced at a spread of 195 basis points to the 10-year treasury, a tighter spread than the previous issuance. This is further validation of the quality of the assets that we are investing in and a contributor to the increasing returns on our investments in CCH1. On the next slide, we are continuing to realize a lower cost of capital and successfully manage our liability structure, as demonstrated through the transactions that we executed in February. We issued a total of $1 billion in bonds between a $400 million senior bond priced at 6% and a $600 million junior subnote priced at 7.125% The proceeds of these transactions were used to retire our remaining $450 million senior bonds due 2027 with an 8% coupon and create additional liquidity for the upcoming $600 million maturity. The outcome of these transactions resulted in a lower cost of capital as the spread on our senior bonds improved 50 basis points and the subordination premium on the junior sub notes improved by 48 basis points from the most recent issuances. The maturity profile of our debt platform was significantly extended with the senior bond offering a 10-year maturity and on our junior sub note a 30-year maturity. Adjusting for the upcoming 2026 maturity, which we have already reserved for with our existing liquidity, the weighted average maturity of our corporate term debt extended from 7.9 years to 12.8 years. On the next slide, I've already made some brief comments on the topics outlined here, but there are items that really emphasize the benefits of our capital platform. First is our liquidity position. It is a real strength to our business to have the flexibility and timing to access the market and raise capital opportunistically and reduce our costs. We currently have $2.3 billion available, a portion of which we plan to use to pay off the $600 million of remaining notes due in June. After this maturity, our next corporate bond is not due until 2028. Lastly, with our focus on funding more investment with the need for less additional equity, the use of CCH1, issuance of junior subnotes and the higher reinvested portfolio cash, resulted in no additional shares issued through our ATM in the first quarter, and we are on track to issue a minimum amount in 2026 based on our current funding expectations. When coupled with the growth in our managed assets, we are on track to meaningfully accelerate our profitability. I will now turn the call back to Jeff. Jeffrey Lipson: Thanks, Chuck. Turning to Slide 14, we display our sustainability and impact highlights, noting our cumulative carbon count and water count numbers, reflecting the significant impact of our investment strategy. Let's wrap up on Slide 15. We reiterate the themes of strong returns in the business, coupled with ongoing access to low-cost capital that will continue to drive our business towards achieving our guidance levels. I will conclude by addressing the management changes announced today. First, I would like to welcome Christy Freer to our executive team as our Chief Legal Officer and look forward to working with Christy. Next, I want to acknowledge Marc Pangburn for his tremendous contribution to HASI over the last 12 years, as Marc has been instrumental in closing countless important transactions that have led to our success. In his new role at GoodFinch, we will continue to work closely with Marc, and he will continue to provide value for HASI by optimizing our SunStrong business. Our prosperity has always been a function of numerous dedicated and talented individuals. The 4 executives identified in today's press release are all enormously talented and have already built teams and contributed significantly to HASI's success. I have full confidence in each of them, in their expanded roles, and I'm thrilled we have this depth of talent in our organization. Annmarie Reynolds, who recently closed Neogenyx; and Manny Haile-Mariam, who recently closed Sunzia, are extremely well qualified to be our Co-Chief Investment Officers. They both possess outstanding leadership qualities and significant commercial acumen as well as a track record of success. Daniela Shapiro, who has grown our BTM business significantly over the last 4 years; and Viral Amin, who has upgraded our risk management infrastructure, are both accomplished leaders who will do a tremendous job as our Co-Chief Risk Officers and investment committee members. They both possess leadership, credit and commercial skills, extremely well suited to their critical roles. I'm very excited by these executive appointments, and I congratulate all. Thank you. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Vikram Bagri with Citi. Vikram Bagri: To start off, I wanted to dig into this new JV with Ameresco. I understand the return on that project is higher than where you're tracking -- where you have been tracking recently. Could you clarify what the yields are or returns are on that investment? Also, if you can clarify relative to your 30% equity interest, what would be the initial cash flow from that, your take of cash flow will be initially? And then finally, how do you see this JV evolve? Is this going to be a vehicle for consolidation, organic growth? Is the -- do you envision this JV to take the company public at some point or Ameresco buys you out in the long term? And then I have a follow-up. Jeffrey Lipson: Sure, Vikram. Thanks for the question. I would say the venture is primarily focused initially on organic growth. There may be consolidation over time in terms of buying other platforms, but that's not the principal objective. There's a critical mass of operating projects going in day 1, and there's a very strong pipeline that the team there has developed. So it's a little bit more focused on organic growth. In the long term, whether we someday jointly take this public is much too early to say. We're kicking it off this month. So again, we're focused on building this up into something very special, but the exit strategy, it's a little premature to talk about. In terms of our cash flow, the initial investment based on the operating projects is roughly $100 million. The other $300 million will go in as additional projects are developed. And then our -- I think you asked about our cash flow coming back. That's not something we would disclose. Obviously, we have an expectation based on contracts of a certain amount of cash coming back and has a very strong cash yield, but we won't disclose that specifically. Vikram Bagri: Got it. And then as a follow-up, I see you moved 2 receivables from category 1 to category 2. Can you provide more details on that? Fully understanding that this is relatively small for you. I'm just trying to understand in which market are you seeing some stress? Are these residential solar assets, utility scale, RNG and if both the assets are in the same sector? Any color you can share on that would be helpful. Charles Melko: Vikram, this is Chuck. Yes. So on the question of the category 2 there, I mean, just to set the stage here, I mean, you definitely hit on the point that we do have very small amounts in that category. It isn't often you see too much movement in that category, but we still have 98% of our portfolio that's in the category 1 bucket. The item that moved in there, I mean, I think what we'd say with that is that there is a project that is having some technical challenges with some of the equipment, and it needs some -- a little bit more investment to correct the issue at hand with the equipment itself. But there are various plans to get that project where it needs to be on our original economics. And we certainly think there's a good outlook for that. So it's one of those things where we track projects, as you know, every quarter. And when we see something -- that there's something going a little bit in one direction here that we need to pay attention to, we will not hesitate to put in category 2 because we are paying attention to it. Operator: Our next question comes from Chris Dendrinos with RBC Capital Markets. Christopher Dendrinos: Great. And maybe to follow up on Vik's question there and ask this more directly. There is some challenges going on in the resi space right now and a few other folks have highlighted some debt challenges. Are you seeing any of that on your end? And is there any kind of risk exposure there that you could speak to? Jeffrey Lipson: Thanks, Chris. I would say, generally, no, there is a bit of an uptick in some delinquencies in the resi sector generally, and we're seeing a little bit of that in our portfolio as well. But it's tracking well within our original underwriting expectation of charge-offs and our loans there are all