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Operator: Hello, everyone. Thank you for joining us, and welcome to the Shoals Technologies Group's First Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Matt Tractenberg, VP of Finance and Investor Relations. Matt, please go ahead. Matthew Tractenberg: Thank you, Christine, and thank you, everyone, for joining us today. Hosting the call with me is our CEO, Brandon Moss; and our CFO, Dominic Bardos. On this call, management will be making projections or other forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties and should not be considered guarantees of performance. Actual results could differ materially. Those risks and uncertainties are listed for investors in our most recent SEC filings. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the company's first quarter press release for definitional information and reconciliations of historical non-GAAP measures to the nearest comparable GAAP financial measures. Please note that the slides you see here are available for download from the Investor Relations section of our website at investors.shoals.com. With that, let me turn the call over to Brandon. Brandon Moss: Thank you, Matt, and thanks to everyone joining us on the call. First quarter revenue was above our guidance at $141 million, up 75% over the prior year period. Our commercial team continued their strong performance by adding approximately $151 million of new orders in the period. This resulted in another company record backlog and awarded orders, or BLAO, of $758 million, an increase of almost 18% year-over-year. As of quarter end, approximately $628 million of our BLAO has shipment dates in the upcoming 4 quarters for Q1 of 2027. For adjusted gross profit percentage came in slightly below our expected range at 29.6%. This was driven by product mix, tariffs, increased freight costs and some temporary labor inefficiencies as we train additional employees to meet the strong demand on new business lines in our factory. We believe that this is the low point of gross margin and that it will improve as we make our way through the year. SG&A, including all legal expense, was $31 million, representing 22% of revenue, a 500 basis point decline as compared to 27% last year and highlighting the operating leverage inherent in our business model. First quarter adjusted EBITDA of approximately $21 million came in at the high end of our guided range and grew 56% year-over-year. We've also seen some positive movement on our IP infringement case against Voltage. Last week, the International Trade Commission declined to review any contested issues in the ALJ's initial ruling. The commission is still expected to issue its final determination in early June, but it's encouraging news for our shareholders and U.S. manufacturers in general. We are pleased with how the market is evolving and our competitive position of strength and as a result, are increasing both our revenue and adjusted EBITDA guidance for the year. Dominic will step through the updated guidance later in the call. Briefly turning to our various business lines. The first quarter was another strong period of growth within our core utility-scale solar market. Our quote volume in the quarter exceeded $1 billion of unique projects, adding to our strong pipeline. I'm also encouraged by the progress we are making in key international markets like Australia, as evidenced by our increased quote activity and customer engagement. International BLAO now totals almost $100 million, driving continued growth and diversification in 2027 and beyond. Our community, commercial and industrial, or CC&I, business, which remains a small piece of our overall mix, continues to perform well. Our OEM business continues to provide a stable and visible revenue stream, growing at 33% on a year-over-year basis. And finally, we added approximately $9 million to BESS BLAO in the quarter, which ended the period at $75 million. You may recall that we announced a recent partnership with ON.energy in the last quarter. ON.energy is rapidly assuming market leadership in AI data center power infrastructure with its first-of-a-kind medium-voltage AI UPS. That architecture is being deployed in what will be the largest battery project of an AI data center in the U.S. Shoals is very proud to be a partner in this project. In Q1, we celebrated the first of these units produced in our new facility, recognizing more than $1 million in revenue and paving the way for a healthy ramp through Q2. We're excited about increasing production and gaining visibility as we continue to build this business. Overall, the quarter played out as expected, but the year appears to be stronger than we anticipated on our February call. New orders in Q1 for 2026 delivery were very strong, and we have not seen significant project delays thus far. We are executing well, finishing the move into our new facility and expanding capacity and capabilities. The underlying demand drivers remain intact, and our competitive position has strengthened. Our business is in a great place today. Dom, I'll hand it to you for a deeper dive into our financial performance and guidance. Dominic Bardos: Thanks, Brandon, and greetings to everyone on the call. Revenue increased by approximately 75% year-over-year to $140.6 million. The increase was largely driven by strong demand from both new and existing customers within our core U.S. utility-scale solar market. Gross profit was $41.0 million compared to $28.1 million in the prior year period, an increase of 46%. Our GAAP gross profit percentage was 29.2% and adjusted gross profit percentage was 29.6%, slightly below our expectations and impacted by product mix, higher freight costs, tariffs and temporary labor inefficiencies as we start new lines and train new employees to meet the very strong demand we see ahead. Product mix, freight and tariffs accounted for approximately 200 basis points of margin compression versus our anticipated outcome. As Brandon stated, we believe this quarter is the low point for gross profit percentage and that it will improve as we make our way through the year. As a reminder, our product mix plays an integral role in the gross profit percentage, and that may vary from quarter-to-quarter. The same mix that is driving higher revenue growth and contribution dollars negatively impacts the margin percentage but delivers higher profit dollars. Ultimately, we are focused on driving incremental profit dollars through the P&L as that strategy will create shareholder value. Selling, general and administrative expenses, or SG&A, was $31.0 million or $9.3 million higher than the prior year period, driven by an additional $6.2 million of ongoing legal expenses. This breaks down to $4.1 million related to our ITC litigation, $1.2 million related to our case against Prysmian and a little under $1 million related to the shareholder class action suit. As you may have seen last week, we have announced a proposed settlement to the shareholder class action suit. The vast majority of the settlement is covered by insurance. Income from operations or operating profit was $7.7 million or 5.5% of revenue, growing at 79% year-over-year. This compared to $4.3 million during the prior year period. Net loss was $297,000 compared to a net loss of $282,000 during the prior year period. The net loss was driven by the class action settlement net impact of approximately $5 million. Adjusted net income was $12.1 million, an increase of 112% as compared to $5.7 million in the prior year period. Adjusted EBITDA was $21.1 million compared to $13.5 million in the prior year period, representing 56% growth year-over-year. Adjusted EBITDA margin was 15% compared to 16.8% a year ago, driven primarily by the impact of product mix. Adjusted diluted earnings per share of $0.07 was $0.04 higher than the prior year period. Operationally, we consumed $41.4 million of cash in the first quarter, driven by the higher inventory balances needed to satisfy the strong demand signals we are seeing in our markets. We have taken inventory positions to protect our customer delivery time lines for the next 2 quarters, and we intend to reduce inventory levels throughout the back half of the year. As such, we do not currently anticipate interruptions to project delivery schedules due to the conflict in the Middle East or projected trade policies. We ended the quarter with cash and equivalents of $1.9 million and net debt to adjusted EBITDA of 1.6x. Our net debt was $179.9 million, an increase over the prior quarter, driven by an increase in inventory in both our new BESS business and our core utility scale solar market. As we enter this period of exceptional demand, our intention is to moderately expand the capacity on our revolving credit facility. Over time, as collections normalize with production, we will resume deployment of excess cash towards reducing the outstanding balance and maintain leverage below 2x adjusted EBITDA. Backlog and awarded orders ended the first quarter at a record $758.0 million, a sequential increase of $10.4 million. Backlog constitutes $390.3 million of the total BLAO, providing us with confidence that the growth projections we have for the upcoming periods can be achieved. The strength of our book of business supports our decision to increase both our full year revenue and adjusted EBITDA expectations. As of March 31, $627.6 million of our backlog and awarded orders have planned delivery dates in the coming 4 quarters through Q1 of 2027, with the remaining $130.4 million beyond that. Turning to guidance. For the quarter ending June 30, 2026, the company expects revenue to be in the range of $150 million to $170 million, representing 44% year-over-year growth at the midpoint. And adjusted EBITDA to be in the range of $28 million to $33 million, representing 25% year-over-year growth at the midpoint. For the full year 2026, we now expect revenue to be between $600 million and $640 million, representing year-over-year growth of 30% at the midpoint. And adjusted EBITDA to be in the range of $118 million to $132 million, representing year-over-year growth of 26% at the midpoint. In addition, for the full year, we still expect cash flow from operations in the range of $65 million to $85 million, capital expenditures in the range of $20 million to $30 million and interest expense in the range of $8 million to $12 million. With that, I'll turn it back over to Brandon for closing remarks. Brandon Moss: Thank you, Dominic. The U.S. market appears to be extremely resilient, and our capacity expansion could not have come at a better time in our history. We are preparing Shoals to be ready and agile in our production capabilities in a growing demand environment. We are in an exceptional position today from both a commercial and operational perspective. The strategic plan that we constructed and the process improvements we've implemented have begun to yield tangible results. We want to thank our shareholders and our customers for their continued trust in our employees for their hard work and dedication. Operator, we are now ready to take questions. Operator: [Operator Instructions] Your first question comes from the line of Philip Shen with ROTH Capital Partners. Philip Shen: Congrats on the strong result. I wanted to talk through the tax equity pause that we've read a fair amount about. I was wondering if you guys are seeing that flow through any of your business or any of your conversations and then maybe talk through with the healthy bookings from this quarter, do you expect that booking strength and greater than 1 book-to-bill to sustain in the quarters ahead? Brandon Moss: Phil, thanks for the question. Related to the tax equity piece, well aware of what's going on in the market with some of the larger banks financing projects. I would say that we have not seen that trickle down into our order book. I think there is available financing for projects that still exist in the marketplace, and we are not seeing an impact to that as evidenced by a really strong quote log again in Q1 of over $1 billion, and that's been really consistent with the quoting strength we've seen for the last few quarters, honestly. As it relates to future book-to-bill and booking strength, it is always our goal to have a positive book-to-bill. We see a lot of strength in the marketplace. The market is accelerating and not slowing. We have fortunately strung together a number of quarters now with positive book-to-bill, and that's always our intention to do so. Philip Shen: Great. And coming back to margins for a bit here. Q1 was a little bit lower. I know you guys talked about that being the low point in the year. I was wondering if you could share what like Q2 and Q3 might be heading towards with your guidance raise, the EBITDA margin for Q1 was 15%, but full year is 20%, suggesting you really have to drive that much higher later in the quarters or later this year. And while maintaining the EBITDA guide, you also kept cash flow from operations unchanged. So I was wondering if you might be able to address kind of some of the situation there. Brandon Moss: Yes. Thanks. So multipart question there. I'll tackle the front end and maybe turn it to Dominic. As it relates to gross margin, again, we commented we had about a 200 basis point impact in the quarter versus our expectations. The biggest driver of that for us is always product mix. And then obviously, we had -- as we're moving our facility from our former 3 sites into our new factory, we've got some disruption related to that move, a little bit more so that is anticipated. We moved about 250 pieces of equipment or slightly more over a 60-day period in the quarter. And obviously, that led to some level of disruption. Dom, maybe pass it to you to expand upon that. Dominic Bardos: Yes. So I think, Phil, one of the things you asked was also a little bit of the pacing of what we might see from margins. And we do expect that the first half as we're still moving into the facility. So Q2 will still have lower margins. We just don't believe it's the low point that we saw in Q1 as we've been communicating. And then there will be a ramp in the back half as we move into the -- we're going to be completely move into the facility, and we will also have the ability to start realizing some of the efficiencies of being in one vehicle new facility. So the pacing will still be a little bit lower on the margins in Q2 and then improving, but everything should be sequential improvement quarter-over-quarter. And with regards to the cash flows from operations, our working capital, we took very specific inventory positions to make sure that we can meet the demand that we see in the coming quarters. But we will have the ability to reduce that. So I would characterize that as a timing issue. We do see very strong business. We see very positive cash flows this year and our ability to drive that cash is heightened this year because we're not doing some of those large things like the warranty remediation, which is largely in our rearview mirror at this point. So I would characterize that as a timing issue. We're very confident in the year and very excited at the book of business that we have in front of us. Operator: Our next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Look, maybe just to kick things off, I would love to hear a little bit more about the battery BESS adoption trends as well as any other end market adoption here. Again, I know the Street is very fixated to hear on your quarterly BESS trend. Obviously, stronger start to the year here overall. But I'm curious on how you would suggest cadence and adoption is going given what we're seeing in that end market. Brandon Moss: Julien, I appreciate the question. We are very excited about our BESS business. As we indicated in the prepared remarks, we started our BESS line in Q1 and recognized about $1 million of revenue. Those specific units, again, are going to the data center market, which we're very bullish about, and we will be on the largest battery paired AI data center site in the country, which is very exciting for us here at Shoals. What is also exciting for us in the first quarter is we added $9 million to our book of business related to BESS. Maybe to peel that back a little bit, as you may recall, we've got 3 specific end market use cases for our recombiner products, one being data centers, 2 being grid firming and 3 being your common solar and storage paired applications on our traditional solar sites. About 2/3 or more of our bookings in the quarter came from grid firming and solar plus storage applications, which is exciting for us as we are seeing penetration across all 3 markets. As we've talked about in the past, we see the data center AI space as being probably the strongest and largest driver of the product line, but it's also great for us to show strength in the other markets as well. Julien Dumoulin-Smith: Got it. And then not to needle too much on this margin backdrop, but you lowered the margin guide here slightly here. What's driving that here? Can you comment on the logistics side of things, the tariff angle? I know you commented a little bit here, but I just want to make sure I'm hearing that right, especially given the ramp that my peer who was talking about a second ago. Can you just comment about what you're seeing on that margin guide? I think people are very fixated here on the cadence of the year and ensuring that you see that overall recovery materialize. Dominic Bardos: Yes. There's a few things that I want to point out, Julien. And first is that we're still moving into the facility, and we did have some disruptions and inefficiencies in Q1. They were a little bit worse than we anticipated with the disruption of all the movement. But we're completing that move in Q2. And also with the unrest in the Middle East or the conflict, we are seeing pressure on oil prices and the derivative products from oil. Freight charges are certainly higher, and some of our cost of goods are certainly going to have the potential to be impacted. And some of the pricing has already been set. Some of those things -- it's kind of like when things change in a rapid fashion, once we've already agreed to a price, we might have some times when we can't quite recover the full cost of goods increases. So we want to just be cautious and give a prudent guide with margins. We do see improvement every quarter, as we mentioned, sequentially, and we're very optimistic that the product mix will be favorable for us for the balance of the year. Operator: Our next question comes from the line of Praneeth Satish with Wells Fargo. Praneeth Satish: Maybe not to belabor the margin question too much, but I guess, so you mentioned 200 basis points in Q1 from product mix, tariff and freight. And then you also had this impact from moving equipment to the new facility. Maybe if you could just kind of isolate how much of the margin was weighed down because of that transition to the new facility? And then also on product mix, is that -- of the 200 basis points, how much is product mix? And kind of what's the outlook there? Because I assume the tariff and freight, those will kind of persist potentially for a few more quarters, but just kind of trying to isolate the variable pieces. Dominic Bardos: Yes. So Praneeth, that's a pretty packed question there. So let me break it down a little bit. So of the 200 basis points that we saw, we kind of bucketed into about 1/3, 1/3, 1/3 of some of the major drivers. We definitely had some tariff impact that was still a carryover, but the IEEPA reduction is certainly going to help us. The 232 tariff environment, we've now actually encompassed that into our pricing. So that shouldn't be as big of a drag going forward. We do still have some inventory that has capitalized tariffs in it. We do still have to burn through that in the second quarter. Once again, that informed our second quarter margin guide. With regards to the freight, we did have some air freight and the cost of fuel for freight has gone up. So we had some surcharges there. But fundamentally, these things are largely transitory or at the point where we can now factor all that into the pricing. As I mentioned with Julien's question, sometimes when things change rapidly, we may already have guaranteed pricing or contract pricing, and we can't quite go back and recover all of that. So the margin issue aside, we're very pleased to be raising our EBITDA guide for the year. We're going to continue to get the leverage on our OpEx, and we're very excited about our book of business. Praneeth Satish: Got you. That's very helpful. And then maybe just switching gears, your other kind of product in development here, the data center BLA product. Has anything changed there in terms of timing for UL certification? And I know we're not going to see sales this year, probably next year. But I guess, when should we anticipate potentially seeing some bookings? Do you think it's possible we could see something towards the end of this year? Just trying to get an update on that. Brandon Moss: Yes, Praneeth, great question. We did a market launch of that product at Data Center World a few weeks ago, which we are very excited about. We have filed our patent portfolio for that particular product, which is also very exciting for us. There's a lot of interest in the product right now. As you mentioned, we do not expect to recognize revenue in calendar year '26. Our goal this year is to have proof of concept operating live in a facility, and we are working towards that. So bookings in '26, potentially, we're talking to a variety of developers about including that product in their portfolio of projects, but nothing on the books as of yet. I would probably say in '26, bookings would be minimal for that product line as we begin to ramp it in 2027. But exciting product and really strong market feedback thus far. Operator: Our next question comes from the line of Colin Rusch with Oppenheimer & Co. Colin Rusch: Could you give us an update on sales traction outside of the U.S. on both US solar and BESS? And then if there's anything in particular that you guys see you can optimize from an OpEx perspective, I'd love to get a little bit more detail on that side. Brandon Moss: Yes. Thanks, Colin. We are excited about our prospects internationally. Our backlog and awarded orders continues to rise. We reached $100 million now to date after actually deploying 3 projects last year. So we are continuing to generate bookings to offset not only shipments, but grow that order book, which is exciting for us. Our prospects in Australia seem like a fantastic opportunity for us. The pipeline is very strong, and that's where some of the additions to the order book have come from. So that has been a key priority for us to diversify end markets, not only product, and we're pleased with the progress thus far. Your other question was around operating expenses, I believe. Dom specifically, what are you looking for... Colin Rusch: Yes. So we're seeing a number of folks able to optimize using some AI for just cleaner, more efficient OpEx. And just wondering if there's some of that, that you're going to be able to start flowing to the organization over the next year or 2. Dominic Bardos: Yes. It's a great question. So we absolutely are engaged with some trials of artificial intelligence and what we're trying to do to improve some of our systems and operations. Our focus initially is actually with manufacturing and commercial as our process flow. We have some opportunities there that we're working with. We are in discussions with our Board all the time about how the next -- where we can improve our processes, which are largely manual as a small company is growing. So we are looking to that. I would suggest that our SG&A is relatively lean. We don't have a tremendous number of salaried headcount. As you see in our filings, it's less than 200 people that are salaried in this business. So I'm not looking to AI to truly rip out SG&A expense as much as I am to enable growth going forward. We see significant growth going forward for this company. We want to make sure that we're positioned to scale, and that's truly where we're going to focus our AI efforts, at least initially. Operator: Our next question comes from the line of Mark Strouse with JPMorgan. Mark W. Strouse: I think on the last call, you talked about there were some -- I believe they were BESS projects that you weren't sure if they were going to hit in late 4Q or maybe early 2027. Has that timing now firmed up? And is that part of the guidance raise here? Or should we think about that as a potential catalyst for further upside if that does firm up as we go along here? Brandon Moss: Mark, I appreciate the call. Yes, we do have project visibility in '26 and '27 that is incorporated in our current backlog and awarded orders. As mentioned earlier, the significant driver for our growth in that business is going to be around the data center AI landscape. And obviously, we've got visibility to a quote funnel and are confident in our ability to add to our order book in that particular use case. So we are very excited about the future of battery energy storage products here at Shoals. We have built a manufacturing line to handle and provide a significant amount of capacity for us. So more growth to come in that space for us in the future. Dominic Bardos: And Mark, I may just add that as we gave the guide last quarter, we did talk about there are some projects in Q4 that still have to be firmed up. But what I would characterize our raise on the revenue side is really due to book and turn business in the core solar markets. We've seen some incredible strength in demand, and that's truly what's driving that. And that's -- I just want to position that one because it's a fantastic market for us. We do still have some potential for projects to hit in Q4 from the BESS side, but that wasn't a preliminary driver of the raise. Mark W. Strouse: Okay. Very helpful. And then you've had several questions already about kind of the margin trajectory this year. Dom, I just want to give you the opportunity to kind of talk about beyond this year. Are you still viewing 2026 as the trough here? Dominic Bardos: Yes. Well, certainly, it is because of all the move disruptions and starting the BESS line from scratch and training all the new employees. I mean those are some transitory headwinds that will get done in this year. We think we're a very attractive business, driving gross margins in the 30s like we are. It's a fantastic business. We're going to continue to get OpEx leverage. We'll see EBITDA margin expansion and much higher cash flow contributions next year. So I'm very excited about next year. While we're not fully guiding to that, we do believe this is a trough year on the gross margin side, but really looking forward to expanding operating profit margins and EBITDA margins in 2027 and beyond. Operator: Our next question comes from the line of Sean Milligan with Needham & Company. Sean Milligan: So to start off, I was curious, Brandon, if you could provide some more context around like your BESS quoting pipeline in terms of sizing of projects, specifically on the AI data center side. I guess you've been in the market now for a few quarters there. And I was curious if there's any change to what you're seeing in terms of the size of projects you're quoting. Brandon Moss: Yes. Thanks, Sean. I think we've communicated in the past that, I guess, first, bookings for this particular product line will be a bit lumpy because of the size of the projects, right? I don't think our assumptions have changed at all, where we look to use our 4000 amp recombiner product line and data center AI applications. That market is probably about $50 million to $60 million per gigawatt. We've got great visibility to pipeline and also future projects. And again, very bullish about our prospects to penetrate that market and very excited about our partnership with ON.energy, who we believe has taken market leadership in pairing battery storage with these large-scale AI centers. So couldn't be more excited about the prospects of that business. Sean Milligan: Okay. And just a follow-up on revenue contribution in the quarter. With C&I, international BESS, you kind of gave the BESS number, but I'm curious like how much revenue is now coming from kind of outside the core BLA business? Dominic Bardos: Yes. So we have -- the OEM business was second to our domestic utility-scale solar projects in the quarter. BESS, we were very pleased to have started the line early. As you recall from last year, we were guiding that we didn't expect to have revenue in Q1 at all because of our time line. So we're very pleased to have gotten that line stood up and operational as quickly as we did. But largely, the Q1 revenue stream was utility scale solar that's domestic, followed by our OEM business, which had 33% growth, I believe, year-over-year. So other than that, we did not have a lot of international revenue and the CC&I still remains a relatively small portion, but we do have CC&I sales every quarter. Brandon Moss: Dom, maybe to add to that, just the focus on our domestic solar markets. Just to reiterate, we believe we are operating in an unbelievably strong market environment. And I think our market leadership position as a preferred solution continues to be proven by our record backlog and awarded order growth. A lot of our growth, I know there's a tremendous amount of focus on battery energy storage. But as we've communicated in the past, our goal is to diversify both products and markets, and we're doing that. What is very exciting for us in 2026 is about 1/5 of our revenue will come from new products. BESS is obviously included in that number, but many of the new products are in our traditional solar space. So we've put a big focus on accelerating innovation here at Shoals. And that is playing out with increased bookings and obviously, revenue recognition for 2026. So again, a lot of focus on BESS, always a lot of questions about BESS. I want to reiterate the strength of our domestic utility scale solar business. Operator: [Operator Instructions] Our next question comes from the line of Vikram Bagri with Citi. Vikram Bagri: I have sort of like a 2-part question. I think last quarter, you mentioned spooling had a meaningful impact on margins. I was wondering if you can share what the run rate impact of spooling was on this quarter's margin? And what percentage of customers have requested spooling? And related to that, obviously, tariff, logistics and commodity prices have changed a lot since last quarter. Our understanding was that tariffs baked into the previous guidance were conservative. I was wondering if you can also identify where you see some puts and takes in this ever-changing environment in terms of tariff, logistics and commodity prices, if the current environment is fully baked in? Or do you see some level of sort of like downside or upside from these 3 factors? Brandon Moss: Vik, great question. We have talked about spooling in the past, probably more generally just packaging in general. There are different packaging requirements for some of our newer customers and also product mix related to those specific to our long-tail BLA product. That is adding significant revenue potential for us in the future and is being recognized still in 2026. It adds $0.005 to $0.008 a watt to our projects, which is exciting for us to be able to expand our wallet share. So we do have some packaging costs that are baked into the guidance for the year. I'll let maybe Dominic expand on that. But before I do, just I'll comment on your question about tariffs. Obviously, the tariff landscape has changed dramatically in the last, I don't know, 18 months now. And for us to try to predict what that's going to look like in the future, we would be fools to try to do so. Having said that, the change with IEEPA and Section 232, we view as a net neutral to positive change for us. And that is being baked into our thoughts about margin and guidance for the rest of the year. Dom, maybe I'll turn it to you for specifics around packaging and margin. Dominic Bardos: Yes. As Brandon mentioned, Vik, it's largely -- when I talk about product mix, that's where it's coming from. Not all of our products require spooling, but the longer-run products do. And things like the long-tail BLA is incorporated in the margin. And so when I talk about product mix and a large percentage of customers now preferring the long-tail solution to centralize their low-grad disconnects by the inverters, that is something that increases our share of wallet, but it carries a lower margin percentage. The spooling cost, the packaging, the handling of all that is incorporated into that, but that's why the product mix is so important to the margin percentage. It is driving increased flow-through dollars, which is fantastic. We're going to keep doing that business. We're responding to the changing environment of our customers, what they're looking for, and we now have a full suite of products to really meet those needs. Things like our SuperJumper, which may have been originally developed for international markets are really showing some popularity here in the United States as well. But once again, you have much longer run. So we've factored all that in. It's part of our product mix, and that's why I always caution folks when we talk about a percentage of margin, we need to kind of consider where the mix is going as well. Operator: Brian Lee with Goldman Sachs. This will be our last question. Brian Lee: Sorry, I dialed in a little bit late, so not sure if you covered some of these things. Maybe just on the guidance, kudos on the strong execution here to start the year and for the revenue and margin uplift. But adjusted EBITDA guide is up a bit less than revenue guide at the midpoint for 2026 in the new outlook. Is that conservatism? Or are you seeing more mix shift issues or incremental tariffs than originally expected? Just curious, maybe this is nitpicking, but the EBITDA uptick in the guidance is a little bit more tempered than the revenue outlook. So any color there would be appreciated. Dominic Bardos: Sure, Brian. Yes, we've covered a little bit of this. So -- but I'll repeat a few of the things that are driving that. First and foremost, product mix is certainly driving that. We are seeing popularity of some of the new products which do have a lower margin percentage and flow-through. So while revenue is going to be increased, the margin percentage is not going to be quite as high. We are seeing a little bit of disruption in our move into the new facility here. It was a little bit more than we anticipated and allowed for as folks are moving -- as we moved over -- I don't remember, Brandon, 200 machines. Brandon Moss: 250-plus machines in 60 days. Dominic Bardos: Yes. And we're still moving into the facility this quarter. So a little bit of disruption there, and we are expecting to see with our mix anticipation for the rest of the year, some uptick in gross margin as well. But there were some reasons why we did that. We also have 2 trials set for later this summer in August. With legal expenses, I've learned to be a little bit cautious on the estimations. We want to make sure we represent the shareholders properly in our cases. And if that means experts and additional legal expense, we're going to cover that. And one of those cases is not adjusted out. It's our IP case as part of our earnings. So we just want to make sure that we give a good cautious number that allows us to meet our expectations for. Brian Lee: Yes. Fair enough. Makes sense. And then I'm sure you covered a little bit in this and maybe you covered all of it. Just with respect to tariffs, can you level set us as to what tariffs you are specifically subject to starting the year off 232 copper, steel, aluminum, et cetera? And then does the April 3 ruling on kind of the changing thresholds impact you? And again, maybe level set us as to are you importing copper from foreign sources and what percent of the [ indiscernible ]? And is that impacting your margin outlook for this year? Or are you contemplating any mitigation efforts this year or into next year? Just trying to get a level set on the copper exposure here, if you could speak to that a bit. Dominic Bardos: Sure. Sure, Brian. I'll jump in on that one. There's a few questions in there, so let me unpack it. Yes, for the first couple of months of the year, we still had IEEPA. And those, of course, were stopped collected at the end of February, around the 24th or so of February. And so that right now is going to be a favorable tariff environment. With regards to 232, yes, there was a couple of things. We do have a very wide book of suppliers, approved vendors and some of which are international in nature and are subject to 232 import tariffs, both on the aluminum and copper side. We do work with customers on some things. If they have a preference, we can certainly go for certain domestic suppliers. If they have a preference for international, we can do that as well. So we are subject to 232. Now as the rules change and the tariff rate went down, it's also now on the full purchase price. But net-net, it should be slightly favorable for us in terms of how these tariffs are calculated. So it is a very dynamic situation. We certainly appreciate your question. It makes it very difficult to truly know how to operate that. And Brandon, is there anything else you want to add? Brandon Moss: Yes. Just maybe something to point out. As it relates to the tariff landscape, those tariffs impact even our domestic supply base, right? Like us, most suppliers have a very diversified and international supply base themselves. And so those tariffs may be getting -- may be impacting our raw material inputs even on domestic supply sources. So obviously, as you guys know, it's been a challenging, again, 18 months or so with the tariff landscape. I think we're navigating it quite well. And I think what is probably most important is with the repeal of the IEEPA tariffs and now the change to Section 232, we do see that as a net neutral to positive impact for Shoals in the back half of the year. Obviously, caveating that with unless something else changes. So I think we're navigating it well, Brian, and I appreciate the question. Matthew Tractenberg: Thanks, Brian. Christine, I think that that's going to be the last question that we take today. Operator: Absolutely. We have reached the end of the Q&A session. I will now turn the call back to Matt for closing remarks. Matthew Tractenberg: Yes. Thank you, Christine. So I want to note to our audience that we have a very active IR calendar through June. Those events are listed on our Investors section of our website. So if you're attending conferences, you want to meet with us, please let us know. We're happy to. If we can help further, let just reach out to investors@shoals.com with any questions. Thanks for joining us today, everybody. Have a great day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the ADTRAN Holdings, Inc. First Quarter 2026 Earnings Release Conference Call. [Operators Instructions] During the course of the conference call, ADTRAN representatives expect to make forward-looking statements that reflect management's best judgment based on factors currently known. However, these statements involve risks and uncertainties, including the successful development and market acceptance of our products, the ability of our third-party suppliers to supply components and products, our ability to convert our backlog into revenue, our ability to maintain current expected delivery schedules, competitive pricing and acceptance of our products, intellectual property matters, the effect of economic conditions, the impact of tariffs and trade policy, and other risk factors described in our most recent annual report on Form 10-K and in our quarterly filings with the Securities and Exchange Commission. ADTRAN Holdings assumes no obligation to update any such forward-looking statements. During today's call, management will refer to certain non-GAAP financial measures. Reconciliations of GAAP to non-GAAP measures and certain additional information are also included in our investor presentation and our earnings release. ADTRAN Holdings has not provided reconciliations of its second quarter 2026 outlook with regard to non-GAAP operating margins because it cannot predict and quantify without unreasonable effort of all the adjustments that may occur during the period. The investor presentation has been updated and is available for download on the ADTRAN Investor Relations website. Hosting today's call is Tom Stanton, ADTRAN Holdings' Chief Executive Officer and Chairman of the Board; and Timothy Santo, Senior Vice President and Chief Financial Officer. It is now my pleasure to turn the call over to Tom Stanton, Chief Executive Officer of ADTRAN Holdings. Sir, please go ahead. And Tom Stanton, I turn it over to you. Thomas Stanton: Thank you, Kayla. Good morning, everyone. ADTRAN delivered solid first quarter results with revenue of $286.1 million, up 15.5% year-over-year, and non-GAAP operating margin of 6.9%, up 3% year-over-year. These results reflect the continued strength of our core markets and the operating leverage we have now firmly established across the business. The demand drivers underpinning our business continue to strengthen. In the U.S., broadband expansion is gaining traction and BEAD deployment funds are beginning to reach operators in a growing number of states. In Europe, high-risk vendor displacement continues to progress with momentum reinforced by legislation such as the proposed Cybersecurity Act 2.0, which would mandate the removal of high-risk vendors from critical network infrastructure. This quarter also marked a meaningful step in our growth strategy as we showcased our expanding portfolio addressing cloud and AI infrastructure connectivity. This included the introduction of the LiteWave800, a solution purpose-built for high-performance and low-power intra-data center connectivity. Optical networking solutions revenue was $97.3 million in the first quarter, up 24% year-over-year. On a sequential basis, strength from our larger customers and hyperscalers was offset by seasonal declines with smaller customers and government sales. Across our service provider base, demand remains healthy. Operators across all geographies are expanding wholesale optical capacity to support growing demand for cloud connectivity and higher bandwidth services, reflecting a broad-based trend. In Europe, high-risk vendor replacement initiatives continue to add to that demand with growing strength among our cloud and hyperscaler customers, and a positive outlook across our service provider base. We expect our optical networking revenue to build throughout the year. Access and aggregation solutions revenue was $90.5 million in the first quarter, up 2% year-over-year and 14% sequentially, driven by broad-based strength across the U.S. and Europe. We expect steady progress across our European business through the remainder of the year. In the U.S., BEAD deployment funding is beginning to reach operators in select states. And while we are seeing early orders from several customers, we expect the impact to become more meaningful as we move towards the back half of the year. Subscriber solutions revenue was $98.2 million in the first quarter, up 22% year-over-year. Demand remains healthy, supported by continued investment in fiber-to-the-home, multi-gig Wi-Fi 7 and carrier Ethernet applications. In recent weeks, our award-winning SDG Wi-Fi 7 portfolio received conditional FCC approval, exempting our platforms from covered list restrictions. We are among the first vendors to achieve this designation. And while the broader industry works through the approval process, we are already seeing service providers engage with us on competitive opportunities that this creates. Stepping back from the details for the quarter, I want to take a moment to talk about our business and the market dynamics that continue to drive demand for our solutions. Service providers are investing across transport, access and subscriber platforms to scale their networks for long-term demand and improved reliability. These investments are being reinforced by several important tailwinds, including high-risk vendor replacement initiatives in Europe, the expansion of managed optical fiber networks or MOFN to address surging demand for wholesale services from cloud providers, and continued upgrades across access and subscriber networks to support multi-gig service delivery. In addition to these network upgrade catalysts, operators are in the early stages of transforming how they operate their networks and engage subscribers through agentic AI. With the launch of Mosaic One Clarity, which recently received the FTTH Europe award for AI innovation, we are addressing the shift towards proactive and increasingly autonomous network operations. Early deployments have provided strong validation of these capabilities across both small and large operators, particularly in the areas of predictive maintenance and improving the in-home subscriber experience. Beyond our core service provider business, we continue to see meaningful opportunities to further accelerate growth by expanding our presence in both cloud providers and enterprise customers. These segments benefit from many of the same underlying trends shaping service provider networks, but they are growing at a faster pace and are driving new network architectures and requirements. In the enterprise space, we have a long history of providing secure optical and Ethernet connectivity to some of the world's largest enterprise and government customers. Demand in this customer segment is increasingly shaped by 2 important tailwinds. First, the expansion of AI workloads across secure enterprise environments is driving demand for higher capacity interconnects between private enterprise data centers. And second, growing awareness of the limitations of traditional security mechanisms is accelerating interest in quantum-safe, optical and Ethernet communications. Building on our longstanding presence in these markets, we have developed a comprehensive portfolio of quantum-safe communication solutions. While still early, we are seeing increasing engagement across a broadening base of enterprise, government and utility customers, positioning us well for longer term growth as these initiatives mature. In our cloud provider customer segment, the rapid expansion of AI compute infrastructure and the networking required to connect large-scale cluster GPU deployments is driving a surge in networking investment, making this the fastest-growing segment in our industry. Data center operators are scaling capacity to support AI workloads where power efficiency, thermal constraints and network density have become defining design considerations. We have long served data center customers through our interconnect solutions and as evidenced by last quarter's results, that business continues to benefit from growing demand for data center connectivity. Our strategy is to build on that foundation and extend our portfolio to address surging bandwidth demands from inside the data center as well. LiteWave800 is the first clear example of this strategy in action. It is purpose-built for intra-data center connectivity and high-density AI compute environments, and is designed to reduce power consumption by over 90% compared to existing alternatives. We are still in the early stages of this product family, but initial market engagement and feedback have been very encouraging. Shifting from our market opportunities to operations. Memory pricing has remained elevated industry-wide and freight costs are adding an additional layer of pressure, headwinds that are affecting the entire sector. Despite these pressures, our non-GAAP operating margin of 43% reached its highest level since the beginning of the supply chain disruption in 2020. This was achieved through a combination of disciplined cost management, pricing adjustments across the portfolio and a revenue mix that has less reliance on lower-margin CPE where memory cost pressure is the most acute. Consumer CPE represents a relatively small portion of our overall revenue. Although memory costs remain elevated and could deteriorate further, our current visibility supports gross margins in the near term, remaining broadly consistent with what we have delivered over the past several quarters. We entered the second quarter with a positive demand outlook. Fiber infrastructure investment remains active across our core business, and we continue to advance our initiatives in AI infrastructure and enterprise networks, expanding our business opportunities. Our priorities remain consistent: expanding operating margins, generating cash and converting the strong customer pipeline into revenue. With that, I'll turn the call over to Tim to review our financial results in more detail. Tim? Timothy Santo: Thank you, Tom, and thank you all for joining us today. We delivered solid results for Q1 2026 led by continued and consistent execution. We had operating margin expansion to a new level despite a seasonal reduction in revenues that remained above the midpoint of our previously issued guidance, driven by continued cost discipline and scale in the business. Our first quarter revenue was $286.1 million, up 15.5% year-over-year and returning to a more normalized seasonal pattern. Geographically, U.S. revenue was $146.2 million, representing 51% of total revenue, up 42% year-over-year and 7% sequentially. Non-U.S. revenue was $139.9 million or 49% of total revenue. Access and aggregation solutions revenue was $90.5 million or approximately 32% of total revenue, up 2% year-over-year and 14% sequentially. Subscriber solutions revenue was $98.2 million or 34% of total revenue, up 22% year-over-year. Optical networking solutions revenue was $97.3 million or 34% of total revenue, up 24% year-over-year. Turning to gross margin. Non-GAAP gross margin was 43%, up 55 basis points year-over-year from 42.5% in Q1 '25 and up 54 basis points sequentially from 42.5% in Q4 2025, driven by favorable product mix and continued progress on cost efficiency. Non-GAAP operating expenses for the first quarter were $103.3 million compared to $95.5 million in Q1 2025 and $105.1 million in Q4 '25. The year-over-year increase largely resulted from the impact of foreign currency fluctuations on our European cost base, which has had minimal impact on operating leverage due to natural hedging and continued investment in R&D and go-to-market activities. Non-GAAP operating income was $19.9 million or 6.9% of revenue. On a sequential basis, operating income increased from $18.8 million or 6.4% in Q4 2025. Year-over-year, non-GAAP operating margin expanded 300 basis points from 3.9% in Q1 2025, continuing the progression from 5.4% in Q3 '25 and 6.4% in Q4 '25. Non-GAAP tax expense in the first quarter was $4.4 million, reflecting an effective non-GAAP tax rate of 25.5%. Non-GAAP net income attributable to ADTRAN Holdings was $11 million or $0.14 per diluted share compared to $0.03 in Q1 2025. Turning to the balance sheet and cash flow. Net working capital was $253.9 million at quarter end compared to $259 million at December 31, 2025. During the quarter, inventory was $209 million with days inventory outstanding of 110 days, down 4 days sequentially. Trade accounts receivable were $215.5 million with DSO of 68 days, up 2 days sequentially due to the timing of quarter end invoicing. Accounts payable was $170.6 million with days payable outstanding of 66 days, which is flat sequentially. As revenue scales, our focus remains on improving working capital efficiency. Operating cash flow was $12.7 million for the quarter and free cash flow was a negative $3.3 million, reflecting timing of cash receipts and higher purchases of inventory. We ended the quarter with $88.3 million in cash and cash equivalents compared to $95.7 million at December 31, 2025. Turning to our outlook for the second quarter of 2026. We expect revenue to be between $283 million and $303 million, and non-GAAP operating margin within a range of 5% to 9%. This concludes our prepared remarks. Before turning the call over to Tom, I'd like to highlight that we will be participating at the B. Riley Conference on May 20 in Marina Del Rey and the Evercore Technology Media and Telecom Conference on June 2 and 3 in San Francisco. We look forward to seeing many of you there. And now I will turn the call back to Tom. Thomas Stanton: Great. Thanks very much, Tim. All right. Kayla, at this time, we'd like to turn it over to people that may have some questions. Operator: [Operator Instructions] Your first question comes from the line of Mike Genovese with Rosenblatt Securities. Michael Genovese: Tom, I'd like to hear about the LiteWave800 more about basically the strategy of launching this product, maybe bigger thoughts on getting into the data center. But more specifically, any timing or size or margin expectations for the new product that you could share would be helpful. Thomas Stanton: Yes. I probably -- I'm going to shy a little bit away from pricing on the product, although there is a lot of IP in that product and IP typically gains better gross margins. The reason I mentioned it upfront in my remarks is the market reaction to it has been fantastic. We've had some very large, very well-known customers that have been very encouraging for us to get the product out as quickly as possible. But unfortunately, there is a lot of work to be done. And I would expect that to be sometime about a year from now before we really kind of hit production level type numbers. We did show -- we do have prototypes now. We did show operating models at the recent OFC. It is a real product. It does work. It's a matter of getting it -- finalizing and then getting it to scale, which will take some time just because it's very -- it's a semiconductor type product. That is one of the products we have. We also have the Quattro, which will be coming out at the end of this year, which is a 4 by 100 product versus the 8 by 100 product. It is also a very, very power-saving product. I think it's better than anything out there on the market today. The real thing about the 800 though is it's ridiculously low power. I mean it's -- I think, 1 picojoule per bit, which is an industry first, and that's what's driven the excitement around it. Michael Genovese: Interesting. Now, when you say there's a lot of IP in it, I mean, is it fair to say that it would not be significantly dilutive to company gross margins? Thomas Stanton: It will not be dilutive to company gross margins. Michael Genovese: Okay. That's good to hear. I guess, maybe just something similar on any other new products. I mean we saw something about an announcement of an AI edge platform I'd like to hear more