performing, literally 100% of the loans in resi are performing. So again, it's well within our underwriting guidelines, and we're not seeing stress in that portfolio. Christopher Dendrinos: And then maybe as a follow-up here, the tightness in the tax equity markets have been kind of broadly highlighted that some of the banks are maybe taking a step back near term waiting for treasury clarity. Is that translating into any sort of funding opportunity for you all where maybe there's a hole in the cap stack and you're able to kind of fill it here? Jeffrey Lipson: I'm going to ask Susan to answer that. I think on -- or at least respond to the part about the tightness in the market in terms of refilling gaps in the capital stack, that's usually not the dynamic. The tax equity obviously serves a specific purpose in terms of the tax attributes that it would be hard to substitute traditional HASI capital for that tranche. But the first part of the question around the tightness of tax equity, I'm going to let Susan answer. Susan Nickey: Yes. Thanks. A couple of comments on that. One is that just in terms of the tightness, it's important to note that the reports from last year is that the tax equity market actually grew significantly. Crux is one of the -- the Crux platform tracks some of that data and the total market increased 26% to $63 billion. And very importantly, the tax transfer market, which is still in its third year, grew 50% to $42 billion. So as we move -- and some of the -- at the end of the year, some of the corporates, and there's now nearly 25% of Fortune 1000 companies participating in the market who're dealing with their own understanding of where their corporate tax bill was going to settle with the change in the tax laws. But as we move into this year, I think some of that tightening that's been reported is what we're seeing and hearing from some of the stakeholders, but also from Crux is starting to have more liquidity as corporate buyers know where they're settling out in that regard and providing some uplift. I think the second issue, which is a bit different is regarding the FEOC rules related to clean energy tax credits being transferred and not to Foreign Entity of Concern ownership. And that reflates again, to 2026 tech-neutral tax credits, not the '25 or before substantial safe harbor pipeline through '23, which will -- many of the players already have their inventory set. So what we expect in that regard is certainly the IRS and treasury have been coming out with guidelines, and we need them -- people are waiting for that guideline on -- to be clarified on those -- the tax credit ownership. And again, there's precedents, but as we know, with ambiguity. Some tax equity investors and banks are waiting for that clarity, which should come. And that is important, obviously, for the whole industry because nuclear, carbon capture, geothermal, all the technologies need that guidance. And I'd say lastly, we certainly want to keep working to expand the tax credit market given there'll be continuing growth in the supply with all the different projects being built with these technologies and manufacturing and HASI is working with the industry in American Clean Power to develop standardization documents to help facilitate growing the corporate tax credit market. Does that help address what you've heard? Christopher Dendrinos: Yes. Well, I guess maybe just a quick follow-up would be, I mean, is this any way to have a bearing on the investment pace that you all are going on right now? Susan Nickey: Not -- in our pipeline, again, as we've talked about significant, our sponsors, and it's really across certainly the grid connected, and I think Sunrun and others have mentioned it, have safe harbored their pipelines through 2030, if not the next 2 years. So it wouldn't directly impact what we're seeing in terms of growth. Operator: Our next question comes from Ben Kallo with Baird. Ben Kallo: My first question is just on CCH1 and the capacity left there under that agreement. And then following that, has anything changed with your partner in the -- their appetite to invest more after that first tranche? Jeffrey Lipson: So thanks, Ben. On the second part of the question, no, our partner has continued to express significant enthusiasm around the partnership. And as evidenced by the upsize late last year, has shown a strong willingness to continue to invest. As we disclosed here on Page 11, the assets are $2.3 billion. The commitments are a bit higher than that for some things that are in CCH1, just haven't funded yet. And as I think we mentioned last quarter, as structured right now and given our pipeline, we certainly have enough capacity for this year. And we're working on a CCH2. We've started to commence some activity there. I can't say too much in terms of detail there, but we certainly are intending to have that up and going by the time CCH1 capacity has been utilized. Charles Melko: I'll also add -- sorry, Ben, just also to provide a little bit of context for the capacity that we have. And we've said that in the past that we've got roughly about $5 billion of capacity available, and that's comprised of the equity commitments between us and KKR. It's roughly about $3 billion. And then -- as we said before, we are -- and we did mention in our call here that we have issued some debt at CCH1. So keeping our leverage ratio at CCH1 under 1x -- anywhere between 0.5 to 1x debt to equity, that gets you to a total of $5 billion and comparing that to the $2.3 billion that we currently have in there. Ben Kallo: Okay. Great. Just on -- in terms of your cost of capital, can you talk about how much you think you can reduce your cost of capital? I know you guys have done a lot. But also, I just -- going from '25, I think on Slide 17, you had 5.8% interest expense over average debt balance. It ticked up in Q1. So maybe the -- could you explain that a bit? And then just how much more you think you can reduce your cost of -- your total cost of capital going forward? Charles Melko: Yes. So the uptick that you're seeing in Q1 is largely attributable to the issuance that we've done on the junior subordinated notes. So they do carry a little bit higher of a coupon. But from an overall cost of capital standpoint, because we get 50% equity credit for purposes of our leverage ratios with the rating agencies, we do have to -- we do get to issue less equity. So a little bit higher coupon that we're paying an interest expense, but we are issuing less shares. So overall, it is a benefit to our cost of capital. And I think if you took out from that 6.1%, the interest expense related to those hybrids, the debt cost is relatively flat, around 5.8% or so compared to last year. Now on the -- how much further can it go question, we've obviously seen a benefit and reduction of spreads on the debt that we're issuing. And I think a large part of that is due to just the efforts that we put into getting out there and talking to the investment-grade investor market, and we've had some success with that. We're still relatively new to the market. So there is a little bit improvement we could see on the spread. But as you probably know, spreads across the board are a little bit tight in the investment-grade market, and they can only go so far. But right now, with the guidance that we have out there, do we need this to go lower? No, we absolutely don't. And with the margins and the yields that we're seeing on our assets and the equity efficiency that we're seeing, we don't really need it to go down to further increase our returns. Operator: [Operator Instructions] Our next question comes from Maheep Mandloi with Mizuho Securities. Maheep Mandloi: Maheep Mandloi from Mizuho. Maybe just on the investment with Ameresco's Neogenyx. Can you just talk about the rationality over there or like what motivated you to invest? Is it somewhat similar to what we have seen with -- on the resi solar side, which helps with ITC or something else which helps you capture more value with the RNG assets? Jeffrey Lipson: Sure. Thanks, Mandeep. I think -- and I talked a little bit about this in the prepared remarks, some of the attributes that really attracted us here were, first and foremost, the partnership we have with Ameresco and the trust and familiarity we have with their team. It's very consistent with how we've built the business with programmatic partners. Here, we were able to, again, diligence all of the investments day 1. RNG is something we're very familiar with, and we've been very active in RNG, as you know. And so it's an asset class we well understood. And then there was great alignment with the Ameresco team of what we want to do with this business going forward, what the relative structure of the parties would be in terms of ownership and cash flows. And so it's a real opportunity for us to do something perhaps slightly different than we've done in the past, but with very, very similar attributes and certainly more upside than most of what we do at the project level investing. Maheep Mandloi: Appreciate it. And on the Ameresco's deck, they kind of talked about a $2 million to $4 million of net income to you guys from the -- for this year for Neogenyx. Is that like the framework we should think about and build upon that going forward? Or how to think about the modeling here? Jeffrey Lipson: Sorry, I missed one word there, Mandeep. Can you just repeat that question, please? Maheep Mandloi: Yes, sure. On Ameresco's presentation, they talked about your minority interest in the net income at around $2 million to $4 million for this joint venture. Just curious if that's something we should assume for modeling purposes for this year for -- on your...? Jeffrey Lipson: No. From a HASI perspective, our accounting, of course, is different than Ameresco's. Our accounting here will be simply an equity method investment, consistent with what we've done in the past. We underwrote this in terms of cash-on-cash IRR, and we're going to account for it consistent with how we've accounted for our other equity method investments. So there's no pass-through of direct income as part of our accounting. And Chuck may want to expand on that. Charles Melko: Yes. Maheep, I think at Ameresco's release, all they did for that number was simply just take 30% of the total EBITDA expectations for that project, which, as we've mentioned, this is an investment that is very similar to what we do where it's a structured equity investment. And when you have structured equity investments, we're focused on the cash-on-cash returns. There's targeted returns that we go after. And it's not as simple as just taking 30% of the total project EBITDA. Operator: Our next question comes from Noah Kaye with Oppenheimer & Company. Noah Kaye: The first one, just on the 12-month pipeline. You replenished this right, quarter-over-quarter, it's still greater than $6.5 billion. It looks like the largest percentage increase and therefore, dollar increase was in grid-connected assets. And certainly, that tracks with the increase in grid scale renewables being deployed. But maybe just comment a little bit on what drove that uptick? And can you talk a little bit about the nature of those transactions? Are these primarily mezz debt, pref equity or of a different nature? Jeffrey Lipson: Sure. Thanks, Noah, for the question. And I always caution against too much precision on pipeline disclosure. Of course, it's greater than $6.5 billion and it's a 12-month pipeline. So there's always a little bit of judgment involved. But to answer your question, grid-connected does have a very strong pipeline. The vast majority of it is programmatic partners that HASI has worked with before and the majority of it is pref equity on solar projects. So I think that's the majority of that pie slice of the pipeline. Noah Kaye: Very helpful. And then this was a quarter where there was 0 ATM issuance. The progress from the company and becoming more capital light, we're all seeing it. I think in the deck, it says minimal equity issuance expected for '26. Not asking you to put any kind of finer point on that, but from an equity perspective, I mean, how close do you feel this business is to really a self-funding model? Jeffrey Lipson: I would say very close. I think that minimal you can interpret as if the volume of fundings this year is within the expectation that we set, that could very well be 0. If we're a little more successful than that estimate and we end up doing $4 billion or $5 billion, then certainly you would see us issuing more equity, but that's accretive equity, and that's a really big year in terms of new originations. So that's a good scenario as well. But I think if we hit the expectation range that we established, I think we'll be -- we are already self-funding. Charles Melko: Noah, I'll also add to this that we certainly have seen an uptick in transaction closings that we've had. And looking forward, we do expect some growth in that number. And if you go back to the slide that we prepared last quarter where it shows how far our each dollar of equity goes, we are making much better progress on how little equity we need to issue when we're making our fundings. But what you will see -- certainly see in the future is that if we are issuing equity, the percentage of that equity relative to the total fundings is much, much lower percentage than you've seen historically. Operator: Ladies and gentlemen, that was the last question for today. The conference call of HASI has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Welcome to the Brookfield Business Corporation First Quarter 2026 Results Conference Call and Webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the queue, simply press 1-1 on your touch-tone phone. I would now like to turn the conference over to Alan Fleming, Head of Investor Relations. Please go ahead, Mr. Fleming. Alan Fleming: Thank you, Operator, and good morning. Before we begin, I would like to remind you that in responding to questions and talking about our growth initiatives and our financial and operating performance, we may make forward-looking statements. These statements are subject to known and unknown risks and future results may differ materially. For further information on known risk factors, I encourage you to review our filings with the securities regulators in Canada and the U.S., which will be available on our website. We will begin the call today with Anuj Ranjan, our Chief Executive, who will provide an update on our strategic initiatives. Anuj will then turn the call over to Stuart Levings, Chief Executive Officer of Sagen, our Canadian residential mortgage insurer, to talk about the positioning and performance of the business in the current environment. Jaspreet Dehl, Chief Financial Officer, will then discuss our financial results for the quarter. After we finish our prepared remarks, the team will be available to take your questions. With that, I would now like to pass the call over to Anuj. Anuj Ranjan: Thanks, Alan, and good morning, everyone. Thank you for joining us on the call today. We had a great quarter, which was defined by three things. First, Clarios received $1 billion of cash tax credits, the first of similar amounts we expect annually through the end of the decade. Second, we sold a 27% interest in La Trobe Financial, the Australian asset manager and lender, at an implied 3x multiple of our capital in just under four years. And third, we committed to lead a $500 million investment alongside OpenAI with the newly created OpenAI deployment company, a platform built to deploy enterprise AI inside real operating companies. We also completed our corporate simplification in March and, since closing, our daily trading volumes are up 40% compared to average levels last year. We are anticipating about 5 million shares of incremental demand from index rebalancing over the next few months, both very important steps towards improving the trading liquidity and index demand of our shares. Let me touch on a few of the defining highlights of the quarter in more detail. Starting with Clarios, which received its fiscal 2025 cash tax refund of $1 billion in March tied to its U.S. production in the critical minerals sector. This is equivalent to about $1.50 per share of Brookfield Business Corporation, and we expect these credits will continue annually through 203[inaudible]. Today, Clarios is our largest and most valuable business, and with the investments it is making to expand production capacity and scale its critical minerals capabilities, we see a path to the value of our investment in Clarios doubling over the next five years. In addition, during the quarter, we reached an agreement to sell a minority interest in La Trobe Financial at a $2 billion valuation. Since we bought the business, we transformed it from a mortgage lender to a leading asset manager in Australia and increased its AUM from $10 billion to $16 billion. This sale realizes $1 per share in cash and results in a 35% IRR and a 3x multiple of our capital. In a market that is increasingly appreciating critical cash-generative industrial and services businesses, we expect our monetization activity to continue. The sale of La Trobe is the latest example of our strong track record of value creation built on a simple approach of buying, building, and