about. And then if I go back to OFC, I also think there was an announcement, at least where you were demoing 800 and 400ZR. So is that a product that you have, ZR? And could you talk more about the AI sort of edge platform? Thomas Stanton: Yes. The AI edge platform, I think you're talking about is still an offshoot of Clarity. So I'm not sure if there's anything else out there that we've -- at least I've seen that we announced. I'm not telling you it couldn't happen. But all of our AI products are in the Clarity family. We have an edge product that we are trialing right now, and then we have the core product for network operations that we have been trialing for some time. I will tell you the feedback here also is fantastic. I just recently had a bunch of customers in. We had 150 or so customers here in Huntsville and the feedback there just overwhelmingly positive. So good things there. On the 400ZR, we do have products coming out towards the end of this year, I think, for 400. And those are just ongoing pieces. The AI piece, now that I think about it, the AI piece you may be talking about it on Ensemble, which is the product that we were highlighting that has started to implement AI -- agentic AI in this product line. Operator: And your next question comes from the line of Irvin Liu with Evercore. Jyhhaw Liu: I also had a question related to AI infrastructure. As you target this opportunity, can you talk about any sort of R&D and go-to-market investments needed to serve this customer segment? Thomas Stanton: There is some shifting that we'll be doing throughout the year where we make sure that we have the right R&D resources and sales resources to be able to do that. But all of that is within the current operating budget that we have today. So I don't think there's going to be any significant increase. We're kind of committed to and believe that we can grow the business fairly meaningful within the budgets that we have today. Once we get north of our targeted 10% -- or excuse me, we said low-single-digit, but 10% operating income, then we'll take a look at that as well and make sure that we're investing in the right places. But right now, we don't see any problems. Jyhhaw Liu: Got it. And then for my follow-up, you've been seeing strong demand in the regional service provider customer segment. So can you talk about any sort of momentum you're seeing as it relates to your suite of software products such as Mosaic One and Intellifi? Just any color on upsell efforts and attach rates here would be helpful. Thomas Stanton: Yes. We don't have those numbers broken out, but I will tell you the uptick on Intellifi has been fantastic. Mosaic got a very good launch. We have probably close to 500 customers right now on Mosaic One. And all of those are in different levels of subscription base. But Intellifi is doing really well. I think last time we reported on, it was over 100 customers and it was -- it's been a real highlight. So we don't have those numbers broken out. Hopefully next quarter, I'll be able to talk about them. Operator: And your next question comes from the line of George Notter with Wolfe Research. George Notter: I wanted to -- you mentioned cloud revenue in your cloud business. Can you remind us what percentage of sales comes from cloud operators? Do you have a sense for that? Thomas Stanton: Yes. We don't break that out. As you know, George, we don't break out specific customer segments like that. But just to give you some color, hyperscalers actually did really good in the fourth quarter. They were, as I mentioned, a real positive in the quarter, and we would expect that to continue on through this year. I mean we've got a fairly good backlog with some of our hyperscaler customers right now that's building. So that's pretty much it. George Notter: Got it. Okay. And I assume these are -- can you just walk through maybe the product sets that you sell in there and just kind of get us for your point on what is -- what you're leading with customers. Obviously, the LiteWave product is going to come on. But is it optical? What pieces are you selling? Thomas Stanton: Yes. The biggest piece is optical, and it's -- a lot of the momentum we're seeing right now is around our 100ZR plug. George Notter: Got it. Okay. I guess I would have assumed the 100-gig ZR plug was a little bit more of a telecom application rather than a cloud application. Thomas Stanton: As you know, maybe you do know, I think you do know, George, that we have a fairly large footprint. So when you look at large data center connectivity, not in the sweet spot. That's where the 400 and 800 will play more. In the smaller data center interconnectivity spot, which some of the hyperscalers have as an architecture, it plays very well. George Notter: Okay. Super. And then the other one I had was just on the LiteWave800. Obviously, laser datacom chips are really hard to come by in the industry. And I hear what you say about the business ramping a year from now. I guess I'm just curious about where you guys are getting laser datacom chip supply. Is that difficult to come by? Is it easy to come by? Is there anything you can tell us about where you're sourcing those? Thomas Stanton: I probably won't get into direct sourcing on that. We do have some partners that we're working with on this. They do know what the supply needs are right now. We see -- depending on how aggressive that launch is, we don't see any issues in being able to supply it as we launch it. Operator: And your next question comes from the line of Ryan Koontz with Needham & Company. Ryan Koontz: I want to ask about optical demand, kind of that maybe step it up to a higher level. You talked about MOFN demand here. Can you maybe characterize where you are, where you see the biggest drivers specifically within Europe for your optical product lines and which products you're seeing the greatest success with in terms of demand? You just talked about 100ZR. I assume that's a big piece, but maybe any more color beyond that would be great. Thomas Stanton: Yes, I do think 100ZR also -- I think that the -- especially in Europe, I think that our 400 and 800-gig products are going to play very well in that upgrade path as well. The customer base that we're talking about is the customer base that you already know. It's ones that we've been doing business with for a very long period of time. And they're trying to situate their networks to be able to do more basically wholesale services. That customer is active. And then there's one here in the U.S. that you're already aware of that's also making a lot of noise around it. Ryan Koontz: Helpful. And are you seeing -- within that, are you seeing a shift away from traditional chassis-based transponders over to ZR pluggables in the telecom side as well? Thomas Stanton: It's a mix. That is dependent on the carrier size. And it also depends on whether or not they already have installed chassis. Where there's already an installed chassis there, they're going to upgrade that chassis. Where it's a footprint, even in footprint on some of the larger carriers, the operational ease that the current systems provide is actually very beneficial to them, but it's definitely a mix. Ryan Koontz: Got it. And then maybe hitting the gross margin here. Obviously, great results on the quarter. Congrats. And you talked about a lower mix of consumer CPE within your subscriber solutions. Can you maybe -- is consumer CPE, would it approach half of that number? Or you think it's maybe less than half of your total subscriber business? Just sort of quantify. Thomas Stanton: It's probably -- to be fair, it's probably -- I think it's definitely not less than a half, but it's not substantially more. And I think the reason that I was bringing it out is we have gotten feedback that customers were unclear about kind of how much the CPE margin problem is affecting us, and it does affect us. I mean there's no doubt about it. But the impact is substantially less when you take a look at it in the overall perspective of the entire company, but it is north of 50% of just the subscriber segment. Ryan Koontz: Makes sense. And maybe one last one, if I can squeeze it in. You talked about some better visibility on BEAD projects here. What sort of milestones should we look for before we start to see your revenues start to inflect for BEAD? Are we talking about permits and design and forecasts and orders? Can you maybe walk us through how we should think about the milestones that lets BEAD unfold and start to contribute for ADTRAN? Thomas Stanton: Yes. So funding is starting to flow or could flow for the -- by far, the majority of the states now. So a lot of that has been worked itself through. Now what you're seeing is kind of individual customers deciding how they want to roll out. We have some customers that have already placed purchase orders and they're rolling out and/or at least making sure that they've got supply to be able to not be a hamstrung. The smaller the customer, the easier that is. On the larger customers, the biggest pull -- long pull is going to be actually deploying the fiber itself, which is why we've been saying end of this year is probably where you start seeing that. On a local level, I mean, you can look at permitting and kind of where that is, that's kind of hard to actually get a good grasp of. At the end of the day, I'm looking for purchase orders. We're starting to see some today, but it's a trickle. It's not a lot. But we expect that -- I mean, this whole unlocking of the approval process really has accelerated. We went from, what, maybe 2 states a quarter ago, I think 3 states a quarter ago to pretty much all of the states now being able to send out funding. So I think the best visibility is actually seen in the numbers though because every carrier is going to be a little different. Ryan Koontz: And you think you'll just see nice steady improvements and '27 starts to feel like a more material number for you from being... Thomas Stanton: Absolutely. Yes. Operator: And your next question comes from the line of Christian Schwab with Craig-Hallum. Christian Schwab: Just a quick clarity on that, Tom. With '27 orders picking up indeed more materially, would you anticipate '28 being potential peak revenue for that program? Or do you think it extends beyond that? And would you be willing to quantify a revenue range of opportunity over a multiyear time frame that this program could offer you guys? Thomas Stanton: I think we've given a range before, and that math changes depending on ultimately which carrier actually is deploying where. But Tim, do you remember what that range was? Timothy Santo: We had said of that market size, there's about $1 billion to go to the industry over multi years. Thomas Stanton: So it's a 5-year program. The timing of this, we've seen programs like this in the past. I think if you pick the middle of the window, that's typically where you see the majority of the spend. And then you'll see some kind of cleanup at the very tail end when people try to make sure that they get all the funding they can get. So my guess would be the middle of the program, which would be probably towards the tail end of '27. And then you'll probably see some cleanup from that point forward. And as you get towards the end of the program, you'll typically see some kind of flush as people try to make sure they did all the work they need to do. Christian Schwab: Great. That's great clarity. And then my last question just as your largest -- one of your competitors spent a significant amount of time on their conference call talking about memory cost headwinds. I'm just wondering how you guys are navigating through that. Thomas Stanton: Yes, sure. Right now, we're doing good. So I do think that we are helped by the fact that we have a fairly diverse product portfolio. When you get into some of our larger products like some of our larger access and ag platforms, which handle thousands of customers, or you get into optical for that matter, the memory content on those products is just less of the total bill of material. So the impact is significantly less. If you get into some of the lower-end residential CPE, that memory can be a large percentage of the total bill of material. And I think that's the direct impact. If you take a look at our -- that maybe that's the direct tie through to your question. If you take a look at our CPE for residential, which is the most materially impacted, it is also the lowest cost products we sell and the lowest inherent gross margins to begin with that we sell. There's a bigger impact. When you get to some of the larger 100-gigabit platforms, 400 gigabit platforms, that memory impact is just substantially less. And I think that's the difference. Operator: And your next question comes from the line of Dave Kang with B. Riley. Dave Kang: Just the first question is regarding the Middle East conflict. Just wondering if you can talk about the impact from that. Thomas Stanton: Yes. So I think it impacts us in a couple of different ways. One is, without a doubt, it hurt us on the freight line. There are some disruptions. Our freight expense this quarter was higher than I would like it to be. Probably be higher this quarter as well, so last quarter and this quarter. And that's just a matter of being able to get capacity in the right planes. And it was a little messy last quarter, freight line. I think that's the biggest -- that's the biggest headline impact. We absolutely saw an impact though in our Middle East revenues as well. Some of that was disrupted last quarter. I don't know when that gets better. I would expect it to be a little better this quarter, but I think it hurt us both on the revenue and the cost line. Dave Kang: Are we talking like maybe 1%, 2% revenue impact? Timothy Santo: Revenue, yes, less than 5%, yes. Dave Kang: So it's definitely meaningful. I mean, material, right? Thomas Stanton: Well, especially if you talk on a -- we tend to -- we really look at EMEA as one big bucket, and that's how we manage it. And for the EMEA area, yes, it definitely hurt. But on the overall company, it was -- it was not as meaningful. I think on the freight side, it probably hurt more to be honest with you. Dave Kang: And should we expect that to be better this quarter, the... Thomas Stanton: I don't want to tell our operations guys, but I don't expect our freight to be materially better this quarter. I think it's going to be messy this quarter as well. I can't project. Go ahead. Dave Kang: Yes. Got it. So that leads me to my second question, is your operating margin guide for 2Q, 5% to 9%. Just wondering if you can go over some of your assumptions of 5% versus 9%. Timothy Santo: Yes. So we continue to think that -- I mean, if you think about it, basically we're assuming a similar freight environment in this quarter as last quarter and a similar memory impact in this quarter as last quarter. Dave Kang: Got it. And then my last question is, were you able to raise prices or any plans to raise prices to counter elevated freight as well as component costs? Thomas Stanton: Freight, we're not pushing so much on. I mean we're still very hopeful that that's transitory. Component prices on the memory prices, we have raised prices to customers to reflect the current challenges in that supply chain. Operator: [Operator Instructions] Your next question comes from the line of Tim Savageaux with Northland Capital Markets. Timothy Savageaux: I want to come back to a comment you made about optical, mainly kind of building throughout the year, which makes sense. Typically, in access and aggregation, you see kind of the opposite pattern, which is a stronger first half driven by Europe and then maybe a weaker second half. My question is, I wonder if BEAD can serve to offset that this year. So you might be able to have a similar type profile building throughout the year. And at least let's just focus on access and aggregation here as a result of that. And at this point, are you able to make an estimate for what the annual incremental contribution of BEAD might be in the second half or this year in general? Thomas Stanton: I really -- yes, unfortunately, I really can't give an estimate on BEAD because there's too many customers and too many unknowns. But your question is, do I think you would also see the typical access and ag. I think a couple of things can play into that. BEAD definitely will be helpful. I think the other thing that we expect to see, and this is still relatively early in the year, but I think Europe is going to be stronger than what we saw the last couple of years seasonally. So I think that we're -- you won't see -- the current expectations is that we won't see the same kind of falloff in the second half versus first half that we saw last year. Did that answer your question, Tim? Timothy Savageaux: Sure guys. Operator: And your next question comes from the line of Bill Dezellem with Tieton Capital. William Dezellem: Relative to the LiteWave800 and your engineering knowledge set that you have gained to reduce that power consumption by 90%, is there a carryover or an opportunity to take that knowledge and apply to other products throughout your catalog that could be materially impactful to the business? And if so, what's the timeline that it would take to have that technology or those capabilities infiltrate the rest of the product line? Thomas Stanton: I think it's relatively unique to the product sets that we're talking about. It is because of particular speeds and particular distances that we're able to actually get the power savings that we're talking about. I think the -- but I did call it a family. And I consider Quattro to be part of that same family, which is in our multi Mux family, which is very, very power savings as well. But I think the proliferation you'll see of that technology is in that pluggable space. So you're going to see first product is QSFP. We do have other products that are, let's say, I'll just say more integrated that will be coming out over time. So I think you're going to see different members of the family and similar application sets where this technology will actually play itself out. William Dezellem: And Tom, those applications are all within the data center? Or are there other short distance opportunities that are outside of the data center that I'm not thinking about right now? Thomas Stanton: There could be, but I can tell you that demand with inside the data center is worth focusing on. It is very large. At this, I think we are out of questions. So I want to thank everybody for joining us on the conference call, and we look forward to talking to you next quarter. Thanks, everyone.
Operator: Good morning, and welcome to Innovex's First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. I will now turn the call over to Eric Wells, Chief of Staff. Eric Wells: Good morning, everyone, and thank you for joining us. An updated investor presentation has been posted under the Investors tab on the company's website, along with the earnings press release. This call is being recorded, and a replay will be made available on the company's website following the call. Before we begin, I would like to remind you that Innovex's comments may include forward-looking statements and discuss non-GAAP financial measures. It should be noted that a variety of factors could cause Innovex's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Please refer to the first quarter financial and operational results announcement that we released yesterday for a discussion of forward-looking statements and reconciliations of non-GAAP measures. Speaking on the call today from Innovex, we have Adam Anderson, Chief Executive Officer; and Kendal Reed, Chief Financial Officer. I will now turn the call over to Adam Anderson. Adam Anderson: Good morning, and thank you for joining us today. I want to start by thanking our teams across the organization for another quarter of strong execution. We continue to operate in a dynamic environment where our people have remained focused on serving customers, leveraging our unique platform and growing our business through relentless innovation and a commitment to delighting our customers. That commitment is reflected in our first quarter performance. Since the merger with Dril-Quip, we've stayed disciplined in how we run the company, improving the cost structure, expanding the technology portfolio and focusing on cash flow and returns. Core to our success is our No Barriers culture, which means we tear down barriers between ourselves, our teams and our customers. We operate as one team across regions and product lines, not as a collection of separate businesses. That remains a real source of competitive advantage for us. On today's call, I'll walk through our first quarter performance, highlight several important commercial and operational developments from the quarter and then turn the call over to Kendal for a more detailed review of our financial results, capital allocation priorities and outlook for the second quarter. Starting with performance. We delivered a strong start to 2026. First quarter revenue totaled $239 million, which exceeded the high end of our guidance range, and adjusted EBITDA totaled $49 million, with an adjusted EBITDA margin of 21%, well above the high end of our guidance range. These results reflect continued strong operational execution, organic growth from new product introductions, and cross-selling across our global platform. We benefited from a favorable mix in the quarter, and we also saw earlier-than-expected benefits from the exit of the legacy Eldridge facility. More broadly, the quarter reinforces our view that our Subsea business can generate margins above 20% when operated with the same disciplined cost focus and a commercial approach that we apply across the rest of Innovex. Our No Barriers culture has unlocked the potential of our combined team. I've been particularly impressed by the contributions from our colleagues who've joined Innovex as a part of the Dril-Quip merger. They bought into the culture and are unlocking the embedded value and technology in the Subsea portfolio. Commercial performance remained healthy across our core markets. In U.S. Land, we continue to outperform underlying activity levels. Organic growth was driven by cross-selling as well as new product introductions. As a reminder, we have curated a portfolio of big impact, small ticket products and services. In aggregate, our offering represents just 2% to 3% of total well cost. Despite representing a small proportion of the cost of a well, our technologies are critical to well performance. Therefore, the purchase decision is driven primarily by performance, not price. Offshore and internationally, we continue to build momentum in Subsea. During the quarter, we secured 2 significant project awards in Asia, each exceeding $20 million in value, reflecting the strength of our specialized technology portfolio and our ability to win complex high-specification work. These awards span multiple parts of the well system, reinforcing the breadth of our Subsea technology portfolio. We also delivered the first Subsea wellhead order in Southeast Asia under the OneSubsea alliance, representing an important milestone in expanding our presence in integrated offshore projects. Beyond Asia, we continue to make encouraging commercial progress across key offshore basins where we see attractive long-term opportunities for our portfolio. More broadly, we are seeing a growing pipeline of Subsea opportunities, which supports our confidence in the trajectory of the business. In the Middle East, first quarter activity was softer than we had anticipated, driven primarily by project timing and conflict-related disruptions. We remain encouraged by our recent commercial progress, including multiple offshore awards in the Kingdom of Saudi Arabia as well as a contract extension for our off-bottom liner systems and lower completion technologies. We continue to view the Middle East as an important long-term growth market. We recently completed the acquisition of Drilling Innovative Solutions for $16 million or approximately 4 times trailing 12-month EBITDA. This is exactly the type of transaction that we believe drives value, one that is priced reasonably and offers substantial opportunity for organic growth by leveraging our platform. DIS brings differentiated production technologies that complement our existing completions offering, strengthening our U.S. offshore market position and create additional opportunities to grow with both existing and new customers. We believe the DIS portfolio has applicability across global deepwater markets as well as select onshore markets. DIS fits squarely with our model of curating a portfolio of big impact, small ticket products with strong margins, low capital intensity and meaningful room for growth. Stepping back, our priorities remain unchanged, gaining share, expanding our technology portfolio, driving innovation, improving efficiency, and disciplined capital allocation. We believe the combination of innovation, execution and capital discipline continues to differentiate Innovex, and we see a strong pipeline of opportunities across both organic initiatives and inorganic opportunities. As we move through 2026, we remain confident in the trajectory of the business and our ability to create durable value for shareholders over time. I will now turn the call over to Kendal to walk through our financial results and outlook in more detail. Kendal Reed: Thanks, Adam, and good morning, everyone. I'd now like to review our first quarter 2026 financial results. For the first quarter 2026, revenue totaled $239 million, down 13% sequentially from the fourth quarter of 2025 and down 1% year-over-year versus Q1 2025. Adjusted EBITDA totaled $49 million, resulting in an adjusted EBITDA margin of 21% compared to 19% in Q4 2025 as well as Q1 2025. We were pleased to exceed the high end of our guidance range on both revenue and adjusted EBITDA despite a dynamic operating environment during the quarter. Profitability in the quarter benefited from favorable product mix and improved manufacturing efficiency associated with the transition out of the Eldridge facility. As we consolidated our footprint and improved throughput, we saw better absorption and stronger operating leverage within the Subsea business. Reported SG&A was higher sequentially due to several discrete items, including legal, transaction-related and other temporary costs. Excluding these items, underlying SG&A remains well controlled, reflecting our continued focus on cost discipline. During the quarter, we recorded a $49 million legal accrual related to patent infringement litigation between Impulse Downhole Tools USA and Innovex's wholly owned subsidiary, DWS, following the previously disclosed jury verdict. No judgment has been entered at this time. We strongly disagree with the jury verdict and intend to pursue post-trial motions and, if necessary, appeal any resulting judgment to the U.S. Court of Appeals for the Federal Circuit. From a geographic standpoint, NAM Land remained a source of strength with revenue holding essentially flat at $137 million compared to $139 million in the fourth quarter despite weather-related disruption during the quarter. International and offshore revenue declined 24% sequentially to $102 million from $135 million in Q4. As we discussed previously, the fourth quarter benefited from an unusually high level of Subsea deliveries, including approximately $15 million of shipments that we had originally expected to occur in the first quarter, creating a tough year-over-year comparison. Lower Subsea delivery volumes, softer activity in certain international markets, and modest disruptions related to the ongoing conflict in the Middle East contributed to the sequential decline. A meaningful increase in activity in Mexico partially offset this softness. We view quarterly volatility as timing related and consistent with the normal variability that can occur in offshore and project-oriented markets. Importantly, underlying commercial momentum remains solid, and we remain constructive on the long-term outlook, expecting significant Subsea momentum in the back half of 2026. Capital expenditures in the first quarter 2026 totaled $6 million, down 35% sequentially, representing approximately 2.4% of revenue. CapEx remained in line with Innovex's historical range of 2% to 3% of revenue despite ongoing facility integration efforts associated with the exit of the legacy Eldridge facility. Free cash flow was $14 million in the quarter, representing approximately 28% conversion of adjusted EBITDA. As a reminder, the first quarter is typically our weakest free cash flow quarter due to the timing of certain annualized cash payments. We also saw a temporary working capital build in the quarter, primarily related to the timing of collections and normal inventory movements, which we expect to moderate as the year progresses. Our capital-light model continues to support strong through-cycle free cash flow generation. We ended the quarter with approximately $201 million of cash and cash equivalents and no bank debt, providing significant financial flexibility. Our balance sheet strength supports a disciplined capital allocation framework centered on balancing organic investment with selective high-return M&A opportunities and opportunistic share repurchases. Our M&A pipeline remains robust, including a mix of smaller bolt-on opportunities like DIS as well as larger opportunities. That said, we will only execute where opportunities align with our big impact, small ticket strategy, can generate high gross margins with low capital expenditures, and can be acquired at reasonable multiples. This disciplined approach remains central to how we intend to create long-term shareholder value. Consistent with that discipline, we also repurchased over $14 million of our shares at a price of $24.59 per share, underscoring our confidence in the intrinsic value of Innovex and our commitment to thoughtful capital allocation. We were also pleased to see Amberjack complete a secondary sale of shares during the quarter. We believe the transaction broadened our public float and enhanced trading liquidity. Amberjack remains a valued long-term shareholder and partner. Return on capital employed for the 12 months ended March 31, 2026, was 12%. ROCE is impacted by our net cash balance sheet. We remain focused on achieving a long-term target of high teens ROCE via margin expansion, high-return M&A, and shareholder returns. Looking ahead to the second quarter of 2026, we expect revenue in the range of $235 million to $245 million and adjusted EBITDA of $43 million to $48 million. Our guidance reflects a less favorable product mix in the second quarter as well as the potential for sales disruptions and higher costs associated with the ongoing conflict in the Middle East. Even with those near-term pressures, we remain confident in our margin improvement trajectory as 2026 progresses, supported by continued share gains in U.S. Land, improving international activity, and the growing Subsea opportunity set that Adam discussed earlier. I'll now turn the call back to Adam. Adam Anderson: Thanks, Kendal. We are pleased with our start to 2026. We exceeded the high end of our guidance range, continued to improve margins, generated positive free cash flow, and strengthened our portfolio through the DIS acquisition. Just as importantly, we continue to build momentum commercially, particularly in Subsea, where recent wins reinforce the progress we are making with customers around the world. While near-term market conditions may create some quarterly variability, our priorities remain unchanged. We will continue to focus on gaining share, expanding our technology offering through innovation, improving operational efficiency, and deploying capital in a disciplined manner. We believe our integrated platform, strong balance sheet, and No Barriers culture, positions Innovex well to create durable long-term value. Thank you again to our employees, customers, and shareholders for your continued trust and support. Operator, we can now open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Derek Podhaizer from Piper Sandler. Derek Podhaizer: Maybe first start on U.S. Land growth from here. Obviously, a great quarter. What are you seeing when you look out in the second quarter, maybe the back half of the year? One of the biggest E&Ps in the Permian just gave the industry the green light to add rigs and activity and completion. So maybe just help us understand your exposure into that, which specific product lines you are seeing gain the most traction or have the most potential to grow here and really take advantage of the E&Ps restarting a bit of work? Adam Anderson: Yes. Derek, thanks for the question. So I think up until now, the tone we have largely heard from our customers is, say, on the margin they are going to do a little bit of extra work, really around like workovers, maybe a couple of incremental DUCs that they were going to frac, which would -- all that would largely benefit our fishing tool and production accessory business. It does feel like in the last couple of weeks, there's been acceptance that maybe the price signals a little bit stronger for longer than people were expecting a couple of weeks ago. So I would expect that the rig count ticks up a little bit in North America Land the rest of the year. That particular customer, Diamondback, is an important partner of ours. We'd expect to benefit on all of our technologies leveraged to the drilling of new well count. So hard to tell from here. I don't think it's going to be a big, big ramp-up, but I think we do see a little bit of incremental addition to rig count between now and the end of the year. The other thing the benefit of our business model is we do not have to be great at predicting forward activity. We just have to be highly responsive to that activity as it ticks up or down. So it feels good right now, but we all know that, that can change a little bit in the near term. Derek Podhaizer: Yes. That is for sure. Maybe on your latest acquisition, Drilling Innovation (sic) [ Innovative ] Solutions, interesting here. Maybe just help us understand exactly what they do, maybe describe to us their product line, their service? Really curious around the commercial rationale with the platform that you created at Innovex driving those revenue synergies, putting it on the global platform, similar to what you have been able to really successfully accomplish with DWS and Citadel? So maybe just some help understand this a little bit better on what you plan to do with DIS here? Adam Anderson: Yes, so really excited about the DIS deal. Like you said, it's very similar to the Citadel and DWS acquisitions, really great products that fit nicely with our strategy of big impact, small ticket, capital-light products and an area where they can help us and we can help them. And what I mean by that is, in this case, a really strong team and products that our customers really are asking our salespeople about have been doing for a while. So it really helps. We think their team and kind of the halo effect of their products will help us on the margins, pull through more downhole tools in their core market, which today is largely the U.S. offshore. And then similarly, there's a home for their products in some of the international offshore markets as well as potentially on U.S. Land that was probably going to be hard for DIS to realize in the short term on a stand-alone basis. So we can help them there. With respect to their product, they really have 2 big products, one being the Gatekeeper product, which is a valve running the shoe track of liners in the U.S. offshore. That fits great with our float equipment business. We're running other products at that shoe track as well as our liner hanger business. So this is just an integrated part of that portfolio. And then they've got a valve called the Sentinel valve, which is a drill pipe valve used in underbalanced drilling applications, used a lot again in U.S. offshore. There's a variant for the U.S. market that they are just starting to roll out, that again fits really nicely with the legacy Innovex and our drilling enhancement business that we got through the DWS business. So yes, this is, I think, a great deal both for DIS as well as Innovex. So we are really excited about it. Operator: Your next question comes from the line of Don Crist from Johnson Rice. Donald Crist: I wanted to ask about the Middle East. Obviously, there's a lot of talk about it. It doesn't feel like there's that many impacts in the first quarter. Can you just kind of explain whether or not you were running through inventory in the first quarter and that could have a bigger impact in the second quarter? Or just any comments around the Middle East given that the conflict continues to rage on? Adam Anderson: So. Yes, so we did have some impact in Q1, expect to have some impact in Q2 as well from the conflict. For us, the biggest area is some of the offshore markets, particularly in Saudi, has been impacted the most. Most of the land activity is still going, perhaps at a slightly lower pace than it was before. So we saw some impact. It's a little hard to quantify precisely. Certainly, our thoughts and prayers are with everybody in the region, and are pulling for a pretty quick resolution to the conflict for everybody's best interest. I think going forward, the other impact we're going to see in Q2 that we didn't have as much of in Q1 is just the logistical cost. To your point, we were pulling down -- we were serving our ongoing operations with inventory in the region to withstand a little bit of disruption in the supply chain. Q2, we have to airfreight some things in that we previously would have sea freighted in. And those -- as you can imagine, those airfreight rates are pretty high right now. So we will see a little bit of incremental cost burden tied to that as well as some other kind of onetime expenses. All that is baked into our Q2 guidance. Donald Crist: Okay. But going forward, it shouldn't be that big of an impact. Obviously, there will be some impact, but you are getting things into the region. Adam Anderson: Yes, for now, that's correct. So kind of what's baked into our forecast is that we are able to continue to get products and equipment in region, everyone is kept safe over there, and that activity levels are kind of what we see today is what we see for the rest of the quarter and that there's no meaningful change one way or the other in the region. Donald Crist: Okay. And just turning over to the optimization of the businesses and the manufacturing around the world. Obviously, we saw some good margins in the first quarter. Your goal is to come up a couple of more percentage points as we move through the year. But are there any milestones that we're really looking for? Is it Singapore ramping up? Or is it Vietnam ramping up or something like that, that's going to drive a lot of it? Or is Eldridge enough for it to see a boost as we kind of move through the rest of the year? Kendal Reed: Yes, so I think what we are really pleased with in the first quarter was how much progress we have made on that. What we had kind of told everyone previously is we're looking to be out of Eldridge by the middle of this year, which is still the target, but we were able to make a lot more progress on the manufacturing efficiency side in Q1 than even we had hoped. It has been a core initiative internally and kind of testament to all the good work that our team has been doing. So if you look at the gross margin improvement from Q4 to Q1, rough numbers, about half of that's going to be driven by product mix and about half of that's driven by improved manufacturing efficiency. So that was a big driver for the Q1 margin performance. Now, like we have always said, that's not going to be a smooth linear thing. We will make the final push here in Q2 to fully exit that Eldridge facility. We'll incur some moving costs to do that. So not to say it's going to continue to tick up at the same pace. But I think we've seen a big improvement on our manufacturing cost structure that we're really excited about through the rest of the year. But like you said, the big domino that has to fall is to fully exit Eldridge, get all that demand flowing through the other plants, and really realize the full benefits of that absorption. So I think that's what we are really focused on here in Q2 so that back half of the year, we're kind of in that consistently north of 20% EBITDA margin range like we talked about. Donald Crist: Okay. And if I could sneak in one more. Obviously, a good couple of orders in Asia. But just more broadly, can you talk about the offshore? Is energy security becoming more top of mind and you're seeing more operators accelerate plans or get more aggressive on plans going forward? Just kind of any comments around that? Adam Anderson: I think there is some talk of that. As you know, that is a really long-cycle business in the offshore market. So I -- We're not forecasting a really robust recovery in offshore right now as a direct result of the geopolitical situation we have seen over the last couple of months. We still feel like it probably does tick up a little bit here later this year into next year, but there has not been a massive response that we have seen from the customers yet. Operator: Your next question comes from the line of Keith Beckmann from Pickering Energy Partners. Keith Beckmann: I was wondering, we talked a little bit about the Middle East and kind of the 1Q, 2Q impacts. I was wondering maybe, kind of following a little bit on Don's question, what are the additional potential work scopes you guys think you may see following the conflict if activity really starts to ramp? Is there any sort of products or anything in particular you think could be helpful to maybe a recovery in the Middle East whenever we get to that point potentially? Adam Anderson: Yes. So in the Middle East, most of our -- as it is true across the world, most of our business is tied to the number of new wells drilled and the complexity of those wells. One thing we do a lot of in the Middle East and Saudi Arabia in particular is we do a lot of workover work where they're taking existing wells and modifying them, drilling longer laterals, and we sell a lot of equipment and solutions into that application. So if that were to ramp up meaningfully on the back end of that, that's probably where we would see the biggest near-term tick up. As we talked about regularly, we have a nice fishing business, a nice artificial lift accessory business, if we do -- is a nice chunk of our business in the Middle East, although smaller. I think those things would also see a nice boost if there's really a lot of workover work, fishing activity, things like this to get existing wells back on production. Keith Beckmann: Awesome. That's really helpful. And then on my second question, I just wanted to ask around free cash flow conversion, how you guys are thinking about that now. Obviously, we're in a little bit of a different world. How should we be thinking about maybe working capital through the balance of the year? Is there potentially a little bit of a delay on customer payments early on that could potentially reversed into the back half of the year? Just any thoughts on free cash flow? Kendal Reed: Yes, thanks, Keith. It's a good question. So like we talked about on the Q4 call, Q1 is always seasonally our lowest free cash flow quarter. We have a number of annualized cash payments that hit in the first quarter. So not unexpected that cash was down. But as you pointed out, we did see a healthy working capital build in the quarter as well. Some of that's driven just by timing of customer payments that, yes, we would naturally expect to even out and be a nice tailwind to cash over the next few quarters. And then we did have some inventory build as well, hopefully gearing up for some increased customer activity. So those 2 things I would expect to normalize. And as we talked about, we're not going to specifically guide free cash flow. But given the kind of market dynamic we're in, we would expect to be kind of on or above the high end of that 50% to 60% through-cycle conversion that we talked about. So Q1, I expect to kind of be the low point for 2026 free cash flow. Operator: Your next question comes from the line of Blake McLean from Daniel Energy Partners. Blake McLean: A lot of good stuff on here. I was hoping maybe we could just go back to the M&A stuff real quick. You guys have talked a lot about your pipeline and the potential deals, both small and large, that are in the marketplace. I was just hoping if you maybe talk a little bit about how a choppy macro environment kind of impacts what that pipeline looks like, your ability to move deals forward? Is there anything that changes in a market that feels a little more uncertain? Kendal Reed: No, it's a really good question. I mean, I guess I would say a couple of things about that. One is that when we are looking at acquisitions, we tend to underwrite deals over the long-term, right? So one, kind of building in a lot of room for error on the valuation side. We try and be pretty disciplined on valuation. And given the dynamic we've been in where there are just a lot more potential sellers and potential buyers, I think we've been able to benefit from that over the last several years. And then as Adam mentioned, we don't have to be that great in our business at predicting the future, what activity is going to do over the next couple of quarters. We're very responsive to that. And the types of businesses we look to acquire are generally more in line with that approach, right? These big impact, small ticket products, very little CapEx. So we can kind of benefit and create value through the ups and downs of the cycle. So I wouldn't say that changes our thinking too much other than, yes, it's going to have some impact on how you think about valuation and bid-ask spreads. And then, yes, the other thing I would say is just generally the private markets where we're mostly looking at acquisitions, react to news a lot slower than the public markets, which tend to be very forward-looking. A lot of times when we're looking at M&A deals, it's much more of a conversation about current run rate or trailing 12-month results, that type of thing. So it takes time for these things to get incorporated. So it doesn't have quite the same volatility in terms of valuation expectations. Operator: There are no further questions. I'd like to hand back for closing comments. Adam Anderson: Thanks, this is Adam again. Thanks, everyone, for taking the time today. Thanks for the questions. And really, another great quarter, really exceeded our expectations. And I just have to say thank you to our employees, our customers for all of the good work. I think this is really an exciting time, and we are thrilled with how things are progressing and look forward to the next couple of quarters rolling out. So I appreciate everyone joining us. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect
Operator: Good day, everyone, and welcome to Fresh Del Monte Produce First Quarter 2026 Conference Call. Today's call is being broadcast live over the Internet and is also being recorded for playback purposes. [Operator Instructions] Thank you. For opening remarks and introductions, I would like to turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Ms. Christine Cannella. Please go ahead, Ms. Cannella. Christine Cannella: Thank you, Krista. Good day, everyone, and thank you for joining our first quarter 2026 conference call. Joining me in today's discussion are Mr. Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Ms. Monica Vicente, Senior Vice President and Chief Financial Officer. I hope that you have had a chance to review the press release that was issued earlier via Business Wire. You may also visit the company's IR website at investorrelations.freshdelmonte.com to access today's earnings materials and to register for future distribution. This conference call is being webcast live on our website and will be available for replay after this call. Please note that, our press release and our call today include non-GAAP measures. Reconciliations of these non-GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website. I would like to remind you that much of the information we will be speaking to today, including the answers we give in response to your questions, may include forward-looking statements within the safe harbor provisions of the federal securities laws. In today's press release and our SEC filings, we detail risks that may cause our future results to differ materially from these forward-looking statements. Our statements are as of today, May 5, 2026, and we have no obligation to update any forward-looking statements we may make. During the call, we will provide a business update, along with an overview of our financial results, followed by a question-and-answer session With that, I will turn today's call over to Mr. Mohammad Abu-Ghazaleh. Please go ahead. Mohammad Abu-Ghazaleh: Thank you, Christine. Good morning, everyone, and thank you for joining us. Following up on our last quarter, we reached an important milestone this quarter with the closing of the Del Monte Foods transaction, bringing the brand back under a single owner for the first time in nearly 4 decades. The quarter included approximately 1 week of contribution from the acquired business. So the financial impact in the quarter is limited due to timing. We are encouraged by the initial performance of the Del Monte Food business, and we see clear opportunity as we begin to thoughtfully scale the business and believe there is a meaningful opportunity to realize the full potential of these assets. As I mentioned during our last call, this acquisition is not expansion for expansion's sake. It's alignment, bringing the brand, the portfolio and the platform back under a single focused owner. This acquisition not only reunites one of the oldest and most recognized brands in the world, but it also positions us to operate from a more complete platform, expanding our presence across both the perimeter and center of the store and allowing us to offer customers a broader, more integrated portfolio. Our priority during this early phase remains continuity, ensuring stability for customers, partners and employees, while taking a disciplined approach to evaluating the business and identifying where we see the strongest opportunities. We are focused on strengthening the platform, prioritizing key customer relationships and building a more focused, high-quality portfolio over time. It is important to dedicate a portion of today's call to discuss the broader environment shaping our business, the industry and the global food system. The conflict in the Middle East has introduced a meaningful shock across key input fundamentals to food production, energy, fertilizers, packaging and transportation. There is no part of agriculture that is not energy dependent from inputs to packaging to transportation. As a result, movements in energy costs do not remain isolated. They cascade through the entire system. Agriculture does not operate in real time. The timing of impact varies meaningfully by category. In crops like pineapples, for instance, where production cycles extend to approximately 18 months, the inputs being deployed today will be reflected in cost and pricing later this year. Bananas by contrast, move more quickly through the system and therefore, respond more immediately to changes in input costs. As a result, the pressures that emerged during the quarter are now embedded in the system and will continue to move through the value chain in the periods ahead, regardless of how conditions in the Middle East evolve from here. We are already seeing this dynamic take hold from higher fertilizers and packaging costs to increase ocean freight and inland transportation driven by fuel and labor. The impact is more pronounced in our fresh business given its production cycles and input intensity, while other parts of the portfolio are affected differently based on their supply chain structures. This is not a short-term volatility. It's a natural transmission of input costs through a global time lag system. The situation remains dynamic, and we are managing the business with discipline and flexibility. This is an environment we are well positioned to navigate, but it will not be without challenges. We expect pressure to build in the coming quarters, particularly in the second and third quarter, as these costs continue to flow through the system and the full impact move through the value chain. Our global footprint, diversified sourcing and integrated supply chain enable us to adjust and respond across markets. While our scale and disciplined execution position us to manage through this period effectively, these are the conditions where those advantages become more evident. We have navigated complex operating environments before, and we will continue to do so with clear focus on execution, cost management and operational efficiency. With that, I will turn it over to Monica Vicente, our CFO, to discuss our financial results. Monica Vicente: Thank you, Mr. Abu-Ghazaleh, and thank you, everyone, for joining us this morning. I will begin with our first quarter results and then share our expectations for the year ahead. I will cover key items affecting comparability, most notably the Del Monte Foods acquisition and updates to our segment reporting structure. We closed the Del Monte Foods acquisition late in the quarter. Results include 1 week of contribution and have no meaningful impact on the first quarter results. We are assessing the cost structure and spending profile to establish a near-term cost baseline while identifying efficiency opportunities we expect to execute over time. We are also evaluating the operating footprint, including a recent purchase of a warehouse previously leased by Del Monte Foods in Wisconsin with a focus on optimizing asset utilization and portfolio alignment across our facilities. We paid a total cash consideration of $308 million, which included $285 million base purchase price plus $23 million in cash, representing wind-down and closing costs, along with adjustments for working capital associated with the transaction. The acquisition was funded through a combination of cash on hand and borrowings under our revolving credit facility. The consideration closely approximated the fair value of the identifiable net assets acquired. The acquisition is expected to be accretive to net sales by $600 million and adjusted EBITDA by approximately $23 million in 2026 as operations normalize. As a result of the acquisition, beginning this quarter, we updated our business segment reporting to better align with internal management reporting. A new reportable segment, Prepared Foods, combines the Del Monte Foods business acquired with our existing Prepared Foods operations. Prior period segment information has been recast for comparability. We also completed the previously announced divestiture of Mann Packing in December 2025. Our first quarter results reflect continuing operations. Prior period comparisons are presented as reported and where applicable on an adjusted basis with reconciliations in today's earnings press release. With that context, I will turn now to our first quarter financial performance. Year-over-year results reflect portfolio changes following the divestiture of Mann Packing, alongside pricing, volume, cost and foreign exchange dynamics, as well as the recent geopolitical developments. Net sales were $1 billion, primarily driven by lower net sales in our fresh and value-added products segment. This reflected the divestiture of Mann Packing and lower net sales in our avocado product line due to industry-wide oversupply, which resulted in lower per unit selling prices. The decrease was partially offset by the initial contribution of Del Monte Foods and the favorable impact of fluctuations in exchange rates, primarily the euro. Gross profit was $89 million, reflecting lower gross profit in our other products and services and Prepared Foods segment, where results were impacted by lower selling prices in our poultry and meats business due to softer demand and the conflict in the Middle East. In our Prepared Foods segment, higher per unit production costs weighed on results. Gross profit was generally affected by supply chain disruptions in the Strait of Hormuz and the unfavorable impact of a stronger Costa Rica colon. These impacts were partially offset by higher per unit selling prices in our banana and pineapple product lines, as well as the contribution of Del Monte Foods. Gross margin increased to 8.5%. Adjusted gross profit was $91 million and adjusted gross margin was 8.7%. Operating income was $20 million, primarily driven by higher asset impairment and other charges net. Adjusted operating income was $40 million. Asset impairment and other charges were related to the Foods acquisition. Income from equity method investments was $7 million. The increase reflected higher equity earnings from unconsolidated investments, primarily from distributions received in excess of our carrying value upon the liquidation of a fund in which we previously held an interest. Fresh Del Monte net income was $10 million. And on an adjusted basis, Fresh Del Monte net income was $30 million. We delivered earnings per share of $0.21 and adjusted earnings per diluted share of $0.63. Adjusted EBITDA was $58 million, with a margin of 6% as a percentage of net sales, reflecting disciplined cost management amid a dynamic cost environment. I will now go into more detail on the quarter performance for each of our business segments, starting with our fresh and value-added products segment. Net sales were $549 million, primarily driven by strategic reductions in our fresh and fresh-cut vegetable product lines, reflecting the divestiture of Mann Packing, as well as lower per unit selling prices in our avocado product line driven by industry-wide oversupply. These declines were partially offset by higher net sales in our pineapple product line, reflecting higher per unit selling prices and the favorable impact of exchange rate movements, primarily the euro. Gross profit was $60 million, driven by the divestiture of Mann Packing, which generated negative gross profit in the prior year, as well as higher per unit selling prices in our pineapple product line. The increase was partially offset by higher per unit production costs as well as weather-related events in North America that negatively impacted sales volume in our fresh-cut fruit product line and contributed to lower per unit selling prices in our melon product line. Gross margin increased to 10.9%. Adjusted gross profit was $61 million. Turning to our banana segment. Net sales were $357 million, primarily driven by lower volume and market disruptions across regions, including adverse weather and supplier changes. The decrease was partially offset by higher per unit selling prices across all regions and the favorable impact of fluctuations in exchange rates. Gross profit was $16 million, driven by higher per unit production and procurement costs, partially offset by higher per unit selling prices. Gross margin was in line at 4.6%. Adjusted gross profit was $18 million and adjusted gross margin increased to 5%. Moving to our Prepared Foods segment. Results reflected 1 week of contribution from the Fresh Del Monte Foods acquisition, along with contributions from our existing Prepared Foods operations. Net sales were $83 million, including $22 million of net sales from the acquisition, partially offset by lower net sales in Europe due to supply availability constraints of pineapple used in our canned pineapple product line. Gross profit was $9 million, primarily driven by lower net sales in Europe and higher per unit production and distribution costs. Gross margin decreased to 10.8%. Lastly, our results for other products and services segment. Net sales were $56 million, driven by higher net sales of our third-party freight services business, partially offset by lower net sales in our poultry and meats business due to lower per unit selling prices. Gross profit was $4 million and gross margin decreased to 6.8%. Now moving to selected financial results for the first quarter of 2026. Our income tax provision was $8 million, reflecting changes in the global tax and regulatory environment and higher earnings in certain jurisdictions. Net cash provided by operating activities was $44 million. Cash flow was primarily driven by net earnings and partially offset by higher noncash items, including asset impairments as well as working capital movements, mainly lower inventory levels and higher trade receivables due to the timing of period-end collections. Turning to capital allocation. At the end of the first quarter, long-term debt stood at $438 million, and our average adjusted leverage ratio is at 1.4x EBITDA. This compares to $173 million in long-term debt at year-end, with the increase reflecting the closing of the Del Monte Foods acquisition. Capital expenditures totaled $14 million during the quarter, reflecting pineapple expansion and packing facility construction in Costa Rica, equipment investments in Kenya and the replacement and maintenance capital. As previously announced, our Board of Directors declared a quarterly cash dividend of $0.30 per share payable on June 11, 2026, to shareholders of record as of May 19, 2026. On an annualized basis, this equates to $1.20 per share, representing a dividend yield of approximately 3% based on our current share price. During the quarter, we repurchased 100,000 shares of our common stock for $4 million at an average price of $40.24 per share. As of March 27, we had $116 million available under our $150 million share repurchase program. Together, our capital allocation actions during the quarter, including dividends, share repurchases and the completion of the Del Monte Foods acquisition reflect our balanced approach to capital deployment. We continue to prioritize reinvestment in the business and a competitive, reliable return to shareholders. Turning to our outlook for the full year of 2026. We are providing our expectations for our business segments and key financial priorities, including SG&A, capital expenditures and cash flows. This outlook is based on the information available to us today and our experience managing through comparable industry and macroeconomic cycles. Given the current environment, our priorities for 2026 are clear: first, protecting the long-term earnings power of the portfolio; second, maintaining balance sheet and liquidity flexibility; and third, managing through near-term volatility with discipline. Our 2026 outlook reflects Fresh Del Monte's continuing operations. It excludes the Mann Packing business exited in December 2025 and includes 9 months of contribution from Del Monte Foods transaction. We expect net sales on a continuing operation basis to increase between 13% and 15% year-over-year, reflecting execution across our base business and the contribution from the Del Monte Foods transaction, which we expect will contribute $600 million of net sales in 2026. As discussed, developments in the Middle East have driven higher energy, shipping and commodity input costs. Based on current assumptions and observable market conditions, we estimate the impact of these cost pressures to be approximately $40 million to $45 million, which will impact us starting in the second quarter. These impacts are primarily related to ocean freight costs, including bunker fuel and war-related surcharges, inland transportation, fertilizer and packaging costs, consistent with recent elevated oil and fuel price trends. Our outlook also reflects approximately $20 million to $25 million of headwinds over the balance of the year, roughly 50% from foreign exchange impacts, primarily related to the Costa Rica colon and the remainder driven by higher domestic transportation and logistic costs resulting from shortage of -- of driver availability in the U.S. Separately, tariffs implemented beginning in March 2025 continue to function largely as a pass-through. Tariffs had a modest impact in the first quarter. And given the uncertainty around recoverability and timing, we have not assumed any tariff refunds. In banana, near-term industry supply and cost dynamics, combined with trade dislocations following Middle East-related disruptions are creating incremental volume pressure in North America and Europe markets, which is reflected in our guidance. At the same time, per unit costs are higher, driven by lower production from Costa Rica and the disease management efforts on our own farms. Fertilizer inflation has added further pressure. These headwinds are reflected in the segment gross margin ranges we are providing today. Consistent with our established cost management approach, our outlook reflects a disciplined and active response to the current environment. This includes targeted pricing actions where market and customer dynamics support them, contractual fuel recovery mechanisms and continued focus on cost containment and operational efficiency. Just as important, it reflects ongoing deliberate trade-offs around timing, mix and service to protect customer relationships, sustain throughput and preserve long-term earning capacity during a period of elevated volatility. Turning to gross margin expectations by segment. In our fresh and value-added products segment, we expect gross margin to be in the range of 11% to 12% compared with 14% last year. This reflects higher per unit production and distribution costs across the segment as well as industry-wide supply constraints in pineapple volumes that limit our ability to fully benefit from increased market demand from our premium pineapple varieties. In our banana segment, we expect gross margin to be in the range of 3% to 4%, consistent with the cost supply and market dynamics discussed before. In our Prepared Foods segment, we expect gross margin to be in the range of 13% to 14%. This reflects the combination of Del Monte Foods transaction, which brings an inherently higher-margin branded CPG profile with our existing Prepared Foods operations as well as integration, timing, input cost volatility, and mix across geographies. Importantly, the reported range does not yet reflect the full margin potential of the Del Monte Foods platform as integration progresses. In our other products and services segment, we expect gross margin to be in the range of 12% to 13%, consistent with prior years. Selling, general and administrative expense is expected to be in the range of $270 million to $280 million, reflecting the inclusion of Del Monte Foods and our intentional shift to a branded CPG operating model, which carries a higher SG&A profile than our historical fresh produce operations. This range also includes wage inflation and targeted investments in technology and organizational support to operate and scale a global branded foods platform. Capital expenditures for the full year are expected to be in the range of $85 million to $95 million, focused on production expansion in Central America, growth in our fresh cut and Prepared Foods operations in Europe, a recent warehouse investment and other investments related to the Del Monte Foods acquisition as well as investments in core technology systems. For the full year, we expect net cash provided by operating activities to be in the range of $40 million to $50 million, which reflects lower cash generation than we historically produced as a pure fresh produce company. With the addition of Del Monte Foods, our cash profile now reflects the seasonal working capital dynamics of a branded CPG business. This includes higher working capital requirements in the second and third quarters as inventories are built to support seasonal packing and processing activities that ramp through the harvest season and peak from summer through fall. As those inventories convert to sales, we expect stronger cash generation in the fourth quarter and into the first quarter, driven by peak demand during November and December holiday season and again around the Easter holiday period. Due to the timing of the acquisition, working capital needs will be higher in 2026 than in future periods. In summary, while the operating environment remains challenging, we believe the underlying fundamentals of our portfolio are sound, and our focus remains on disciplined execution, prudent capital allocation, protecting long-term value, consistent cash generation across the full operating cycle and maintaining flexibility and financial resilience as conditions evolve. This concludes our financial review. We can now turn the call over to Q&A. Krista? Operator: [Operator Instructions] And we have no questions at this time. I would like to turn the conference back over to Mr. Mohammad Abu-Ghazaleh for closing comments. Mohammad Abu-Ghazaleh: Thank you, Krista, and thank you everyone for joining us today, and hope to speak with you on our next call of the second quarter. Thank you, everyone, and have a good day. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to the Arcus Biosciences, Inc. First Quarter 2026 Business Update and Financial Results. After today's prepared remarks, we will host a question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Holli Kolkey. Holli, please go ahead. Holli Kolkey: Good afternoon, and thank you for joining us on today's conference call to discuss Arcus Biosciences, Inc.'s first quarter 2026 financial results and pipeline update. I would like to remind you that on this call, management will make forward-looking statements, including statements about our development strategies and our expectations regarding the advantages and opportunities afforded by our investigational products, our clinical development milestones and timelines, our projected cash runway, and our financial outlook. All statements other than historical facts reflect the current beliefs and expectations of management and involve risks and uncertainties that may cause our actual results to differ from those expressed. Those risks and uncertainties are described in our most recent quarterly report on Form 10-Q that has been filed with the SEC. For today's call, please refer to our latest corporate presentation posted in the Investors section of our website. This afternoon, you will hear from our CEO, Terry Rosen, Chief Medical Officer, Richard Markus, President, Juan Jaen, and CFO, Robert Goeltz. With that, I would like to turn the call over to Terry. Terry Rosen: Thanks very much, Holli, and thanks, everyone, for joining us this afternoon. We are starting a new era for Arcus Biosciences, Inc., with full ownership of our lead program, casdatafan, our Phase 3 kidney cancer study, PEEK-1, enrolling rapidly, a clear path to win in the frontline, and the next generation of molecules for inflammation and immunology that can be advanced rapidly through development, with strategic optionality imparted by a rich portfolio of wholly owned molecules and programs. We are at an inflection in value creation for patients and shareholders that will continue to accelerate over the next 12 to 18 months. Arcus Biosciences, Inc. has proven to be a highly productive company creating and advancing a steady stream of potential best-in-class molecules for patients with cancer and inflammatory and autoimmune diseases. We believe that discovery is not a commodity, and we have built exceptional small-molecule medicinal chemistry and drug discovery capabilities. Our scientists utilize proven biology to create unmatched medicines designed to raise the standard of care. Since its inception, Arcus Biosciences, Inc. has advanced molecules from program initiation to IND filing in as short as 18 months, and through an accelerated platform and signal-seeking study, moved from proof-of-concept Phase 1 studies to randomized Phase 2 and registrational Phase 3 trials in just a few years. Today, the company is laser focused on cascadifan, which represents a market opportunity of more than $5 billion in kidney cancer alone. I want to stress that cascadifan’s efficacy advantages are underpinned by much better molecular properties and a superior pharmacodynamic profile. This profile reflects the key capabilities in Arcus Biosciences, Inc. that I described earlier. The simple fact is that cascadifan hits its target much harder in a more robust and sustained way than belzutafan, as illustrated on slide 6. This is a point we have emphasized since the data first emerged. These data are clear and they are striking. We believe this fundamental differentiation between cascadifan and belzutafan, and the limitations of belzutafan’s pharmacodynamic profile and durability of effect, are undoubtedly contributors to, if not the principal driver of, the outcome of LITESPARK-012. And the pharmacodynamic advantages of cascadifan will continue to result in improved clinical outcomes across the lines of therapy; I want to emphasize this point. This dramatic difference in profile has been evidenced since late last year. It is not at all opaque. Its manifestations in clinical outcomes are dramatic and are at the core of our differentiation. No results to date are surprising. Our top priorities for 2026 are clear. One, complete enrollment for PEEK-1, our second-line Phase 3 study, and two, initiate a Phase 3 study in the frontline patient population. With the recent outcome of LITESPARK-012, cascadifan has a clear path to consolidate a fragmented frontline setting as the first HIF-2α inhibitor in this setting. Let me spend a moment on why cascadifan is at the center of everything we do. We believe cascadifan can transform the treatment paradigm in clear cell renal cell carcinoma, and our development strategy is designed to generate evidence to secure cascadifan as a backbone therapy so that every patient has the opportunity to benefit from cascadifan across each line of therapy. PEEK-1 represents our fast-to-market strategy. This is designed to build on the clinician enthusiasm we have seen for cascadifan as an investigational agent and to generate the data to support the approval of a foundational treatment for clear cell RCC as rapidly as possible. Enrollment in PEEK-1 is accelerating, and we are on track to complete enrollment by year-end 2026. We are confident that PEEK-1 will establish cascadifan plus cabo as the new standard of care in the IO-experienced setting. The peak sales opportunity for cascadifan in this setting alone is more than $2 billion. At the same time, we are aggressively building a holistic strategy to embed cascadifan across the treatment paradigm. We have been making tremendous progress in the frontline setting with multiple IO combinations now enrolling in ARC-20 and generating data in support of our first-line strategy. These approaches offer the greatest potential for long-term survival for patients. One of our key objectives today is to make very clear our integrated development strategy for cascadifan. It is actually quite straightforward, and here is how we believe things will play out. In the first line, our bedrock therapy will be cascadifan, ipi, and anti-PD-1. We believe that we can drive the approximately 35% share of ipi/nivo to a regimen with greater than 50% of the important first-line market. While the IO regimen of ipi/nivo is the dominant therapy today, there is a segment of physicians that is always going to want to reach for a TKI, particularly for patients with a fast-growing, bulky tumor. Therefore, we will also be developing a cascadifan combination inclusive of a TKI, a TKI with a well-established track record of both efficacy and safety that will allow the patient to have cascadifan plus cabo as a subsequent regimen. Our second-line treatment, now enrolling as the registrational trial PEEK-1, will be cascadifan plus cabo, building on the standard of care in this line, cabozantinib monotherapy. Finally, we will have a third-line-plus regimen, cascadifan with another well-established TKI, and we will be investigating this regimen in both belzutafan-naive and belzutafan-experienced patients. We think this is a very important and, frankly, very cool study. We also plan to explore novel cascadifan combinations in HCC, liver cancer. I would like to emphasize that all of the clinical development plans discussed today are accounted for within our existing budget and have no impact on the guidance and runway that we have provided. We now control, in all respects, our early-stage pipeline, including our CCR6, CD89, and CD40 ligand programs, all of which are expected to report IND candidates in the next 6 to 18 months. So, while we focus our resources—capital, human, and otherwise—on the late-stage development of cascadifan, the follow-on programs in our pipeline are early but also with clear, early, and capital-efficient clinical proof-of-concept opportunity and huge commercial potential. Therefore, we anticipate low spend and short timelines to get to proof of concept that will drive disproportionate value creation. Juan will discuss these programs in more detail later on in this call. If you want to walk away with just one thing from today, it is that Arcus Biosciences, Inc. has complete control of its destiny. The core asset of the company is cascadifan. We have the strategy, data, and resources to transform the treatment of clear cell RCC and create the $5 billion-plus drug. Robert will further elaborate on the enormous commercial opportunity here. We also continue to leverage our demonstrated competitive advantage in small-molecule drug discovery—an increasingly scarce capability—to generate wholly owned and unique development candidates, advancement of which further enhances our strategic optionality. With that, I would like to turn the call over to Richard to discuss our clinical programs. Thanks, Terry. I would like to start with cascadifan. Richard Markus: As Terry described, our development plan is designed to establish cascadifan as a foundational standard of care in clear cell RCC so that all patients have the opportunity to benefit from treatment with a cascadifan-based regimen across multiple lines of therapy. At ASCO GU this year, we presented updated ORR and PFS from our four late-line monotherapy cohorts of ARC-20. As you can see here, the efficacy data continued to improve with longer follow-up at each data presentation. Moving to slide 12, we show the ORRs for the 100 mg QD cohort, which is the dose and formulation being used in our Phase 3 studies; the confirmed ORR increased from 35% at the August data cut to 45%. A 45% ORR in this late-line patient population is rather remarkable. It is twice that observed with belzutafan in LITESPARK-005, or any study in this patient population. Similarly, the confirmed ORR in the pooled analysis improved from 31% to 35%, well above the range of ORRs that have been observed with belzutafan. On slide 13, we show the Kaplan-Meier curve for the 100 mg cohort. As you can see here, the 100 mg cohort shows an impressive median PFS of 15.1 months after 17.9 months of median follow-up. On the next slide, we show the latest Kaplan-Meier curve for the pooled analysis. The median PFS remained at 12.2 months. Overall, we are seeing PFS that is two to three times longer with cascadifan monotherapy than the 5.6 months observed with belzutafan in the same setting. And, as is often discussed, while the median is an important benchmark, it is not the only metric that is important. As you can see here, and perhaps more impressive, is the number of patients still on treatment beyond 18 months and even beyond 24 months. These data clearly support the proposition that cascadifan is the best-in-class HIF-2α inhibitor, and our highest priority now is to maximize the potential of this molecule in ccRCC. Our first registrational trial, which is in the second-line setting, is well underway. Enrollment in the ongoing Phase 3 study, PEEK-1, is accelerating, and we are on track to complete enrollment by year-end. We are confident that PEEK-1 will establish cascadifan plus cabo as the new standard of care in the IO-experienced setting. With a sole primary endpoint of PFS and a 2:1 randomization favoring the experimental arm, and cabo as the control arm, we believe PEEK-1 is optimized for both probability of success and speed to data. I would like to spend some time now on the frontline setting. With the outcome of Merck’s LITESPARK-012 last month, cascadifan has the opportunity to be the first HIF-2α inhibitor option in the frontline setting. Treatment in the frontline is generally bifurcated into IO/IO or a TKI/anti–PD-1 combination. This currently leads to the conceptual trade-off between longer time to response or higher primary progression but with the potential for durable responses and long-term survival with the IO/IO option, or a faster time to response and lower primary progression but with much more treatment-associated toxicity for the TKI/anti–PD-1 options. There is currently no treatment option that has the ability to both rapidly control disease and provide the best chance for long-term survival, while also having a favorable tolerability profile for long-term use. We believe a cascadifan plus IO/IO combination in the frontline setting has the potential to deliver on both of these fronts. We are enrolling several cohorts within the ARC-20 study evaluating cascadifan combinations in the frontline setting. While the data are maturing, primary progressive disease rates have already been shown to be low—just 7%, or 2 out of 30 patients—for the cascadifan plus zimberelimab, our anti–PD-1 cohort. This rate compares favorably to published rates for anti–PD-1 monotherapy or ipi/nivo in the first-line setting, and in fact, it is close to the rate of a TKI-containing regimen but without the need for the TKI. We are also enrolling a cohort evaluating cascadifan plus zimberelimab plus ipi. Emerging data from these cohorts of ARC-20 will inform the first-line registrational strategy, with the goal of finalizing the Phase 3 study protocol and beginning start-up activities by the end of this year. In parallel, we will shortly begin to evaluate additional cascadifan plus TKI–containing regimens in the early- and late-line settings, including in patients with prior belzutafan experience. This effort contemplates the preference and, in fact, the strategic necessity to utilize alternative TKIs as patients advance from one line of therapy to the next. Near-term, we expect to have multiple data readouts for cascadifan in 2026. First, mature ORR data and initial PFS data for approximately 45 patients treated in the ARC-20 cascadifan plus cabo cohort in the IO-experienced setting will be presented at an investor event or at a medical conference, and all patients will have had at least 12 months of follow-up. Second, we will share initial data from the ARC-20 cohorts evaluating cascadifan in early-line settings, including the cohort evaluating cascadifan plus zimberelimab in the first line. We also expect updated data from late-line monotherapy cohorts, including overall survival. Before I hand it over to Juan, I would like to quickly touch on quemliclustat, our small-molecule CD73 inhibitor. CD73 is highly expressed in pancreatic cancer, and high CD73 expression is associated with significantly poor prognosis in several tumor types. In spite of this, as we recently published in Nature Medicine, in our Phase 2 study, patients with higher CD73 or adenosine activity were the ones with longer PFS and OS in response to chemo treatment. Pancreatic cancer is one of the most aggressive cancers, with an average 5-year survival rate of just 13%. In PRISM-1, our Phase 3 study evaluating quemliclustat plus gemcitabine and nab-paclitaxel versus gemcitabine and nab-paclitaxel in the frontline pancreatic setting, we completed enrollment in September 2025. Results from this study are expected in 2027, and if positive, PRISM-1 could represent the first transformative therapy for an all-comer first-line patient population in 30 years. There is no biomarker requirement, and no known resistance mechanism, and data to date have indicated that the regimen was well tolerated. Finally, we recently announced that the Phase 3 STAR-121 study evaluating our anti-TIGIT, domvanalimab, plus zimberelimab and chemotherapy versus pembrolizumab plus chemotherapy as a first-line treatment for metastatic non-small cell lung cancer will be discontinued due to futility. While these are certainly not the results we expected, the study had one important positive outcome. In addition to the assessment of domvanalimab in this trial, STAR-121 also evaluated zimberelimab plus chemo as an exploratory endpoint. Zimberelimab plus chemo performed consistently with respect to overall survival as compared to pembro plus chemo. These data are consistent with what was observed in numerous studies with zimberelimab, and this randomized dataset provides valuable support for the utility of zimberelimab as an anti–PD-1 combination partner for Arcus Biosciences, Inc. and its collaborators. I would now like to turn the call over to Juan to discuss our immunology and inflammation programs. Juan Jaen: Thanks, Richard. Arcus Biosciences, Inc. has an exceptional small-molecule discovery team. That team has demonstrated time and time again the ability to create highly effective drug candidates against difficult targets. We have been utilizing this expertise to create and develop drugs that have the potential to address very large markets in inflammation, allergy, and autoimmune diseases. In-house expertise in immunology has been a core aspect of our discovery group since Arcus Biosciences, Inc.’s founding, having been key to many of our oncology programs. Our team is addressing well understood and validated mechanisms and has implemented a two-pronged strategy in immunology. First, we leverage medicinal chemistry capabilities to design and create small-molecule drugs that regulate key cytokines therapeutically validated by existing biologics. Secondly, we target immune cell types that play key roles in human disease and have been historically understudied, such as mast cells and neutrophils. Our first molecule in the immunology area to enter the clinic will be AB-102, a highly selective, orally bioavailable MRGPRX2 antagonist. In the coming weeks, we will be sharing its preclinical profile in an oral presentation at the Society for Investigative Dermatology. The presentation will highlight the ability of AB-102 to fully block MRGPRX2-dependent activation and degranulation of mast cells. AB-102 inhibits all common human MRGPRX2 variants. We have optimized the potency of AB-102 under physiological conditions, such as in human blood and serum. Due to its potency under these conditions, we believe that AB-102 is a potential best-in-class, once-daily oral treatment for chronic spontaneous urticaria and other atopic conditions such as atopic dermatitis and allergic asthma. It is expected to enter the clinic in 2026, with PK data available shortly thereafter and potential for proof-of-concept data in early 2027. In rapid succession, we have selected an oral, small-molecule TNF inhibitor drug candidate, which is a potential treatment for rheumatoid arthritis, psoriasis, and inflammatory bowel disease, and an orally active, small-molecule CCR6 antagonist candidate as a potential treatment for psoriasis. Both of these molecules are expected to enter the clinic in 2027. We are very excited about the potential for our I&I programs to provide improved options for patients, and we are working to advance these into the clinic as rapidly as possible. I would now like to turn the call over to Robert to discuss the market opportunity for cascadifan and our financial results. Robert Goeltz: Thanks, Juan. Before I get into the quarterly financials, I would like to spend time on the multibillion-dollar market opportunity in RCC for cascadifan. Sales for RCC drugs in just the major markets are anticipated to grow to $13 billion by 2030. Historically, the market has been dominated by two classes of therapy—IO and TKIs. There have been a number of offerings in both classes, which is why the market is fragmented. In contrast, there are only two HIF-2α inhibitors on the horizon, and we believe our data have demonstrated clear advantages over our only competitor. We have a clear path to consolidate the market and entrench cascadifan as the primary backbone therapy. The development plan that Terry and Richard described is designed to accomplish this objective. If we look at the sales for the sole marketed HIF-2α inhibitor, belzutafan, which is currently approved only in late-line clear cell RCC, it is already generating annual run-rate sales of nearly $1 billion—only scratching the surface. With cascadifan, we are also targeting earlier-line settings: the IO-experienced population with PEEK-1 and the IO-naive first-line population with our next pivotal study. These earlier-line settings have larger patient populations and longer durations of therapy, both of which contribute to a much larger market opportunity. Specifically, the PEEK-1 study targets approximately 20 thousand patients in the major markets in the IO-experienced setting. We believe our commercial opportunity here exceeds $2 billion. In the first line, the opportunity is even greater. With the lack of HIF-2α inhibitor competition in the frontline, our goal is to grow the IO/IO share from roughly a third of the market to more than half by adding cascadifan. In fact, our market research indicates that oncologists overwhelmingly prefer the promise of a cascadifan plus IO/IO over a TKI-containing regimen. As Richard mentioned, we also plan to investigate a regimen with IO and TKI in the frontline to address the remainder of the market. We believe the opportunity for cascadifan in the frontline exceeds $4 billion. One point I would really like to emphasize as we think about the commercial opportunity is duration of treatment. We have seen impressive data in late-line monotherapy, with many patients on therapy beyond 18 months. We plan to share updated data later this year. As we think about earlier lines of therapy, we believe there is the potential for meaningful upside resulting from the durability of effect. Conceptually, we think strong HIF-2α inhibition holds the promise of a long-term tail effect. All in, we think cascadifan has a peak sales opportunity of $5 billion to $10 billion. As a reminder, we own all of the commercial rights to cascadifan other than in Japan and certain other Southeast Asian countries held by our partner, Taiho. Now, let us turn to the financials. Arcus Biosciences, Inc. is well positioned to advance its full pipeline with $876 million in cash at the end of the quarter. We have cash runway until at least 2028. We expect to end 2026 with approximately $600 million in cash, indicative of the declining spend we expect over the year. As Terry outlined, Arcus Biosciences, Inc. is entering a new era with more control over our pipeline investments. While we are building a plan to take full advantage of the cascadifan opportunity, we are also sequencing these investments such that any significant growth in overall spend will be largely incurred after a PEEK-1 readout. As a result of the wind-down of domvanalimab, and reduced spend on quemliclustat, together with broader spend management, we expect to significantly reduce our overall R&D spend in 2026 and 2027 compared to 2025. For example, as our late-stage efforts have become focused on cascadifan, we have decreased our headcount by approximately 10%. Let me transition to the financials for the quarter. For our P&L, we recognized GAAP revenue for the first quarter of $17 million. Our revenue continues to be primarily driven by our collaboration agreements. We continue to expect to recognize GAAP revenue of $50 million to $65 million for the full year 2026. Our R&D expenses for the first quarter are stated net of reimbursements and were $122 million and included nonrecurring workforce costs. Our actions to reduce headcount have lowered our ongoing cost structure, which we expect will result in reduced R&D expense in future periods. The discontinuation of STAR-121 and the broader reduction in our domvanalimab-related investment will contribute to a meaningful decrease in R&D expenses as the year goes on. By 2027, we expect more than 80% of our portfolio spend will be directed toward cascadifan development. G&A expenses were $29 million for the first quarter. Total non-cash stock-based compensation was $19 million for the first quarter. For more details regarding our financial results, please refer to our earnings press release from earlier today and our 10-Q. I will now turn it back to Terry. Terry Rosen: Thanks, Robert. That was excellent. Let me close by summarizing the key themes for the remainder of 2026. Cascadifan is our number one priority, and this year will be another transformative year for data and, importantly, development as we advance towards commercialization. We expect multiple data sets—cascadifan plus cabo data, initial first-line data, and overall survival data from late-line monotherapy cohorts—all of which will further reinforce cascadifan’s best-in-class profile and support our registrational strategy. PEEK-1 enrollment continues to accelerate, and we are targeting full enrollment by year-end. All of the clinical development plans for cascadifan that were discussed today are accounted for within our existing budgets and have no impact on our guidance or runway. Beyond cascadifan, our PRISM-1 Phase 3 trial for quemliclustat in pancreatic cancer is fully enrolled and on track for readout in 2027. Juan shared the exciting progress on our I&I portfolio, with AB-102 expected to enter the clinic in the third quarter and our TNF inhibitor and CCR6 antagonist following shortly thereafter. With $876 million in cash and investments, and runway into 2028, we are well positioned to execute on all of these priorities and create significant value for patients and shareholders. We are moving into a new era for Arcus Biosciences, Inc., with full ownership of our lead program, cascadifan, and a clear strategy to win and transform the frontline setting, while rapidly advancing the next generation of wholly owned molecules for inflammation and immunology. We have no doubt that we will be generating disproportionate value for patients and shareholders over the coming 12 to 18 months. Thank you all for joining us. We will now open the call for questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Daina Graybosch with Leerink Partners. Daina, your line is now open. Unknown Speaker: David, can you try this today? Daina Graybosch: Specifically on the cascadifan plus TKI frontline combo, we all know Merck failed with that triplet mechanistically with belzutafan/lenvatinib/pembro in LITESPARK-012. We have the press release, but we do not know the detailed data. What could you see in that detailed data that would give you more confidence in cascadifan plus TKI plus IO, and what could you see in the Merck data that would give you less confidence in the TKI combo strategy? Terry Rosen: Thanks, Daina. I think we will see what their data say, but the data that are out there tell us a lot already. If you consider what we discussed at the beginning—that pharmacodynamic difference between cascadifan and belzutafan—not only the depth of response, but particularly the durability, and you think of that as a surrogate for its antitumor activity and a direct measure of its ability to inhibit HIF-2, you can reconcile very easily, even in the absence of the data from the study itself, that if you think about LITESPARK-011 versus LITESPARK-012, the duration of treatment you are talking about—if you think about PFS, roughly for the two different studies—is almost 2x. Belzutafan, as a surrogate for HIF-2 inhibition that directly relates to inhibition of the tumor, is clearly losing that effect with time, and dramatically. On erythropoietin production, on average, you have lost that effect within 9 to 13 weeks. So, in the second-line population, the percentage of time where it is bringing benefit is X, and then in the frontline, it is much less. Then, on top of that, if you think about the regimen, it is a pretty toxic regimen. Even pembro/lenva had about a 37% rate of discontinuation. We know that the triplet was, you know, pretty unfavorable from a patient perspective. So if you think about basically having a diminishing effect of the HIF-2 inhibitor on top of a much longer duration of an arm that has more AEs than the control arm, you are basically paying a price but getting less benefit. It is not surprising that you would end up with a hazard ratio that might not be too favorable. For us, we are going to select a TKI that we think has a very favorable profile relative to the TKIs out there. But the most important feature will be that we have a HIF-2 inhibitor that has its robust effect, and the durability of that effect is essentially the same on day one as it is on day 730. Daina Graybosch: Got it. Thank you very much. Terry Rosen: Thanks, Daina. Operator: Your next question comes from the line of Jonathan Miller with Evercore. Jonathan, your line is now open. Jonathan Miller: Hi, thanks for taking my question, and congrats on all the progress. Looking at a very broad cascadifan development plan with a lot of combinations across first-, second-, and third-line settings, one thing that is notably absent is any approach in the adjuvant setting, which obviously we know Merck is going after. I would love to hear your updated thoughts on adjuvant and why that is missing from the current development plan. And then, related to that, relatively recently you were talking about a more conservative approach to late-stage development for cascadifan—at least with respect to the number of Phase 3 trials you would want to start—and considering partnerships to ameliorate the cost of late-stage development. Obviously, there has been a bit of a shift there. But, Terry and Robert, I heard you say you do not expect to see any impact on runway or the ability to prosecute all these different programs. I would love to get a little bit more granularity on the sequencing that you are talking about and when you would start these TKI-containing and potential novel combo development efforts to enable you to pursue all these different approaches without running up against bandwidth limitations. Thanks. Terry Rosen: Thanks, Jonathan. I will let Robert handle that, and then I may have a few comments to add. Robert Goeltz: In terms of the adjuvant setting, for us, it comes down to two simple things. One is the size of the opportunity, and probably more importantly, the need. When you think about that particular setting, we think that it is around 12 thousand patients or so that get therapy in the adjuvant setting—only the high-risk patients with resection—and their treatment is capped at a year. When you do the math, we think that the opportunity, certainly from a revenue perspective, is smaller than the second line, and probably even smaller than what could be a third-line regimen with an alternate TKI, as we described. The other important part is we have had a chance to talk to physicians after seeing the LITESPARK-012 data, and the bar to add another therapy on top of pembro is considered quite high. In fact, most physicians told us that they would not add belzutafan to the regimen even in light of the LITESPARK-012 data. So we actually think it will be a minority of patients that ultimately will receive belzutafan in that setting. It is prioritization, and frankly, the other settings—first, second, and third line—are higher on the list for us. In terms of the sequencing of the spend, as we highlighted, we have PEEK-1 up and enrolling right now. Our goal is to have the study enrolled by the end of the year. The work towards launching these additional Phase 3 studies would have us in a position to move those studies forward as early as late this year into next year, with, obviously, probably our highest priority being that frontline combination with ipi and anti–PD-1. The other studies will be shortly on the heels. But if you think about the general investment profile for the studies, we will be through the bolus of study start-up for PEEK-1, and the cost profile for PEEK-1 will be starting to decrease as we get into the second half of next year. We think there will be a nice portfolio effect, and when we think about these other studies, the spend really kicks in in late 2027 and into 2028. We see a generally steady spend profile through the PEEK-1 readout as we described. Terry Rosen: And, Jonathan, Robert gave you the line of the spend along with the studies, and I will give you a bit more granularity on how we literally see the trials themselves playing out. The first study, obviously, is PEEK-1—that is enrolling. As Robert said, it will be fully enrolled by the end of this year, and then we will be waiting for readout. We are going full speed ahead and expect that ipi/anti–PD-1/cascadifan, as we have been talking about for some time, will be getting up and going by the end of this year. We will see where the TKI-inclusive regimen comes in. Without getting into all the detail now, we will be sorting through whether there are actually two registrational studies or a three-arm study is also a possibility. Finally, in the later-line study that we talk about, we will start off in ARC-20, and as you know, those are relatively small cohorts that enroll very efficiently. Another important point within those studies—and we will get the answers quickly—is that we will be looking at that combination in the third-line-plus, in belzutafan-naive as well as belzutafan-experienced patients. I think that will establish—something we think we know the answer to—but we will have those data even this year. Jonathan Miller: Excellent. Thank you so much. Terry Rosen: Thanks, Jonathan. Operator: Our next question comes from the line of an analyst. Your line is now open. Operator: Lee? Operator: Line is now open. Analyst: Hey, congrats on the progress. One question on the ARC-20 update, especially from the triplet cohort. It sounds like you are enrolling the combination with zimberelimab plus ipi. Can you clarify if we are going to see the initial data from this cohort this year? And what data points would you want to see to enable a Phase 3 frontline trial? Terry Rosen: Thanks. We do think you will get to see—probably in the fall—the initial data from that ipi/anti–PD-1/cascadifan regimen. We will get a sense of the safety data and the rate of primary progression. While there may be some early ORR data, we do not consider that critical. We are most focused on the safety. We will have an agreement with the FDA as to what safety data package they would want to see to enable us to get that Phase 3 up and going by the end of this year. Because that is the first point, but it is also an important point for that regimen, we will see the rate of primary progression. One thing to recognize about that regimen when we think about triplets, doublets, etc., is we have already talked about the rate of primary progression with cascadifan plus anti–PD-1 alone, and those initial data are quite favorable, where we saw only a 7% rate of primary progression. If you think about what the cascadifan/anti–PD-1/ipi regimen is going to look like, you basically get four cycles of ipi at the outset, of course with cascadifan and anti–PD-1, but then the duration and the bulk of your therapy is going to be anti–PD-1 plus cascadifan. So both the efficacy you are seeing with that as well as the safety of that will certainly impact the bulk of the therapy. We are excited about that regimen. We think we are well on track to be able to start the Phase 3 by the end of this year and have a good safety data package, and we do plan to share that externally this year as well. Analyst: Thank you. Robert Goeltz: Thanks, Lee. Operator: Our next question comes from the line of an analyst with Goldman Sachs. Your line is now open. Analyst: Hey, very helpful to see cascadifan’s development laid out across all the different lines of therapy. A couple of questions from me. Looking at the LITESPARK-012 failure in both triplets and the VOCAF discontinuation by AZ, and then all the frontline therapy—doublets or monotherapy—so far, what is your confidence that a cascadifan triplet of any kind, either with IO/IO or IO/TKI, could be safe enough to succeed in 1L? What do you think is the safety bar for 1L? Do those triplets have to show comparable safety profiles to IO/IO or IO/TKI for them to work? Terry Rosen: We feel very confident, based upon what we already know about our molecules, with triplets—whether it is a triplet inclusive of a TKI or a triplet with ipi and anti–PD-1. Keep in mind, while we have not analyzed in detail—and we will later this year—the zimberelimab (anti–PD-1) plus cascadifan doublet, we have not seen anything untoward with that. We know we can combine with cabo well. We believe that the ipi/nivo regimen has been extraordinarily well worked out in terms of dosing. As I mentioned in my response earlier, you are going to treat with four cycles of ipi; that is well worked out and time-tested. Most importantly, you are only going to be carrying your anti–CTLA-4 dosing for four cycles. We believe we have orthogonal AEs. We have not seen clear combination issues. With cascadifan, you are basically bringing on-target anemia and, more rarely, hypoxia. We are going to pick a good TKI. We know that cascadifan plus anti–PD-1 looks good. We think a reasonable TKI will not bring anything untoward there. Keep in mind, we have not actually seen the Merck data. Their hazard ratio must not have been good. That does not get to an intrinsic inability to have a triplet; it just says when you are bringing belzutafan on top of a pretty rough doublet, and you are treating for a long period of time, and you are undoubtedly introducing some new AEs but not having a robust long-term efficacy effect, you are probably not creating a favorable hazard ratio. We really do not know exactly how that played out, but all the data with our own molecules suggest that cascadifan is a very well tolerated and robust HIF-2 inhibitor with an orthogonal AE profile from anything that we plan to combine it with. We will have those data within the next six months or so. Analyst: Got it. And then a follow-up: Have you seen the efficacy and safety results from that VOLU/cascadifan trial before Astra discontinued it? And would that data be shared with you even if Astra does not plan to share it publicly? Terry Rosen: Thanks. We have not seen anything other than what we said at the outset. Since they did disclose, you can now know that there were nine patients. What we described was that initial safety signal that was very CTLA-4—and more specifically bolurumab—like. When they dosed down bolurumab but kept cascadifan at the same 100 mg dose, we did not see any more of it in those patients, who still continued on. In fact, the interesting thing out of that—as we have commented before—is we did not see any progression. If anything, given that it was nine patients, it is not obvious whether that was even purely bolurumab or not. What is obvious to us, as we were thinking about going forward, is that given the ipi/nivo well worked-out regimen and dose, and the fact that you are only going to be carrying your anti–CTLA-4 dosing for four cycles, it is a clear regimen for us to proceed with, all things considered, rather than running both of those activities for the duration of therapy. Analyst: Got it. Thanks. Terry Rosen: Thanks, Rich, and congrats again. Operator: Our next question comes from the line of Salim Syed with Mizuho. Analyst: This is Mike Linden on for Salim. Thanks for taking our question. Just one from us on cascadifan in frontline again. How are you thinking about patient selection for an ipi/nivo plus cascadifan combination for a Phase 3? Would these be all-comers versus poor, intermediate, favorable risk patients? And has the thinking around patient selection changed post–LITESPARK-012 failure? Thanks. Terry Rosen: Our patient selection strategy has not changed. In fact, we are thinking of all-comers, and we would also be thinking of all-comers insofar as a TKI-inclusive regimen. What we are really trying to address there is that there is clearly—based on our advisory board meetings—a strong preference for a TKI-sparing regimen. That is unequivocal, and that is the bedrock of the frontline. With that said, there is a bit of “tribalism,” as investigators would describe it. Certain investigators are very prone—particularly if there is a bulky, fast-growing tumor, but even otherwise—to want to reach for a TKI. We feel that for that overlap of a particular patient with a particular investigator, there should be a HIF-2 inhibitor–containing regimen. We think we can offer a very good one. We look at both of those to be in all-comer patient populations. The LITESPARK-012 data, for us—until we see something otherwise—simply reflect the durability of effect on HIF-2 inhibition with time, which we know is a dramatic difference between our two molecules. When we look at the choices of what to combine with, keep in mind, we have no commercial predisposition there. Essentially, the world is our oyster. In the frontline, there are a number of TKIs used; there is not one that is particularly dominant. Overall, you have probably 60% of the patients getting a TKI, but they are spread somewhat evenly. We have looked strategically at what is the smartest TKI from a safety standpoint—well used, well tested, approved, understood—that we should combine with in the frontline. We know that we are going to have cabo in the second line. We have done the same thinking about that late-line patient population with what then becomes another TKI that you would use late-line. As I said, the other important thing there is that we are going to look at that combination of cascadifan plus that TKI in belzutafan-experienced patients and establish unequivocally that you get the activity that you want to see in that HIF-2–experienced patient. Analyst: Thank you. Operator: Our next question comes from the line of Jason Zemansky with Bank of America. Jason, your line is now open. Jason Zemansky: Hi, this is Jackie on for Jason. Congrats on the progress, and thanks for taking our question. What do you think is necessary to drive broad uptake of a TKI-free regimen in first-line RCC, given how popular TKIs are overall—especially given their ability to rapidly debulk tumors—or is the goal to compete directly with dual IO therapies? Terry Rosen: We think there is strong receptivity towards this. One of the most important things we have seen to date is that cascadifan as a monotherapy, even in the late line, performs as good or better than a TKI in any line of settings. Even in the late line, cascadifan monotherapy—whether you are looking at ORR or PFS—looks quite good. The thing that is standing out, and the issue identified with belzutafan at the outset, is the rate of primary progression. That raised the question for HIF-2 inhibition: can you compete with TKI in bringing the tumor under control quickly enough that you do not have that high rate of primary progression? We believe that belzutafan was forced in the frontline to combine with a TKI to address a potential high rate of primary progression. We think that despite the fact that HIF-2 inhibition is well tolerated, it can get the tumor under control quite fast. The evidence is in combining with anti–PD-1: in 30 patients, we only saw two primary progressors—7%—very much in line with a TKI. We think there is receptivity to a TKI-sparing regimen, and the key to driving uptake will be to show that our rate of primary progression—and everything that flows from that—looks like a TKI. The last point is that TKIs are a rougher treatment; there is a linkage in people’s minds that associates “rougher” with “bringing the tumor more under control.” Keep in mind that 85% to 90%+ of clear cell RCC has HIF-2 as a key driver. You are hitting the tumor with something that really matters. With a robust inhibitor like cascadifan, you can compete with the efficacy effects of a TKI. Robert Goeltz: Just to add, the reason many clinicians prefer using ipi/nivo is it gives the patient the best chance for long-term survival. The Achilles heel, as Terry described, is the primary progression. If you could blunt that and still give patients the best chance at long-term survival—and we just saw 10-year follow-up data with 40% of patients alive 10 years later—that is a very compelling regimen, we think. Jason Zemansky: Thank you so much for the color. Operator: Our next question comes from the line of Emily Bodnar with H.C. Wainwright. Emily, your line is now open. Emily Bodnar: Hi, thanks for taking the questions. On the LITESPARK-011 data, how are you looking at your upcoming cascadifan plus cabo updated data, and what are you hoping to see to feel confident that you might have a superior profile versus what we saw in the LITESPARK-011 trial? Thank you. Terry Rosen: We already feel that confidence, and we are obviously running the Phase 3 trial. You kind of have to think of things holistically. In the end, what you are going to have is a hazard ratio, and since we are both running versus cabo, those will be directly comparable. While our data, when we share later this year, will still be early, we are going to give Kaplan-Meier curves, landmark PFS, and ORR. People will be able to extrapolate to whatever extent they want, but we will give a very holistic view. Another point we do not want lost is an interesting aspect of the data that will only be emerging as things play out by the time we have some mature data later this year. While from a regulatory standpoint PFS is what matters, we are going to have data from our monotherapy cohorts that are getting mature enough to start to get a sense of whether we bring an OS advantage there—albeit in the late line. The reason that is important is that it may give a good sense that this mechanism can not only drive enhancements in PFS, but also bring enhancements to OS. While that may not be a regulatory requirement, we certainly could see it as an important differentiation that would drive more uptake by a clinician if, in fact, we start to show OS enhancement from HIF-2 inhibition—which we believe there is no reason there should not be. Emily Bodnar: Thank you. Operator: Our last question comes from the line of Yigal Nochomovitz with Citigroup. Yigal, your line is now open. Analyst: Hi, this is Chuan Kim on for Yigal. Congrats on the progress and thanks for taking our question. A question regarding AB-102. While it is still early, is there any color you can provide on the intended proof-of-concept study design—whether you are planning on going into CSU versus AD first? Any color on primary endpoints or level of clinical signals you would need to see to give confidence to advance into a future registrational program? Terry Rosen: Juan, why do you not describe how we see ourselves going from A to B to C in the near term? Juan Jaen: At a very high level, we recognize that while we may have a better molecular profile, we have a little bit of ground to make up relative to the couple of existing clinical players. We have devised a fairly accelerated plan for establishing PK and tolerability in healthy volunteers, followed by a rapid mechanistic confirmation of biological activity, and very quickly progressing into a Phase 2 study in CSU. We think we will, in reasonable time, catch up and hopefully begin to illustrate the better profile of our drug. In parallel, we are thinking about where it might make sense—concurrently with that CSU-type Phase 2 study—to demonstrate the value of an MRGPRX2 inhibitor. Right now, our lead candidate for that additional indication seems to be allergic asthma, but that is still at a very early stage of conceptual framing. Analyst: Thanks. Operator: There are no further questions at this time. This concludes today’s call. Thank you for attending. You may now disconnect. Terry Rosen: Thanks, everybody. Goodbye.