operating vital industrial and services businesses. When the right moment arrives, we monetize to realize value and we redeploy that capital into new opportunities to fuel our engine and continue compounding value at scale. We recently did just that, committing to lead a $500 million Brookfield investment in DeployCo alongside OpenAI and a group of global investors. Our share of the investment is expected to be about $150 million. Stepping back, AI adoption is moving quickly, and returns will not only accrue to those who build the models, but to those who can deploy them at scale inside real operating businesses against real P&L. This requires operating capabilities, proprietary data, technical talent, and experience running and transforming industrial and services businesses. DeployCo is focused on enabling large organizations to move pilot use cases to full enterprise-wide implementation, addressing one of the primary bottlenecks in realizing AI-driven productivity. The platform will combine engineering talent, a strong commercial relationship with OpenAI, early access to models, and the capabilities of best-in-class operators like ourselves to deploy AI at scale. With more than 300 operating companies across the Brookfield ecosystem, we have a direct line into where AI creates value, and, importantly, where it does not. We have already been using AI in our own businesses as the latest tool to accelerate transformation, enhance growth, and drive efficiencies. We expect to draw on DeployCo’s capabilities to drive even harder in these areas to automate workflows, improve decision-making, and capture meaningful productivity gains in our own operations. As we look forward, the market for what we do is as attractive as it has been in the industry. Demand for essential services and industrial businesses has rarely been stronger, and we have the capital, capabilities, and the expertise to execute. We are in an excellent position to build on a strong start to the year and continue compounding capital for our shareholders. With that, I will turn it over to Stuart. Stuart Levings: Thank you, Anuj, and good morning, everyone. I will start with some comments on our resilient business model, and then provide an update on the overall Canadian housing market and how Sagen is performing in the current environment. As a reminder, Sagen is the leading private mortgage insurer in Canada operating in a highly concentrated, regulated market with only three providers and significant barriers to entry. Mortgage insurance is mandatory for homes purchased in Canada with a down payment of less than 20%, making this an essential service for our customers. The business model generates strong margins and returns on equity that have proven to be resilient through prior housing and economic cycles. During Brookfield’s ownership, we have grown our market share, repositioned the investment portfolio, reduced our expense ratio, and optimized the capital efficiency of the business. As a result, our return on equity has expanded from low double digits at acquisition to over 20%, allowing the business to provide meaningful distributions to shareholders, including Brookfield Business Corporation. That resilience is particularly important given the backdrop of the current Canadian housing market. To put that in context, the average house price in Canada has declined by 20% since early 2022 due to weaker sales activity driven by higher interest rates, constrained affordability, and lower consumer confidence. This has continued into the start of the year. We believe several factors, including continued undersupply of housing and modest improvements in affordability, coupled with stable interest rates and a renewed focus on housing support from the federal government, should provide a floor to home prices over time. Any improvement in the trade and geopolitical outlook should also bode well for a housing market recovery. Against that backdrop, Sagen continues to perform well. Our borrowers are typically first-time homebuyers, and this cohort has been more resilient and active over the past 12 to 18 months relative to the overall market. This is due in large part to the additional support provided by the change in mortgage insurance eligibility rules introduced in late 2024. Specifically, the increase from 25- to 30-year amortizations and from $1 million to a $1.5 million price cap. These changes drove a significant increase in the volume of insured mortgages during 2025, and while their pace has slowed, this segment of homebuyers was still more active than the general market during the first quarter of this year. We have also maintained a consistent focus on high-quality loans and a well-diversified portfolio, facilitated by our rigorous underwriting process. The average credit score of newly originated loans remains high, with a significant portion greater than 760. Approximately 80% of the insurance portfolio is backed by fixed-rate mortgages, providing borrowers with payment stability. The majority of the remaining variable-rate mortgages have constant payments where only the mix between principal and interest is impacted by fluctuations in rates, thereby providing a similar degree of payment stability. In addition to the quality of our insurance portfolio, strong oversight and regulation including mandatory loan amortization, full borrower recourse, and debt service stress tests for all insured borrowers serve to mitigate the risk of borrower default. For example, all insured borrowers in Canada are subject to a stress test that builds in a cushion for affordability in a rising rate environment, and insured borrowers facing financial hardship can extend their amortizations under our loan modification program. As a result, losses in our business are primarily driven by two factors. The first is unemployment, which drives the frequency of delinquencies. The second is the change in home prices, which influences the degree of loss given default. We see both of these factors as manageable in the current environment. Overall unemployment has remained relatively stable and, importantly, unemployment in Sagen’s core homebuying cohort—typically dual-income households between 25 to 54 years of age—has been quite resilient. Second, after a period of exceptional home price appreciation where borrowers have built significant embedded equity in their homes, the loan-to-value profile and loss ratio performance of our portfolio is now returning to more normalized levels in line with our long-term expectations. The business continues to be very well capitalized and, importantly, our regulatory capital model is designed to perform through the cycle. As we look forward, we expect losses to remain within our long-term expectations, reflecting the strength of our high-quality, regionally diversified portfolio, loss mitigation strategies, and disciplined risk management framework. As a result, we are confident in the continued resiliency of Sagen’s performance to support strong returns on equity and consistent cash generation, providing for approximately $400 million of annual distributions on a full-cycle run-rate basis. With that, I will hand it over to Jaspreet. Jaspreet Dehl: Thanks, Stuart, and good morning, everyone. We generated first-quarter adjusted EBITDA of $582 million compared to $591 million in the prior period. Current-year results reflect the impact of lower ownership in three businesses and include $27 million of contributions from new acquisitions. Excluding tax benefits and the impact of acquisitions and dispositions, adjusted EBITDA was up approximately 5% compared to the prior year. Adjusted EFO for the quarter was $279 million compared to $345 million in the prior period. Prior-period adjusted EFO included a $114 million net gain from the disposition of our offshore oil services shuttle tanker operation. Turning to segment performance, our Industrial segment generated first-quarter adjusted EBITDA of $320 million compared to $304 million last year. Excluding the impact of acquisitions, dispositions, and tax benefits, segment performance increased by 7% compared to the prior year. Performance at our advanced energy storage operations was supported by the ongoing mix shift toward higher-margin advanced batteries, partially offset by the impact of slightly lower overall volume. Results at our engineered component manufacturer increased more than 10% on a same-store basis compared to the prior period, benefiting from recent commercial actions and increased margins despite end-market softness. Moving to our Business Services segment, we generated first-quarter adjusted EBITDA of $208 million compared to $213 