Operator: Good day, and thank you for standing by. Welcome to the Jazz Pharmaceuticals plc 2026 first quarter earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, John Bluth, Head of Investor Relations. Please go ahead. Thank you, and good afternoon, everyone. John Bluth: Today, Jazz Pharmaceuticals plc reported its first quarter 2026 financial results. The slide presentation accompanying this webcast is available on the Investors section of our website along with the press release and quarterly report on Form 10-Q for the first quarter ended 03/31/2026. On the call today are Renée Galá, President and Chief Executive Officer, Samantha Pearce, Chief Commercial Officer, Robert Iannone, Global Head of R&D and Chief Medical Officer, and Philip L. Johnson, Chief Financial Officer. On slide two, I would like to remind you that today's webcast includes forward-looking statements, such as those related to our future financial and operating results, growth potential, and anticipated development, regulatory and commercial milestones, which involve risks and uncertainties that could cause actual events, performance, and results to differ materially from those contained in these forward-looking statements. We encourage you to review these risks and uncertainties described in today's press release and under the caption Risk Factors in our annual report on Form 10-K for the fiscal year ended 12/31/2025. We undertake no duty or obligation to update our forward-looking statements. As noted on slide three, we will discuss non-GAAP financial measures on this webcast. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release and the slide presentation available on the Investors section of our website. I will now turn the call over to Renée. Renée Galá: Thanks, John. Good afternoon, everyone, and thank you for joining today's conference call, led by commercial execution across our highly differentiated products for sleep, epilepsies, and cancers. This resulted in our highest-ever first quarter total revenues of $1.1 billion, reflecting more than 19% year-over-year growth driven by the outstanding performance of Xywav, Epidiolex, Midevo, and Zepzelca. Our commercial teams generated double-digit growth across all our promoted brands, and saw strong contributions from our ongoing launches. This performance reflects the disciplined and consistent efforts of our team, working with clarity and purpose to support the physicians and patients we serve. In addition to our impressive commercial performance to start the year, we are urgently advancing the development of zanidatumab for patients with HER2-positive first-line locally advanced or metastatic GEA where the unmet medical need remains significant. The FDA recently accepted our sBLA for ZYHERA under Real-Time Oncology Review, and granted priority review with a PDUFA date of 08/25/2026. We are ready to launch ZYHERA in GEA as soon as we receive FDA approval, and we expect ZYHERA will become the HER2-targeted therapy of choice for HER2-positive first-line GEA patients given the magnitude of benefits seen across both experimental arms when compared to the trastuzumab control arm. In R&D, we continue to make progress across our pipeline, with multiple ongoing registrational zanidatumab trials, early-stage trials evaluating oncology assets, and the early development of neuroscience and epilepsy assets. The year is also off to an excellent operational start with cash flow of over $400 million in the first quarter, and non-GAAP adjusted EPS of $6.34. Our financial strength and disciplined capital allocation enable us to invest in the continued growth of our commercial portfolio and pipeline, while also positioning us to execute on business development opportunities that fit our strategic focus in rare disease. With that, I will turn the call over to Sam to share more details on commercial performance. Samantha Pearce: Thank you, Renée. Our commercial team delivered strong results across Jazz Pharmaceuticals plc's portfolio, with momentum from our 2025 launches and coordinated execution continuing into 2026. I will begin on slide seven with sleep. Xywav's net product sales increased 18% to $408 million in 2026, compared to the same period in 2025. As expected, HCPs and patients continue to drive demand for safer, low-sodium Xywav. And we saw strong new patient growth with approximately 425 net patient adds. There are now approximately 16,600 patients taking Xywav, which remains the number one branded treatment for narcolepsy based on product revenues and the only FDA-approved treatment for idiopathic hypersomnia. Our field teams continue to expand both the IH and narcolepsy markets by educating HCPs on the importance of addressing the full spectrum of daytime and nighttime symptoms. These efforts are complemented by digital and media campaigns to increase disease awareness and support patient education. Our JazzCares support services, including field-based nurse educators, support patients from initiation, through titration, and across the long-term treatment journey. These services remain important differentiators for Jazz Pharmaceuticals plc. Moving to slide eight and Epidiolex. Epidiolex net product sales increased 15% to $250 million in 2026, driven by strong underlying demand and 16% volume growth during the quarter. Expanding our reach in the adult patient population, and specifically in the long-term care setting remains a key focus and an important near-term growth opportunity. Our nurse navigator program continues to have a meaningful impact on improving patient persistency, and expanding utilization of this resource remains a priority for 2026. Finally, as part of our commitment to bring Epidiolex to appropriate patients in Japan, we have partnered with Nippon Zoki, a Japanese company with deep expertise in CNS disorders. Jazz Pharmaceuticals plc remains the sponsor of the clinical trial, and Nippon Zoki will lead regulatory, distribution, and commercial activities in Japan. Turning to our oncology portfolio, starting with ZYHERA on slide nine. In 2026, ZYHERA generated net product sales of $13 million. Feedback from biliary tract cancer physicians continues to be positive with real-world experience consistent with the clinical profile observed in our trial. We are also continuing to expand into new community-based accounts beyond academic centers, increasing awareness of ZYHERA in BTC, and building readiness ahead of a potential launch in GEA. As a reminder, there is a substantial customer overlap across our solid tumor footprint, including approximately 90% overlap between BTC and GEA accounts. We believe this positions us well to accelerate uptake in GEA following its anticipated approval and launch on or before the August 25 PDUFA date. Once approved, our existing cross-functional team will be positioned to reach target customers and support rapid adoption of this practice-changing regimen for GEA patients. Turning to slide 10 and our GEA launch preparations. Physicians are expressing excitement and interest in the potential use of ZYHERA in GEA. It has been more than fifteen years since a new first-line HER2-targeted agent became available for patients with metastatic gastric cancer. Given the unprecedented median overall survival data, of more than two years, we believe ZYHERA has the potential to become the preferred HER2-directed therapy and foundational backbone for treating HER2-positive first-line metastatic GEA. The addition of tislelizumab further improved survival outcomes in both PD-L1 positive and PD-L1 negative patients, consistent with ZYHERA's unique mechanism of action that generates an innate immune response in the tumor. ZYHERA already benefits from an established permanent J-code through its FDA approval in second-line HER2-positive BTC, which we expect will simplify reimbursement in GEA and reduce the administrative burden for providers. In addition, the compelling outcomes from the Horizon GEA trial support our expectations for favorable payer access. Finally, our comprehensive JazzCares support services, together with ZYHERA's established availability across customers' preferred distribution channels, position us to enable seamless patient access at launch. Turning to slide 11 and Midevo. Midevo generated $41 million in net product sales in 2026. This strong early performance following its launch in August 2025 reflects the significant unmet need in H3K27M mutant diffuse midline glioma, high awareness driven by advocacy groups, and the value physicians see for patients. Approximately 500 patients have been treated with Midevo since launch through the end of the first quarter. Our highly experienced neuro-oncology field teams, including medical and access colleagues, continue to support the launch. The teams remain focused on expanding reach in community settings, whilst maintaining a well-supported presence in academic centers of excellence. Robust patient-centric support services and payer coverage continue to underpin launch momentum and support appropriate access for patients. Moving to slide twelve and Zepzelca. In 2026, Zepzelca net product sales increased 60% to $101 million compared to the same period in 2025. Growth in the first quarter was primarily driven by strong uptake in the frontline maintenance setting, following FDA approval of Zepzelca in combination with Tecentriq in October. Given the strength of the AMPHORA clinical data and the opportunity to improve both progression-free survival and overall survival for patients with extensive-stage small cell lung cancer, health care providers are rapidly adopting the Zepzelca combination in the first-line maintenance setting. As a result, this new indication is driving the product's strong performance. Our commercial initiatives will continue to be focused on first-line maintenance, reflecting our ongoing commitment to this priority. For the rest of 2026, first-line maintenance adoption is expected to grow, with second-line use decreasing due to competition and fewer Zepzelca-naive patients available for treatment. Overall, we are satisfied with the impressive commercial performance achieved across our portfolio in the first quarter and remain focused on maintaining this momentum throughout the year. With that, I will now turn the call over to Rob to provide an update on our pipeline. Robert Iannone: Thanks, Sam. I will start on slide 14. This is an exciting time at Jazz. In addition to our outstanding commercial execution, we are also preparing to bring zanidatumab to HER2-positive first-line metastatic GEA patients. The data from the Horizon GEA trial definitively demonstrated that zanidatumab offers improved outcomes on all efficacy measures compared to trastuzumab, and should be the new HER2-targeted agent of choice. The data also showed tislelizumab further improved survival outcomes in both PD-L1 positive and PD-L1 negative patients. The benefit regardless of PD-L1 status may be driven by zanidatumab's unique mechanism of action, known as biparatopic binding. This enables zanidatumab to cross-link neighboring HER2 receptors, leading to receptor clustering which blocks HER2 growth signaling and also triggers the complement cascade. Zanidatumab's ability to uniquely and broadly activate the innate immune system may in part explain the additional efficacy observed when tislelizumab was added to zanidatumab, even in PD-L1 negative tumors. The triplet arm of zanidatumab, tislelizumab, and chemotherapy demonstrated improved overall survival, with a remarkable median OS of 26.4 months, representing a meaningful improvement of more than six months median OS compared to prior studies in HER2-positive patients who have a poor prognosis in the metastatic setting. Among patients who had an objective response, the median duration of response was 20.7 months. Again, this benefit was observed irrespective of tumor PD-L1 status. To put this into context, in the KEYNOTE-811 trial, the duration of response for trastuzumab and pembrolizumab plus chemotherapy was 11.3 months. We are moving quickly to bring zanidatumab to HER2-positive first-line metastatic GEA patients. Following the oral presentation at ASCO GI in January, we submitted the data for potential inclusion in NCCN guidelines. We are pleased that the manuscript has been accepted for publication by a top-tier medical journal and plan to submit the peer-reviewed manuscript to NCCN once it has been published. Our supplemental BLA for zanidatumab has received priority review, with a PDUFA date of 08/25/2026. We are actively engaged with the FDA in the review process, and we expect potential approval and launch of zanidatumab in GEA on or before the PDUFA date. Turning to slide 15 and our pipeline. We have multiple clinical trials across our pipeline from early-stage to registrational trials. We look forward to sharing data from some of these ongoing trials at the upcoming ASCO presentations on lurbinectedin and zanidatumab. The second planned interim analysis for overall survival of the zanidatumab and chemotherapy arm of the Horizon GEA trial is still expected midyear. At the time of top-line readout, this arm showed a clinically meaningful effect on overall survival with a strong trend towards statistical significance compared to the control arm. The next pivotal Phase III trial for zanidatumab is in metastatic breast cancer patients who have progressed on or are intolerant to ENHERTU. Trial enrollment is progressing well. We continue to expect to complete enrollment in the EMPOWUR trial in 2027, with top-line data anticipated in late 2027 or early 2028. Other earlier-stage trials continue to progress across new indications, including a potentially registrational pan-tumor basket trial and a neoadjuvant/adjuvant breast cancer trial. Looking ahead to later this year or early 2027, we anticipate the ongoing Phase III ACTION trial will have an interim overall survival readout. This trial is designed to confirm the benefit of Midevo and support regulatory approval as frontline therapy directly following radiation instead of waiting for signs of tumor progression before treating with Midevo. We are working with dedicated focus to both realize the full potential of our near-term opportunities and to rapidly progress our pipeline. Our in-house research and development efforts are underway, and we look forward to sharing updates on those and further pipeline progress in the future. Now I will turn the call over to Phil for a financial update. Philip L. Johnson: Thanks, Rob. I will start with high-level comments on our non-GAAP adjusted P&L as shown on slide 17. Please note that our full financial results are available in today's press release and 10-Q. The outstanding execution of our field-based teams was reflected in record first quarter revenue of $1.07 billion, driven by 45% growth in our oncology portfolio, 18% growth in Xywav, and 15% growth in Epidiolex. Strong underlying performance drove the vast majority of our revenue growth. I do want to point out two smaller items that also contributed to growth this quarter. First, we had the normal thirteen shipping weeks for our U.S. oncology products this quarter; last year's quarter had twelve shipping weeks. This contributed about two percentage points to our worldwide revenue growth rate. Second, the significant devaluation of the U.S. Dollar led foreign exchange to contribute about one and a half percentage points to our worldwide revenue growth. Moving down the P&L, our non-GAAP adjusted gross margin declined slightly year-on-year, primarily due to higher sales of products carrying royalties, namely Zepzelca and Midevo. Non-GAAP adjusted SG&A expense decreased about $164 million. You may recall that in last year's quarter, we recognized litigation settlement expenses of $172 million. Excluding these expenses, SG&A increased by $8 million driven by the inclusion of Midevo expenses. Non-GAAP adjusted R&D expenses increased by $13 million primarily due to the inclusion of Midevo clinical trial expenses and higher compensation-related expenses. Non-GAAP adjusted effective tax rate this quarter was slightly lower than our full-year 2026 guidance due to excess tax benefits from share-based compensation, while our shares outstanding for the quarter reflect the accounting effect of our higher share price on our convertible notes and employee stock plans. At the bottom line, we posted very robust non-GAAP adjusted EPS of $6.34. Supported by our strong start to the year, we are reaffirming our full-year 2026 revenue and expense guidance, including total revenue guidance of $4.25 billion to $4.5 billion. Total revenue guidance for 2026 includes the assumptions you see on slide 18. As a reminder, we assume competitive dynamics in our sleep business will increase in the second half of the year, including high-sodium generics gaining volume, and one or more daytime wake-promoting agents potentially entering the narcolepsy market. We also expect to see a decline in the Xyrem and high-sodium authorized generic revenues as generic high-sodium oxybates build their volumes over the course of 2026. And as Sam mentioned earlier, we expect a decline in second-line use of Zepzelca. Our Q1 performance and focus on disciplined capital allocation position us well to achieve our 2026 guidance. Moving to slide 19, our balance sheet remains strong. We continue to generate significant cash from our business, recording $408 million of cash from operations in the first quarter of the year. And we ended the first quarter with $2.9 billion in cash and investments. Our overall financial position and robust operating cash flow provide significant flexibility to invest in value-driving commercial and R&D programs as well as in promising corporate development opportunities to support our rare disease strategy. I will now turn the call back to Renée for closing remarks. Renée Galá: Thank you, Phil. I will conclude our prepared remarks on slide 21. 2026 builds on the successes we achieved in 2025. Our focused commercial execution led to more than 19% growth in the first quarter, and based on these results, we are on track to achieve our 2026 financial guidance. We look forward to several upcoming catalysts, including the second interim of overall survival from the Horizon GEA trial midyear. Top-line readout for overall survival for the confirmatory ACTION trial for Midevo is expected at the end of this year or early next year. And the top-line readout from the trial evaluating zanidatumab in late-stage breast cancer post-ENHERTU treatment is expected in late 2027 or early 2028. We continue to build upon our proven scientific expertise and capabilities to make a meaningful impact for patients. Supported by our strong financial position, you should expect to see us invest in our commercial brands and pipeline and business development to broaden our portfolio in key strategic focus areas of sleep, epilepsy, and oncology, in addition to other areas of rare disease. I would like to thank all our Jazz Pharmaceuticals plc colleagues for their efforts and dedication to making a difference in the patients' lives that led to an exceptional first quarter. We are relentlessly focused on continuing to deliver life-changing medicines to patients. That concludes our prepared remarks. I would now like to turn the call over to the operator to open the line for Q&A. Operator: Thank you. Wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question today will be coming from the line of Jessica Macomber Fye of JPMorgan. Please go ahead. Operator: Please go ahead. Jessica Macomber Fye: Hey, guys. Good afternoon. Thanks for taking my question. Question on zanidatumab for breast cancer. So if we assume zanidatumab beats Herceptin in breast cancer and gets approved one day for use in the post-ENHERTU setting, how do you expect physicians to make decisions about how to sequence agents in the context of a lack of data for other products post-ENHERTU, among other things? Thank you. Robert Iannone: I am happy to address that, Jess. We became very interested in this space based on good advice from many key experts in the field. And the fundamental issue is that once ENHERTU moves to frontline, there is very little data about which HER2 agent to select as subsequent therapy. So the trial that we are running, 303, will be the first time that we definitively, in a randomized setting, evaluate zanidatumab versus what would be considered a standard of care. So we expect to be out ahead with important data that will inform decisions about whether to use zanidatumab or other HER2 agents in that space. Operator: Thank you. One moment for the next question. And the next question is coming from the line of Joseph John-Charles Thome of TD Cowen. Your line is open. Joseph John-Charles Thome: Hi there. Good afternoon. Congrats on the quarter, and thank you for taking my question. Maybe one on Midevo. Do you have any updated thoughts on sort of the size of this patient population? I think historically, it was thought that it was maybe 2,000 or 3,000, but it sounds like you are already hitting, you know, 500 patients. So any thoughts on that total opportunity just given the strength of that launch? And maybe a follow-up, if I can, on M&A. What is your latest thinking in terms of where you would like to go? Obviously, we have seen a lot of activity in the past few weeks in different areas. What is the sweet spot in terms of size and area of focus for Jazz Pharmaceuticals plc moving forward? Thank you. Samantha Pearce: Sam here. I am happy to take the one on Midevo to start with. Yes, extremely pleased with the launch so far. $41 million in Q1 really gives us a lot of confidence around achieving that $500 million peak opportunity in the U.S. And as you mentioned, we have had 500 patients treated since launch. I think that just reflects the very high unmet need that we see in this space. Overall survival from diagnosis is just one year. So this product has had a meaningful impact, and it is supported by high awareness from physicians and obviously very strong patient advocacy support as well. In terms of the size of the patient population, I think our best estimates are aligned to what you mentioned there, and over time, of course, we will continue to evaluate that. But we do see potential upside in duration of treatment, as well as the size of the population. What we have seen so far is that patients are staying on treatment for longer than we initially anticipated. We will have to wait for this cohort of patients to really mature before we get a really good handle on whether the duration of treatment exceeds that that we saw in the trial, which is around about ten months. But we are extremely happy with the start. I think our teams have done an excellent job really executing this launch well in such an important area of medical need. Renée Galá: And, Joe, this is Renée. I will jump in on BD. We are highly engaged on the BD front, and I do expect us to have deals announced over the course of this year. We do have a clear strategy that is focused on expanding our presence in rare disease. In particular, we believe there is a significant unmet need, so strengthening our current areas of epilepsy, sleep, and rare oncology, also expanding into new areas of rare disease—areas we think we can leverage our capabilities and our footprint to continue to scale our business while driving further growth and profitability. In terms of the deal types, it really depends on the transaction at hand, but we are looking at licensing, structured deals, also outright M&A. I think the key here to being successful in BD is valuing or de-risking in ways that others do not see and then staying myopically focused on execution, as we did with the Chimerix acquisition and subsequent Midevo launch. We have very strong momentum now with the new Chief Business Officer on board as of January 1. Importantly, we are well positioned to execute. Phil mentioned we have a strong financial position: $2.9 billion in cash and cash equivalents on the balance sheet, strong cash flow. And while M&A has picked up, we do believe there is still a lot of substrate that is actionable and well aligned with our strategic priorities. Operator: Thank you. One moment for the next question. Our next question will be coming from the line of Leonid Timashev of RBC. Please go ahead. Leonid Timashev: I wanted to stay with—you mentioned epilepsy—just wanted to touch on that. You have been making a lot of investments in that area, both with Epidiolex, with the Cenobamate asset, you also have JZP-47 and now you mentioned potentially looking at BD there as well. So I guess just curious how you are thinking about that area, to what extent a continued focus, and how you are thinking about either synergies or risk of cannibalization across so many different assets there? Thanks. Renée Galá: Yes. Thanks for the question. This is Renée. I would say this is definitely an area of focus for us. There continues to be significant unmet need across the epilepsy space. You see a strong amount of polypharmacy here with respect to multiple medications generally on board, in particular when we are looking at serious refractory epilepsies. We think with the position that we have with Epidiolex being the number one branded product and having very long durability out to the very late 2030s, it gives us greater opportunity to continue to build around that franchise, to build scale. I am thrilled to see additional opportunities for patients with the strong data that we have been seeing come out with a number of companies, whether that is on the proof-of-concept side starting to go into registrational studies or work that is happening early in pipelines. As we think about ourselves, we think there is plenty of room and unmet need for patients to continue to see new mechanisms explored and new options. So we do think there is still plenty of substrate and a great opportunity for us as a leader in epilepsy. You will note last quarter, we said we were advancing the first molecule coming out of our labs that was not just a formulation play, but an innovative target, novel mechanism coming out of our lab that went into patients in the epilepsy space. We will continue to invest here, and we are excited about the opportunities. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Annabel Samimy of Stifel. Your line is open. Annabel Samimy: Hi, thanks for taking my question. Just want to circle up on Midevo again. Obviously, it has been exceedingly promising since the outset, and you have potential to move into first-line treatment. I guess my question is how should we think about the potential move into first-line treatment? Does it significantly expand the market? Should we think about this like we think about Zepzelca moving into first line and how it significantly inflected growth? I am trying to understand the magnitude given that most patients who are in first line progress to second line. Is it only about duration, or is there a population opportunity there? Samantha Pearce: Yes. Hi, Annabel. I am happy to take that. Yes, I think there are two factors when we consider the ACTION study and what that will do for Midevo and for patients. Some patients do not make it to second line. So, of course, there are more patients available to be treated. But having the opportunity to get Midevo to patients before they progress will mean that the duration of treatment should be longer if they can use it straight after radiation. So those two things, I think, will contribute to the $500 million peak potential, which does incorporate an assumption that we will have that first-line label. Rob, anything more to add on that? Robert Iannone: I mean, you covered it well. I would just point out that sometimes it is hard to judge progression in these patients. And then, as you point out, once it is clinically apparent in addition to imaging, the patients may rapidly progress and not benefit from second-line therapy. So the opportunity to start Midevo right after the radiation therapy really does potentially add a significant benefit to patients and ultimately duration of therapy. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Marc Goodman of Leerink. Please go ahead. Marc Goodman: Sam, can you talk about Epidiolex OUS? I heard Phil talk about the FX impact, but those numbers could not have just been FX. Something is doing pretty well there. So maybe just talk—was there any particular country? Was there any buy-in? Anything unusual there? And maybe you could just comment on Rylaze as well, which happened to have a really good quarter, and what was happening there. Thanks. Samantha Pearce: Yes. Thanks for the question, Marc. Yes, it is great to see the performance outside of the U.S. for Epidiolex. Very strong growth indeed. Around about two thirds of that, I believe, was volume, and there was about a third due to FX and some gross-to-net benefits from places like the U.K. with a VPAG adjustment that happened there. I think this is just down to terrific execution by our teams. As you know, Epidiolex was launched a little bit later in Europe, so there is still quite some opportunity to continue to penetrate in the pediatric segment, but, of course, also in that adult segment, which is a focus for both U.S. and the ex-U.S. business. And then your other question around Rylaze, yes? Rylaze delivered a strong quarter, $100 million, which was 10% revenue growth. But that was comparing to quite a low Q1 2025. So I think the performance that we have seen in this quarter is in line with the prior quarters that we have seen, other than the Q1 which is a low point. What we have seen with Rylaze is the COG impact that started in 2024 has been fully realized now. Our focus continues to be on making sure that appropriate patients can receive Rylaze, that they are switched at the first sign of a hypersensitivity reaction, and the opportunity to continue growth in AYA. But I think that $100 million per quarter for Rylaze is a good kind of stable base for us currently. Operator: Thank you. One moment for the next question. Operator: And the next question is coming from the line of Analyst of Barclays. Please go ahead. Analyst: Hi. This is Jordan Becker on for Etzer Darot. Thanks for taking my question and congrats on the impressive quarter. Maybe just one, if we could expand on any second-half dynamics for oxybates now with a full quarter in the rearview. Maybe if you could provide some more color on any potential competitive pressure from Lumryz specifically. And then on that, maybe any perceived pressure to IH growth down the line if Lumryz is approved in IH? Samantha Pearce: Yes, I am happy to take that question on Xywav. We are very pleased with the continued momentum for Xywav. $408 million this quarter, 18% revenue growth and a really healthy 12% volume growth. We continue to see really good patient adds—425 net patient adds in the quarter, most of them continuing to come from 300 net patient adds for IH, which is consistent with what we have seen in prior quarters. So we finished the quarter with 16,600 active patients. And when we look ahead to the outlook for Xywav for the remainder of the year, obviously, we are very pleased with the momentum that we are taking into the second quarter. We still have continued strong payer coverage—more than 90% of commercial lives covered. Nothing has changed around the nature of our Xywav business in the first quarter of this year. And our 2026 full-year guidance does include assumptions that generics will build volumes in the second half of the year, as well as the potential for the entry of new wake-promoting agents entering the market in the second half of the year in the NT1 narcolepsy segment. But we believe Xywav will continue to have a really important place in therapy. We have invested in some really meaningful evidence generation, XYLO and the DUET studies, which show the importance of having a low-sodium option, and the DUET study, which shows just how effective Xywav is as a nighttime agent. We believe those two benefits will continue to resonate strongly with physicians and patients, of course. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Analyst of Baird. Please go ahead. Analyst: This is Charlie on for Brian. I was just wondering if you could give us a sense of the size of the opportunity for Epidiolex in the adult and long-term care setting. And maybe some more color on the initiatives you are taking there with the new formulation as well as would be curious to hear—will you be sharing any data from the Phase 1b in focal when you get that, and do you have any idea in terms of timing there as well as what your expectations are for the setting for Epidiolex? Thanks. Samantha Pearce: I am happy to take the first part of your question in relation to the adult segment, and then I will hand over to Rob to talk about the study. We are very happy with the performance of Epidiolex in the first quarter of this year, $250 million, 15% revenue growth, and 16% volume growth. As you probably recall, Epidiolex was launched initially very much as a pediatric drug, and we have seen really good penetration in that segment, a leading agent, obviously, for pediatric patients. One area that we do continue to see opportunities in is in that adult segment, particularly in long-term care facilities. So we have made some specific investments there with a dedicated team focusing on those facilities. And we have also invested in a diagnostic tool, REST-LGS tool, because we know that adult patients with LGS often go undiagnosed. So we have supported physicians to help ensure that those patients can get a definitive diagnosis and benefit from Epidiolex. In addition to that, one of the hallmarks of Epidiolex is the very long persistency that we see. But we do see an opportunity to drive that even further. We know that patients that are enrolled onto our JazzCares program, which also gets the support of a nurse navigator, stay on treatment longer, so we have a particularly focused effort now on ensuring that as many patients as possible can benefit from our JazzCares suite of services, and we believe that will drive even longer durations of treatment for Epidiolex. In addition to that, we are making quite significant investments in evidence generation. We have the EPICOM study in TSC and the BECOME survey, which has been focused on adults, which really just underlines the benefit that Epidiolex has not just for the control of seizures, but also for controlling some of the non-seizure symptoms that these patients experience as well. That is one of the very significant differentiating benefits of Epidiolex. So overall, we are very encouraged by the momentum that we have with Epidiolex but also really see a lot of long-term potential to continue to grow Epidiolex into the future, particularly in that adult segment. Robert Iannone: Thanks for the question on the focal seizure study. We are super excited about it. There is a lot of interest from epileptologists to more formally evaluate Epidiolex in this setting. As you know, doctors and treaters think about epilepsy in terms of types of seizures, and we have lots of data showing activity of Epidiolex across really every type of seizure with some preliminary evidence in focal onset seizures as well. This is an evidence generation study to go deeper into this particular population, and we would intend to publish this as soon as we have data available to do so. We have not given any specifics on that yet. After a little more time elapses and we get a good sense of the enrollment rate, we may be able to update further. Operator: Thank you. One moment for the next question. Our next question is coming from the line of David A. Amsellem of Piper Sandler. Your line is open. David A. Amsellem: Hey. Thanks. So I have a long-term competitive landscape question on your business. So your competitor has valroxabate, the sodium once-nightly, or potential no-sodium once-nightly product that is in development. To the extent that reaches the market, can you talk about how that could impact your Xywav business, both in terms of narcolepsy and the IH setting? And just in general, how are you planning to respond competitively to overall a more crowded landscape? The obvious is, of course, with the orexins, but also next-generation oxybate products as well. Thanks. Renée Galá: Maybe I can step in on that, and then I will ask Rob to comment on how we are viewing orexins. I would first point to the fact that Xywav has been competing for the last two years with a number of high-sodium options on the market. Over that time, we have not only built a strong group of patients that are relatively persistent in terms of their use of oxybate, but also the specific relief and flexibility that they receive from Xywav, and it is the only product available for IH. We have done a lot of work in the market in terms of disease awareness. One of the areas that we have invested quite a lot in that Sam has spoken to earlier is the patient support services. I think that is highly differentiating for Jazz Pharmaceuticals plc in terms of the extent of our services and the way that we have deployed those. We will continue to ensure that the unique differentiating benefits of Xywav as well as various support services are well understood in the market. I would also note that we do, from a patent perspective, have a lot of confidence in our overall patent estate. So when you are thinking about the various programs that are out there that may be for a 505(b)(2) sort of path, from that perspective, we do have robust patents that include many Orange Book–listed patents out to 2033 and 2037, and then an Orange Book–listed IH patent out to 2041. But maybe I will also invite Rob to comment with respect to orexins coming into the market and our view there. Robert Iannone: Yes, we have been following orexins carefully, and our conclusion is that it is likely to be complementary to Xywav. As Sam mentioned, alluding to the DUET study, we have significant data showing that the root cause in hypersomnia, such as narcolepsy type 1 and 2, as well as IH, has really disrupted nighttime sleep, and oxybates are the only therapy that can address the disrupted nighttime sleep directly. And Xywav, of course, is the only low-sodium formulation that we believe is safest for patients who are at a high risk for cardiovascular outcomes. Certainly, the orexins are showing to be potent daytime alerting agents. Some preliminary data are showing, though, that you can have insomnia, especially with the longer half-life formulations. The limited PSG data that are out there suggest that they certainly are not improving disrupted nighttime sleep and may actually, in the first half of the night, be impacting it negatively with the reports of insomnia. So we continue to think that this is an important space to follow. We have an orexin in development still, but we think, ultimately, this is going to be complementary to Xywav. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Mohit Bansal of Wells Fargo. Please go ahead. Mohit Bansal: Great. Thank you very much for taking my question, and congrats on all the progress. Just want to ask about the Zepzelca IP here. I see a few new Orange Book–listed patents here since 2025, so they go all the way to 2040. So how should we think about the life of Zepzelca beyond 2029 at the compound-of-matter patent at this point? Thank you. Renée Galá: Thanks, Mohit. This is Renée. We do have a strong patent estate for Zepzelca, and as you noted, we have multiple patents that extend out to 2040. We are also pursuing multiple new patents with the Patent Office that would also extend out to that timeframe, with additional applications, whether that be combo therapies, formulations, or methods of treatment. Stepping back and speaking to the ANDA filers that we have disclosed, we have filed suit against all five ANDA filers, and as the result of filing that suit, a stay of approval is in effect for up to 30 months as imposed by the FDA. While we are not going to speak broadly to active litigation, we do feel that we have a strong patent estate, and as we have more clarity and information on that, we will be certain to share that. Operator: Thank you. One moment for the next question. Our next question is coming from the line of Jason Matthew Gerberry of Bank of America Securities. Please go ahead. Jason Matthew Gerberry: Hey, guys. Thanks for taking my questions. Just one for Phil on Xywav. I apologize if I missed this, but you, at the beginning of the year, guided to flat to mid-single-digit growth for Xywav. Given growth of nearly 20% in 1Q, just wondering if we should be assuming that we are coming in towards closer to the high end of that number? Or were there some one-time dynamics in the 1Q number to call out? And how should we think about zanidatumab pricing OUS and any MFN-related considerations? Philip L. Johnson: Thanks for the question, Jason. On Xywav in the U.S., really pleased, as Sam mentioned, with the great execution of our field-based team. In terms of underlying growth, we had volume growth of about 12% here in the first quarter. There was a bit of additional pickup coming from net price, primarily gross-to-net favorability with both mix of business and then patients successfully transitioning more quickly than in the past back onto their insurance in that first quarter reauthorization period. That is something that is more of a first-quarter phenomenon. We would not expect to see that kind of net price pickup quarter on quarter as we get into Q2 through Q4, but definitely pleased with Xywav performance in the first quarter—it sets us up nicely for achieving the full-year guidance. I think that also applies to the total revenue guidance as well, not just Xywav. And then for the MFN, zanidatumab—right now, the MFN considerations, as you know, are a bit uncertain. We have got some sort of conflicting input out there; certainly GLP and GARD are proposed to use a basket of ex-U.S. countries to provide reference pricing for the U.S. We will certainly be taking that into account as we look at the strategy for getting ZYHERA to patients outside of the U.S., which is certainly a priority of ours and one that we will need to take account of the current situation here in the U.S. as we move forward. Not sure, Sam, if you would like to add any of your thoughts from a commercial perspective, or Renée more from a corporate strategic perspective. Renée Galá: I think you covered it nicely, Phil. Jason Matthew Gerberry: Great. Operator: Next caller, please. Operator: Thank you. And our next question will come from the line of Ami Fadia of Needham & Company. Please go ahead. Ami Fadia: Hi. Good afternoon. Thanks for taking my question. I had a follow-up on the comments related to the oxybate franchise, particularly Xywav. I think at the beginning of the year, you talked about anticipating the potential for some additional headwinds either on the pricing side or just in terms of access with the entry of generics. Maybe if you could talk about some of the dynamics around whether you see any pushback on the use of Xywav, particularly in narcolepsy, and how you see the utilization in narcolepsy evolve with more generics on the market? And then just on the Midevo ACTION trial, can you talk about which interim OS analysis will be done by the time you have the data readout in late 2026, early 2027, and your confidence around the timeline of that readout? Thank you. Samantha Pearce: I am happy to take the question relating to Xywav. Yes, of course, we have seen two multisource generics enter the market in Q1. As yet, we have not seen any impact on Xywav's business. As I mentioned previously, we continue to have strong payer coverage supporting the use of Xywav, so nothing really has changed in the nature of our business for Xywav. But, of course, it is still early days for the generics in the market. We do anticipate that as their volume grows through the course of the year, then we may start to see some actions taken by payers that may include utilization management. We do not know yet. But we are very confident that Xywav offers a really important and differentiating option for patients—being the only low-sodium option, the only product approved for IH. And, of course, it has already demonstrated how effective it is as a nighttime agent and the impact that has on daytime symptoms. We have carried strong momentum throughout the last twelve months and into this year, and we are in a strong position as we go into Q2. Philip L. Johnson: Sam, just to add one thing real quickly as we think about what we are seeing with Xywav before we go on to Rob for the data. Certainly the dynamics are a bit unusual in the first quarter given reauthorization, but I do think we are seeing continued support by patients and physicians of the unique benefit that Xywav offers. Think about looking at the net patient adds. Lumryz net patient adds were announced as roughly 100 adds this quarter, like the 100 last quarter. Our numbers just in narcolepsy have been larger than that in each of those two quarters—again underscoring this unique benefit that only Xywav can offer and the safety advantage it confers being valued by patients as well as physicians. So we are in a great position from that perspective as well as we think about the back part of the year and how things could play out. Robert Iannone: Yes. So, Ami, the ACTION trial is an OS-based endpoint and there is one interim analysis and then a final analysis. The projections we gave are based on our current understanding of the events because it is an event-driven trial. Certainly, if the events slow over time, that could change. But we will update as appropriate as time goes on. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Analyst of Deutsche Bank. Please go ahead. Analyst: Hey there. Thanks for taking my questions. I first wanted to ask on the timing of a potential NCCN guideline incorporation for zanidatumab in GEA. Do you have any sense of, relatively, when that might occur versus the PDUFA date, and how important is a category 1 recommendation to drive uptake? And then in breast cancer for zanidatumab, I wanted to get a sense of how you are thinking about the opportunity size in the different settings. Obviously, you are looking at post-ENHERTU, but I think you are also looking at neoadjuvant/adjuvant. I was just curious as to your thoughts on the size of the opportunity in those various settings. Robert Iannone: Great. On the NCCN guidelines, we proactively submitted the abstract data because it was available. We will certainly update NCCN with the full manuscript as soon as that is available, and we hope that gives them everything they need to make a prompt decision on that and adoption, which we expect. Certainly, we think the data speak for themselves. Head to head against Herceptin, zanidatumab definitively wins. It is clear that tislelizumab is adding and likely to be synergistic with zanidatumab, as demonstrated by the activity in the PD-L1 negative subset, supporting its use upfront with tislelizumab. We think those data speak for themselves, and that should be reflected in NCCN. Samantha Pearce: Sorry, just to finish off the remainder of that question there. NCCN guidelines inclusion is obviously important. We think that the data support a category 1 inclusion. If it comes before the launch, then that will open up access ahead of regulatory approval. Of course, we do not promote ahead of regulatory approval, but certainly that will make it easier for physicians to provide access to their patients. And yes, the breast cancer opportunity is obviously very significant—significantly larger than either the BTC opportunity or the GEA opportunity—with many more patients that can potentially benefit from zanidatumab. So we are excited, obviously, about that for the long-term potential for ZYHERA. Operator: Thank you. That does conclude today's Q&A session. I would like to turn the call over to Renée Galá, CEO, for closing remarks. Please go ahead. Renée Galá: Thanks, operator. I would like to close today's call by thanking all our partners and stakeholders for their continued confidence and support. We look forward to sharing further updates on the potential approval and launch of ZYHERA.
Operator: Hello, everyone. CJ Jain: Good evening. I am CJ, head of investor relations at Strategy Inc. It is an honor to kick off Strategy Inc's first quarter 2026 earnings webinar. I will be your moderator today. We will start the call with a 60-minute presentation, starting with Andrew Kang, followed by Phong Le, and then Michael Saylor. This will be followed by a 30-minute interactive Q&A session with four Wall Street equity analysts and four Bitcoin analysts. Before we proceed, I will read the safe harbor statement. Some of the information we provide in the presentation regarding our future expectations, plans, and prospects may constitute forward-looking statements. Actual results may differ materially from these forward-looking statements due to various important factors, including fluctuations in the price of Bitcoin and the risk factors discussed under the caption “Risk Factors” in Strategy Inc's annual report on Form 10-Ks filed with the SEC on 02/19/2026, and the risks described in other filings that Strategy Inc may make with the SEC. We assume no obligation to update these forward-looking statements, which speak only as of today. With that, I will turn the call over to Andrew Kang, the CFO of Strategy Inc. Andrew Kang: Thank you, CJ. First off, I would like to officially welcome CJ Jain to his new role as Strategy Inc's head of investor relations. I also want to take a moment to thank Shirish Jajodia, our corporate treasurer, for helping establish and lead our IR function for the last 20 quarters. As our team grows, I know we will strive to continue to provide transparent and relevant information to all of our shareholders and stakeholders. So welcome, CJ. Now turning to the quarter's results. We are off to a very strong start in 2026. We now hold 818,334 Bitcoin, which is about 3.9% of all Bitcoin that will ever exist. That keeps Strategy Inc in a clear leadership position as the largest corporate Bitcoin holder in the world. Our market cap is now $62 billion, and STRC has grown to $8.5 billion outstanding, showing strong market fit and investor demand and filling a gap that has existed for investors seeking stable price and attractive yields backed by Bitcoin. So far in 2026, we raised about $11.7 billion of capital, giving us more flexibility to keep our Bitcoin position and creating long-term value for our shareholders. Andrew Kang: Turning to Q1 financial results. We reported an operating loss of $14.5 billion and a net loss of $12.8 billion. As you would expect, these results were primarily driven by the decline in Bitcoin's fair value during the quarter, and as these are largely noncash market-driven impacts tied to Bitcoin's quarter-end price, our underlying strategy remains unchanged: raise capital responsibly, buy and hold Bitcoin over the long term, and grow Bitcoin per share for our shareholders. On slide eight here, Bitcoin per share increased from 181,030 sats per share in May 2025 to 213,371 sats per share in May 2026, roughly an 18% year-over-year increase. Year to date, we have delivered 9.4% BTC yield compared to 22.8% for the full year 2025, showing acceleration year to date compared to the same point last year. We have also generated 63,110 BTC gains so far in 2026 compared with 101,873 BTC for all of 2025, having already achieved about 62% of last year's full BTC gain in just the first four months of the year. In dollar terms, that represents approximately $5 billion of dollar gain year to date versus $8.9 billion for the full year 2025. Since 2020, Bitcoin per share has grown to 213,371 sats per share as of May 2026, which is nearly a 4x increase since the beginning, delivering positive BTC yield every year across multiple market environments. In 2025, we delivered 22.8% BTC yield, and so far in 2026, we have already added another 9.4%. We remain focused on consistently increasing Bitcoin per share over time through our disciplined treasury operations and long-term conviction in Bitcoin. Here on slide 11, our track record remains constant, having acquired additional Bitcoin in every quarter since 2020 across 108 separate acquisitions. As of May 4, we held over 818,000 Bitcoin for a total value of approximately $64 billion and a total acquisition cost of about $62 billion. Our average purchase price is approximately $70,000 per Bitcoin, and our holdings now represent, as I mentioned, 3.9% of all the Bitcoin that will ever exist. Turning here to the balance sheet. Digital assets ended the quarter at $51.6 billion compared to $58.9 billion at year-end. Having acquired 89,599 Bitcoin in Q1, the change reflects the lower price of Bitcoin at the end of the quarter versus at the end of last year. Cash and cash equivalents were $2.2 billion, which largely reflects our USD cash reserve. Regarding taxes, the change this quarter was driven by the quarter-end mark-to-market movement in Bitcoin, and as Bitcoin moved from an unrealized gain at year-end—our deferred tax liability of $1.9 billion—shifted at the end of Q1 to an unrealized loss, to a deferred tax asset. A full valuation allowance against that tax asset brought the net balance sheet tax position to zero, which also resulted in a noncash tax benefit on the income statement which partially offset the pretax loss for Q1. Long-term debt remained unchanged at $8.2 billion, while equity increased to $9 billion driven by strong STRC issuance in the quarter. Overall, the balance sheet remains highly liquid and extremely well capitalized. At the end of Q4, the market value of our Bitcoin was approximately $59 billion, which is based on a Bitcoin price of about $87,500. During Q1, we recognized that unrealized fair value loss of $14.5 billion, and despite Bitcoin price volatility, we continued to purchase an additional 89,599 Bitcoin in the quarter, approximately $7.3 billion at an average price of about $80,900. We ended the quarter with a digital asset value of $51.6 billion based on a Q1 ending Bitcoin price of about $67,800. In Q2 so far, we are illustrating an unrealized fair value gain of approximately $8.3 billion as of May 1. We purchased an additional 56,235 Bitcoin quarter to date for approximately $4.1 billion at an average price of roughly $73,400 for that period. Those purchases, benefiting from the increase in Bitcoin price, add approximately $300 million of positive fair value, and as of May 1, our Bitcoin held a market value of approximately $64 billion based on a Bitcoin price of $78,035. In dollar Bitcoin reserve, implying an MNAV of 1.27, which has expanded since the beginning of the year. We have $13.5 billion preferred equity, representing 34% amplification, and net leverage of 9%, made up of the $8.2 billion of convertible debt. Strategy Inc is building around Bitcoin as digital capital. We have approximately $58 billion of equity. You can see here large traditional banks operate with liabilities-to-asset ratios above 90%. Our ratio is a mere 9%. That gives us a very different foundation made up of a very large equity base, substantial Bitcoin reserves, and structurally lower balance sheet risk. We can issue Bitcoin-backed credit products to support investors with strong collateral and continue accumulating Bitcoin over the long term from a position of strength and durability. We have approximately $6 billion of net debt, which represents just 9.3% net leverage against our Bitcoin reserve, which is effectively a 10.8x BTC rating. Our strategy is based on a disciplined balance sheet construction, modest leverage, strong collateral, and permanent capital to grow our Bitcoin over time. Our net leverage is lower than the average of the investment-grade S&P universe, and lower than every major industry sector across most S&P 500 companies. At the current Bitcoin price, our reserve is valued at approximately $64 billion compared to $6 billion of net debt, which translates to the 10.8x BTC rating. The stress case on the right shows that even after a 91% Bitcoin price decline to roughly about $7,300 per Bitcoin, our Bitcoin reserve would still be sufficient to cover our net debt at a 1x BTC rating. Our USD cash reserve has remained at $2.25 billion, and while the years of coverage has shifted down with the growth of STRC this year, we believe the stable cash along with our Bitcoin reserves and ability to raise additional capital continues to provide us with flexibility to continue supporting our dividends for the foreseeable future. On the next slide, the $64 billion of BTC reserves adds an additional 43 years of coverage. Another way to look at this: at today's reserve size, Bitcoin would need to grow by only 2.3% annually for the reserve growth to cover our current obligations. If Bitcoin grows at or faster than the breakeven ARR here, the BTC reserve alone can support our dividends without requiring any additional capital. Before I turn it over to Phong for his remarks, I would like to highlight the amendment to STRC that we have asked for your vote on. We are proposing to move STRC dividends from monthly to semimonthly, with payments twice per month on the 15th and the last day of the month, while keeping the economics unchanged. Our goal is to make STRC work better for investors by reducing reinvestment lag, improving liquidity, dampening the impact of a single monthly record date, and helping STRC trade more efficiently around the target price. Today, STRC pays out 12 times per year with one payment at month-end. Under the proposed amendment, STRC would pay 24 times a year with payments around the 15th and the last day of the month. Again, total dividend economics are unchanged and payments would simply be about half the size and paid twice as often. Under the proposed change, there would be two record dates, one on the 15th and one at the end of the month, with the related payment dates made on the next scheduled record date. If the vote is approved, the first record date would be June 30, and the first payment date would be July 15. The mechanics are pretty straightforward: same dividend economics, more frequent payments, and a clear transition timeline. We believe this change creates the highest-frequency credit instrument in the world and makes a great product twice as better, and we look forward to your support. With that, I will turn it over to Phong. Thank you, Andrew. Thank you, everyone, for joining us on this evening's earnings call. I have a few updates to make on our capital markets, on our equity, on our digital credit, and then I will conclude with updates on our capital market strategy overall. Phong Le: If you had asked us at the beginning of the year what was our target for the year in terms of capital markets raises, we would have said it was uncertain, and it really depended on the success of the STRC product. Four months in, we can say that STRC has been more successful than we had expected at the beginning of the year. One representation of that is the amount of capital that we have been able to raise for the company and ultimately for Bitcoin. Year to date 2026, we have raised $11.7 billion as Andrew mentioned—about half from issuances of our common equity, half from issuances of our preferred, primarily STRC—and no longer are we issuing convertible debt to raise capital. How does that compare to the rest of the U.S. equity capital markets? Last year, we represented about 8% of the equity capital markets in the full year 2025. We were the largest issuer, and we are again this year the largest issuer in the equity capital markets—about 10% total: 6% of common equity, 60% notably of preferred equity. We are doing what we said we would do and what we were trying to do, which was to shift our ATM more towards credit. You see this even more pronounced as we look at each month of 2026. We started in January with 20% of our equity issuances using digital credit and 80% using MSTR, and we have largely flipped that number in April, with 17% using MSTR and 83% using digital credit, which is also less dilutive to our overall shareholders. Research analysts have been consistently supportive. As we look to exit the Bitcoin bear cycle that we are in, the average price target of all of the analysts covering Strategy Inc for Bitcoin is $138,000, which is about a 70% increase. The average MSTR price target is about $323, which is an 80% increase from current levels. So let us talk about digital equity and MSTR overall. We show this chart every quarter—you can find it on our website, strategy.com. This is our annualized asset performance since we adopted the Bitcoin standard. 08/10/2020 is when we look back to. We have outperformed Bitcoin by about 50%. Bitcoin has outperformed the Mag Seven by about 50%. And the Mag Seven has outperformed the S&P 500. Our ultimate objective is for our common to outperform Bitcoin by accreting Bitcoin per share, and based on this chart, we continue to deliver on that performance. As Andrew mentioned, our Bitcoin per share is also accreting—that is our business objective ultimately. We are at 9.4% Bitcoin per share increase so far this year. You will see that has also accelerated in the last month. We started off a little bit slow in January and February—0.4%, 0.1%. The increase in March was 3%, and it really doubled in April with 6%. Last quarter on this call, we said our objective is to double Bitcoin per share in seven years. Doubling Bitcoin per share in seven years implies about a 10% annualized BTC yield, and so far this year, we have increased 9% in our BTC yield. We are well onto our annual target, and we have been happy with the success of STRC so far this year. Ultimately, MSTR continues to be one of the most widely held equities around the world and the most widely held Bitcoin proxy in the world. We are able to reach 1,400 institutions, 927,000 retail accounts, 1,300 ETFs and funds—over 100 million beneficiaries that share nearly 4% of the Bitcoin in the world. I do not think about this as concentrated amongst one company or a set of leaders, but really amongst 100 million people that we are sharing Bitcoin with per share around the world. So let us talk about digital credit, our favorite topic so far this year. The idea of preferred capital and preferred credit is not a new idea. In fact, the industrial revolution was built on the railroads, which was built on analog credit through preferred capital. During the late 1800s and early 1900s, 20% to 40% of the capital structure around the world was preferred capital. What happened in the mid-1900s and the early 2000s is the rise of liquid debt markets and increased regulation, pushing preferred capital into what I would call niche use. Now, as people are waking up to preferred capital and digital credit especially, we are seeing a reemergence. My analogy here is where preferred capital helped build the railroads—which helped drive the industrial revolution—now digital credit will help drive the digital railroads or the digital rails. It will drive the digital revolution, including the AI revolution. We are excited about bringing this back to the forefront of the world. If you look at an overview here, we have five preferreds. We have mostly been focused on STRC so far this year. I think there is an opportunity for the remaining preferreds to start to perform as Bitcoin starts to perform, but STRC is clearly the tip of the arrow as far as digital credit, and that is what I will talk about primarily. We are up to an 11.5% dividend yield. Notably, we have kept this flat for the last two months. We increased the dividend yield from 9% to 11.5%, and now we are flat for the last two months because what we have seen is the volatility has started to decrease, the price has started to remain stable, and we have seen an increase in Sharpe ratio to 2.53. The notional value is up to $8.5 billion, and we are trading $375 million a day. I will share how that compares to other preferred equities and also common equities in general. The first thing I will note is the rapid growth of STRC. In just nine months, we have raised $8.5 billion of capital. It had a running start with $2.8 billion, it slowed down, and it has really accelerated over the last couple of months. Comparatively, this is one of the most successful financial instruments ever created. In terms of capital inflows, it is second only to IBIT. Compared to other products, it has seen faster growth in terms of capital inflows than famous products like the iPhone or Google AdWords. We are very proud of the acceleration of the product, and it means that we built something that is resonating with people in the U.S. and people around the world. STRC is by far the largest tradable preferred in the world. We are nearly two times the size of Wells Fargo's preferred. Almost all of these other preferreds, save us and another one, are bank preferreds. This has gone from being an industrialized product that helped build the industrial revolution to a niche financial product, and we are excited to bring it back to being a major product in the world. The liquidity of STRC—the 30-day average trading volume—is 25x the second largest preferred. Where Wells Fargo is about half our size, it is trading one twenty-fifth of what we are trading at—$15 million versus our $375 million. With that liquidity, the turnover compared to the next best preferred, we are at 4.4%, 10x of what Wells Fargo is and some of these other products like Bank of America products. We think we have really found a new product category—digital credit—based on an old product category—preferred capital—and we are excited about where this is going. Interestingly, STRC is performing not just as one would expect in a bull market, but performing in a Bitcoin bear market. While Bitcoin has gone down 37% since October, now it is starting to rise again, and we are seeing STRC trade essentially near par and paying dividends that are increasing monthly. We have increased the dividend from 9% to 11.5% and kept it steady at 11.5% for two months, now going on three months, while Bitcoin has been decreasing. With that, we have also seen the ATM velocity of STRC accelerate, and the ATM velocity is really the net inflows into the product. Notably, in April, we had a week where we raised $1 billion, and then the subsequent week we raised $2.2 billion. We have seen tremendous demand coming into STRC. At the same time, we are seeing the volatility decrease. Our target price range for STRC is $99 to $101. We have actually seen it trading in a much tighter range, and for the last three months—March, April, May—it sat in that price range for 100% of the time. The daily liquidity is significant and growing, from $54 million to $120 million in January to $250 million in March to $300 million in April. For those who are interested in getting into the product in size—if you are a corporate or if you are a large institution and you need to have confidence that when you need to trade in and out, you need liquidity—our product is showing that level of liquidity. I will go through a series of analyses of Sharpe ratio because Sharpe ratio ultimately is a measure of the returns above the risk-free rate given the volatility of the instrument, and ultimately, if you are an investor, people are looking for high Sharpe ratios. Compared to traditional credit—junk bonds and investment-grade bonds, bank preferreds—we outperform notably. Compared to traditional asset classes—the S&P 500, even NASDAQ, etc.—we also outperform notably. And then, obviously, if you are looking for Sharpe ratio, a lot of folks go to the Mag Seven equities. NVIDIA is on a hot tear because of the AI trade. Google runs essentially a digital monopoly and has been a very solid equity over the course of the last 20 years. STRC has outperformed all of those, in all of the Mag Seven. Another place people typically go to find a high Sharpe ratio are hedge funds. Hedge funds are built with different strategies, different analyses, different quant strategies, and typically they are built to outperform the S&P 500 with lower volatility. Looking at different hedge fund strategies, STRC to date—understandably early in its maturity—is already outperforming these different hedge fund strategies, whether you are multi-strat, macro, equity arbitrage, etc. We see a lot of benefits to this emerging category of digital credit compared to hedge funds, private credit, private equity. One, it is extremely liquid. To get these levels of returns and these levels of Sharpe ratios, sometimes people subject themselves to 90-day lockups for hedge funds, 3 to 7 years for private credit, 7 to 10 years for private equity. We charge no fee. These other strategies often charge a management fee of 1% to 2% and a 10% to 20% carry—a two-and-twenty, if you will. Digital credit is homogeneous—you know exactly what is behind it: Bitcoin. These other strategies are sometimes heterogeneous with many different assets grouped together, making it very hard to ultimately assess the risk. Ours is scalable through an ATM mechanism that allows people to buy the product, and hedge funds and other strategies are discrete. We are accessible, traded via a four-letter ticker on the Nasdaq, and now, interestingly, trading on many tokenized exchanges and tokenized products. Other ones are typically restricted to those who are accredited, institutional investors, or high-net-worth individuals. We are transparent: we disclose our performance and our holdings through weekly 8-Ks and websites that update every 15 seconds. One of the big questions as we have seen STRC perform over the last four months—essentially the year 2026—is what does this mean for our capital market strategy? I will introduce this topic, and Mike will talk about it a lot more. Our objective is to double Bitcoin per share in seven years through the success of digital credit. What does that mean? We sell digital credit, and we have said that we target about 10% to 20% of Bitcoin reserves annually in digital credit volume. Of course, we will analyze that and assess that to see if that target makes sense. That will generate amplification to our common stock, which should increase the Bitcoin per share in our common stock, which is ultimately our goal. As we increase Bitcoin per share, that allows MSTR to outperform Bitcoin, which is what you have seen happen over the last six years. What allows us to flex these levers even better? If our cost of credit goes down—if we are able to decrease the yield from 11.5% to lower for a variety of factors. If we are able to sell more STRC, that increases amplification. If our MNAV goes higher—and I will talk a little bit about our MNAV—that also creates benefits, for example, our cost of paying our dividend. What has happened in the last four months is we have increased optionality for Strategy Inc. We have more sources of capital, and we have more uses of capital than we ever had before. The success of STRC gives us options to do different things from a capital markets and a treasury operations perspective to benefit our common shareholders. Our traditional sources of capital: sell MSTR, sell STRC. We could sell our USD reserve to pay dividends, which we added in November. We also have Bitcoin that we have the option of selling. We can see our other prefs start to perform and sell those into the market, and we have talked in the past about also being able to potentially sell BTC or Bitcoin derivatives. Our uses of capital: primarily today, we buy Bitcoin, we use capital to pay our USD dividends, and we use capital to build up a USD reserve. We have used capital in the past to pay down our convertible debt, our secured loans, our Bitcoin-backed loans; we may continue to do that in the future. We could also use capital, if we want to and at the right time, to retire any of our other preferreds. So what does this really mean? This means we had three trades that we have executed—and really before 2025, two trades: we sold MSTR and bought Bitcoin; we sold MSTR and bought U.S. dollars. Last year, we added STRC and prefs, and we sold STRC and bought Bitcoin. Now we are really seriously thinking about and contemplating introducing a few more trades: selling MSTR at the right MNAV, where it is Bitcoin per share accretive, to buy back debt. That could mean considering retiring, potentially early, some of our convertible notes using our common stock. Selling STRC to buy U.S. dollars—we have not done that much to date—but perhaps reserving part of our STRC proceeds to build up our U.S. dollar reserve. Selling STRC to buy back debt—you can see how that would be an accretive trade to Bitcoin per share because STRC inherently on sale is not dilutive, and buying back future dilutive convertible shares. And then the third set of interesting trades that I previewed: selling Bitcoin. This is a big statement, but our ability to sell Bitcoin either to buy U.S. dollars or sell Bitcoin to buy debt, if it is accretive to Bitcoin per share, is something that we would consider doing going forward. How do we make these decisions? Ultimately, there are two sides of the same coin. One side is our equity performance, and to our common shareholders the most important thing is to accrete Bitcoin per share, which results in higher BTC yield, which ultimately together result in a higher BTC gain. Adding more Bitcoin and BTC gain on a dollar basis is the closest proxy to earnings per share. Those are the three KPIs we look to assess equity performance. On the risk side, we have a BTC rating, which is the amount that our debt and our leverage is overcollateralized by Bitcoin. We have an MSTR duration, which is the average duration of all of our instruments. If you look at our perpetual preferreds, they have the longest duration based on a Macaulay duration basis—10 to 15 years. Our convertible debt has a shorter duration, so swapping longer duration for shorter duration is a good trade for us. Then we have MSTR risk. The BTC rating and the MSTR rating together influence the total risk profile to the company. A couple of notes before I hand it off to Mike. One, Bitcoin per share accretion is our primary goal; MNAV is an input. The threshold for Bitcoin per share accretion when selling our equity and buying Bitcoin is increasing over time. Where it used to be a 1.0x MNAV, as we add debt and as we add preferred—primarily to our structure—the breakeven increases. Right now, it is about 1.22x. That means at 1.22x MNAV or higher, it is accretive for us to sell MSTR and buy Bitcoin. Below 1.22x MNAV, it is actually more accretive for us to sell Bitcoin and pay off our dividends than it is above 1.22x MNAV. There are benefits to the way we bought Bitcoin and the holdings of Bitcoin that we have by cost-basis tier. Taking $20,000 tranches—$0 to $20k, $20k to $40k, $40k to $60k, $60k to $80k, and beyond—we bought Bitcoin at every price level. Below current prices, about $80k, we have an unrealized gain from a tax basis on that Bitcoin. Above $80k, we have unrealized losses. If we were to sell Bitcoin, our objective would be to sell high cost-basis Bitcoin to capture some of those unrealized losses and to take some of those unrealized tax benefits, of which on our balance sheet there is about $2.2 billion in estimated tax benefits. So there is a tax benefit if we were to sell high cost-basis Bitcoin, as an example, to pay down some of our dividends over time. Amplification: we are currently at about 34% amplification. A portion of that, about 10% of that, is driven by our convertible debt. The ability for us to increase amplification to the company is higher when we have long-duration digital credit than it is when we have short-duration convertible debt. As the company starts to cycle over time from convertible debt to digital credit, we can take on more amplification with lower risk levels, so we could see ourselves getting to 50% to 60% amplification levels over time and still feel like we have a high credit quality and a high risk quality to the company. The U.S. dollar reserve: we have built up a $2.25 billion U.S. dollar reserve, which at that point represented over two years of dividends and interest payments, and now with the same exact U.S. dollar reserve we are at about one and a half years. Adding to the U.S. dollar reserve reduces Bitcoin per share but improves the credit quality of the company, and so it is something that we will continue to evaluate over time—what the right level of U.S. dollar reserve is. We feel like at a minimum it should be $2.25 billion, but likely as we grow our digital credit and STRC, we will want to add to this at a certain level. To summarize how we think about managing capital markets and our balance sheet: one, our objective is to create long-term value for MSTR. We want to increase Bitcoin per share, which will increase the price of the common equity and ultimately be better for our common shareholders. Two, we are going to continue to grow demand for STRC. We have seen it to be a very popular product in the market and very beneficial to our balance sheet. We will continue to improve the features as we can, for example, moving to semimonthly dividends. Three, we are going to proactively reduce convertible debt based on market conditions, and that could mean actively purchasing back, through whatever means we think appropriate, some of the convertible debt before it comes due. Four, we are going to look at the STRC demand and credit risk to determine the size of the U.S. dollar reserve. There is a natural market mechanism that as the U.S. dollar reserve in months to cover—years to cover—decreases, the credit risk of STRC goes up nominally and could decrease the demand, and so we will monitor that to decide what is the right U.S. dollar reserve size. Five, similarly, the appropriate amplification for the company will also be based on market conditions. Mike and I and Andrew and the entire team are looking literally every day at what are the trades that are accretive to Bitcoin per share, what are the trades that create the right equity accretion, and what are the trades that manage the credit risk at the right levels. Six, maybe most notable: we will sell Bitcoin when it is advantageous to the company. We want to be net aggregators of Bitcoin— increasing our total Bitcoin—but more importantly, increasing our Bitcoin per share because we think that is what is going to be most accretive long term for MSTR and for the common. With that, I will hand it over to Michael Saylor to complete the presentation. Michael Saylor: Thank you, Phong. I will elaborate on some of the things set up till now and give you an overview of the BTC market and then our capital market strategy. Everything is based on digital capital, and Bitcoin is digital capital. That means global legitimate collateral, global property. We keep track of Bitcoin as digital capital and the consensus in the market, and what you can see here is the U.S. government has embraced it. All of our key financial regulators—the head of Treasury, the head of the SEC, the head of the CFTC, and now the incoming head of the Fed—are all digital assets enthusiasts, innovators, and Bitcoin believers, as is the President of the United States, Donald Trump, and the Vice President, J.D. Vance, along with many other cabinet members. That is a very important fact. There are a lot of bills still working their way through Congress. The most notable one right now is Clarity. The real key here is that Bitcoin is a priority in the House and the Senate, on the Hill, at the White House, and there is bipartisan support and bipartisan agreement for Bitcoin as digital capital, and for legislation that supports Bitcoin as digital capital in the world. A few months ago at our Bitcoin for Corporations conference, we saw major announcements by systemically important banks—Morgan Stanley, Citi, TD—all with intent to integrate into their operations. This is something we only hoped for three or four years ago, and now it is reality. At the point that Bitcoin is integrated into the banking system, then it is digital capital here to stay. You can just see the announcements across your ticker everywhere in the world. This is a global phenomenon. Whatever happens in the U.S. and with U.S. banks is spreading to Europe, to the UAE, to Hong Kong, to South America, etc. You are going to see these announcements accelerate, but we have crossed the event horizon. You cannot put the genie back in the bottle. Bitcoin has arrived. We try to be systematic, so we track it. We track the 15 largest or most systemically visible banks in the world, and we look at their embrace of Bitcoin: as a creditworthy instrument, will they trade it, will they offer credit against it, will they custody it, will they handle the derivatives, etc. Adoption has advanced since even last quarter, and everywhere in the world across all of these banks, there are active efforts to improve Bitcoin support. If you track the number of accounts that support Bitcoin access, you can see we are marching up into the high hundreds of millions: 840 million crypto exchange accounts, nearly a billion neobank accounts, nearly a billion brokerage accounts that all have access to some sort of Bitcoin derivative. ETFs, of course, continue to embrace. There have now been 125 ETFs with about $126 billion of capital. The capital flowing into these ETFs continues to accelerate. We were the first company to embrace, and now we are up to 194 public companies. We anticipate this will continue to grow. Lots and lots of IPOs—the public markets have embraced Bitcoin, and this is just an example of some of the notable companies that have come public just recently that have substantial Bitcoin exposure. The digital credit ecosystem has been a very pleasant surprise. It has grown very rapidly, and it has become very diverse. The way that we know digital credit is working is that companies and economic actors everywhere in the world that we have never met face to face are discovering this and building products and businesses around it. Right now, what we see is very enthusiastic support with retail investors, with corporate treasurers, with institutional investors, with crypto-native innovators, and with TradFi innovators. Five different groups of capitalists, but they are all getting very heavily involved enthusiastically and rapidly. If we drill into retail, 80% of all STRC shares are held by retail as of our last check. This is an extraordinary fact. Normally, it is very difficult to get broad, deep retail support for a public stock, and yet we have been very pleasantly surprised. We are able to trace about 120,000 individual retail accounts. Word-of-mouth is spreading this. It is spreading virally. Based upon our studies, we see that anybody that buys STRC is generally telling their friends, their family, their parents, their working associates about it, and it continues to spread by word-of-mouth. You can also see Schwab is a big distribution channel—23% of STRC is held in Schwab accounts. Fidelity is a channel. Robinhood is a channel. Morgan Stanley and E*TRADE are channels. BlackRock is a channel. Interestingly enough, Vanguard, which will not let their investors buy Bitcoin natively, actually is a channel for STRC. It is pretty exciting that we have wrapped Bitcoin into a credit instrument that is being distributed through all sorts of traditional finance channels to types of investors that otherwise would never be able to buy Bitcoin itself or would never want to. We estimate there are about 3 million households that are benefiting from STRC right now—think of it as powering a savings account for 3 million households. Phong mentioned about 100 million beneficiaries of MSTR. Well, 3 million beneficiaries of STRC in eight months is a pretty good start to the race. Our ambition is to spread this to tens of millions and then hundreds of millions of people. We are also very enthusiastic about corporate support. Corporations, unprompted by us, figured out that it was a good idea for them. Corporate treasurers and CFOs with working capital have been allocating some of their treasury capital to STRC. This is a really pleasant development, and we are starting to think that there might be thousands of companies that might allocate some amount of their treasury capital to STRC. I have had a lot of experience selling BTC to corporations. What I found is that tends to be a board-level decision—it goes all the way to the board of directors. The CEO has to be way behind it, and if one director on the board has concerns, the cycle slows down. But with STRC, it is not a board-level decision. It is more like a CFO-level decision. If the treasurer is enthusiastic, the CFO can greenlight it. They might or might not give the CEO a heads up. This is a very different value proposition. It is maybe a five-minute conversation with the CEO instead of a two-hour conversation with the entire board. For that reason, we think that STRC really is Bitcoin for corporations. It is going to spread very rapidly now. Another very exciting thing is that STRC has spread into credit indexes. BlackRock’s is a $14 billion credit ETF, and STRC is the number two holding. VanEck’s is another credit ETF, and STRC is also the number two holding. Imagine an instrument coming out of the blue—nonexistent 12 months ago—and in less than 12 months, we have gone from nonexistent to number two. Next stop, number one. We are enthusiastic about seeing STRC embedded in lots and lots of institutional credit indexes and funds. Third-party ETFs have been finding STRC and building innovative ETFs. Strive is building a digital credit ETF. 21Shares created an ETF with STRC and took it public in Europe. There are a number of ETF providers that are working with us and in the pipeline right now. We are in active discussions with four. Over time, there will be more ETFs to build STRC into their fund offering. Digital money and digital yield: we start with digital capital at 34 vol on a rolling 30-day average and 39% ARR. The one-year trailing vol of Bitcoin is almost 40. Think of it as a 40 vol, 40 ARR asset—raw economic energy. We split that asset into STRC, which is 3 vol, 11.5% yield, and then MSTR, which is 71 vol, 59% ARR. One is amplified Bitcoin—we call it digital equity—and the other is damped digital credit. Digital credit, we believe, is like the kerosene of finance. It is the monetary fuel and is a universal monetary fuel. It is high-grade, highly distilled. From here, you can build all manner of products. Layer three is digital money and digital yield. Neither would really be possible without digital credit. It is too difficult to distill pure zero-vol 8% money from a 40 vol, 40 ARR asset. You have to crack it. You have to have a crypto reactor, and you have to have $50 billion of equity capital to do it, and that is what we did to create STRC. Simple definition in our lexicon: digital money is 0% volatility, daily liquid instruments built on digital credit—like zero vol, 8% yield coin. Digital yield is nonzero volatility or it might be illiquid—it might be a three-month lockup, 5x levered, 35% yielding fund that loops digital money four, five, six times to get there. Digital yield is a levered construct, and digital money is the stripped-down construct. We think digital credit is programmable across lots of dimensions, so there are a lot of ways to add value to it. You can tokenize it, put it in a private fund, put it in a public fund, put it in a bank account. You can deploy it on a crypto exchange, on a neobank, on a real bank, or on a crypto network. You can program it to a volatility of zero or let it float up to a volatility of 10. You could program the liquidity to be continuous or daily or monthly, but you could also put in a quarterly lockup or an annual lockup in order to put more leverage on or create a different characteristic. You can program the yield from 5% up to 25% reasonably—some people might go beyond that, but we think 5% to 25% is reasonable. Then you can convert the currency—you can create Great British pounds or euros or yen or Swiss francs with digital credit starting from STRC. When you think about all these different forms, the question is, do you want to create a yield coin like a digital money coin? Do you want to create a yield fund? Do you want to create an account? Depending on what your assets are—if you are the biggest bank in Australia or if you are Deutsche Bank—you probably would do it one way. If you are a crypto exchange, you might do it a different way. The math is pretty straightforward. You start with 11.5% performance and ~3 vol right now. If we are lucky, maybe we will be able to get our vol to two or to a one handle. That is the goal of our proposal to the shareholders. I doubt seriously we get below a 1.5 or a 1 vol. One vol is sort of what publicly traded money market funds look like right now. Getting to zero vol takes a bit of work. One approach to add value is to down-strip the vol to zero, and maybe instead of 3 vol, 11%, you offer zero vol, 8%. That is digital money. The other approach is step it up: lever it three to one, pay 5% for the capital, and maybe you end up with something that is paying you like $35. Pay $10 on the capital, and you get a 25% yielding levered yield fund. These are all opportunities. We are not going to do it ourselves. Our laser-like focus is to make STRC the deepest, most liquid, most stable, least volatile, highest Sharpe ratio credit instrument in the world. That is a mission. There are a lot of crypto innovators—and you see right here on this screen a lot of very impressive companies—that are moving fast right now. Apex has had enormous success early on. Saturn is doing the same thing. Hermetica, Kraken, Ondo, Pendle, Spread, Strata—they are all doing very interesting things right now. They are very innovative and moving about 10x faster than the TradFi complex normally moves on these initiatives. There are also interesting TradFi initiatives—things you can do in a traditional finance environment with a private fund or a public fund. We see those things happening as well. Eight weeks ago, there was no STRC in the DeFi industry. In those eight weeks, we have rapidly grown to something like $270 million of exposure. This is just extraordinary—the rate at which money is flowing. Sometimes money is flowing into this complex a million dollars an hour. It is starting to feel like we may very well see more than a billion dollars of STRC enter the DeFi industry in the near future. It is moving very fast, and it is very dynamic. Outlook and our vision: we are a structured finance company. We are taking raw capital—digital capital—40 vol, 40 ARR, $1.6 trillion market cap of Bitcoin. We are stripping the currency risk, reducing the credit risk, compressing the duration risk. We are distilling a yield and damping volatility to create various instruments. Our greatest product and biggest success right now is STRC. It is taking a 71 vol down to a 3 vol, and we are targeting a 1 vol. Some important items to be aware of: the Bitcoin breakeven ARR—we calculate it all the time. It is very significant. If Bitcoin grows more than 2.3% a year— that breakeven ARR—we can fund our dividends forever without selling a single share of stock. If Bitcoin does not grow at all forever, we can fund the dividends for 43 years. We publish this on our website and update it every 15 seconds. If you go to the credit tab, you will see the Bitcoin reserve, the years of dividends (years of coverage if Bitcoin appreciates 0% a year), and the Bitcoin breakeven ARR—2.27%—updated every 15 seconds. There is a misnomer: most people think Bitcoin has to appreciate 11% or 11.5% for us to be successful or cover the dividend. Not true—2.3%. Or they think 30%—that is what we think it will do. The number that really matters is 2.27%, the BTC breakeven ARR. It is also the inflection point where STRC issuance results in more Bitcoin being stacked by our company than the Bitcoin we use to pay dividends if we choose to pay dividends with Bitcoin. We do not have to sell a single share of stock. We could stop selling MSTR common stock right now. We can fund the dividends with Bitcoin sales, and if STRC issuance is greater than that BTC breakeven number, not only will we fund the dividends forever, we will increase the amount of Bitcoin that we hold forever at the same time. If we were to sell $1.5 billion of STRC per year, we can sell Bitcoin to pay the dividends, buy more Bitcoin than we sell, grow our Bitcoin stack, and generate Bitcoin yield. We sold $1.5 billion of STRC in two days a few weeks ago. If STRC issuance equals 20%, that would equate to $12.8 billion of STRC sales this year. We might exceed it, who knows, we might be less. At 20% issuance rate, the first-order model indicates we generate a BTC yield of 17.7%, we accumulate an additional 144,000 Bitcoin, and that is after we pay all the dividends by selling Bitcoin. Occasionally, some short narratives suggest that selling Bitcoin is bad for the business. We look at it like a real estate development company: you buy land cheap, sell some land dear to fund obligations, and buy more land. Capital gains fund credit dividends. That is the essence of the business. We invest in digital capital—Bitcoin. The capital gains from the investment fund the credit dividends in perpetuity if the capital appreciates at that breakeven rate. Sometimes we will sell a Bitcoin derivative because it is in the best interest of the company, but it is not necessary. For every single capital markets transaction, we are making these decisions not just every day, oftentimes every minute of every day, based upon all the fluctuating prices of the trading pairs. Right now, our BTC rating corporately is about 3.3. The duration of our liabilities is 10.9—that is the stochastic duration. The risk centered on 818 basis points works out to a fair credit spread of 61 basis points. 818 basis points of risk means that there is an 8% chance at the end of the duration of the liabilities that you are trading in a BTC rating of 1. 61 basis points is the credit spread a rational investor needs to be paid to offset the risk. The assumptions we plug into the model: 10% BTC ARR—we assume that Bitcoin will perform about at the level of the S&P 500 over the last 100 years. We plug in 40 vol. Even with those estimates, what pops out is a credit spread of 61 basis points. The investment-grade credit spread is like 88. This is investment-grade credit even with very realistic pragmatic inputs. If you are a Bitcoin max and you think Bitcoin is going up 30% a year, there is no risk. If you are a tech investor and think 20% a year, the risk is de minimis. If you are a trader and think 10% ARR, you get the 818 basis points. If you think 0% forever, the risk increases; if you think it is going down, the risk explodes. You can calculate the risk with various Bitcoin prices and see the expected answers: Bitcoin price going up is good, Bitcoin vol going down is good. Some trades: if we sell $1 billion of MSTR stock and buy $1 billion of Bitcoin at 1.0x MNAV, it is dilutive—minus 48 basis points of yield, costing shareholders $310 million. As MNAV goes to 2.0 or 2.25, it becomes extremely accretive; at 2.0, you make $457 million in gains on the trade. It also improves our BTC rating and decreases risk—credit positive. Funding dividends: if we fund $1 billion of dividends with Bitcoin, it costs $1 billion—12,763 Bitcoin loss, 156 basis points. That is pretty similar to funding the dividends with common equity at 1.22x MNAV. Below that breakeven, it is more expensive to fund with equity; you are better off to sell Bitcoin than to sell equity if the equity is trading weak. At 2.0x MNAV, it only costs 83 basis points. Funding the USD reserve: it is more efficient at a high MNAV than at a lower MNAV; funding with BTC is constant from an equity point of view but extends duration and improves credit. Buying back converts: if we sell $100 million of STRC to buy $500 million of convertible bonds, we generate substantial BTC gains—22 to 63 basis points of yield depending on the specific convert—reduce leverage, stretch duration, slightly increase risk, and generate BTC gains. Selling Bitcoin to buy back common stock: below 1.22x MNAV, it is extremely accretive to swap BTC for MSTR. If the stock trades to 0.5x MNAV, swapping BTC for common yields 636 basis points—massive BTC gain. The opposite is intuitive. We can also sell STRC—sell credit to buy MSTR—and over time do our own levered buyback; amplification on the equity. Even at 2.0x MNAV, you can generate 85 basis points of yield; at 0.5x MNAV, 800 basis points of yield. We can sell dollars to buy common equity—carrying the USD reserve is dilutive to equity but credit positive; we could swap dollars back for common at a discount profitably. Scenarios: we can continue with our conventional strategy at 1.0x MNAV—selling credit and equity, using equity to fund dividends, holding USD reserve at 1.5 years—run a 10.6% BTC yield and accrete 263,000 sats per share over the next three years. At 1.22x MNAV, the yield expands to 12.2%. At 1.5x MNAV, 13.4%. At 2.0x MNAV, 14.6%. Alternatively, we can fund dividends by selling Bitcoin and still grow Bitcoin holdings continuously—driving a 12.2% BTC yield and passing 1 million Bitcoin on the balance sheet in the next 36 months— with a slight increase in credit spreads and risk. If we fix the USD dividend and fund dividends with Bitcoin, we can get to a 14.7% BTC yield—again, a slight increase in credit spreads and risk—without accessing the equity capital markets at all. We can also retire all the converts: if we divert 20% of STRC issuance to retire debt, we retire all the debt in the next three years, net leverage goes to zero, duration goes to 15 years, and we run with a 12.4% yield while maintaining a 1.5-year USD reserve. Key assumptions: on the equity side, 30% BTC ARR, 20% STRC issuance, 11% dividend rate; on the credit side, 10% BTC ARR, high vol. Over time, as confidence grows, credit spreads should compress, and the company has the option to lower the dividend to a floor of SOFR. SOFR has fluctuated between 500 basis points and 25 to 50 basis points historically. Considering those options, the stochastic cost of capital for STRC has to be modeled as something less than 11.5% and maybe more than the long-term rate—somewhere between 6% and 11.5%, a blended rate of about 8.75%. Our capital markets principles: we are here to drive Bitcoin per share up, and we are doing everything we can to drive per share up. The best tool to do it is STRC. We see a world where we are debt-free—sooner rather than later. We will adjust amplification, credit metrics, USD reserves, and use of proceeds based on constant market feedback. With Bitcoin—more than $60 billion—and $20 billion or more of daily liquidity in the Bitcoin market, we will not impair our asset by refusing to tap liquidity when it is in the best interest of stakeholders. We run the company in the best interest of all stakeholders—MSTR common equity, STRC creditors, and BTC investors—balancing interests to keep the concentric flywheels in harmony. When MNAV is expanding and the equity is healthy and outperforming Bitcoin, when the volatility of STRC is falling and liquidity is increasing, and when Bitcoin price is appreciating, that is indicia of success. That is what we have been doing and will continue to do, and we thank you for your support. We will now open the call for questions. CJ Jain: Before we jump into the Q&A, I would like to share with all our investors that we are organizing a special Q&A for retail investors next week on May 13. You can scan this QR code if you would like to submit questions. We will share the link on X and share more details as well. With that said, let us jump into the Q&A. I would like to invite all our guests to turn on their cameras and get ready to ask some tough questions. Let us get started with Peter Christiansen from Citi. Pete, please go ahead. Peter Christiansen: Thank you, CJ. Michael, I just want to take this call and how you have laid out all these scenarios and think about historically—pointing to last year at the end of the year—there was a false signal that Strategy Inc was selling Bitcoin, and it was taken negatively in the marketplace. Today, you outlined a lot of different optionality scenarios that Strategy Inc now has to optimize its capital stack. Should we take today's call as a signal to the market that, yes, Strategy Inc is willing to be more proactive with its capital stack, which may include the sale of Bitcoin—maybe for tax purposes or maybe for other optimization purposes—credit, what have you? Should we take today's call as a signal that, yes, Strategy Inc is going to be more tactical with its capital stack going forward? Michael Saylor: Yes, you should. I think the company got much healthier when we proactively began to utilize the equity ATM and we said it—we are going to do it; we are not ashamed of it; we will probably do it again. Then, when the company started proactively executing on the STRC credit ATM, we said we are going to do it; we are not ashamed of it; we are going to keep doing it; we think it is good; and we have a plan for it. At this point, to say we are turning on the BTC drive—we are not ashamed of it. We have $65 billion. We have a $2.2 billion tax credit that is lying on the floor. We ought to go find a way to pick up the $2.2 billion. Just like with everything else, the more optionality we create and the more tools we have at our disposal, the better it is for the equity investors. Yes, we will probably sell some Bitcoin to fund a dividend just to inoculate the market, just to send the message that we did it. Look: the company is fine, Bitcoin is fine, the industry is fine, the world did not come to an end. If you are a short seller and your thesis is the company's got to sell equity in order to fund the dividends, I would like nothing better than to rip your wings off. Peter Christiansen: I like that term, inoculate. Very well. CJ Jain: Thank you, Pete. I would like to invite Jeff Bock next. Jeff Bock: Hello. First off, congrats to the team, particularly on STRC’s accelerating region. Thanks for having me here. My question is focused on understanding how macro factors may influence the firm's acquisition strategy, particularly in regards to interest rates. As we all know, we are just a few weeks away now from Kevin Warsh’s official inauguration, and even though rate-cut odds are a little lower this year, Strategy Inc now does have an explicit growing interest rate sensitivity, as we just saw from the stochastic model. Hypothetically, if we see interest rates being lowered, STRC has this momentum that it will likely trade above par more aggressively given the nature of the floating-rate dynamic. The company then has a really interesting fork: you can either, one, issue more STRC and push the price back down to par, or you can use that moment to reduce the interest burden itself on what is outstanding. There is a healthy tension between these two things. Can you help us understand that risk framework a little better to calibrate that particular trade-off—lowering the coupon versus selling STRC? It changes the Bitcoin acquisition velocity, but it also cuts interest expenses, especially in that lower-rate environment. Any specific input parameters that you might say take priority here in your calculation? Michael Saylor: I will start, and then Phong or Andrew may have some comments. First