million last year. On a same-store basis, adjusted EBITDA increased by 7% over the prior year. Results reflect solid performance and realized gains at our residential mortgage insurer, which continues to generate strong returns. Performance at our dealer software and technology services operation is supported by contractual annual price increases as the business continues to make strategic investments toward strengthening its customer service and product offering. Finally, our Infrastructure Services segment generated first-quarter adjusted EBITDA of $90 million compared to $104 million last year. Prior results included contributions from our offshore oil services shuttle tanker operation, which was sold in January 2025, as well as the impact of the partial sale of our work access services operations completed in July 2025. Results at our lottery services operations are supported by the ramp-up of recently secured contracts and growing share with existing customers. Performance at our modular building leasing services operation benefited from increased sales of value-add products and services. Turning to our balance sheet and capital allocation priorities, we ended the quarter with $2.4 billion of pro forma liquidity at the corporate level, including the fair value of units we received in exchange for the partial sale of interests in some of our businesses. During the quarter, $43 million of the units we received were reduced. Our strong liquidity position gives us significant flexibility to support our growth and balance capital allocation priorities. During the quarter, we completed the $250 million buyback program launched in February. Since that time, we have deployed approximately $285 million toward repurchases, including $65 million of repurchases during and subsequent to quarter-end. Going forward, we expect to remain opportunistic under our NCIB program, balancing buybacks with our other capital deployment opportunities. We will now open the call for questions. With that, I would like to turn the call back to the Operator. Operator: Certainly. As a reminder, ladies and gentlemen, if you would like to ask a question, please press 1-1 on your telephone keypad. Our first question comes from the line of Bart Dziarski from RBC Capital Markets. Your question, please. Bart Dziarski: I wanted to ask around Sagen. Stuart, thanks for joining the call this morning. We saw the loss ratio increasing to 12%. The last few years, it has been running around 5%. Could you give us a bit more detail as to what drove the reserve strengthening that was described in the MD&A? And then I heard you mention normalization to the long-term targets. Could you remind us what those long-term target loss ratios are? Thanks. Stuart Levings: Yes, certainly. Thanks for the question. Principally, what is driving the loss ratio higher is that the loss given default has increased a little bit more on recent delinquencies, and that is because house prices have been declining, as I noted in my comments. Frequency has not materially picked up. Unemployment, as you know, is the biggest driver of that, and that has been relatively stable. But certainly, in the books where we are seeing some pressure—which would be the 2022 and 2023 vintages—there is not as much equity, and so the loss given default there is larger. That is the primary driver of the uptick in the loss ratio. That said, we do not see the loss ratio migrating a lot higher this year. Our long-run pricing loss ratio is in the 15% to 20% range, and I think we will be comfortably below that this year. Over the longer term, it will trend back toward that 15% to 20% only because we are coming out of abnormally low loss environments. We saw incredibly strong house price appreciation and very strong employment, so we cannot look at the prior years of single-digit loss ratios as being normal. All that said, keep in mind there are tremendous capital buffers in the business, and we do not anticipate any impact on our ability to maintain our annual distributions. The business is built to handle the kind of economic volatility that we see right now. Bart Dziarski: Great. Very helpful. Thanks for the color. And then a follow-up on—or I guess a question around—Clarios. Anuj, you expressed confidence around the value doubling over the next five years. Could you help us understand the key value levers to drive that increase? And you have held this asset since 2019, so how should we think about where that value accrues to in terms of whether you expect to hold it for another five years or look to surface that value via exit? Thanks. Anuj Ranjan: Sure, thanks. I will start, then I will get Jaspreet to chime in on the bridge to value creation. I would say this is an incredible business. It generates a lot of cash flow. It is a real market leader. The shift that we are seeing to advanced, or absorbent glass mat, batteries is an area in which Clarios is gaining more market share and achieving higher margins as well, and so everything is going the right way and on the right trend. Layer into that some of the tax credits that we are now receiving and the greater certainty we have around them going forward, this is an incredible business to continue to hold. We think it will continue to generate significant cash flow that the business can invest in, use to delever, and, in time, use to pay dividends. This is one of our real cash compounders—the kind we aspire for all of our businesses to eventually become. Therefore, we are in no hurry to exit, given the cash profile we see in the near term and coming years. However, of course, we are always opportunistic and thinking about value, and if the market recognizes the value in the company that we see, and the cash it generates in our hands, we will keep our options open. I will turn it over to Jaspreet on how we see the value doubling over the next few years. Jaspreet Dehl: Thanks, Anuj. Hi, Bart. Keeping it high level and simple, as we discussed at investor day, based on our view of NAV today, Clarios is about 30% of our NAV value, which implies about $15 per share. On an LTM basis, the business is generating about $2.3 billion of EBITDA. If you take a conservative view on annual EBITDA growth—say, mid-single digits—the business, which has comfortably been delivering that, could exceed $3 billion in five years. We view this as a 9x to 10x multiple business. On $3 billion of EBITDA, that is about $30 billion of enterprise value. With the cash flow generation organically in the business, plus the impact of the tax credits, over the next five years the business can generate circa $8 billion of cash. When you take that cash against where debt is today, which is about $11 billion, $8 billion of cash generation over the next five years brings net debt down to significantly lower than $4 billion. So on $30 billion of enterprise value and $4 billion of net debt, you have equity value of approximately $26 billion. That, when you take to BBUC’s share, basically doubles that $15 per share contribution from Clarios. There are a lot of numbers there, but that is the bridge. Operator: Thank you. Our next question comes from the line of Devin Dodge from BMO Capital Markets. Your question, please. Devin Dodge: Yes, thanks. Good morning. I wanted to start with some questions on DeployCo, the AI deployment platform you talked about, Anuj. This is a bit of a different investment for Brookfield Business Corporation, as it does not come with a control position. A two-part question: first, can you speak to the role or influence that Brookfield will have at that business? And second, is DeployCo primarily an advisory-type business, or will some of the invested capital be used to acquire technology and equipment? Anuj Ranjan: Sure. Hi, Devin. Happy to take that. As you know, we have been talking for many years now about AI’s role in transforming more traditional operating businesses—the real bedrock of the global economy. The real bottleneck is not the technology or capital; it is change management—the ability to deploy AI at scale. OpenAI has also recognized this. The demand for their enterprise solutions far exceeds the ability to actually deploy them in enterprise, and so they saw an opportunity to create a vehicle—an advisory and services business—to implement AI and these solutions in enterprise businesses at scale. For us, first, as an investor, we thought that opportunity was very exciting. We believe in it and have seen it firsthand while operating companies. We know the opportunity is real and that this is a business that can scale dramatically. Second, we have structured our investment as a preferred instrument, which gives us a lot of