of all, when macro indicators are moving against us, we have a headwind. Everything slows down. When we go to a restrictive monetary policy, that is bad for Bitcoin—really bad for Bitcoin. It is bad for risk assets. Bitcoin is risk assets squared; MSTR is risk assets cubed. We are like big tech cubed, and Bitcoin is big tech squared. In a risk-off environment, you can see that. In a risk-on environment or a more accommodative monetary economy, I expect you will see the opposite. Bitcoin will rally hard as squared; our equity should rally as tech cubed. The credit—presumably, we have more optionality if SOFR falls. Our bias is to grow the business responsibly but as rapidly as we can, and our bias is to grow Bitcoin. If we have the ability to accelerate our capital raising and we can raise twice as much capital in a risk-on or more accommodative monetary policy, we will run the vehicle as hard as we can, but we will not run it so hard that the capital structure does not keep up with it. The circumstances under which we would slow down or throttle the credit would be if we go to risk-on and Bitcoin does not rally and our equity does not rally, but the credit rallies. If the demand for the credit triples and somehow Bitcoin does not react to the interest-rate macro environment and/or MSTR does not, then we might very well adjust the dividend rate down because we are getting too much demand for the credit. By the way, I do not think that will happen. The likelihood that we go to a risk-on environment and Bitcoin does not rally is small. If Bitcoin rallies, our capital stack and collateral base expand, and then we can accommodate more credit. The rate of STRC issuance or credit sales is a function of the BTC growth rate or ARR. If Bitcoin grows 30%, we can expand credit aggressively. If it grows 50%, we could go faster. The second order is the equity capital markets’ enthusiasm for our business model. If the equity capital markets looked at our business and said, you are going to run a BTC yield of 20% a year and I am going to give you a P/E of 10, I am going to give you a 200% premium, and now you are trading at 3x MNAV—that would be better than we are right now. If the equity capital markets did that, our optionality increases as we grow faster. The countervailing view is, you have only been doing this for a year or two years, and the Lindy effect says I am only going to put a P/E of two on that. If we get a P/E of two, we could have a Bitcoin rally that gets us a collateral stack, but the equity does not go as fast, and that might govern the rate at which we run the credit engine. Bottom line: if the macro environment turns risk-on and Bitcoin rallies or equity rallies, it is go time. We are going to go, and we are going to go with the credit. We want to see the MNAV expand to two, three, four, five, or six. Nothing would make me happier than to rip the faces off of all the skeptics and the shorts and drive the equity to the moon. The question you have to ask yourself is: is this company going to sell $10 billion of STRC this year, or 20, or 40, or 80? The answer to how much we can sell responsibly is a function of where the Bitcoin price is, and to a lesser extent, how the equity capital markets react. If the equity capital markets are accommodating and supportive and Bitcoin rallies, the company has a lot of tools to manage the BTC rating and the collateral coverage. We can add more equity capital. We can put equity capital in the market fast—we were the biggest equity issuer last year and this year. We could also take common equity out of the market if we decided to. We will look at the interest-rate forward yield curve, how Bitcoin performs—Bitcoin performing as big tech squared—the forward expectation curve of BTC, the forward vol curve. Bitcoin vol at 40 or 35 is different than vol at 50 or at 20. When Bitcoin vol falls to 20 or 25, you can lever these things and still have investment grade—lever two, three, four, five times more and still have investment grade. Bitcoin vol being 30 right now is not the same as institutional credit investors expecting Bitcoin vol to be 30 for a decade. The forward yield curve, the forward vol curve, the forward price curve, the forward equity curve—all that gets discounted back, and we ask ourselves: what is the rational thing to do? At the end of the day, we want to drive the MNAV to the sky and drive the Bitcoin price to the sky and build STRC into the biggest credit instrument in the world. The higher STRC AUM we have, the more liquidity, and if we can get to $1 billion of liquidity for STRC, the vol will keep coming off, adoption will expand, and we get a network effect. If you gave me a choice—sell $500 billion of STRC and pay 11%, or sell $50 billion and pay 9%—knowing us, we want to gather the extra $100 billion of capital in a responsible way. Our long-term view is Bitcoin is going to go up more than 11%—30%—and if we are wrong, it is 20%. Two hundred basis points will not make the difference. But if we gather an extra $100 billion of capital, the war to determine the future of credit and the war to determine the future of money is going to be fought and won with money, and we are going to get the money if we can do it in a responsible way. If you construct a tortured scenario where Bitcoin price is not reacting and MSTR is not reacting, but everybody wants the credit, maybe we would slow down the credit machine. If equity investors are more bullish than credit investors, and BTC investors are more bullish than credit investors, the system solves its own problems—we are probably not going to be able to keep up with the expansion of our BTC collateral stack. Phong Le: I will add one short thing to this, Jeff. The scenario you lay out is in a maturation of the digital credit market—five to ten years out—when digital credit is $3 trillion on a $300 trillion market. We would run into this issue of how to manage the demand for STRC. Ten months into it, our issue is not so much what interest rate we are paying or what the Fed does to interest rates. The demand is going to be driven by awareness and marketing of the product right now. I do not think that scenario is going to be much of an issue for the short term. Jeff Bock: Got it. Thank you for those thoughtful responses. CJ Jain: Thank you, Jeff. Next, I would like to invite Andrew Harte from VDIG. Andrew Harte: Thanks for the question. I think the optionality in the business really came through clearly today. Shifting gears a bit: earlier in the slides, Michael, you talked about Bitcoin being digital capital and MicroStrategy being digital equity and STRC being digital credit. Then you also talked about innovators building digital money down the road—you called it like a layer three. Considering STRC is going to be the foundation or the building blocks for digital money at some point as the market continues to mature, what do you think that solution looks like? Are you having conversations with innovators who are out there looking to build on top of STRC and create these digital money solutions? Michael Saylor: Can you hear me? Andrew Harte: Yes, I can hear you. Michael Saylor: Okay. I think you see it with Apex and Saturn and Hermetica and a lot of the token issuers that are creating these yield coins that are powered by STRC. They are rapidly innovating. If you look at some of the DeFi protocols that are offering 2x, 3x, 5x, 10x leverage and looping—the Pendles of the world and the like—they are innovating rapidly. We do not know the final shape. I think there are a thousand different combinations of digital money and digital yield. There is a different currency in every country—I think you can create various yield coins in different currencies. In Australia, you can deploy via a regulated bank or via a token that can sell in Australia or via an ETF taken public in Australia or via a private fund in Australia. When you take the combination of currencies and platforms and containers, the sky is the limit. The people moving the fastest and most enthusiastically right now are the DeFi players, and people launching stablecoins that have to compete with Tether and Circle. The issue is: how do I convince people to put AUM or capital into my stablecoin? I need to create either a digital money—zero vol, 8% yielding—which is compelling, or a 25% ARR stake with a one-month lockup, looping three or four turns on the capital. The market will decide who it trusts and what form it wants to buy, and it votes with its money. You can literally watch the money flowing every hour. I think you will see some ETF players come, but they will come slower because there is more regulatory friction. We hold out hope that we will see a neobank offer a digital yield account. There is no reason why a bank or any neobank that is a mobile app could not say, “We will give you 8% on your money in this yield account if you want it.” Each one of these things is a different counterparty, a different platform, a different regulatory container. Eight to twelve weeks ago, we had none of these conversations going on, and now I see like three dozen initiatives. There is a Cambrian explosion. Check back in twelve more weeks—I think we will have some exciting news and partners. Or just watch my X feed because I retweet some of the more interesting digital yield and digital money offerings—they are literally happening. A lot of times, people are inventing stuff and I am finding out at the same time you are, but the market is evolving in real time right now. CJ Jain: Thank you, Andrew. Next, I would like to invite Eric Balchunas. Eric, please go ahead. Eric Balchunas: Hi. Thank you for having me today. Great presentation. My question is maybe a little more philosophical. It is about the changing ownership and identity of Bitcoin. According to River, in the past 16 months, businesses bought 560,000 Bitcoin. ETFs bought another 208,000. Governments bought 160,000. That is 1 million total Bitcoin by those entities. Meanwhile, individuals sold 730,000 Bitcoin. Some have called this the silent IPO, and it is arguably the reason for that 45% drawdown. This changing ownership is being reflected at recent Bitcoin conferences where you see an increasing number of “suitcoiners,” which you highlighted in the slide on the government and the banks. I have noticed it has made some of the native Bitcoiners a little uncomfortable and conflicted regarding the original mission, given it was made to bypass governments and banks. To me, it feels like Facebook ten years ago when everyone’s parents joined. Some people left the platform, although the user base did grow from 1 billion to 3 billion since then. I want your read on this transition—the mainstreamification of Bitcoin—and how important it is to keep the original base of investors along for the ride and keep the cypherpunk edge of Bitcoin as it goes more mainstream and gets adopted by companies, asset managers, governments, and boomers in general. Maybe it does not matter given the size of the institutional advisory market for the price to hit $1 million, but maybe it does. Just curious your thoughts. Michael Saylor: Since we got in this space, there has been something like $1.4 trillion of wealth created for people other than the suitcoiners. I do not know who got the money, but we can trace 4% to BlackRock investors—they must have 50 to 100 million beneficiaries. You can trace almost 4% to our investors—we have 100 million beneficiaries. If you look at the corporates, they are representing thousands of institutions and tens of millions of investment accounts and hundreds of millions of beneficiaries, and the network is decentralizing. It is distributing through them and maturing through them and finding its way into retiree accounts, insurance beneficiaries, trust funds, and three-year-old trust fund babies. Everybody in the world is getting exposure now. When everybody criticizes the centralization of the network, note that 85% of the network is held by others. It is held by the crypto OGs. We do not know how many people that is, but it almost certainly represents fewer beneficiaries than the beneficiaries that rely upon BlackRock’s ETF or a common public stock. The corporations have been spreading exposure to Bitcoin by an order of magnitude or orders of magnitude. If you ask who owns the trillion dollars of Bitcoin that is not public—there are Chinese, Russians, Americans, Europeans, South Americans, Ukrainians, Iranians. When you wonder who is selling it, well, it is a trillion dollars of capital held by crypto OGs that are unbanked. Maybe they are selling because the currency in Iran crashed; maybe they are selling because of some fear of a Chinese government memo. If the Chinese mined half the Bitcoin in the first 15 years, it is kind of impossible that there are not a lot of people with Bitcoin in China. Generally, the industry is maturing. It is rotating from the crypto OGs, but they are not going away. We spent $6.062 billion to get to less than 4%. It is pretty expensive to not get to the other 96%. If you look at all the money that BlackRock and us put into this— the $150 to $200 billion of capital that flowed from the institutions—it did not get 90% of the network. Ninety percent of the network is still in global crypto OG hands. I meet people everywhere in the world—someone slapping me on the back, thanking me for making them a lot of money—because literally people that you will never know who they are and will never announce it are sitting on $1.2 trillion of capital gains right now in the crypto ecosystem. I am not worried that the crypto ethos is being squashed. People with a trillion dollars probably have a lot of power to do what they will, and they are continuing to do it. The Bitcoin network is still highly decentralized. The miners are decentralized. This is a global phenomenon. If anything, what is happening is the corporates are just powering up the network. We are the people that invest the $100 or $200 billion to drive the price from $10,000 to $80,000—or from $10,000 to $100,000. When we do it, 90% of the gain goes to other crypto actors, and they power the entire decentralized digital economy. Good for them. That is good. The network is evolving in every direction simultaneously. I would take issue with anybody that says it is centralizing. It is decentralizing. Today, a lot of people with money and power are going to support and defend this network because of the success of the corporations—whether it is Coinbase, BlackRock, or Strategy Inc. If you are going to lobby for things that are good for digital assets in Washington, D.C., it is not going to be a Chinese crypto pseudonymous billionaire hiding off the grid doing that lobbying. The trillion dollars of crypto OG money is not going to fix the accounting, fix the tax code, fix the banking system, and build the technologies that actually commercialize these apps to a billion people. They are not going to give a bank account to a billion people that pays them 10%, and they are not going to put Bitcoin on every iPhone and every Android phone in the world. That is going to be corporate actors. The corporations are doing their part; the crypto OGs did their part. Everybody is in the system. There is tension—healthy tension. We welcome it. The fact that someone will sell Bitcoin because they are in Iran and some missiles got launched— that is a feature, not a bug. People are trading based upon things that have nothing to do with the way Wall Street trades the S&P index. That is what makes Bitcoin special, and that is why we welcome it as global digital capital. CJ Jain: Thank you, Eric. Next, we will invite Ramsey El Assal from Cantor. Hi. Thanks for taking my question tonight. Ramsey El Assal: Michael, you mentioned that if Bitcoin volatility were to fall as the asset pricing accelerates, you would have some options and cards to play to preserve the attractiveness of the model. Can you elaborate further on what you meant there? And then separately, can you give us a quick update on the BTC security initiative? How has that been received, and have there been any developments on the quantum risk topic worth calling out? Thank you. Michael Saylor: I will answer the first and let Phong answer the second. If you go to our credit tab on our website and type in a vol of 40, you have a BTC rating at 3—things look investment grade. When the vol falls to 30, you can have a BTC rating of 1.5 and it still looks investment grade. When the vol falls below 30, your amplification can triple or quadruple. As vol falls, credit risk falls. The forward volatility curve changes the view of credit investors and creates more demand among more traditional credit investors. It also changes the view of banking regulators and credit rating agencies. There is nuance: if vol is high, it is equity positive—options trading, liquidity, etc. When vol falls, it is very credit positive. You are going to get performance through volatility on the equity side and performance through more amplification and more intelligent leverage as vol falls. Over time, it is reasonable that Bitcoin matures from 40 ARR/40 vol to 20 ARR/20 vol. It will always be more volatile than the S&P and more useful, but if you are a credit investor, you want to be sensitive to it. The single number one issue in the market is: what is your forward volatility curve for Bitcoin? If you think Bitcoin is a 30 vol asset, everything we sell is investment grade and should be priced double or triple what it is. If vol starts to fall, there is no reason why there should not be a 10x bid on this stuff. You might lever 8 to 1 instead of 3 to 1. It will change the behavior of downstream players. Phong Le: On security, Ramsey: we have started to bring together a group of folks—calling it the Bitcoin security program or council. The objective is to bring together institutions that represent custodians, exchanges, and large Bitcoin treasury companies who have a vested interest in the success of Bitcoin, and share a combined point of view on the potential risk and time horizon of quantum, what activities are underway in the development community, and how we get to consensus. Likely in the next month or so, we will share who is in that group and our combined point of view. Right now, there are a lot of divergent points of view, and we thought it would be useful to bring together those who are interested in the success of Bitcoin. You will hear from the Bitcoin security program likely in the next month or so. Ramsey El Assal: Excellent. Thank you. Appreciate it. CJ Jain: Thank you, Ramsey. Next, Jeff Walton. Please go ahead. Jeff Walton: Thank you for including me, and I am very appreciative of your leadership. I have a two-parter. You spent a lot of the presentation talking about risk of the credit instruments. You have created a unique arbitrage surface between all of the different instruments and a unique incentive structure. It has resulted in people buying and selling the instruments right below par on STRC and some of the other instruments. First, do you find that the market agrees with you on the forward-looking volatility curve? Are the instruments trading in tandem with each other? What is the biggest hurdle in communicating that relative risk profile? Second, what is the biggest hurdle in accelerating the adoption of the digital credit instruments into the future? Michael Saylor: I think all of the credit instruments are undervalued. So no, the market does not agree with us. If the market agreed with us, then STRF would be trading at $200 a share right now, not where it is. I think the equity is undervalued. I think all the credit instruments are undervalued. I think all the bond instruments are way undervalued. We are embryonic. How do we fix it? The Lindy effect and education. Partly, we tell the story. Partly, people will have to wait. After we have been in the market for three years, they will say, “It has worked for three years,” and it will be rated up. We will be continually rerated as time goes by. We will not sit on our hands—we will communicate, publish, do investor outreach, and work with partners. As partners create compelling digital money products, that is helpful. How long will it take? How long did it take before the market thought Amazon had a good business? It took ten years. Netflix was mispriced for many years; Apple was mispriced for many years. With a revolutionary business, the market will be skeptical. It was skeptical of Google, Amazon, Nvidia, Apple—it will be skeptical of digital credit and digital treasuries for a while. Then there will be some point when it is not. We have to do the hard work of performing, laying down the track record, educating the market, and managing risk. The optimistic observation: the fact that the market is willing to buy more of STRC—that STRC is the most successful preferred stock in the world in this century—is an indication that maybe some people get it. There are a lot of indicators that it is working and spreading fast and virally, but we still have a lot of work to do. CJ Jain: Thank you, Jeff. Next, I would like to invite Randy Binner from Texas Capital. Randy, go ahead. Randy Binner: Thanks. Michael, I think this one is for you. We have talked a lot about the Clarity Act. It is important for the broader crypto ecosystem—this bipartisan compromise is good news. But for MSTR, for Strategy Inc, for your world, what would be the most important regulatory or policy change or impact? We have talked about banks and insurance companies being lobbied to recognize crypto as a statutory asset. Is it something like that? Follow-up: with so many arrows pointing in the right direction for crypto regulation and guardrails, do the midterms matter that much, and does the presidential election matter much from a policy and regulation perspective? Michael Saylor: Bitcoin is in a safe harbor. There is global consensus as digital capital. MSTR is sitting in a safe harbor—it is a publicly traded, well-known seasoned issuer that came public in 1998, governed by securities laws that date back 100 years. STRC is in a safe harbor—it is a publicly traded preferred stock based on 100-year-old tax law and securities law, trading on the Nasdaq. Everything that we are doing is sitting in a zone of regulatory clarity. I do not think we need any change in a law or rule to 10x or 100x. We can probably be 100x bigger from here without any change. We are not asking or looking for anything. Clarity is important to the balance of power regarding token issuers, DeFi exchanges, stablecoin issuers, crypto exchanges, and between the crypto industry, neobanks, regional banks, and big banks. The significance to us is sentiment. Skeptics will gloat if it slows down and will flip to cheerleaders if it passes. There is not anything that we need. It will change sentiment positively as it goes through. Long term, if I had a wish list: the Basel rules—if they are upgraded to recognize Bitcoin as legitimate collateral and not haircut it, it would be positive for banking adoption, especially credit adoption. Right now, there is still a bit of hair-cutting of it by credit rating agencies and very conservative regulated entities that want a gatekeeper or regulator to tell them it is okay. If you want an insurance company portfolio manager to buy the product without knowing what it is, it would be beneficial for the Basel rules to evolve and embrace Bitcoin as a legitimate asset. Right now, we are selling to informed investors that want to buy the best thing. If we just slurped up 10% of private credit, that is $370 billion right there. We have plenty of runway for the next decade. My wish would be for the Basel rules to be fixed and for the world to recognize Bitcoin as legitimate collateral, pari passu to gold or other capital assets on banking balance sheets and regulated entities—then it should spread faster through banks as a reserve asset and through insurance. But it is not necessary to us. We could be a multitrillion-dollar company and sell $400 billion of STRC and not have that fixed. Phong Le: One thing I will add, Randy, is STRC is already a rapidly accelerating product in the category of digital credit, and that is without clarity as it relates to tokenization of securities, which I think will either be created through the passage of Clarity or rulemaking by the SEC. That will only accelerate things. We showed $270 million of layer-two tokenized STRC from companies like Apex and offerings by Kraken. Those are sold outside the U.S., not in the U.S. When we get clarity, that will only accelerate things and accelerate layer development on top of STRC and digital credit overall. It is exciting to see what may come for something that is already an exploding asset class. Randy Binner: That is great. Thanks. CJ Jain: Thank you, Randy. Saving the best for last, James Lavish. James Lavish: Thank you, CJ. Congratulations on your new role. Phong, Michael, Andrew, thank you for having me and allowing us to ask questions. First, congratulations on your success with STRC. I am a believer in the digital credit world, and I appreciate you sharing the many levers you can now use to create value for the common shareholders while protecting creditors. With Strategy Inc’s energy and focus on STRC—which you have said before is a security you landed on through iteration—what do you see as the optimal future balance sheet structure maximizing the accretion of value for common shareholders? Would that include retiring most or all of the other debt and preferreds currently outstanding? Do you believe that is ultimately necessary to attract more of the largest institutions to invest in STRC in lieu of traditional yield-generating securities? Michael Saylor: We think we want to be debt-free completely. All six of the converts may go away by either swapping them for STRC, swapping them for equity, or paying them off with cash. There is consensus on that. There is consensus that STRC is the killer strong credit instrument. The jury is still out on the other four credit instruments. They are all long-duration credit instruments and represent important optionality for the company. Our policy will be to retire the six convertible bonds, promote and polish the jewel in the crown—which is STRC—and then watch and nurture the other four, improve them as we can, and observe whether or not they are material in generating demand. If I was designing a Bitcoin treasury company from a clean sheet of paper, the company would consist of one common equity, one monthly (or semimonthly) variable preferred equity, and a big stack of Bitcoin—and nothing else. That is my advice to anybody that asks. The other things are interesting—maybe—but not necessary. We will watch them. It is very difficult to create a publicly traded instrument like STRF, STRD, STRK, or STRE, so we will not retire them because it represents giving up billions of dollars of optionality. But what is critical for us is to manage the common stock carefully to get the MNAV up and the premium up, manage the Bitcoin stack, and manage the monthly variable-rate preferred—the digital credit instrument. Those are the things that really matter. CJ Jain: Thank you, everyone. That brings us to the end of the Q&A session. I would like to thank everyone for their questions and all the attendees for joining and listening to the earnings call. I will hand it back to Phong for any closing remarks. Phong Le: I want to first thank everybody for attending our earnings call. I know there are tens of thousands of you out there, spending two hours and fifteen minutes of your evening with us. We find that to be very gracious and flattering. Many of you are shareholders of our common MSTR and our perpetual preferred STRC. As many of you know, we have a shareholder vote coming up that is due early June to primarily modify STRC to go from, as Andrew mentioned, a monthly dividend to a semimonthly—twice a month—dividend. We believe this is beneficial to our shareholders. As we mentioned, one of our principles is to make STRC better and more attractive. We would appreciate you all voting early so that we can start to tabulate the votes, and this is how you can do it. If you have questions on how to vote for STRC and for the common, you can also go to our website. I really appreciate your time. Thank you for all the interest and the attention, and we will talk to you again—if not before then—at our next earnings call three months away. Thank you all.
Operator: Good day, and thank you for standing by. Welcome to the 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Karina Calzadilla, head of investor relations. Please go ahead. Karina Calzadilla: Thank you, Anton, and good afternoon, everyone. I would like to welcome you to Adaptive Biotechnologies Corporation First Quarter 2026 Earnings Conference Call. Earlier today, we issued a press release reporting Adaptive Biotechnologies Corporation financial results for 2026. The press release is available at www.adaptivebiotech.com. We are conducting a live webcast of this call and will be referencing a slide presentation that has been posted to the Investors section on our corporate website. During the call, management will make projections and other forward-looking statements within the meaning of federal securities laws regarding future events and the future financial performance of the company. These statements reflect management's current perspective of the business as of today. Actual results may differ materially from today's forward-looking statements depending on a number of factors which are set forth in our public filings with the SEC and listed in this presentation. In addition, non-GAAP financial measures will be discussed during the call, and a reconciliation from non-GAAP to GAAP metrics can be found in our earnings release. Joining the call today are Chad M. Robins, our CEO and Co-Founder, and Kyle Piskel, our Chief Financial Officer. Additional members from management will be available for Q&A. With that, I will turn the call over to Chad. Chad? Chad M. Robins: Thanks, Karina. Good afternoon, and thank you for joining us on our first quarter earnings call. As shown on slide three, we are off to a strong start to the year, with accelerating momentum in MRD and disciplined execution across the company. MRD revenue grew 53% year over year, reflecting broad-based strength across both clinical and pharma. We also recognized our first primary endpoint milestone this quarter, a meaningful proof point for MRD's expanding role in drug development. clonoSEQ clinical volumes increased 41% year over year, demonstrating strong continued adoption. We also delivered meaningful margin expansion, with sequencing gross margin increasing eight percentage points year over year to 70%, driven by scale and operational efficiency. At the same time, we maintained strong financial discipline, reducing cash burn and ending the quarter with approximately $222 million in cash. Given the strength we are seeing in the MRD business, we are raising our full-year MRD revenue guidance to a range of $260 million to $270 million. Kyle is going to provide more detail shortly. Let us now turn to slide four for a deeper look at the MRD business. Our clinical business continues to deliver strong growth, with revenue up 54% year over year. clonoSEQ tests reached another quarterly record of almost 32,600 in Q1, up 9% sequentially. Growth was observed in all reimbursed indications, led by DLBCL at over 19% growth versus the prior quarter. Importantly, we are seeing mounting traction across the key drivers that support durable, long-term adoption. Blood-based testing reached 49% of MRD volume. In multiple myeloma, a traditionally bone marrow–driven indication, the contribution of blood-based MRD increased to 29%, up eight percentage points year over year. This shift is closely linked to expansion of the community setting, where a combination of favorable guideline updates and implementation of standardized testing protocols contributed to growth rates that outpaced the rest of the business. Community volumes grew 67% year over year and now represent 35% of total testing. Growth in the community business was further supported by our EMR-enabled workflows, which are driving repeat utilization. Serial monitoring orders available to Flatiron-integrated accounts are widely being utilized, and strong initial pull-through rates have further improved with 72% of repeat orders due being fulfilled. Physician engagement also continues to expand, with the number of ordering clinicians growing 43% year over year to nearly 5,000 in Q1, underscoring increasingly broad acceptance of MRD as part of routine clinical management. Finally, we continue to see increases in pricing, with U.S. ASP growth of 11% year over year to $1,360 per test. Importantly, I am excited to share that clonoSEQ is now listed in the Texas Medicaid policy manual. clonoSEQ is one of only two specific tests included in the newly developed genetic testing section, and patients may receive up to six tests per year. It is great to be pioneers in bringing advanced molecular testing to some of our most vulnerable patients. Our scale, adoption, and embedded workflows support clonoSEQ's sustained growth and continue to strengthen our leadership position as the market evolves. Let us now turn to slide five to discuss our biopharma business. We delivered one of the strongest quarters to date in MRD Pharma, with revenue growing 53% year over year, or 33% excluding milestones. As mentioned, we also recognized our first milestone in the U.S. tied to MRD as a primary endpoint, the CEPHIUS trial in multiple myeloma. New bookings were strong, driving backlog to approximately $254 million, up 24% year over year. Bookings came primarily from regulated studies, including several registrational trials where MRD will be used as a primary or co-primary endpoint in both multiple myeloma and CLL. We continue to see increasing use of MRD to guide treatment. Today, we have approximately 20 ongoing interventional studies where MRD is used for enrollment, stratification, or to guide therapy decisions. As these trials read out, they directly support our commercial business. For example, data from the PERSEUS trial helped establish sustained MRD negativity as a meaningful measure of deeper response in multiple myeloma, which supports broader adoption of clonoSEQ in clinical practice. The momentum we are seeing in the pharma business is likely to be further supported by evolving regulatory trends. The FDA recently introduced a new clinical trial model that incorporates real-time data submission, with early proof-of-concept studies underway, including the TRAVERSE trial in mantle cell lymphoma, where MRD-negative complete response measured by clonoSEQ is a key endpoint. While early, this emerging model for accelerating data review will reinforce the value of MRD endpoints that are objective, quantitative, and longitudinal. These dynamics are particularly relevant in regulated and registration settings where data quality, reproducibility, and regulatory credibility are critical, and where clonoSEQ is well positioned as a clinically validated MRD assay. Taken together, the trends we are observing support a reinforcing flywheel between biopharma and clinical testing, as adoption of clonoSEQ in drug development generates evidence, strengthens clinical utility, and drives demand in the clinic. To wrap up on MRD, as shown on slide six, we are well on track to deliver against our key priorities for the year. Starting with clinical volumes, we initially guided to over 30% growth for the year. Based on our first quarter performance and continued momentum, we now expect volumes to grow to at least 35% in 2026, with potential for upside. Importantly, the underlying drivers of growth are already nearing our full-year targets. Blood-based testing is rapidly approaching our goal of over 50% contribution, and community contribution is already at 35%, in line with our full-year expectations. EMR integrations continue to advance, with six new Epic accounts added year to date and five more expected to go live in the next month. In April, we went live with Epic at another of our top 10 accounts, bringing us to seven of our top 10 now being fully integrated. On pricing, we remain on track to achieve our target of approximately $1,400 per test in 2026, supported by recent policy expansions in CLL and DLBCL, Medicaid payment traction, and commercial payer negotiations, with 10 signed in the first quarter alone. Finally, strong top-line growth combined with continued operational efficiencies positions us to achieve over 70% sequencing gross margin and expand adjusted EBITDA. Overall, our progress across these MRD priorities is a testament to our continued momentum and strengthens our confidence in our ability to meet or exceed our full-year commitments. Turning now to slide seven, our immune medicine programs are progressing well against our 2026 key priorities. We continue to scale our TCR–antigen data sets and advance our AI/ML modeling work. We now have more than 6 million functional TCR–antigen pairs, with data that currently spans about 50,000 antigens and 50-plus HLA types. This proprietary data set enables us to understand TCR–antigen interactions and their role in cancer, virology, and autoimmunity. We recently confirmed that our digital AI model outperformed the accuracy of existing public benchmarks in predicting TCR–antigen binding. We published this work in Proceedings of Machine Learning Research and presented at the Machine Learning for Health Symposium. Our focus this year is to further improve these models in targeted applications that could be attractive to partners seeking to leverage our data and our digital capabilities. In parallel, we are applying our AI-enabled immune medicine platform to identify the likely disease-causing T-cell receptors and their antigens in select autoimmune conditions. This quarter, we kicked off our RA target discovery partnership with Pfizer. We received over 1,000 patient samples and are on track to deliver the RA data package in 2026. As we continue to make progress on these 2026 priorities, we are advancing discussions on additional data partnerships, maintaining a disciplined approach to capital allocation, and operating within our expected cash burn range of $15 million to $20 million for the year. I will now turn the call over to Kyle, who is going to walk through our financial results and updated full-year guidance. Kyle? Kyle Piskel: Thanks, Chad. Starting on slide eight with our first quarter results, total revenue was $70.9 million, representing 45% growth year over year, driven primarily by continued strength in MRD, which accounted for approximately 95% of total revenue. Of note, amortization from the Genentech payments is excluded from all prior period comparisons. MRD revenue grew 53% versus the prior year to $67.1 million, with clinical and pharma contributions of 65% and 35%, respectively. Immune medicine revenue was $3.8 million, down 26% from a year ago, primarily due to timing of sample receipts and processing. Turning to margins, sequencing gross margin, which excludes MRD milestones, was 70% for the quarter, up from 62% a year ago. This improvement reflects reduced assay costs due to efficiencies from our NovaSeq X launch in 2025, leverage in overhead as we support higher volumes, and favorable pricing trends across both clinical and pharma. Total operating expenses, inclusive of cost of revenue, were $90.1 million, up 10% year over year. This increase was mainly driven by continued investment in commercial and infrastructure, including EMR integrations and reimbursement, as well as higher personnel-related costs. At the segment level, MRD continues to demonstrate strong profitability, with adjusted EBITDA of $12.1 million compared to a loss of $4.1 million in the prior year, reflecting the impact of revenue growth, including milestone revenue, and continued operating leverage. Immune medicine adjusted EBITDA was a loss of $10.4 million. At the total company level, adjusted EBITDA was a loss of $2.5 million. Net loss for the quarter was $20 million, including approximately $2.9 million of interest expense related to our royalty financing agreement with Orbit. I will now turn to our updated full-year guidance on slide nine. We are raising our full-year MRD revenue guidance to a range of $260 million to $270 million, up from our prior range of $255 million to $265 million. This increase reflects stronger-than-expected clinical volume performance in the first quarter and continued momentum across key growth drivers. This range includes $9 million of MRD milestone revenue, which was recognized in the first quarter, and we do not anticipate additional milestone revenue for the remainder of 2026. At the midpoint of the guide, this implies approximately 25% year-over-year growth, or 33% growth excluding milestones. In terms of seasonality, we continue to expect MRD revenue to be weighted approximately 45% in the first half and 55% in the second half. We are reiterating our full-year total operating expense guidance, including cost of revenue, of $350 million to $360 million. This reflects continued investment in MRD growth, with approximately 75% of spend allocated to MRD, approximately 20% to immune medicine, and the remainder to corporate unallocated. Importantly, we remain on track to achieve positive adjusted EBITDA and positive free cash flow for the full company in 2026. Overall, the quarter reflects strong financial execution supported by continued revenue growth, expanding margins, and operating leverage. With that, I will turn the call back over to Chad. Chad M. Robins: Thanks, Kyle. We are executing well across the business, and the strength we are seeing, particularly in MRD, gives us confidence in both our plan and the opportunity ahead. As we move through the year, we expect to build on this performance and drive additional upside over time. With that, I will turn it over to the operator for questions. Operator: We will now open the call for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please stand by while I compile the Q&A roster. Our first question comes from Andrew Brackmann from William Blair. Please go ahead. Andrew Frederick Brackmann: Hey, guys. Good afternoon. Thanks for taking the questions here. Wanted to ask on community testing. You know, Chad, as you sort of outlined here, I think you are already at the full-year target for the mix that you want coming from the community. Can you maybe sort of compare and contrast for us just the nature of the conversations that you are having with those accounts in particular today versus a year or so ago? You have got so much sort of tailwinds from the blood mix increasing and then also the EMR integration. So how have those conversations sort of evolved over the last year or so? Susan Bobulsky: Thanks for the question, Andrew. I can help answer that. I think a year ago, if you had asked me this question, I would have said the conversations had shifted from “What is MRD? Why should I care? Why should I do this?” to “How should I do this? Which patients? Which indications? Which use cases? Help me understand more of the practical applications.” And now, a year later, the conversations are increasingly shifting toward practical implementation. We are increasingly getting traction with conversations around protocols and, in fact, have established testing protocols in a number of large community centers and networks. The goal is: let us standardize testing so that all our patients have access to the best care; let us ensure our clinicians are not forgetting about this for their heme patients, who in the community may not make up the lion’s share of the patients they see every day. That sort of practical, implementation-oriented conversation is more and more the norm, and I think it is a really positive sign for the degree to which MRD is now becoming entrenched as part of the standard of care in the community at large. Andrew Frederick Brackmann: That is perfect. I appreciate all that color. And then just wanted to ask on the reimbursement front. Obviously, there is a lot of noise out there with respect to CMS and the CRUSH initiative. Can you maybe just remind investors how clonoSEQ is positioned from a reimbursed profile? How you see your rate as durable even if there are changes to things like MolDX nationalization or implementation of prior authorizations? Thanks for taking the questions. Unknown Speaker: Yes. It is Dave. Thanks for the question, Andrew. We have looked extensively at this question, and after internal and external evaluation with outside counsel, we determined that we are currently not subject to panel reporting requirements for the cycle. There are very specific and defined requirements for PAMA reporting by statute, and your tests must not only fall under the CLFS, or Clinical Laboratory Fee Schedule, but also have to account for over 50% of your Medicare revenue. CMS publishes a list of CPT codes that fall under the CLFS, and the clonoSEQ episode billing structure is not on it. If we go one level deeper, CMS does not identify the MolDX code that we use for billing under the clonoSEQ episodic rate structure as being on the CLFS list. It is worth noting, as you all know, that the vast majority of our Medicare revenues are generated through the episode rate structure billing under the MolDX program. CMS does consider the PLA code that we use to bill Medicare for MCL recurrence monitoring as being on the CLFS, but our Medicare revenues under the PLA code for recurrence monitoring are well below the 50% revenue threshold set for PAMA for this initial data-reporting period. Separately, as it goes to your durability question, we are pursuing a multipronged strategy that not only includes recurrence monitoring—we are also in productive discussion with MolDX to increase the number of tests per bundle under our episode structure. There are other things that we are looking at. This is of super high importance, and we are all over it. Andrew Frederick Brackmann: Great. Appreciate all the color. Chad M. Robins: Thanks, guys. Susan Bobulsky: Sure. Operator: Thank you. Our next question comes from David Westenberg from Piper Sandler. Please go ahead. David Michael Westenberg: Hi. Thank you for taking the question. Congrats on the great job here. So I want to talk about MRD as a primary endpoint. Congratulations on that. Should we think about different things like CDx or on the label, and how should we think about pharma basically helping to push your product because of it beyond the label? And lastly, I imagine there is a lot of power in being able to find patients that are recurring. Is there any potential reimbursement or strategic monetization of maybe getting these clinical patients into clinical trials that were not able to prior to maybe, you know, clonoSEQ and its incredibly high sensitivity? Susan Bobulsky: Thanks, David. I appreciate those questions, and I think it is an interesting set of topics. First, with regard to primary endpoint, as you heard in Chad’s prepared remarks, we are seeing increasing use of the assay in the pharma setting in terms of regulated studies. And even more beyond that, we are seeing use in interventional studies where MRD is being used to stop or start therapy and to qualify patients that should be enrolled in the study to begin with. That particular trend is extremely favorable for our business because, of course, we are the only FDA-cleared assay in the space. We are extremely well positioned to capture these opportunities. We are also an assay that has extremely deep sensitivity and high specificity, which is really important in the context of interventions where you do not want to be giving patients therapies they do not need, right? So, the question then comes up: is this a companion diagnostic? Should it be incorporated into studies? There are now the beginnings of studies that are exploring that use case for MRD, although up to this point, the FDA has not taken the position that MRD needed to be positioned as a companion diagnostic within the regulatory context. I imagine that will come up as time goes on. There will be some studies for which that may be appropriate and others not. But regardless of whether MRD becomes a companion or remains a complementary diagnostic for these studies and therapies, it is quite clear that pharma companies are very interested in partnering to ensure that MRD uptake supports the adoption of their therapies. We are already having numerous conversations with our biopharma partners who want to better understand MRD adoption dynamics from our point of view and want to think about how we can work together to expand MRD adoption, especially in the community setting. And to your question about the concept of clinical trial matching, that is potentially an application of the data that we generate, and we have done some initial exploration. There is some level of interest in that, but more work needs to be done to determine whether and how we may proceed. David Michael Westenberg: Got it. And if I may, I am going to ask just one more sticking with the clonoSEQ business. DLBCL grew 19% quarter on quarter. That is great, particularly because there is a lot of noise with competition and a competitor having a lot of different presentations. Do you think that you maybe saw benefits from all of the different presentations at ASH and that would be a one-, two-, three-quarter benefit as all these physicians saw that at ASH? Or do you think there is sustainability for something beyond that? Thank you. Susan Bobulsky: I think that the strength we saw in the DLBCL business in Q1 is very pleasing to see, but also we have seen very strong growth quarter over quarter prior to and since the entry of competition in the space. I am quite confident that the growth we are seeing quarter over quarter is driven by the sustainable moats that we have built and the durable advantages that we have—the brand awareness specifically as a heme MRD test, the technology and its advantages relative to other approaches to assessing MRD, and the broad real-world clinical experience that we have built along with the coverage and the customer satisfaction that we have been able to deliver. All those things have contributed to clinician confidence in utilizing clonoSEQ. As the noise around MRD and DLBCL continues to mount, we are disproportionately benefiting from that as the market leader. And— Chad M. Robins: I was just going to say, David, just remember it is really early days for MRD and DLBCL in general. Susan mentioned all the reasons that we are well positioned, but we see durable growth over many quarters ahead. The general sentiment is getting doctors to incorporate MRD into clinical practice as a routine measure. We are benefiting not only from noise across the industry, but also, as Susan mentioned, from the fact that we have what we believe is the most sensitive and specific test out there. Susan Bobulsky: Yes. And, David, we do intend to continue to release additional data in this space, and I think particularly at ASH, we expect that you will have the opportunity to see another round of significant data advance. David Michael Westenberg: Alright. Chad M. Robins: Thank you. Operator: Our next question comes from Mark Massaro from BTIG. Please go ahead. Mark Anthony Massaro: Hey, guys. Thanks for taking the questions, and congrats on another beat and raise. I wanted to start on the pharma backlog, which increased 24% year over year. And like David said, it is great to see the first primary milestone come in. I think in prior quarters, you have broken out the secondary versus primary funnel. So I am just curious if you could speak to, with just one primary milestone in the bank, what does that look like for you guys over the next couple of years? Is this something that you think can continue? And then can you just remind investors of the economics of the primary endpoint compared to a secondary endpoint? Susan Bobulsky: Sure, Mark. To start out, I can give you an overview of how the backlog is broken out. We have about 190 active studies, and of those, 111 are either primary or secondary endpoint studies. Twenty-three are primary, and the remaining 88 are secondary. And, Kyle, maybe you want to speak to the economics. Kyle Piskel: Yes. On the economics front, deal by deal can have its own unique differences, and I will not go into specifics. Generally, primary endpoint milestones are higher than what we have seen historically in the past, which has been the vast majority of secondary endpoint milestones. They will not all be the same dollar amounts, etc., but they are typically a little bit higher. Mark Anthony Massaro: Fantastic. And then maybe at a high level, can you give us a sense—might be for you, Chad—what inning do you think you are in the EMR integration? I am just basically trying to determine what type of upside you have as we think about getting to full maturity across the EMR systems. Chad M. Robins: I think one of the most important things is prioritizing going after our largest accounts. Now we are seven out of 10 of our top largest academic accounts integrated. In the community setting in particular is where we are targeting large network practices on EMR integrations. Flatiron gives you certain advantages that Epic does not in that you can turn on a lot of accounts at one time. We have now roughly 150 in the community on EMR integrations. The real point is once you have your accounts integrated, we have a very defined strategy about targeting those accounts for pull-through and how you optimize the EMR. I would say we are early on those, but in the accounts where we have gone in and put that muscle into it, we are seeing really strong results. That is the focal point right now: once we are integrated, how do we go in and optimize those accounts? So, I would say early, but we have a very strong playbook in place. Mark Anthony Massaro: Fantastic. Thanks, guys. Kyle Piskel: Sure. Operator: Thank you. Our next question comes from Subhalaxmi Nambi from Guggenheim. Please go ahead. Subhalaxmi Nambi: Thank you, guys. Thank you for taking the questions. You have mentioned before having preliminary discussions on increasing the Medicare bundle of tests to over four. Can you give us the latest on the progress in those? Is this a late 2026 or a 2027 opportunity, and what are the steps left in that process? Chad M. Robins: Yes. It is really hard to predict timing of government contractors and agencies, so I am not going to go out on a limb and try to do that on this call. The only thing I can tell you is that we have a very strong relationship, we continue to develop very strong evidence, and we have had very productive discussions. Subhalaxmi Nambi: That is fair, Chad. Then can you talk about your progress so far this year related to the structure of milestone payments versus transitioning pharma to a more direct pay-for-service structure? How has that been received by partners, and is there a percentage of total customer numbers you are looking to have transitioned as we progress throughout the year? Susan Bobulsky: It is a long process. Many of our contracts are multiyear contracts, and the renegotiations come up as those expire. It is going to take some amount of time, some number of years, for us to even get the opportunity to revisit existing contract structures. What I will say is that in the situations where it has come up, it has been a topic of conversation every time, and many of those conversations are still ongoing. Subhalaxmi Nambi: That is fair. And last one for me, for Kyle—maybe for sequencing margin—what is the ceiling this year, and what will the gross margin progression look like this whole year? Should we expect sequential increases each quarter? Will the full benefit of the NovaSeq transition be realized this year, and what other levers do you have for gross margins? Kyle Piskel: I appreciate the question, Subbu. As it relates to ceiling, we have talked about 75% as the north star. I think it is a fair step up into that 75% gross margin throughout the year. The utility of the NovaSeq X, as we continue to drive volume, just compounds value for us, and as we continue to improve our price point, you will see more margin improvement throughout the year. It is probably fair to state that as a linear step up through to about that 75% range. Subhalaxmi Nambi: Perfect. Thank you so much, guys. And sorry to have nitpicky questions because, honestly, the volume numbers are pretty impressive. So thank you, guys. Susan Bobulsky: No worries. Operator: Our next question comes from Sebastian Sandler from JPMorgan. Please go ahead. Sebastian L. Sandler: Great. Thank you for taking the question. My first question is on pharma MRD bookings and conversion expectations. It looks like most of the guide change is on better volume, so I am just wondering if you expect any of the incremental bookings you saw in 1Q to convert to revenues in 2026. I think normally there is a 20% release rate for in-year bookings, so I am just wondering what is baked in there and if there could be any upside to the guidance in that. And then I have a quick follow-up. Kyle Piskel: Great to see the bookings in Q1 and the increased backlog exiting Q1. As it relates to the guide, pharma is lumpy quarter to quarter. It is a great start to the year. I think we just want to be prudent here in managing expectations, so we will keep it at that 11% to 12% year-over-year growth. That being said, as the trajectory continues and the pace of bookings and pull-through of the backlog increases, it could provide some opportunity to lift the guide in the back half of the year or even potentially next quarter. Sebastian L. Sandler: Okay. Thank you. And then just a follow-up. It looks like EBITDA for MRD stepped up around $2 million quarter over quarter despite a $9 million pharma milestone. Were there any one-offs we should be aware of? It seems like it might have just been personnel and EMR costs. And then I know you have the total company adjusted EBITDA guide positive by the end of the year, but can you give us any more color on incremental MRD EBITDA margins for the balance of the year and pacing there? Thank you. Kyle Piskel: Sure. As it relates to the sequential movement from Q4 to Q1, there is a bit of seasonality in our business in Q1 where we have some increased costs that will not recur, and Q4 was also a little bit higher on the pharma revenue versus Q1. That is the majority of the mix. As it relates to EBITDA improvement in the MRD business, if you focus on the base business, it is going to have a continued growth trajectory throughout the rest of the year. I do not want to put anything firm in terms of an EBIT margin at this point, but suffice it to say it is going to continue to grow sequentially each quarter. Sebastian L. Sandler: Great. Thank you. Susan Bobulsky: Thank you. Operator: Our next question comes from Daniel Brennan from TD Cowen. Please go ahead. Daniel Gregory Brennan: Great. Thank you. Thanks for the questions, guys. Congrats. Maybe just starting off with the 35% volume guide—what do you think the puts and takes would be if you come in above that over the back half of the year, given we have been accustomed to these really strong volume numbers and now you just raised the bar again? Susan Bobulsky: Thanks for the question, Dan. We are very pleased with the performance in Q1. It is a strong start to the year, and we feel very confident in the 35% year-over-year growth. Could it be higher? Yes, and there is potential for upside. We are just early in the year, so we want to see how our key growth drivers continue to play out. It is the same things we have been talking about: EMR integrations and whether we can drive increased adoption of serial testing and increased pull-through, particularly on the Flatiron system, which allows us to really standardize the ordering approach. We have seen really good results to date from that. The blood-based testing—you saw 29% of myeloma MRDs coming in this quarter in blood—that is a nice step up, and we will continue to look for that as a potential area for upside because we do see increased testing frequency where we see increased use of blood. Community use—we achieved our goal, as Chad’s prepared remarks indicated, for the full year in Q1; we need to maintain that and continue to see disproportionate growth in that segment. The guidelines we have been promoting and the favorable updates that came last year have been an important component of that. If we can continue to build and implement the pathways I talked about earlier—protocols that dictate how testing will be done in a standardized fashion in large community practices—that is another source of upside. The “takes” are simply that we believe we are in a very strong position, we have the right strategy, we have the right team, and we are the market leader, but we will remain attentive to existing and emerging competition. That is why it is important for us to maintain a rapid pace of growth, invest appropriately, and solidify all the moats we have been talking about. Daniel Gregory Brennan: Maybe just talking about the commercial organization, can you remind us of the plan this year—where you stand now, what the targets are by year-end in terms of commercial adds—and what is the balance you are trying to strike with driving profitability while ensuring you have enough feet on the street to stay ahead of competition and maximize the opportunity? Susan Bobulsky: The short answer is that we think the team we have is the right team to continue to prosecute the opportunity. We have 65 sales reps in the field, split half and half between account managers who focus on academic institutions and diagnostic hematology specialists who focus on community practices. Our reps have manageable index values; they are calling on a reasonable number of accounts and doctors; and they have acceptable amounts of travel time. We always look at individual territory performance and potential, and we may shift or add territories here and there to capitalize on opportunities in specific geographies. Over time, we will continue to look at new deployment strategies that could justify additional hiring, and we are watching the market dynamics carefully in that regard, but we are not expecting to invest in any significant expansions this calendar year. Chad M. Robins: I will add that some of the areas where we are continuing to deploy capital and invest are EMR integrations, reimbursement and revenue cycle management, and continued data generation to demonstrate clinical utility across all of our indications. Daniel Gregory Brennan: Great. Thank you. Operator: Thank you. As a reminder, to ask a question, you need to press 11 on your telephone and wait for your name to be announced. Our next question comes from John Wilkin from Craig Hallum. Please go ahead. John Wilkin: Hi, guys. Thanks for taking the questions. Just one quick one for me. I wanted to dig in a little bit deeper on the sequencing side of the pharma business. I know you have historically talked about that business being more like a high single-digit grower, and now we are in the second straight quarter where it has grown—I think in Q4 it was 24%, and this quarter over 30%. If you could give a little detail on what is driving that acceleration and if you think that acceleration could be sustainable through the balance of the year? Thanks. Kyle Piskel: Yes, John, appreciate the question. I think we are seeing a lot of traction in the pharma MRD space. The bookings and backlog are really the drivers of that, and the pull-through is also starting to happen. Additional pharma partners want to generate data and get readouts on their trials. I think it is an opportunity for us to continue to go after, and we are going to be beneficiaries of it. Again, we will hold the guide here right now; I anticipate it will grow throughout the year, but it can be lumpy quarter to quarter. John Wilkin: Okay. That is helpful. Thank you. Susan Bobulsky: Thank you. Operator: This concludes the question and answer session. Thank you for participating in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Cytokinetics, Incorporated Q1 2026 earnings conference call. This call is being recorded, and all participants are in a listen-only mode. There will be no question and answer session after the company's prepared remarks. I would now like to turn the call over to Diane Weiser, Cytokinetics, Incorporated’s Senior Vice President of Corporate Affairs. Please go ahead. Diane Weiser: Good afternoon, and thanks for joining us on the call today. Robert I. Blum, President and Chief Executive Officer, will begin with an overview of the quarter and recent developments. Andrew M. Callos, EVP and Chief Commercial Officer, will discuss the commercial launch of MYCorzo in the United States and readiness in Europe. Fady Ibraham Malik, EVP of R&D, will address the results from Acacia HCM. Stuart Kupfer, SVP and Chief Medical Officer, will provide updates related to our ongoing clinical development programs. Sung H. Lee, EVP and Chief Financial Officer, will provide a financial overview for the quarter. And finally, Robert I. Blum will make closing remarks and review key milestones for the year ahead. As you can see on this slide, today’s discussion will include forward-looking statements that are subject to risks and uncertainties. Please refer to our SEC filings for a discussion of these factors. I will now turn the call over to Robert I. Blum. Robert I. Blum: 2026 has been a remarkable period for Cytokinetics, Incorporated and one that I believe reflects the emerging promise of what we have been building here for over 25 years. Most notably, we launched MYCorzo, our first approved medicine for the treatment of adults with symptomatic oHCM in the United States. This is a milestone many years in the making and reflects our unwavering dedication to translating our science into impact for patients. As Andrew M. Callos will discuss, our initial commercial launch, while representing only a partial quarter, is exceeding our internal expectations with net product revenue of $4.8 million in the first quarter. The level of engagement from prescribers, the pace of REMS certifications, and the early demand all reinforce our conviction in the significant opportunity ahead for MYCorzo. And based on its clear differentiation, we believe this initial momentum builds a strong foundation for longer-term commercial success. Beyond the United States, during the quarter, the European Commission approved MYCorzo for patients with oHCM, and we are now moving quickly towards our first European commercial launch in Germany in the second quarter. The global market for MYCorzo is significant, and we are prudently building the right infrastructure to realize its potential. And then, of course, there is Acacia HCM. This morning, we reported positive top-line results from this pivotal Phase 3 clinical trial of aficamtin in nonobstructive HCM. We were very pleased to see that aficamtin improved both symptoms and exercise capacity with no new safety signals observed. Fady Ibraham Malik will speak more to the results that we reported, but we are excited by what these results represent for patients living with nHCM who have no currently approved therapies and for aficamtin, which, depending on the results of regulatory review, may now have the opportunity to be the first product approved to treat the full spectrum of HCM. With a statistically significant and clinically meaningful effect on both endpoints, we believe we have a very clear picture of the treatment effect that aficamtin has in nHCM. Given the trial results, we plan to meet with regulatory authorities, including the FDA, to discuss our plans for promptly submitting a supplemental NDA. During the quarter, there were several meaningful regulatory updates for aficamtin beyond that. In the United States, our sNDA for MAPLE HCM was accepted for filing by the FDA, and we were assigned a PDUFA date of 11/14/2026. We believe the results of MAPLE HCM will enable us to accelerate expansion of the prescriber base, especially with cardiologists in the community setting. Outside of the United States, we submitted an MAA for aficamtin in oHCM in Switzerland, and as a reminder, we also have a marketing application already under review in Canada. Plus, our partner Sanofi is continuing to progress potential approvals in Hong Kong and Taiwan. Taken together, the progress we made in this first quarter is a testament to what we have built in service of our vision of becoming the leading muscle-focused specialty biopharma company intent on meaningfully improving the lives of patients through global access to our innovative medicines. As we look ahead, we enter the remainder of 2026 with strong commercial momentum, conviction in our pipeline, and a deep sense of purpose. Our priorities remain the continued growth of MYCorzo in the United States, advancing our planned launches in oHCM in Europe, pursuing expansion into nHCM, and advancing our muscle biology pipeline, all with disciplined execution and careful attention to capital allocation. I will now turn the call over to Andrew M. Callos. Andrew M. Callos: Thanks, Robert I. Blum. I am thrilled to be reporting on our first quarter of commercial performance for MYCorzo. MYCorzo became available to patients on January 27, and we saw HCP prescribing within days. We have had a strong start that exceeded our expectations. Our launch is grounded in the foundation of clinical evidence and differentiation. The results from SEQUOIA-HCM demonstrate that MYCorzo provides rapid and sustained reduction in obstruction with improvement in symptoms, outcomes that resonate with HCPs. MYCorzo also offers an adaptable monitoring schedule with echocardiograms permitted within a flexible two- to eight-week window and a REMS that does not require DDI counseling. Over 80% of treating HCPs report awareness that they have seen the prescribing information for MYCorzo on an as-needed basis. We are pleased to see continued growth in perceptions of clinical differentiation favoring MYCorzo. In our most recent ACT survey, we see a higher majority of HCPs favoring the clinical profile of MYCorzo, especially among the high-volume HCM prescribers surveyed. In addition, HCPs surveyed view MYCorzo favorably across metrics such as dosing flexibility, safety and tolerability profile, and REMS program requirements. Beyond the clinical profile, treating physicians are also responding favorably to the practical elements of prescribing MYCorzo. Across key metrics of ease of prescribing, echocardiogram monitoring flexibility, and the absence of DDI restrictions within REMS, HCPs appear to view MYCorzo as differentiated. Following FDA approval in December, our team of 100-plus cardiovascular account specialists began engaging HCPs in early January, a few weeks ahead of when product became available in late January. Since then, they have reached HCPs at all levels of HCM prescribing. Our initial launch prioritized focusing our promotional and sales force activity on deepening prescribing among the high-volume HCM prescribers that have historically generated 80% of HCM prescriptions. While our call points span over 10,000 HCPs, we are currently putting greater emphasis in call allocation on the high-volume HCM prescribers. In Q1, our sales teams detailed over 90% of these HCPs. We plan to continue this emphasis on high-volume prescribers until we achieve over 50% new-to-brand prescription share among these HCPs, which we anticipate will occur by year-end. Once we see strong share performance in the high-volume HCM prescribers, we will put greater emphasis on increasing the breadth of prescribing, while still maintaining leadership and growth in the high-volume HCM prescribers. We are already seeing uptake outside the high-volume prescribers. In Q1, more than 40% of MYCorzo prescriptions are from the combination of low-volume HCM prescribers and first-time HCM prescriber segments. In Q1, our field force reached an estimated 40% of these HCPs. Beyond personal and non-personal promotion, our surround-sound approach to reaching HCPs has also delivered strong interest with robust participation in our peer-to-peer physician speaker programs and engagement with our digital advertising. By the end of Q1, over 2,100 people were already enrolled in the MYCorzo patient community. In addition to our clinical profile, we are taking the time to educate HCPs on our REMS program and patient services, as they are different from what HCPs have become accustomed to. Since launch, we have moved quickly to release enhancements to these systems that are consistent with HCPs’ feedback and clinical practice. To measure launch performance overall, we have committed to sharing three launch metrics: the depth and breadth of prescribing, and volume of patients. Breadth of HCP prescribing is measured by the number of HCPs who have written prescriptions. Depth of HCP prescribing is measured by the number of patients each HCP prescribed MYCorzo. Volume of patients is measured by the number of unique patients prescribed MYCorzo. In Q1, we saw strong demand, with more than 275 unique HCPs prescribing MYCorzo, with over 50% from the high-volume HCM prescriber segment. Through April, we have seen continued prescriber growth, with more than 425 HCPs prescribing MYCorzo. Overall, these HCPs have written an average of 2.4 prescriptions per HCP, while the high-volume prescribers have prescribed MYCorzo to approximately 2.6 patients per HCP. While it is difficult to be precise about our new-to-brand Q1 exit share due to some limitations in data availability, our internal analysis leveraging projected syndicated data suggests that the MYCorzo new-to-brand Q1 exit share was greater than 30%. These are very encouraging numbers at such an early stage of our launch. We also see positive momentum in the 1,400-plus HCPs who became REMS certified during the quarter, a potential leading indicator of HCPs who plan to prescribe MYCorzo. The differentiated profile of MYCorzo and our targeted HCP engagement since the beginning of the year has resulted in approximately 680 patients prescribed MYCorzo by the end of Q1 2026, and through April the number of patients has increased to 1,100. Importantly, in Q1, over 70% of dispensed patients are on a paid prescription. On average, patients convert to a paid prescription in less than two weeks. Most of these metrics exceed our launch expectations. This is particularly due to our limited distribution model with dedicated focus on MYCorzo patients, which has helped us achieve a high percentage of patients on a paid prescription very early in the launch phase. As we continue to accelerate our launch, we are also focused on expanding and reducing barriers to prescribe. As we have shared, we have been engaging with payers for quite some time regarding the clinical evidence from our clinical trial program and the clinical and economic burden of oHCM. We currently have comparable access for nearly 90% of Medicare lives and expect to have parity in Medicare within Q2. We are also building commercial access and expect to reach 50% of commercial lives by early Q3 and remain on target to achieve commercial access at parity by the end of Q4. Simultaneously, we are continuing to expand our commercial readiness and planning in key geographies around the world. We secured approval for MYCorzo in the EU in February and continue to move quickly towards our first European commercial launch in Germany, planned in the second quarter. In support of that milestone, we finished hiring and onboarding our full German team inclusive of sales, marketing, medical, and leadership teams. Across the EU, we have also now submitted six HTA dossiers, with five more expected to be submitted this quarter, on the path to broaden European patient access. We also submitted an MAA to Swissmedic, and beyond Europe we continue to look forward to receiving a decision in Canada in the second half of this year. Cytokinetics, Incorporated is now firmly a commercial-stage company, and while it is early in our U.S. launch, we are very encouraged by the initial performance. Both in the U.S. and in Europe, our commercial teams are dedicated to delivering excellence in this new chapter of our company’s history. I will now turn the call over to Fady Ibraham Malik. Fady Ibraham Malik: Thanks, Andrew M. Callos. This morning, we were thrilled to report the top-line results from Acacia HCM. The trial met both of its dual primary endpoints, demonstrating statistically significant improvements from baseline to week 36 in both KCCQ Clinical Summary Score and peak VO2 compared to placebo. In patients treated with aficamtin, KCCQ increased by 11.4 points compared to 8.4 points for patients on placebo, resulting in a least squares mean difference of 3 points with a p-value of 0.021. Similarly, peak VO2 increased by 0.64 mL/kg/min in patients on aficamtin, while it decreased by 0.03 mL/kg/min for patients on placebo, resulting in a least squares mean difference of 0.67 mL/kg/min and a p-value of 0.003. Statistically significant improvements were also observed in key secondary endpoints, including the proportion of patients with improvements in NYHA functional class, the composite Z score of ventilatory efficiency and peak VO2, and NT-proBNP. Importantly, there were no new safety signals identified. The percentage of patients who completed treatment in Acacia HCM was similar between those receiving aficamtin or placebo. Incidence of LVEF less than 50% was 10% in patients taking aficamtin, of which two patients experienced a serious adverse event of heart failure. LVEF less than 50% occurred in 1% of patients taking placebo. Treatment interruptions due to LVEF less than 40% occurred in 3% of the patients taking aficamtin. The improvement in KCCQ was robust and consistent throughout the treatment period in patients on aficamtin. Following washout, KCCQ decreased for patients on aficamtin to match the placebo group. At week 36, peak VO2 increased for patients on aficamtin, while it remained unchanged for patients on placebo, consistent with prior trials of aficamtin. What makes the data particularly compelling is the consistency across what the primary, secondary, and other exploratory endpoints capture. The KCCQ is the patient-reported measure that reflects how they feel and function, their symptoms, their quality of life, while peak VO2 reflects an objective functional measure of exercise capacity. NYHA functional class, the first key secondary endpoint, is also a measure of symptom and functional burden, but is physician assessed. To have improved both symptoms and functional capacity in a meaningful way reflects the depth of the potential impact of aficamtin in this patient population. This is a historic moment for the HCM community. nHCM is a serious condition for which no therapies have ever been approved. These results suggest that aficamtin has the potential to change that and to become a treatment to support the full spectrum of the disease. We could not be more enthusiastic about what we have seen in these top-line results. I want to take this moment to express my gratitude to our team for their relentless conduct of this trial to ensure the quality and robustness of the findings. Additionally, we are deeply grateful to the patients who participated in Acacia HCM, to their families, and to the investigators and site staff across the globe who conducted this trial with such dedication and rigor. Our thanks go to all for everything they have contributed to this program, and, in turn, to the entire HCM community. Next, we plan to submit Acacia HCM for presentation at an upcoming medical meeting and look forward to presenting the results in a more fulsome fashion at that time. Until then, we will not be able to share any additional detail on top of what was reported in today’s press release. As Robert I. Blum mentioned, we will be discussing these results with the U.S. FDA and other regulatory authorities. It has been an extremely exciting start to the year, to say the least. I will now hand it over to Stuart Kupfer to speak more about our ongoing clinical trials in both HCM and heart failure. Stuart Kupfer: Thanks, Fady Ibraham Malik. First, I will touch on our ongoing global clinical programs for aficamtin in HCM. During the quarter, we continued to advance three trials that together are building a comprehensive clinical foundation across indications, geographies, and patient populations. In obstructive HCM, our partner Bayer advanced conduct of CAMELLIA-HCM, a Phase 3 clinical trial evaluating aficamtin in Japanese patients. In pediatric patients with obstructive HCM, we continued enrolling CEDAR-HCM, our global clinical trial evaluating aficamtin in adolescents and younger children. We expect to complete enrollment in the adolescent cohort by the end of 2026. In nonobstructive HCM, we continued enrollment of the Japanese cohort of Acacia HCM. Japan represents an important market where aficamtin is not yet approved for either obstructive or nonobstructive HCM. Both CAMELLIA-HCM and the Japanese cohort of Acacia HCM are designed to support potential marketing authorization for both indications in that country. To that end, I am also pleased to note that aficamtin received orphan drug designation from the Japan Ministry of Health, Labour and Welfare for the treatment of nonobstructive HCM in adults and for obstructive HCM in pediatric patients, reflecting the unmet need that remains in these populations. Now I will move on to our clinical development programs in heart failure. COMET-HS, the confirmatory Phase 3 clinical trial of omecamtiv mecarbil in patients with symptomatic heart failure with severely reduced ejection fraction less than 30%, is progressing well. All sites in the U.S. and Europe are now activated, and we are working to bring on additional trial sites in China. We are pleased with the progress we have made so far this year and plan to continue enrollment through 2026. We also continued AMBER-HFpEF, the Phase 2 clinical trial of ulicamten in patients with symptomatic heart failure with preserved ejection fraction of at least 60%. During the quarter, we expanded enrollment in cohort one following a recommendation from the dose level review committee to collect more data at the current doses, and we expect to complete patient enrollment in cohort one in the second half of this year. Across these programs, we remain focused on rigorous execution and are encouraged by the progress we continue to make in building what we believe will be a leading specialty cardiology franchise. With that, I will pass it to Sung H. Lee. Sung H. Lee: Thanks, Stuart Kupfer. Beginning with revenue, total revenues for the first quarter were $0.4 million compared to $1.6 million for the same period in 2025. In the first quarter, we recorded $4.8 million in net product revenues for MYCorzo, which reflects approximately nine weeks of commercial sales following the U.S. launch near the end of January. As Andrew M. Callos stated earlier, we saw strong demand for MYCorzo, and the net product revenue is reflective of over 70% of dispensed patients on a paid prescription, with the balance receiving drug through either our 30-day free trial bridge or patient assistance programs. We expect the majority of patients receiving MYCorzo through free trial and bridge programs to transition to paid prescriptions on a timely basis, and this dynamic is expected to repeat in future quarters. Other components that contributed to total revenues in the first quarter include $2.6 million in collaboration revenue compared to $1.6 million for the same period in 2025, and $11.9 million from the achievement of a milestone under the Bayer license agreement tied to the first commercial sale of MYCorzo in the U.S. Turning to expenses, R&D expenses for the first quarter were $95.5 million compared to $98.3 million for the same period in 2025. The decrease was primarily due to higher clinical trial activity in 2025, partially offset by higher personnel-related costs in 2026. SG&A expenses for the first quarter were $104.9 million compared to $57.4 million for the same period in 2025. The increase was primarily due to external costs associated with the commercial launch of MYCorzo, the U.S. sales force, and higher non-sales personnel-related costs, including stock-based compensation. Cost of goods sold for the first quarter of 2026 was $0.2 million. Collaboration cost of revenues for 2026 was $2.4 million compared to $1.6 million for the same period in 2025. Collaboration cost of revenues includes cost reimbursements as well as costs incurred in connection with manufacturing drug supplies for collaboration partners. Net loss for 2026 was $[inaudible] or $1.67 per share compared to a net loss of $161.4 million or $1.36 per share for the same period in 2025. Turning to the balance sheet, we ended the first quarter with approximately $1.1 billion in cash and investments compared to $1.2 billion at the end of 2025. Cash and investments declined by approximately $144 million during 2026. Moving on to our financial guidance, we are maintaining our full-year 2026 financial guidance, with GAAP combined R&D and SG&A expense expected to be between $830 million and $870 million. Stock-based compensation included in the GAAP combined R&D and SG&A expense is expected to be between $120 million and $130 million. Excluding stock-based compensation from the GAAP combined R&D and SG&A expense results in a range of $700 million and $750 million. As we have just announced positive top-line results from Acacia HCM, we will update you accordingly in the future on the potential impact of this development on our financial guidance. Looking ahead, we remain focused on disciplined capital allocation and prioritizing our investments on the launches of MYCorzo in the U.S. and Europe, advancing our development pipeline, and investing in our muscle biology platform and research pipeline. With that, I will hand it back to Robert I. Blum. Robert I. Blum: Thank you, Sung H. Lee. This was a first quarter we will long remember at Cytokinetics, Incorporated. Our first medicine reached the hands of patients in the United States. We recorded our first product sales revenues. We progressed readiness for future global launches. And more recently, this morning, we reported positive top-line results from Acacia HCM, results that we believe may open a new chapter for patients living with nHCM. I am incredibly proud of what we have accomplished so far in 2026, and I am even more energized by what lies ahead. The opportunity in HCM has never looked brighter; we have never been better positioned to deliver. We look forward to keeping you updated as we progress through the year. I will now recap our 2026 milestones. For aficamtin, we expect to meet with regulatory authorities, including the U.S. FDA, to discuss the results of Acacia HCM and our potential plans for submitting a supplemental NDA. We expect to launch MYCorzo in Germany in the second quarter of 2026. We expect to potentially receive FDA approval of the supplemental NDA for MAPLE HCM in Q4 2026. We expect to complete enrollment in the adolescent cohort of CEDAR-HCM in the fourth quarter this year, and we expect to potentially receive approval from Health Canada in the second half of this year. For omecamtiv mecarbil, we expect to continue patient enrollment in the conduct of COMET-HS through 2026. For ulicamten, we expect to complete patient enrollment in cohort one of AMBER-HFpEF in 2H 2026. And for CK-089, we expect to begin conduct of a second Phase 1 study. Finally, for our preclinical development and our ongoing research, we expect to continue those activities directed to additional muscle biology–focused programs through the year. As a reminder, there will not be a question and answer session following these prepared remarks on today’s call. We want to thank all the participants on this call today for your continued support and your interest in Cytokinetics, Incorporated. Operator, with that, we can now please conclude the call. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Carlsmed, Inc. first quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to turn the conference over to your first speaker today, Stephanie Vadkovich. Stephanie Vadkovich: Thank you, operator. Welcome to Carlsmed, Inc.'s first quarter 2026 earnings call. Joining me on today's call are Michael Cordonnier, chairman and chief executive officer, and Leonard Greenstein, chief financial officer. Before we begin, I would like to caution that comments made during this call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding the market in which Carlsmed, Inc. operates, trends, expectations and demand for Carlsmed, Inc. products, expectations with respect to reimbursement, statements about the company's clinical data, surgeon adoption and utilization, and Carlsmed, Inc.'s expected financial performance and position in the market. Any forward-looking statements made during this call, including projections for future performance, are based on management's expectations as of today. Carlsmed, Inc. undertakes no obligation to update these statements except as required by applicable law. These statements are neither promises nor guarantees and are subject to known and unknown risks and uncertainties that could cause actual results, performance, or achievements to differ materially from those expressed or implied by the forward-looking statements. For more detailed information, please review the cautionary notes on the earnings materials accompanying today's presentation as well as Carlsmed, Inc.'s filings with the SEC, particularly the risk factors described in Carlsmed, Inc.'s Annual Report on Form 10-K for the year ended 12/31/2025. I encourage you to review all Carlsmed, Inc.'s filings with the SEC concerning these and other matters. Additionally, during today's call, management will discuss certain non-GAAP financial measures, including adjusted EBITDA. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures is included in today's earnings press release. These filings, along with Carlsmed, Inc.'s press release for the first quarter 2026 results, are available on carlsmed.com under the investor section, and include additional information about Carlsmed, Inc.'s financial results. A recording of today's call will also be available on Carlsmed, Inc.'s website by 5:00 p.m. Pacific time today. Now I would like to turn the call over to Michael to go over Carlsmed, Inc.'s business highlights. Michael Cordonnier: Thank you, Stephanie, and welcome to the team. I would like to welcome everyone on our call today. At Carlsmed, Inc., our mission is to improve outcomes and decrease the cost of health care for spine surgery and beyond. To achieve this mission, we have pioneered patient-specific digital surgery for lumbar and cervical spine fusion procedures. Our vision is to make personalized surgery at scale the standard of care for spine surgery. Our AI-enabled digital surgery empowers surgeons to partner closely with patients to seamlessly create three-dimensional surgical plans and 3D-printed spine fusion devices designed to achieve predictable patient outcomes while supporting the surgeon's preferred surgical approach. We then provide postoperative outcome analytics to our surgeon users for each procedure through our Aprivile Insights as part of the MyAprivile ecosystem. We believe this personalized, outcome-driven, AI-enabled ecosystem approach represents the future standard in medical technology, one that is better for patients, surgeons, hospitals, and payers. Importantly, our model is built to scale efficiently. By manufacturing only what is needed for each specific procedure, we avoid the traditional prebuilt inventory trays of implants and instruments that have long burdened the legacy spine and orthopedics businesses. Instead, we are able to provide patient-specific, sterile-packed implants and instruments specific to each patient just in time for their surgery. This capital-light, demand-driven approach enables us to scale rapidly while maintaining a relentless focus on patient outcomes. With this vision as our guide, 2026 is off to a great start with solid execution across our business. In the first quarter, we saw strong adoption of our lumbar and cervical personalized surgery procedures, reinforcing our view that Aprivo as a platform technology is positioned to transform spine surgery. Our clinical outcome data continues to be robust, and our investments in technology continue to drive the scale and productivity needed to make personalized surgery the standard of care for spine fusion procedures. With the peer-reviewed data published on reduced reoperations with the Prevost personalized surgery procedures, we continue to execute on our mission to improve outcomes and decrease the cost of health care for spine surgery. Turning to the first quarter, we delivered strong revenue of $16.1 million, representing growth of 58% over the prior year. Our growth was driven by the continued focus on medical education and compelling clinical outcome data, driving expansion of our surgeon base and increasing procedure volumes. Operationally, we continue to leverage our investments in technology to further drive production efficiencies, reducing lead time by more than 30% to six business days in the quarter and delivering more than 200 basis points of margin expansion year over year. Our fully integrated digital system allows us to partner with hospitals, surgeons, and patients to seamlessly integrate into clinic and operating room workflows preoperatively, intraoperatively, and postoperatively for nearly all indicated patients. Our commercial growth continues to be driven by a surgeon-led adoption model and expanding utilization. I am proud to report that we grew our total surgeon user base by more than 60% year over year, reflective of the rapid clinical adoption of personalized surgery procedures. We continue to drive particularly strong engagement from early career and post-fellowship surgeons who are eager to adopt new technology to differentiate their practices and improve outcomes. With our rapidly growing base of surgeon users, we are still in the early innings of market penetration and have a long runway ahead of us. The Opdivo lumbar procedure represents the majority of our business today, where we continue to gain traction within the estimated 445 thousand lumbar spine fusion procedures performed annually in the U.S. Clinical evidence generation continues to support the early adoption of Aprivo by consistently demonstrating improved outcomes for patients compared to stock implants. In January, data published in the Global Spine Journal further validated our personalized spine surgery approach, including evidence demonstrating a 74% reduction in surgery revision rates at two years compared to stock devices. This peer-reviewed study compared two-year revision rates among complex adult spinal deformity patients receiving Carlsmed, Inc.'s Aprivo personalized interbody implants with previously published revision data from a similar patient cohort receiving conventional stock implants. Patients treated with Aprivo experienced significantly fewer revisions due to mechanical complications, showing a revision rate of 4.3% in patients treated with Aprivo compared to a revision rate of 16.6% in patients who had stock devices. To put this into perspective, over the past 25 years, lumbar fusion technologies have not published data to demonstrate significant reduction in reoperation rates at the standard two-year benchmark. In contrast, Aprivo’s patient-specific lumbar procedures have demonstrated clinically meaningful reduction in reoperations driven by significant decreases in key complications like rod fractures and proximal junction kyphosis. Importantly, this improvement is measured against procedures with traditional stock fusion devices used by the most experienced and skilled surgeons. As a further expansion of our Prevel lumbar procedure, we have announced successful completion of the first Aprivo bilateral lumbar fusion procedure in February. We are seeing great data in our limited market evaluation and are on track for our full commercial launch in the fourth quarter of this year. Carlsmed, Inc.'s Suprivo Lumbar Fusion has strong hospital reimbursement from CMS with all Aprivile lumbar fusion procedures covered by one of 11 different MS-DRG codes. The majority of Aprivo lumbar procedures are reassigned to the three elevated major complication or comorbidity MS-DRG codes. This provides hospitals with superior economic and clinical value to provide access to the Aprivile procedure for patients. On 04/10/2026, CMS published the FY 2027 proposed rule for the inpatient prospective payment system. Under this proposed rule, all Aprivile lumbar spine fusion procedures would be reimbursed by one of three new MS-DRG codes—523, 524, or 525—at a premium to traditional spine fusion procedures. If finalized as proposed, we see this development as very positive for patients, surgeons, and hospitals to establish and maintain long-term access to the Prevost lumbar spine fusion procedure. This published rule is preliminary. We anticipate the final rule to be published prior to becoming effective on 10/01/2026. Shifting to cervical, the first quarter 2026 represented our first full quarter in market commercially with the Aprivo cervical fusion procedure, which we launched in December 2025. With an estimated 370 thousand cervical fusion procedures performed annually in the U.S., we believe that this additional growth lever can provide additional momentum in our business as a further extension of the Aprivo platform. Cervical and lumbar spine fusion procedures are performed by spine surgery trained neurosurgeons and orthopedic surgeons alike. Many of the spine surgeons perform both lumbar spine fusion and cervical spine fusion procedures, demonstrating a substantial procedural overlap across spine surgeons. We believe that we can leverage our team to train and onboard many of the surgeons already familiar with the lumbar Privo technology platform on the Privo cervical platform. In the early days of launch, we have already trained more than 20% of our surgeon users on the cervical platform. The Aprivo cervical procedure is designed to address common causes of variable outcomes associated with anterior cervical discectomy and fusion (ACDF) failure, including subsidence, malalignment, and reoperations. The procedure is designed to optimize bone contact surface area to improve load distribution, bone graft loading, preserve end plate strength, reduce subsidence risk, and restore or maintain alignment. To complement Aprivo cervical and achieve progress against some of these challenges in cervical fusions, our newly announced Cora cervical plating system marks the debut of Carlsmed, Inc.'s patient-specific fixation portfolio and represents a fully personalized solution for ACDF procedures. The first procedure was performed in February 2026 at the University of California, San Francisco. We are progressing well with the limited market evaluation and are on track for the launch of Cora cervical personalized plating system in Q4. Much like the lumbar Aprivo procedure, the cervical Aprivo procedure has a strong inpatient reimbursement profile. In October 2025, the Aprivo cervical procedure received a new technology add-on payment up to an incremental $21 thousand 125 hospital reimbursement. This reimbursement program is for a three-year period, and CMS renewed the NTAP payment for FY 2027 as anticipated in the publication of the preliminary rule. Looking ahead, our strategic focus remains consistent and positions us to continue the durable, high-quality growth we have demonstrated to date. Within our first area of focus, patient-centric innovation, we continue to advance our proprietary personalized surgery platform, including AI-enabled 3D surgical planning, workflow automation, patient- and surgeon-specific devices, and single-use sterile-packed surgical instruments, and further procedural integration in the clinic and operating room. As discussed previously, we have demonstrated great early traction with the recent launch of Aprivo cervical, and we are collecting early clinical experience with the bilateral posterior Prevo procedure and personalized Cora cervical plate fixation. Our product innovation portfolio includes further advancement to drive ease of integration in the surgical workflow and further personalization of spine surgery. Our second area of strategic focus is surgeon education and includes further investments in our medical education team and programs to meet accelerating demand for Aprivo personalized surgery. We continue training new surgeons every month by leveraging success in academic centers to drive peer-to-peer surgeon education with the thought leaders in personalized spine surgery. We also continue to support education initiatives with upcoming resident and fellow courses in partnership with leading academic institutions. As previously mentioned, we have seen strong uptake with early and mid-career surgeons who are adopting digital surgical planning into their practice in their efforts to streamline workflow and improve patient outcomes. These surgeon users will continue to shape the future of spine surgery, and this is an ongoing growth driver for Carlsmed, Inc. that we believe will continue to drive adoption and utilization. Our third area of strategic focus, commercial execution, continues to center on surgeon onboarding, increasing surgeon utilization, and expanding within hospital systems. As we continue to scale, we have expanded our strategic and national accounts efforts to enable local and national access across large hospital systems. Across both lumbar and cervical platforms, hospitals are recognizing the clinical workflow benefits enabled by the Aprivoo ecosystem. By providing deeper integration within a surgeon's preoperative and postoperative clinical workflow, we believe that our platform solution can simplify the surgeon's pre-op planning, reduce time and complexity of the spine fusion procedure in the OR, and enhance surgeons' ability to provide predictable outcomes to spine fusion patients. Lastly, we will continue to generate clinical data to support medical education and market adoption of our transformative personalized surgery technology platform. We believe that personalized surgery at scale is a new standard of care for spine fusion and are committed to providing solutions to patients, surgeons, and hospitals that reduce revision surgeries, improve outcomes, and reduce the cost of health care. We are just getting started and look forward to providing further updates on our rapid market adoption. With that, I will turn it over to Leonard, who will review our financial performance. Leonard Greenstein: Thank you, Michael, and good afternoon, everyone. I will begin today with first quarter 2026 P&L highlights. Revenue for Q1 2026 was $16.1 million compared to $10.2 million in Q1 2025, representing 58% growth year over year. This growth was driven by the continued expansion of our total surgeon user base and increased unit volume sales of Aprivile, as our average revenue per procedure remains substantially consistent between periods. Gross margins were 77.1% in Q1 2026 compared to 74.9% in Q1 2025. This 220 basis point increase was driven by our stable average revenue per Aprivo procedure combined with efficiency improvements in our digital production system with investments made over the past few quarters. This now allows us to deliver the Aprivoo kit to the operating room within six business days of surgeon approval of the digital surgical plan. This lead time and the associated production capacity it enables will support our continued scale. Total operating expenses were $21.7 million in Q1 2026 compared to $13.4 million in Q1 2025. Of this amount, R&D expenses were $5.2 million this quarter, compared with $3.2 million in Q1 2025. This increase was primarily due to higher personnel cost to advance our patient-centric product development priorities and AI-enabled initiatives for our digital surgical planning processes. Sales and marketing expenses were $10.3 million this quarter compared with $6.7 million in Q1 2025. This was substantially driven by increased sales headcount to drive our commercial execution strategy and variable commissions to our sales team and independent sales agents with our revenue growth, as well as increased marketing spend. General and administrative expenses were $6.2 million this quarter, compared with $3.5 million in Q1 2025. The increase was driven by personnel additions and professional services costs and legal fees for customary corporate and intellectual property matters, as well as compliance and other public company related costs. Our GAAP net loss was $8.7 million this quarter compared to a net loss of $5.7 million in Q1 2025. EBITDA adjusted for stock-based compensation was negative $7.5 million this quarter, compared to negative $5.5 million during Q1 2025. We anticipate continued improvement in adjusted EBITDA over the coming years driven by expected revenue growth and leverage across our expense base. As we scale, expanding contribution margin dollars enabled by our capital-light, digital-first business model provide a clearly modeled pathway towards cash flow breakeven. Moving to our balance sheet, our cash and investments as of 03/31/2026 totaled $97.1 million. The outstanding principal under our $50 million debt facility remains at $15.6 million. While we have no current plans to make additional draws ahead of its October 2030 maturity, this facility provides low-cost, nondilutive standby capital and supports general corporate flexibility. Total liabilities as of 03/31/2026 were $26.5 million, of which $15.6 million relates to this debt facility. Our cash used in operating activities was $13.0 million during the quarter, compared to $8.2 million in Q1 2025. Unlike traditional medtech businesses that require capital investments and stock implant and instrument sets, our business scales without these barriers to profitability. As a pure-play personalized surgery company, our working capital can be more strategically deployed towards continued commercial investments to drive significant growth, delivery of our operational excellence priorities in digital production, and continued R&D pipeline development for our business value and growth. Turning to guidance, we are raising our full-year 2026 revenue range to be between $72 million and $77 million, representing 48% growth at the midpoint over full-year 2025. As we progress towards profitability, we continue to expect gross margins to remain in the mid to high 70s, and anticipate driving operating expense leverage in the coming quarters with expected revenue ramp in Aprivo lumbar and cervical. With that, I will turn the call over to the operator for questions. Operator: As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our first question comes from David Roman of Goldman Sachs. The line is now open. Analyst: Thank you. Good afternoon, everybody. I wanted to start a little bit on what you are seeing from a surgeon utilization perspective. We did see strong surgeon adds exiting 2025. Can you maybe give us some perspective on what you are seeing year to date qualitatively, and then how you are seeing utilization across both new and existing surgeons trend in the quarter? And how you are thinking about the balance of the year? And I think, Leonard, in your prepared remarks, you mentioned that average selling prices for Aprivo were roughly flat year over year. If I remember correctly, cervical procedures do come with lower ASP than lumbar. Can you corroborate that point? Is it just that cervical is not big enough as a percentage of total to move average ASPs, and how should we think about the weighted average selling price as cervical becomes a larger percentage of total going forward? Michael Cordonnier: We feel really good about our surgeon enthusiasm for the Aprivile platform. As we exited Q4 with really strong new surgeon adds, we saw that continue to accelerate into the year. As we discussed on the call, year over year, we have added about a 60% increase to our surgeon users. With that, we continue to see ongoing increases in utilization, particularly among those surgeon users that have gone through the initial trial process and continued through adoption. So we feel really good about the utilization and surgeon user adds that we have had. Leonard Greenstein: Yes, David. Our Q1 average revenue per procedures were consistent over the prior year quarter and in Q4 as well as Q1. As we think about the future and the combination of cervical and lumbar, we are projecting our average revenue per procedure to be in the mid to high $20 thousands as cervical takes a greater proportion of revenue over time. The average revenue per procedure for cervical is less than lumbar. To answer your question directly, the contribution margin and the ability for us to further scale our business on a single Aprivile platform that serves both the lumbar and cervical indications with largely the same ballpoint provides the operating leverage in our business to continue to scale efficiently. Operator: Thank you. One moment for our next question. Our next question comes from Travis Steed from Bank of America. Your line is now open. Analyst: Hi. This is Aden on for Travis. So first quarter, first full quarter of the cervical launch, can you talk about the puts and takes and how that is progressing? I think you said 20% of your surgeon users are trained on that. What are you seeing from those accounts that have been trained so far? And are we still expecting high single-digit to low double-digit revenue contribution from cervical for the year? And then I have a follow-up. Michael Cordonnier: Thank you. We feel really good about the traction that cervical has received here in the first quarter of launch. As reported, about 20% of our total lumbar users are now trained on cervical and going through the ramp. As we see this progression, high single-digit to low double-digit percent contribution of revenue from cervical in the total plan for the company looks about right. Analyst: Great. Thank you. And then in the Q, I see a callout of cost improvements and production fees charged by your contract manufacturer. Can you double click on that and talk about if that is a one-time item, or is that something we can expect to continue going forward? Thank you. Leonard Greenstein: Yes. We have made investments in our digital production system holistically that have allowed us to hit that six-day lead time. That really provided efficiencies in our production process inclusive of those with our contract manufacturer. The investments made in earlier quarters going back to 2025 now allow us to cut out costs and time—importantly—out of the system. What we are currently reporting in that high-70s gross margin we see to be sustainable. Operator: Thank you. As a reminder, to ask a question, you will need to press 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press 1-1 again. Our next question comes from Richard Newitter from Truist Securities. Richard, your line is now open. Analyst: Hi. Thank you for taking the questions, and congrats on the quarter. I wanted to go to the CMS proposal that just came out. You mentioned a premium and also broader coverage. I think in the past those are two things that could be pretty significant tailwinds for you in 2027, assuming everything goes as proposed into the final rule. First, what percentage of your procedures currently are getting reimbursed and covered consistently, and how much would this broaden that coverage or access? Then on the premium, we did some calculations and are estimating it could be an incremental $50 thousand reimbursement for stock implant on average—there is a big range in there—somewhere around $25 thousand to $30 thousand on average today above and beyond the premium to traditional stock implants. Is that ballpark kind of the math that you have worked out? Thanks. Michael Cordonnier: Hi, Rich. Thanks for the questions. I will talk about this in two parts. First, the current state of reimbursement for the Opdivo lumbar platform. As reported in the script, we currently have 11 different MS-DRGs that cover the Aprivo lumbar platform, all with existing coverage and reimbursement. As noted, a portion of those elevate to a higher-paying DRG today. With the proposed IPPS rule, it really simplifies the coding and reimbursement such that all Aprivo procedures would map to one of three different MS-DRGs. Based on your calculations, that seems about in line with the national average, and we agree. We think this is a really great solution that CMS is proposing to give significant reimbursement to these procedures. Analyst: That is great. In terms of where you are potentially meeting resistance or there is just not great coverage currently, what could this do for you from that standpoint? Is it 50% currently? Is it 80%? Give us a sense as to how this could broaden your coverage and access. Michael Cordonnier: We really look at this as access versus coverage because we have full coverage today. Where we really think this will provide value to hospitals in particular is to remove the ambiguity and actually simplify coding for the Aprivo procedure. We see this as very beneficial to hospitals to simplify the process so that they can code procedures as they normally would and know that they will map to the right MS-DRG. Analyst: Okay. That is really helpful. If I could squeeze one more in, just following up to David's question earlier. As cervical increases as a percentage of the mix moving through the year, Leonard, how should we think of the gross margin impact if revenue per procedure gets impacted? Leonard Greenstein: As we mentioned during our prepared remarks earlier, we see gross margins being in the mid to high 70s over the coming quarters. That factors in, as Michael covered earlier, a high single-digit to low double-digit mix between lumbar and cervical. The headwinds with the lower gross margin profile of cervical—notwithstanding the tremendous contribution margin it provides and the leverage it provides in our business—are going to be offset, as we see it, with our efficiencies in digital production for lumbar. Operator: Thank you. Our last question comes from Ryan Zimmerman from BTIG. Ryan, your line is now open. Analyst: Hi. This is Izzy on for Ryan. Thank you for taking the question. Michael, I heard your comments and the discussion around the IPPS proposal for 2027. I was just curious what you have heard in terms of feedback from your hospital customers and surgeons in reaction to the proposal. I know it is going to simplify coverage, but do you expect that there could be some benefit in terms of volumes if it is finalized as written? Michael Cordonnier: Thanks for the question. It is early days, and it is a preliminary rule. We are really holding off on those discussions until the final rule goes into place. However, this is something that, as mentioned, simplifies coding and reimbursement and makes a permanent change to the Aprivo procedure at a higher reimbursement level. Net-net, we think this is better for all stakeholders. Analyst: Appreciate it. Thank you. And then, Leonard, I have heard your commentary on guidance, but as we consider contributions layering in in the back half of the year from those new product launches, is there anything that we need to keep in mind in terms of cadence on the top line? Thanks for taking the question. Leonard Greenstein: We see, over the coming quarters, Aprivo lumbar carrying the majority of our revenue and overall contribution. Certainly, we are very pleased with the early days here at cervical and the clinical results our surgeons are seeing with that indication, and how neatly it tucks into the Aprivile platform and ecosystem. We will provide additional color as we progress into the subsequent quarters with how we see additional things shaping up in the company's favor to further drive revenue beyond what we previously guided. Operator: This concludes the question-and-answer session. Thank you for your participation in today's conference. This does conclude the program, and you may now disconnect.