downside protection. We will earn returns in excess of our 15% target, and we are very comfortable with that, while retaining meaningful upside if, with our partners—OpenAI and others—we are able to scale it. Third, as an owner of operating businesses, we see this as an opportunity to benefit from what the OpenAI deployment company will do. We will have access to leading technology at very early stages, and access to the talent required in the OpenAI deployment company to implement these latest AI technologies across our portfolio companies in BBUC. This is a huge advantage that we think will pay dividends across the portfolio. We signed an agreement to invest $500 million, of which about $150 million is BBUC’s share. In terms of governance, we are a minority investor with a preferred instrument that has a minimum return in the high teens—above the 15% that we target—so we are quite comfortable. We have standard minority governance that you would expect in a business like this. Devin Dodge: Great color there, Anuj. Appreciate that. One quick follow-up: does the agreement for this JV limit Brookfield’s ability to invest in the deployment of other AI models? Anuj Ranjan: No, it does not. We will always use whatever is the best tool or technology for our portfolio companies, or as they see fit. This just gives us an additional benefit to access technology early, as well as the talent and change management capability to implement it in our companies. Operator: Thank you. Our next question comes from the line of Scott Fletcher from CIBC. Your question, please. Scott Fletcher: Hi, good morning. I wanted to ask a question on BRK. I believe it was awarded a new concession earlier this week. How meaningful could that be for the business? And then, as it relates to BRK, is there any update on the monetization front? We have seen a couple of interest rate cuts in Brazil, which I am assuming should be helpful for buyer interest down there. Jaspreet Dehl: I will take that. You are right—towards April, BRK won a new concession in the northeastern part of Brazil. As you are aware, it takes time to ramp up these concessions. It does represent a meaningful win for the business, and we think over time it will grow substantially and add to the overall portfolio and the earnings power of the business. It is small today, but once fully ramped up, we expect it will be a pretty significant part of the overall business. Scott Fletcher: And on the monetization front, any update there? Jaspreet Dehl: We are continuing to focus on monetizing the business. As we have talked about before, our base case is still an IPO. We think this is an incredible business that would make a great public company. The market environment in Brazil has been choppy, but it is stabilizing. Interest rates were at record highs around 15%. We have seen a few interest rate cuts and are sitting at about 13.5% now, which is going in the right direction. Our view would be to still do an IPO of this business when we have the right market window. Scott Fletcher: Got it. Appreciate the color. I will turn it over. Operator: Thank you. Our next question comes from the line of Scott Fletcher from CIBC. Your question, please. Scott Fletcher: Hi again. I wanted to ask a question on CDK. There have been some headlines around the creditors there. From a bigger-picture perspective, with the price where the bonds are, it would imply the equity is under some pressure. In a situation like this, what is your general approach to getting as much value as you can out of a situation like this? Jaspreet Dehl: Hi, it is Jaspreet. Maybe I can get started. Our general approach is that we look to make investments that generate our 15% to 20% targeted returns. We have an incredible operating team that works with all of our businesses to create value, and we have built an incredible track record not only over 25 years of doing this, but also over the last 10-plus years as a public company. Having said that, every once in a while there are situations that do not go our way or in line with our expectations and underwriting. We have dealt with them from time to time. Our approach is always value preservation. When we underwrite a business, we are underwriting to a base case and upside, but also a downside case. In every situation, we want to protect and preserve our capital and be able to eke out a return on the investment even when things do not go according to plan. When we do get into those situations, we put our shoulder behind it, add focus, swarm the business, and put our best people on it to work through the situation. You have seen that journey in one of our businesses, Altera, where we were in a very difficult situation given what was going on broadly in the market, and we worked hard to turn that around and return the majority of our capital. All of my comments are our general approach to difficult situations and not specific to CDK or any other business. Scott Fletcher: Thanks, I appreciate the comments. I understand the situation is hard to comment on specifically. One clarification on the tax credits—both were for the 2025 year that was received. Is there any additional clarity on the 2024 credits, which I think are still pending? Jaspreet Dehl: Yes. We received the $1 billion for 2025, and the 2024 credits are still under processing at the IRS. We have not received any feedback to indicate that the refund should not be coming as part of this process. The basis of that credit is no different from the 2025 credits. As Anuj said in his opening remarks, we feel very confident about our eligibility for the credits through the end of the decade. Scott Fletcher: That is good news for sure. Thank you for the answers. I will pass the line. Operator: Thank you. This does conclude the question-and-answer session of today’s program. I would like to hand the program back to Anuj for any further remarks. Anuj Ranjan: Thank you all for joining us this quarter, and we look forward to seeing you next quarter. Jaspreet Dehl: Thank you. Operator: Thank you, and thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.
Operator: Good day, and welcome to the Kingsway First Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. With me on the call are JT Fitzgerald, Chief Executive Officer; and Kent Hansen, Chief Financial Officer. Before we begin, I want to remind everyone that today's conference call may contain forward-looking statements. Forward-looking statements include statements regarding the future, including expected revenue, operating margins, expenses and future business outlook. Actual results of trends could materially differ from those contemplated by those forward-looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see the risk factors detailed in the company's annual report on Forms 10-K and subsequent Forms 10-Q and Forms 8-K filed with the Securities and Exchange Commission. Please note also that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance. A reconciliation of such non-GAAP metrics to the most comparable GAAP measures is available in the most recent press release as well as in the company's periodic filings with the SEC. Now I would like to hand over the call to JT Fitzgerald, CEO of Kingsway. JT, please proceed. John Fitzgerald: Thank you, Holly. Good afternoon, everyone, and welcome to the Kingsway Earnings Call for the First Quarter of 2026. Fund model to acquire and build great businesses. We own and operate a diversified collection of high-quality services companies that are compound long-term shareholder value on a per share basis, and we -- we also continue to benefit from significant tax assets that enhance our returns. In short, Kingsway is uniquely positioned within a tax-efficient public company framework. Kingsway or KSX segment and our Extended Warranty segment. March stood out as a particularly good month, and we see clear business momentum across our portfolio, entering what are seasonally stronger summer months for many of our businesses. As a result, we are pleased to reiterate our expectation for double-digit organic growth in revenue and profit at both KSX and Extended Warranty. We are also pleased by our acquisition pipeline, which remains robust. We have already -- we already have one acquisition under our belt in 2026 with the tuck-in purchase of Ledgers by our subsidiary, Ravix Group. We continue to anticipate completing three to five acquisitions in 2026, in line with our target. Before turning the call over to Kent for a review of our financials, I would like to provide additional color on three key topics: operating performance, capital markets and corporate governance. Let's start with operating performance. As mentioned, both our KSX and Extended Warranty segments came in ahead of our internal expectations in the first quarter. I was particularly encouraged, however, by how broad-based the performance was across our portfolio. The KSX segment achieved record quarterly adjusted EBITDA of $3.5 million in Q1. The first quarter is seasonally lighter for many of our operating companies compared to the stronger summer months, which positions KSX for even better results in the quarters ahead as seasonal tailwinds kick in. Roundhouse had another strong quarter and continues to execute well. Demand from natural gas infrastructure customers is robust, especially in the context of recent geopolitical events, and our team at Roundhouse is racing to keep up. March was record-setting for Roundhouse with monthly revenue above $2 million for the first time ever under Kingsway's ownership. IS Technologies had a great quarter with substantial top line and bottom-line gains relative to the year, ago quarter. All three service lines were up year-over-year and the combination of a fully staffed sales team and a stronger commercial footing are now paying off as business momentum accelerates. Within Kingsway Skilled Trades, Buds Plumbing had an excellent quarter with healthy growth relative to the prior year. Southside and AAA are still in their investment phase, but we believe both companies are poised to accelerate financial performance as they enter the seasonally strong Q2 and Q3 periods. SPI was up significantly versus the prior year, reflecting both solid execution and healthy demand in the market it serves. Annual recurring revenue increased by over 45% from the prior year quarter and retention metrics were strong with gross revenue retention of 97% and net revenue retention well over 100%, reflecting both pricing and expansion with existing customers. DDI came in ahead of budget and continued to gain traction with new customers. After a period of investment, DDI is poised for a strong second half as DDI converts last year's operational work into this year's commercial momentum. Ravix came in well ahead of budget in Q1. 2025 was a challenging year for Ravix, but with a more diversified customer base and a refreshed commercial strategy, we believe Ravix has good momentum and will return to growth in Q2 and beyond. We remain confident on the Ravix platform and see meaningful long-term opportunities in this business. Overall, this was a strong quarter for the KSX segment with performance that was broad-based rather dependent on one or two bright spots. KSX is off to a great start in 2026 with more to come. At Extended Warranty, modified cash EBITDA came in ahead of internal expectations and cash sales were up 11.8% year-over-year. The growth was both volume and price driven. VSC contracts sold were up low single digits and revenue per contract increased high single digits year-over-year. The combination of strong top line growth and moderating claims growth supports our view that Extended Warranty is on track for an excellent year. Next, let's touch on capital markets. At the end of March, Kingsway announced that our Board of Directors had proposed a name change to Kingsway Corporation and a proposed stock ticker change to KWY, which are intended to better reflect the company's business evolution and long-term strategy. The proposed name change is subject to shareholder approval at the company's upcoming Annual General Meeting of Shareholders scheduled for May 18. We have consistently heard from investors that Kingsway Financial Services no longer accurately describes the company's operations and creates unnecessary confusion in the capital markets, particularly given our exit from the insurance business nearly a decade ago. This change is an important step towards simplifying and clarifying the Kingsway equity story. Following approval of the proposed name change, we intend to move expeditiously to effectuate both the name change and the stock change to KWY. Importantly, the company's CUSIP number will not change. We also look forward to working closely with the major financial data and index providers to ensure the investment community can quickly and accurately understand Kingsway's business and strategy. In the months ahead, we expect to relaunch Kingsway's brand, corporate identity and website. Please stay tuned for more details on this exciting update. I would also like to draw attention to an update we made to our face financial statements, starting with our Form 10-Q for this quarter. In the past, Kingsway's face financials have read like those of an insurance company, which has been challenging to decipher for many investors. As Kent will explain in greater detail, our face financial statements have been updated to better reflect the service business model of our KSX segment, which now represents the majority of the company's revenue and profit. We believe this is a positive change that will make Kingsway's financial statements more readable and accessible to the investment community. Finally, corporate governance. I'm thrilled to share that Adam Patinken was recently elected Chairman of Kingsway's Board of Directors. Adam has played an important role in Kingsway's evolution and has been a valued partner to the management team and the Board. We're pleased to have his continued leadership in this role, and his experience and perspective will be welcome as we seek to build a far larger, more profitable and more valuable Kingsway. I'm also delighted that Terry Cavanaugh, who served as Board Chairman in the last 12 years, accepted Adam's request to continue to serve as Vice Chairman of the Board. It makes for a smooth transition and positions Kingsway to achieve our financial and strategic ambitions in the months and years ahead. The entire company is thankful for Terry's many years of service as Chairman and grateful for the continued wisdom and counsel he provides. With that, I'll turn the call over to Kent to walk through the financial results in more detail. Kent Hansen: Thank you, JT, and good afternoon, everyone. For the first quarter of 2026, consolidated revenue increased 37.4% to $39 million compared with $28.3 million in the first quarter of 2025. Within that total, KSX revenue increased 80.7% to $21.1 million compared with $11.7 million in the prior year quarter. Extended Warranty revenue increased 7.2% to $17.9 million compared with $16.7 million a year ago. As JT mentioned, Extended Warranty cash sales increased 11.8%, positioning our Extended Warranty segment for continued double-digit organic top line growth in 2026. Consolidated net loss for the quarter was $2.2 million compared with a net loss of $3.1 million in the first quarter of 2025. Consolidated adjusted EBITDA for the quarter was $2.4 million compared with $1.4 million in the prior year quarter. Turning to segment profitability. KSX adjusted EBITDA increased by 82% to $3.5 million compared with $1.9 million in the first quarter of 2025. Extended Warranty adjusted EBITDA was $0.4 million compared with $0.9 million a year ago. Portfolio LTM EBITDA for the operating companies was $22 million to $23 million as of March 31, 2026. We continue to view this as a useful measure of the trailing earnings capacity of the operating portfolio and one that aligns with how we assess the business internally. Turning to the balance sheet. Total net debt was $63.9 million as of March 31, 2026, compared with $62.4 million on December 31, 2025. As JT mentioned, we completed an update of our face financial statements as reported in today's filing with the SEC and Form 10-Q. Specifically, Kingsway's income statement has been updated to better reflect the business services operation by including gross profit, breaking out depreciation and simplifying other line items. Kingsway's balance sheet has also been updated to a classified balance sheet with a clear breakout between short-term and long-term assets and liabilities. We believe this update better reflects our current operation as KSX is now the majority of Kingsway's revenue and profit and will make our financial statements more readable and accessible to investors. I personally would like to express a big thank you to our Kingsway accounting team, especially Kelly Marchetti and Nanette Voyles as well as our external service providers for working together to implement this positive update that should be helpful to investors going forward. With that, I'll turn it back over to JT. JT? John Fitzgerald: Thank you, Kent. Overall, the first quarter came in ahead of our internal expectations, and we're encouraged by our business momentum as we enter the seasonally strong summer months. Our performance was broad-based and provides us with confidence in reaching our 2026 targets. Kingsway is off to a great start with lots more to come. Finally, before moving to Q&A, I'd like to remind everyone that we are hosting our Annual Investor Day on Monday, May 18, at the New York Stock Exchange. But the theme of the day is from theory to action, and we plan to tie together the theory of the search fund model and the Kingsway Business System to the tangible business results of our operating companies. To that end, I am pleased to share that joining us at our Investor Day will be Miles Mamon, the CEO of Roundhouse; and Davide Zanchi, the CEO of IS Technologies. I'm excited for them to share their stories with the investment community and look forward to an informative day. Those interested in attending the Investor Day in person can RSVP by emailing james@haydenir.com. A webcast will also be available for those who cannot attend in person. We look forward to seeing you on May 18 at the New York Stock Exchange. With that, operator, we're ready to take questions. Operator: [Operator Instructions] James, the floor is yours. James Carbonara: Thank you, operator. I'm for investors, I'm reading in the questions that came by e-mail. The first one that came in is you mentioned you were working with financial data providers and index providers following the name change, to help investors better understand Kingsway. Can you please provide more details on what you mean by this? John Fitzgerald: Yes. Thank you, James. Yes, look, if you go across the various data aggregators, Bloomberg, Cap IQ, FactSet, Yahoo! Finance, et cetera, I think we're sort of listed alternatively as either a property and casualty insurance business, a leased real estate business or I think in one case, an auto and truck dealership. And so, what I mean by that is reaching out to each one of these data aggregators and providing them a unified description of our business that accurately describes what we actually do and also getting classified under our GICS code, GICS code away from property and casualty to a holding company, specialized service business holding company. So yes, hopefully, that answers the question. James Carbonara: Thank you, JT. The next one, Roundhouse, had another strong quarter. Can you share more about what's driving the momentum there? John Fitzgerald: Yes. Good question. I would say that I think it starts with the secular tailwinds that we knew were in place when we made the investment, those being, one, increased natural gas activity in the Permian Basin and continued build-out of the infrastructure to support midstream gas transmission, which -- where the motors that we service are in place. And combined with an ongoing shift away from legacy gas-powered motors to electric motors. So that would be kind of the secular -- 2 secular tailwinds. And I think -- for the business itself, we saw very strong momentum in the field service, service line, which is a unique specialty that Roundhouse has being in Odessa in quick contact with the installed base there. And so, I think that this is just a continuation of the momentum that was already present when we acquired the business. So we're happy to see it. James Carbonara: Excellent. The next question, cash sales grew nicely in the quarter, and you mentioned G&A growth outpacing revenue reflects investments in organic growth. Can you touch on the G&A investments driving the expense growth and when might that spread close? John Fitzgerald: Yes. I assume this is in the warranty segment. So the G&A investments we're talking about there are predominantly sales and marketing expense, but also a fairly large ERP conversion at PWI, which should be complete by the end of Q2 or early Q3. And so yes, I think that we'll just be disciplined and manage our cost structure to make sure that we're getting the benefit of operating leverage as those businesses continue to grow. James Carbonara: Excellent. The next question, you mentioned DDI is setting up well for a stronger second half. Can you share any color on the customer acquisition traction that you are seeing? John Fitzgerald: Yes. I mean I think the story with DDI that we talked about in the prepared remarks was kind of speaking to the natural sort of operator journey in these small businesses, which is stabilize and then build the foundation and then grow. You got to kind of build a foundation that creates reliability and quality and earn the right to grow. And so, late last year and early this year, starting from 0, basically, the company didn't have any outbound sales function. They have built a sales process and have begun building kind of top of the funnel, mid-funnel and actually onboarding new hospitals. So we're pretty excited about the activity there and have visibility into a nice pipeline that gives us confidence in the second half. I will say that because of how integrated this business is with their hospital customers that it can be a longer selling cycle, but we're certainly very encouraged by kind of the size and shape of the pipeline at this early stage. James Carbonara: Great. I see two more questions in queue. The first, you mentioned the skilled trades platform continues to take shape with Buds Southside and AAA. Could you talk about the vision for that platform and what you're most excited about as you continue to build it out? John Fitzgerald: Yes. I mean I think that we've said from the beginning that you start with kind of big picture macro, it's a very large addressable market, $120 billion TAM that is both highly fragmented and kind of mission-critical services, right? And -- so our objective is to first operate those businesses with excellence, grow them organically and then continue to grow that platform via a measured acquisition campaign. I think that we've sort of said that we would like to do two or three acquisitions a year on that platform. And I think that there's a very long runway ahead of us to do that. James Carbonara: Great. And lastly, the last question is you've talked about Kingsway being uniquely positioned to run the search fund model at scale within a public company framework. As the portfolio has grown, what are you learning about what makes this model work? John Fitzgerald: Yes. Well, that's a great plug for our Investor Day. I think we'll probably dive into that again on the 18. But yes, I would say I think that we're learning the value of what I would call compounding learning, which is very valuable. I think we're getting better and better and learning more and more, whether that's on OIR selection, acquisition underwriting and diligence and closing and operationally, I think that the sort of compounding effect over time of the learning engine of both us at the holding company, more importantly, our very talented young CEOs is just really a powerful force. I think we're also compounding talent, right? I think that with every new acquisition, every new OIR, both the kinds of their capabilities are compounding, but it is also allowing us to attract an even higher caliber of candidates to the platform. So, compounding learning and compounding talent. I think as the portfolio has grown, I think the model works, our decentralized model as it grows, we'll continue to see more operating leverage from the kind of holdco expense over a much broader base of businesses, which is exciting. And then I would say that maybe we didn't fully appreciate this when we first started. But I'm seeing now sort of the flywheels within the flywheel, right? So we think of Kingsway as a large flywheel. We buy businesses, we grow them, we generate cash flow, we delever, we redeploy that capital to the new acquisition. But when I say flywheels within a flywheel, we're getting to the point of maturity now where several of our businesses themselves are their own flywheels within the system, where they are doing tuck-in acquisitions without any additional incremental capital from Kingsway. And so that was maybe something that we didn't fully appreciate or anticipate at the outset, but I think it will be a very powerful source going forward. And I think it takes kind of that long-duration capability within a public company to be able to see that play out. James Carbonara: Great. I see no further questions emailed in. JT, I'll pass it back to you for closing remarks. John Fitzgerald: Okay. Well, thanks, everyone. I appreciate it. I think it was a strong first quarter. It sets us up well for a great year, and I hope to see everybody or as many of you as possible at the Investor Day in New York in a couple of weeks. Operator: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.