Operator: Good day, and welcome to the Solid Power, Inc. Q1 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask a question. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Charlie Van Goetz, Investor Relations. Please go ahead. Charlie Van Goetz: Thank you, operator. Welcome, everyone, and thank you for joining us today. I am joined on today's call by Solid Power, Inc.'s President and Chief Executive Officer, John Van Scoter, and Chief Financial Officer, Linda C. Heller. A copy of today's earnings release is available on the Investor Relations section of Solid Power, Inc.'s website at solidpowerbattery.com. I would like to remind you that parts of our discussion today will include forward-looking statements as defined by U.S. securities laws. These forward-looking statements are based on management's current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. Except as otherwise required by applicable law, Solid Power, Inc. disclaims any duty to update any forward-looking statements to reflect future events or circumstances. For a discussion of the risks and uncertainties that could cause results to differ materially from those expressed in today's forward-looking statements, please see Solid Power, Inc.'s most recent filings with the Securities and Exchange Commission, which can be found on Solid Power, Inc.'s website at solidpowerbattery.com. With that, I will turn it over to John Van Scoter. John Van Scoter: Thank you, Charlie, and thank you all for joining us today. We delivered a productive first quarter, marking steady progress across our key operational and strategic priorities. Starting with our partnership with SK On, we completed site acceptance testing in early April, marking the final milestone of the line installation agreement for SK On. We believe achieving this milestone underscores our commitment to supporting our partners’ ASSB efforts. With this accomplishment, we are very pleased that there are now cell production lines using our technology on three continents: here at our facilities in Colorado, BMW's facility in Germany, and SK On's facility in Korea. We also continue to support our customers and partners in their development efforts through delivery of our electrolyte. We provided Samsung SDI with electrolyte under our three-way joint evaluation agreement with BMW and continued sampling with other customers during the quarter. Turning to our electrolyte development roadmap, we believe installation of our continuous electrolyte manufacturing pilot line will represent a critical inflection point on our path to commercialization and a clear differentiator for Solid Power, Inc. With factory acceptance testing for all key equipment complete and construction underway, we are laying the groundwork for commercial-scale production. Once installed, this line will enable our transition from batch to continuous processing, supporting near-term customer programs and driving expected cost savings relative to today’s processes. The line is designed to allow us to de-risk and optimize processes in advance of full commercialization. Importantly, we believe our wet processing methodology for electrolyte production offers scalability, yield, and capital efficiencies relative to traditional dry process methods. We also continue to explore potential partners with processing, scaling capabilities, and capital to support construction of a 500 metric ton electrolyte production facility. We anticipate additional demand for sulfide electrolyte in Korea and are considering a potential partnership for commercial-scale production in Korea. We are evaluating multiple potential partners and are pleased with our progress to date. With respect to our final development goal, we continue to leverage our Electrolyte Innovation Center, or EIC, and cell capabilities for product and process development during the quarter. Through this development work, we are executing against our objective to continually deliver differentiated electrolyte products and secure long-term customers. I will now turn the call over to Linda C. Heller for the financial results. Linda C. Heller: Thank you, John. I will start with our first quarter results. Beginning with revenue, during the quarter we generated revenue and grant income of $3.1 million, driven primarily by progress toward the site acceptance testing milestone under our line installation agreement with SK On and performance on our assistance agreement with the U.S. Department of Energy. Operating expenses were $29.4 million for the quarter, compared to $30 million in 2025. This decrease was driven by timing of supplier and material shipments relating to our development activities. Operating loss was $26.3 million, and net loss was $13 million, or $0.06 per share. Capital expenditures totaled $1.7 million during the quarter, primarily representing costs for construction of the continuous electrolyte production pilot line. Turning to our balance sheet and liquidity, Solid Power, Inc.'s liquidity position remains strong. We ended the quarter with total liquidity of $435.3 million, due to the net proceeds after fees and expenses of $121.3 million raised through a registered direct offering in January. In addition, contract assets and accounts receivable were $12.7 million, and total current liabilities were $17.1 million. Overall, we remain focused on maintaining financial discipline while continuing to invest appropriately in our technology development and process improvements, and we believe we are well positioned to support our strategic priorities throughout the year. I will now turn the call back to John. John Van Scoter: Thank you, Linda. In closing, I want to thank our employees, partners, and stakeholders for their continued commitment and support. We are executing on our objectives with focus, and I am confident we are well positioned to deliver meaningful progress through 2026. We will now open the call for questions. Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Colin Rusch with Oppenheimer & Co. Colin Rusch: Thanks so much, guys. Could you talk a little bit about the potential for partnerships in North America that you are starting to see move forward, given the amount of capacity that is underutilized right now for the auto space and substantial legislation and government involvement in terms of tariffs and the NDAA clients for military applications? I am sure you are seeing some level of demand for that at this point, but just curious about the potential for you to look at partnerships and potentially start bringing something forward that we may not be thinking about just yet. John Van Scoter: Afternoon, Colin, and thank you for that deep question. I will be honest with you, the demand that we see right now is really coming off of the peninsula in Korea. We have yet to see, despite all the things that you described, anything really substantial here in the States. If we go back a couple of years, that was very different. We actually planned to do our original DOE plant here in North America, but with the changes in the landscape here in North America, we shifted to just the SP2.5 and then shifted to partnerships in Korea. We certainly are well positioned, should that change, to come back and revisit that. We would very much like to invest here in North America, but right now, we just do not see the demand. Colin Rusch: Okay, perfect. And then can you talk a little bit about the capital efficiency that you are enabling for your customers at this point? I know it is substantial, but would love to get any detail you might be able to share on that. Linda C. Heller: Hi, Colin. The capital efficiency has really a two-pronged approach to it. First and foremost on SP2.5, that is bringing the continuous processing, which is necessary for commercialization down the road, to a commercialization scale. So we are shifting from batch to continuous processing, and we expect that line to be commissioned by the end of the year, and we are on track for that. The second is the actual processing technology that you use for electrolyte, and we use something known as wet process technology. There are a variety of advantages to it, from dry room utilization to size of the equipment, that all lead to a very significant capital expenditure reduction by using that, as well as yield and other improvements. So between that, and with electrolyte production versus cell production, that in itself has tremendous capital efficiencies. Among those three, we feel we are very well positioned to be able to drive costs at the commercial scale. John Van Scoter: The only thing I would add, Colin, is around the wet processing. That is one of the reasons we are getting, I think, such a strong uptake with potential JV partners in Korea. They see the advantage that Linda just described in terms of the capital efficiencies and so forth, so I think that is a leading indicator of the advantage we have with our process. Colin Rusch: Perfect. Thanks so much, guys. Operator: The next question comes from Ahmed Dayal with H.C. Wainwright. Ahmed Dayal: Hi, guys. Good afternoon. Thank you for taking my questions. Linda, sorry if I missed this, but can you maybe walk us through the CapEx for 2026? Linda C. Heller: We actually do not break out in our guidance the CapEx individually. We did for Q1; our CapEx was $1.7 million. That also includes the amount of the reimbursement from DOE that would be considered, so it is actually larger, but the net impact would be $1.7 million. The largest capital expenditure that we are making in 2026 is our SP2.5, which we do have the grant money that goes against that on our financial statements. Ahmed Dayal: Understood. Thanks for that. And then what are the next steps with SK On from here? Post site acceptance, how should we expect things to proceed from this point? John Van Scoter: Good afternoon, Ahmed. It is John here. We view our relationship with SK On as a long-term relationship, like our others with BMW and so forth. It is a multiyear relationship as we go forward, but we will be transitioning to supporting them running the line from this point forward. To this point, prior to SAT completion, we were running the line in their facility. Now they have taken that over, and they are running the line, but we will bring in our experts as we need to support their development efforts—their cell moving through this year and on into next—and then transition to ultimately a electrolyte supplier agreement with them. We do have an R&D electrolyte supply agreement as part of the three-part agreement we did in 2024, but we would expect once that is completed that we would transition to a long-term supply agreement with SK On. Ahmed Dayal: Okay. And then on the electrolyte supply agreement, John, what is the timeline? Is it six to nine months, or a little bit sooner than that? John Van Scoter: It is multiyear. It actually goes out through 2027. It is for a total of 8 metric tons, so however long it takes them to consume that is the way I would encourage you to look at it, as opposed to a set time frame. Ahmed Dayal: Okay. Understood. Thank you for that. Operator: That is all the time we have for questions. This concludes our question-and-answer session. I would like to turn the conference back over to John Van Scoter for any closing remarks. John Van Scoter: Thank you for joining the call today and for your interest in Solid Power, Inc. We look forward to updating you again next quarter. Operator: Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Good afternoon, and welcome to Skyworks Solutions, Inc.'s second quarter 2026 earnings conference call. This call is being recorded. At this time, I will turn the call over to Rajvindra S. Gill, Vice President of Investor Relations for Skyworks Solutions, Inc. Mr. Gill, please go ahead. Rajvindra S. Gill: Good afternoon, everyone, and welcome to Skyworks Solutions, Inc.'s second fiscal quarter 2026 conference call. With me today for our prepared remarks are Philip Gordon Brace, Chief Executive Officer and President, and Philip Carter, Chief Financial Officer and Senior Vice President. This call is being broadcast over the web and can be accessed from the Investor Relations section of the company's website at skyworks8.com. In addition, the company's prepared remarks will be made available on our website promptly after the conclusion of the call. Before we begin, I would like to remind everyone that our discussion will include statements relating to future results and expectations that are, or may be considered, forward-looking statements. Please refer to our earnings press release and recent SEC filings, including our Annual Report on Form 10-Ks, for information on certain risks that could cause actual outcomes to differ materially and adversely from any forward-looking statements made today. Additionally, today's discussion will include non-GAAP financial measures consistent with our past practice. Please refer to our press release within the Investor Relations section of our company website for a complete reconciliation to GAAP. With that, I will turn the call over to Philip Gordon Brace. Philip Gordon Brace: Thanks, Raji, and welcome, everyone. Let me begin by highlighting a few key developments. One, we secured a significant multigenerational design win with a leading Android OEM expected to generate over $1 billion in revenue through 2030. This win reflects our expanding footprint in premium AI-enabled devices, validating our RF content platform and our technology differentiation. Two, we introduced a range of new product innovations, including BAW filters targeting early 6G FR3 spectrum and next-generation RF front-end solutions supporting frequencies above 7 gigahertz. We also expanded our timing portfolio with new clock buffers addressing data center, wireless infrastructure, and PCIe Gen 7 applications. Moreover, we are actively engaged with customers in early Wi-Fi 8 programs, positioning us well for the next upgrade cycle. Three, regarding the Qorvo combination. Regulatory reviews are progressing as expected. We have entered Phase II of the China SAMR review and are maintaining constructive dialogue with the relevant antitrust authorities. While our formal guidance remains an expected closing early in calendar 2027, we are increasingly hopeful that we could close in late 2026. We continue to make good progress in our integration planning and remain confident in our ability to realize the anticipated synergies of $500 million or more. Finally, in accordance with our operating covenants in our merger agreement, we supported Qorvo's $400 million share repurchase during the quarter, reflecting what we believe to be a prudent and efficient deployment of capital. Our confidence in the strategic and financial logic of this combination remains as strong as ever, and we look forward to closing and delivering its full value to shareholders and customers. With that, and consistent with prior practice, we will not be discussing the transaction further on today's call and will focus on our second fiscal quarter results and June outlook. Skyworks Solutions, Inc. delivered strong results, driven by upsides in both mobile and broad markets. We posted revenue of $944 million, roughly $20 million above the high end of our guidance range, delivered earnings per share of $1.15, [inaudible] above the high end of our guidance range, and paid $107 million in quarterly dividends. We continue to see solid demand across the portfolio, with strength spanning mobile, Wi-Fi, data center, and automotive. We are mindful of the ongoing industry discussion around memory supply and pricing. Consistent with what we observed last quarter, we have not seen an impact on our business to date. Demand across mobile and broad markets has remained solid, channel inventories are lean, and our portfolio is weighted toward premium, high-complexity solutions where demand tends to be more resilient. We will continue to monitor the environment closely, but our current outlook remains supported by what we are seeing across the customer base today. In mobile, we again outperformed expectations, supported by healthy sell-through and strong execution on new product launches at our key customers. We remain bullish on the long-term RF content opportunity. A stronger unit backdrop and potential for increasing RF complexity driven by AI workloads continue to support our growth outlook. Stepping back, the long-term driver of this business is the steady expansion of a more connected wireless world, with physical AI emerging as the next wave of growth. Future growth is going to be driven by four converging forces. One, more units: the installed base of wireless devices continues to expand globally. Two, more RF content per device: next-generation standards, including 6G, Wi-Fi 7 and beyond, and satellite connectivity, will drive more bands, more antennas, and more filters into every endpoint. Three, AI-driven workloads: edge inference is placing higher demand on wireless performance, particularly uplink, latency, and power. And finally, four, new form factors: robotics, autonomous platforms, and edge AI devices are emerging as a new generation of connected endpoints. Turning to broad markets. We have nine consecutive quarters of growth, approximately $400 million in quarterly revenue, and double-digit year-over-year growth. Our three growth engines—Wi-Fi, data center, and automotive—accounted for nearly two thirds of our broad markets business and collectively grew 30% year over year. Let me briefly talk about these three growth engines. One, Wi-Fi. Wi-Fi 7 adoption is accelerating as AI workloads push toward the endpoint. Strong design engagement, solid backlog, and early collaboration with customers on Wi-Fi 8 position us well for continued growth into the next cycle. Two, automotive. The connected car and infotainment are driving growth today, with power and connectivity expanding our footprint further into FY '27. We are engaged with global OEMs and Tier 1 suppliers on multiyear vehicle programs. Three, AI data center. While still modest in absolute terms, the segment is expected to grow nearly 50% this year. The structural shift to higher data rates and rack density is driving demand for precision timing and advanced power delivery. Skyworks Solutions, Inc. is well positioned across 800-gig and 1.6-terabit platforms with leading hyperscalers, global ODMs, and infrastructure OEMs, as the industry transitions to 400-volt and 800-volt HVDC architectures. Together, these three engines are reshaping the mix of our broad markets business and driving the diversification thesis we have been executing on. In summary, strong quarterly execution and broad-based performance across both mobile and broad markets, with nine consecutive quarters of growth in broad markets and double-digit year-over-year gains. Our outlook remains solid. Customer demand is healthy, channel inventory is lean, and our portfolio is positioned in segments with structural tailwinds. The Qorvo transaction is proceeding as expected. The regulatory process is on track, and we are confident in delivering the shareholder value. Finally, the long-term setup is compelling: more endpoints, more content per device, AI at the edge, and exposure to secular growth areas like data center, Wi-Fi, satellites, and more. We believe we are well positioned for what comes next. With that, let me turn the call over to Philip for a discussion of last quarter's performance and outlook for Q3 fiscal 2026. Philip Carter: Thanks, Phil. Skyworks Solutions, Inc. delivered revenue of $944 million, exceeding the high end of our guidance range. During the quarter, our largest customer accounted for approximately 60% of revenue. Mobile represented 58% of total revenue and came in higher than our expectations, driven by healthy sell-through at our top customer and product execution. Broad markets also outperformed expectations, representing 42% of sales, and grew 10% year over year, driven by growth across Wi-Fi, data center, and automotive. Gross profit was $425 million with gross margin of 45%, in line with the midpoint of guidance. Input costs remain a modest headwind to gross margin, but we continue to do a good job of containing those pressures through cost controls and selective price adjustments. Operating expenses were $236 million, in line with the midpoint of our guidance range. Operating income was $189 million, translating to an operating margin of 20%. Other income was $3 million, and our effective tax rate was 10%, resulting in net income of $173 million and diluted earnings per share of $1.15, [inaudible] above the midpoint of our guidance. We ended the quarter with approximately $1.4 billion in cash and investments, and $1 billion in debt, maintaining a strong balance sheet and ample flexibility to support our strategic and financial priorities. Looking ahead to Q3 2026, we expect revenue to range between $900 million and $950 million. We anticipate mobile to decline approximately low single digits sequentially, consistent with normal seasonality. We expect broad markets to be up modestly sequentially, representing 43% of sales and up high single digits year over year. Gross margin is projected to be approximately 44.5% to 45.5%, flat sequentially, reflecting seasonally lower volume and higher input costs. We expect operating expenses to be between $235 million and $245 million, as we continue to fund key R&D initiatives while maintaining tight control over discretionary spending. Below the line, we anticipate approximately $4 million in other expenses, an effective tax rate of 10%, and a diluted share count of 151 million shares. At the midpoint of our revenue outlook of $925 million, this equates to expected diluted earnings per share of $1.03. With that, I will turn it back to Phil for closing remarks. Philip Gordon Brace: Thank you, Philip. Before we wrap up, a heartfelt thank you to our employees, customers, and partners. And to the Qorvo team, we deeply respect what you have built, and we are energized by the opportunity ahead of us. Your dedication fuels our success and sets the stage for continued leadership and growth. We will now open the call for questions. Operator, please open the line. Operator: Thank you. Star-1-1 on your telephone and wait for your name to be announced. As a reminder, given time constraints, please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A roster. Our first question comes from the line of Timothy Arcuri with UBS. Your line is now open. Timothy Arcuri: Thanks a lot. Can you talk a little bit about your content trajectory at your largest customer? I know you talked about this big Android win, and you have talked in the past about feeling like content would be pretty flat on a blended basis this fall. How do you feel about content looking at the next year? With this win, does this bode well for your content at your largest customer? Philip Gordon Brace: Yes. Look, I think we talked about this in our last call. Thank you for the questions. On our last call, we talked about generally holding share where we needed to hold share. In general, when we look at our content position there, we feel good about it. There has been some industry chatter around different seasonality and things, and we are not seeing anything unusual with respect to that. We feel good about our content, and I think the win at the premier Android segment really emphasizes our technology play and the value proposition we can offer. So I think it bodes really well. I am excited about it, I am proud of the team for what they did, and I am looking forward to the future. Timothy Arcuri: Thanks. As a quick follow-up, September is typically up, usually like 13% to 14%, but the market had been a little weak last year. Are there any puts and takes you would call out for the third calendar quarter that it would be any different than the usual up 12%, 13%, 14% sequentially? Philip Gordon Brace: We are only really guiding one quarter in advance. But what we see so far, book-to-bill remains above one. Our inventories are lean. We are keeping a close eye on it. We hear lots of chatter about it. But right now, we do not see anything that would not be otherwise seasonal for the back half of the year, and we will continue to monitor it closely. Operator: Thank you. Our next question comes from the line of Chris Caso with Wolfe Research. Your line is now open. Chris Caso: Yes, thanks. Good afternoon. The first question is with regards to this Android win. If you could give us a little more color behind what this means. Would you expect that this represents share gain for Skyworks Solutions, Inc.? Is it something as a follow-on of an existing platform you have, or would you consider this to be incremental? Philip Gordon Brace: It is a good question. I am going to be careful answering given the confidential nature of it. It is obviously a customer we have been working with in the past. I do think it represents incremental business for us going forward. It is in the premium part of the segment, and we think the gross margins will reflect that. I think it represents a really good technology statement for us across multiple generations. It is really a testament to the technology we have, but also collaboration with the customer. They would not have done that if they did not think that we could deliver sustained value generation over generation, and that is really what we have done here. Philip Carter: As a follow-up with regard to gross margins—so as we look at the back half of the year, typically, gross margin is down from Q2 to Q3 on average 70 basis points over the last five years, and we are guiding flat. We are seeing some input costs increase as we are going through the current quarter—incurring expedite fees, looking at gold prices, things like that. But we are actively pursuing cost reductions where we can—fab optimization, utilization rates. We do see a slight increase in broad markets, and that does help a little bit as we look into the next quarter. Operator: Thank you. Our next question comes from the line of Edward Francis Snyder with Charter Equity Research. Your line is now open. Edward Francis Snyder: Thanks a lot. Okay, so you got an incremental Android win. It is going to be a billion dollars between here and 2030, which means it is not Apple. You have played with Google before, it sounds like you are winning there, and everything you described suggests that maybe that is a win. In the past, they would bounce between you and Qorvo. I am just trying to get a handle on how sticky this is. I guess the 2030 guidance gives you some answer to that. Do you expect—especially with the merger—there will not be many other choices once this gets done? Or even if the merger did not go through, would you still think you would have a billion dollars there? Philip Gordon Brace: It really has absolutely nothing to do with the merger or the opportunity in front of us with Qorvo. I really cannot comment much more than what I said before. It is a multigenerational design with significant RF content. It is a really great opportunity for us, and that is really all that I can say. On the stickiness of it, I would not say anything out to 2030 unless I was confident about the stickiness of it. Edward Francis Snyder: Very good. My follow-up: you have done a very good job—memory is not affecting you—through the entire industry. Obviously, that is because you decided years ago to exit the China market and focus on your largest customer, and they are not as affected by it. Is there anything out there that would suggest that you would change that strategy? It has gotten much worse. You decided to leave China around 2019, and not playing a big role at Samsung for a reason. I do not think it is competitive; I think you decided not to be there because of the pricing problems at Samsung. Are you looking out there—is there any reason why you would change that strategy of maybe reentering high end in China or trying to compete for the Galaxy more aggressively at Samsung after the merger with Qorvo? Philip Gordon Brace: In general, our strategy is to continue to grow our business and do so in a way that grows our business profitably. We will deliver products to any customers—be it Android, iOS, or others—in a way that customers are willing to pay for our value proposition and we get compensated accordingly, and that is what we will continue to look at. It is in our strategic and financial best interest to do so. What is not in our best interest is to engage in designs that are extremely dilutive, in some cases negative. So we will continue to be prudent about how we allocate our resources to maximize the return and benefit for our customers and our shareholders. Operator: Thank you. Our next question comes from the line of Thomas O'Malley with Barclays. Your line is now open. Thomas O'Malley: Hey, thanks for taking my questions. First, a follow-up on content. When you gave a little guidance earlier, you talked about phone generation over phone generation. Can you give us an update on how content has trended since then? Traditionally, you have some early design wins late in the year, and then the board really gets set around April. Has anything changed since we last talked at earnings? And then the follow-up is, it seems like you are pointing to normal seasonality for September and December. Historically, when you look at larger customers, you get a yearly forecast, but then as you get a little bit closer, those things change. Could you talk about what type of lead times you have on changes in order patterns there, so people get comfortable around the idea that you would not see any sort of change as we get closer? Philip Gordon Brace: Thank you. On the content, we will go back to what we said before. We feel good about our content position. We cannot really comment and front-run our customers, and frankly we do not really know what models are going to sell and how that is going to work. We feel good about our content position, and we will see how that plays out. We do not see anything today that would suggest anything other than normal seasonality. Our lead times are actually quite long, but customers change forecasts all along—we are dealing with some of that now. In general, we do not see anything that suggests abnormal seasonality. Our book-to-bill is above one, our inventory is low, and we continue to get strong demand signals from pretty much across our customer base at this point. It is something we are keeping an eye on, but at this point, we feel really good about it. Operator: Thank you. Our next question comes from the line of Christopher Rolland with Susquehanna. Your line is now open. Christopher Rolland: Thank you for the question. Following on that last question about supply and lead times—if you could elaborate there. And also how it might play into pricing. In your prepared remarks, you talked about select pricing adjustments. If you could talk about that—what that might mean for gross margin as well—that would be great. Philip Gordon Brace: I will make some high-level comments, and then pass it over to Carter for details. We are dealing with a very dynamic environment. If I look back about twelve months and think about the number of black swan events that we have all been managing—it has been pretty challenging, and the current supply environment is challenging. We are definitely seeing effects of input price increases pretty much across the board. Our team has done a good job of figuring out ways to keep costs down and manage other things, and we are certainly, where we can, sharing some of the price increases with our customers and trying to be balanced to help offset some of these price increases that we are seeing. It tends to be targeted, and we are trying to manage both the short-term volatility and the long-term sustainability of the business. We are taking a prudent approach. Philip Carter: Just to add to that, some of the long-life products allow us to increase price and pass those costs on. Over the longer term, we are sticking with our long-term model of 50% to 55% gross margin post-combination with Qorvo. We do see a path to gross margin expansion in terms of favorable mix shift, lower cost structure through fab optimization, and higher utilization. We are excited about the future, the roadmap, and margin improvement. Christopher Rolland: Excellent. Perhaps a follow-up on the Android win. Could you talk about how you got that win, how this product is differentiated in terms of getting the pricing that you wanted? And does this make you rethink the Android opportunity longer term, or is this more of a one-off opportunity rather than a category? Philip Gordon Brace: We were able to offer a technology-advantaged solution that we believe will enable our customer to make a very competitive product. By having a multigeneration design win with that customer, it enables us to focus engineering resources to deliver generation over generation. We think that is very competitive, and the customer supported that. With respect to longer-term opportunities, as I reiterated earlier, it is in our strategic best interest to continue to grow the business where we can. We are experts in RF wireless communications. To the extent that we can develop solutions and products that customers want to buy at economics that make sense for both of us, we are going to continue to do that. When the economics are upside down, that is when it does not work. We will continue to be financially disciplined about allocating our resources, R&D, technology, and capability to things that provide customer benefit and deliver financial return for us and our shareholders. Operator: Thank you. As a reminder, if you would like to ask a question, please press 1-1 and wait for your name to be announced. Our next question in the queue comes from the line of Cowen. Your line is now open. Analyst: Hi. Thanks for taking my question. I have two of them. What is your total China revenues roughly this year? And within that, is the China handset revenue really small, like less than $10 million a year right now? Philip Carter: Looking at China, our overall business annually would be less than $200 million, and handset would be less than $20 million. Analyst: Got it, thanks. As a quick follow-up, on the broad market side, if I remember right, your data center revenues are still under $100 million and your auto revenues are probably around $250 million a year. Is that still the right ballpark? And how do you expect that to grow as we look forward? Philip Carter: Yes, those are about right from a number standpoint. We see really good growth, as Phil mentioned in the prepared remarks, around those areas. In terms of ranking, data center is growing a lot stronger than our automotive business, but auto is a great, healthy business where we are getting good design-win traction. We are excited about both, and we see good bookings in those areas. Operator: Thank you. Our next question comes from the line of Peter Peng with JPMorgan. Your line is now open. Peter Peng: Thanks for taking my question. When you think about that Android customer—the $1 billion over the next couple of years—should we think about it as being linear in terms of revenue opportunity, or is it rising each year from generation over generation? Any color on how we should factor that into the model? Philip Gordon Brace: We expect it to be rising year over year. We expect it to be a tailwind to growth from now through 2030. Peter Peng: Got it. And then just on RF content per device at your largest customer—I think it has been kind of stagnant for a number of years. Looking out the next couple of years, and you talked about some of the drivers—AI at the edge driving higher demand—can you talk about RF content potentially accelerating and growing? Philip Gordon Brace: Absolutely. As we look at next year, we expect blended content to be roughly flat, with potential for some tailwinds as they migrate toward the internal modem, which opens up some new opportunities for us. It is difficult to predict different models and how that is going to work, but generally we feel good about our content. Going forward, we are seeing more RF complexity driven by an increased number of bands, increased MIMO capability, increased power requirements, and smaller devices. We are seeing that across the board, and that should be a tailwind for content. As we zoom out and look at the mobile business in general, there will be more units out there; the more units put out there now, the more come up for refresh. There is more RF content coming, then we get into 6G. We have new form factors and shortening refresh cycles. We have a lot of tailwind we are excited about. We will keep monitoring that and keep executing our playbook. Operator: Thank you. Ladies and gentlemen, that concludes today's question and answer session. I will now turn the call back over to Mr. Philip Gordon Brace for any closing comments. Philip Gordon Brace: Great. Thanks, everybody, for joining the call today. We look forward to seeing you at upcoming conferences throughout the quarter. Operator: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Tempus AI, Inc. First Quarter 2026 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone. I will now turn the conference over to Elizabeth Krutoholow. You may begin. Elizabeth Krutoholow: Thank you. Good afternoon, and welcome to Tempus AI, Inc.'s First Quarter 2026 Conference Call. This afternoon, Tempus AI, Inc. released results for the quarter ended 03/31/2026. The press release and overview of the quarter and our latest presentation are available on our IR website. Joining me today from Tempus AI, Inc. are Eric Lefkofsky, founder and CEO, and James Rogers, CFO. Before we begin, I would like to remind you that during this call, management may make forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of these risks, please refer to our 10-K and other filings with the SEC. During the call, we will discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with reconciliations to the most directly comparable GAAP financial measures, are included in our earnings release, which is available on our IR page. I would now like to turn the call over to Eric Lefkofsky. Eric Lefkofsky: Thank you, and welcome, everybody. We had a great quarter. Revenue was $348.1 million, up a little over 36% year-over-year. Our diagnostic revenue was $261.1 million, representing almost 35% growth, driven by particular strength in our oncology business, which had unit growth of about 28%. It was strong across the board with our solid tumor and liquid biopsies performing well, and our MRD volume performing even better. Hereditary slowed down a bit, which was to be expected given that we are lapping some extreme growth rates from a year ago. We expect that business to return to mid-teens in the second half of the year. Our data applications business did extraordinarily well, $87 million of revenue representing 40.5% year-over-year growth with particular strength in our data licensing and modeling business, Insights, which grew over 44%. This is our third straight quarter of bookings north of $100+ million with TCV rising and visibility in the best place it has been for our data and apps business in quite some time. So all in, the business is doing extremely well. Our main businesses are performing at or above plan. We are on track for a great year and, as a result, increased our guidance to now a range of $1.59 billion to $1.60 billion for the year, with adjusted EBITDA of about $65 million. With that, happy to take questions. Operator: As a reminder, to ask a question, please press star then one. If you would like to withdraw your question, press one again. We do request for today’s session that you please limit yourself to one question only. We will now open the call for questions. Your first question comes from the line of Kallum Titchmarsh with Morgan Stanley. Your line is open. Kallum Titchmarsh: Great. Thanks for the question, guys. Eric Lefkofsky, I wanted to start with Insights just given some of the recent updates. Can you maybe just talk about how discussions with pharma customers have been trending so far this year, particularly as interest in AI appears to be evolving? And I am curious where de-identified data is sitting in the hierarchy of needs. And investors are obviously cognizant of contract closing and renewal dates for your large agreement, so really looking for your latest thoughts on longevity and extension potential here. Thank you. Eric Lefkofsky: Yes. I would say that all of our core big data relationships are very strong. We have a long history of renewing these agreements at or above where they historically stood. We feel great about that trend continuing. And I think, equally important, if not more important, is that we are now adding some really big new names to that prestigious group. This quarter alone, we added Merck, who signed a very large strategic collaboration with us. We expanded our relationship with Gilead. We are in late stages on others. So we just have a really strong and robust pipeline. And as I called out in the letter, I do not think anyone thought our data and modeling business would get to this scale, would be growing this quickly at this scale, or would be this durable. To me, one of the most amazing parts is to get to these very large levels where people are signing $100+ million agreements with you to license your de-identified data over multiple years. It would be impressive to do that with one pharma, even more impressive with two, but we now have almost half a dozen folks at that level where people are signing these very large strategic agreements, with more coming. I would suspect over time that becomes the vast majority of all big biotech and big pharma. We are seeing this migration where people are not just licensing our data; more and more they are actually building models with us, whether those are foundation models as in the case with AstraZeneca, or they are building smaller models leveraging our data. We have a very large database now in excess of 500 petabytes of data. It is all connected to this analytics and model-building platform that is now connected to not just CPUs, but GPUs. People are increasingly building proprietary models to get smarter about their own internal R&D programs, and that trend seems to be up and to the right. Operator: Your next question comes from the line of Ryan Michael MacDonald with Needham. Your line is open. Analyst: Hey, thanks for taking the question. This is Matt Shea on for Ryan. Eric Lefkofsky, maybe just jumping off on that last point, is there anything in terms of either the recent Gilead or Merck deal that you would call out in terms of size or scope that is maybe different from some of your other strategic collaborations, or just anything notable to call out with those two wins in particular? And then, James Rogers, as we layer the Merck and Gilead wins on top of the $350 million of TCV that was earmarked for revenue in 2026, how much visibility and confidence do you have in hitting the implied $410 million of data revenue guidance? And what are the potential levers for upside there? Eric Lefkofsky: Yes, I can start. Merck was a very large strategic data and modeling collaboration. We have very large collaborations with people like AstraZeneca and GSK and BMS. It is another very large collaboration of that magnitude. It is unique in that there are only so many of these that we have, but it is, as I mentioned a minute ago, far more than others. It is nice to see people getting to that size and scale where they are really leaning in at a strategic level with dedicated teams and lots of data and broad access and AI model building and all the great stuff that you want to see for a long-term, sticky relationship. Gilead is a bit different. It is quite large—smaller than Merck—but quite large. What is cool is it represents a very significant step up from their historic levels. We are monitoring two things: we want to get to a point where we have $100+ million agreements with as many big pharmas and big biotechs as we can, but we also want to see the growth of these accounts. We typically do not get to that strategic level upfront; it takes time. We tend to start with one project, maybe in one subtype, then a few subtypes and a few different projects. Eventually people realize they can use our data to be far more intelligent in terms of which compounds they actually want to interrogate, how they design phase one and phase two trials for the greatest likelihood of success, how they ultimately enroll patients and make sure their product is fit for commercial viability. They are using our data across that entire spectrum, and it takes time to get people comfortable. It is nice to see someone like Gilead stepping up in such a big way from their historic levels. James Rogers: And then in terms of the visibility, obviously we mentioned at the year-end call that we had about $350 million of TCV that was related to 2026. That gave us a tremendous amount of visibility into the guide. On top of that, we had visibility into a very strong pipeline, and Merck and Gilead are part of that pipeline that closed in the first quarter. That increases the level of visibility, and the pipeline remains strong as well, as Eric Lefkofsky noted. So the Insights business is really performing incredibly well at this stage. We have never been at this point in the year with this level of visibility into the overall number, and it is exciting for 2026, but also for 2027 and beyond. As Eric Lefkofsky noted, our TCV actually increased in the first quarter, which is incredibly impressive considering you are delivering $80+ million of revenue and still growing that backlog that will contribute to revenue for the balance of the year and over the next several years to come. Operator: Your next question comes from the line of Subhalaxmi T. Nambi with Guggenheim. Your line is open. Subhalaxmi T. Nambi: Hey, guys. Thank you for taking my question. One for James Rogers: Are there any updates on your XF FDA submission? I know it was reiterated that it was submitted, but any realistic timeline for an ADLT pricing update on this test? And then second, could you break down for us what percentage of your data licensing comes primarily from oncology and what has come from other areas like rare disease or cardiovascular? Longer term, where do you see that mix shaping out? James Rogers: Yes, thanks, Subhalaxmi T. Nambi. I will start with the FDA submissions and then Eric Lefkofsky can take the question on the data breakdown. I would say no update on the XF submission that was made earlier this year; we are awaiting feedback there. As we previously noted, we do not expect that to have any impact on pricing or ASPs in 2026. The other thing that we called out in our letter relates to an amendment that we are making to our XT FDA-approved assay, or the submissions we made—an amendment that will cover tumor-only, so cases where we do not get a normal sample. That will allow us to accelerate the migration over to the ADLT version of the assay. We are expecting a decision there imminently. Those are the updates from an FDA standpoint. Eric Lefkofsky? Eric Lefkofsky: Yes. In addition to driving ASP higher on the diagnostic side, on the data side the vast majority of our data licensing today is oncology and almost entirely comes from our therapy selection business. We basically built a de-identified data business off the combination of matched clinical-molecular data, predominantly from therapy selection—our liquid biopsy test or solid tumor profiling test. That database, which sits at over 500 petabytes, drives the vast majority of our data business. It has been nice to watch some recent wins in neurology. In particular, we were just engaged to begin building a multimodal model on Alzheimer’s disease. That was a multimillion-dollar project that we are in the middle of right now and will finish up in the middle of this year. So we do have people starting to tap the database in other areas, but for us that represents really significant long-term growth drivers. We can see the data and modeling business in the U.S. getting to multi-billions of dollars. As we get into other disease areas, there is all kinds of opportunity there just in the U.S. alone, let alone international. So lots of leg room. Subhalaxmi T. Nambi: Thank you, both. Operator: Next question comes from the line of Daniel Gregory Brennan with TD Cowen. Your line is open. Daniel Gregory Brennan: Great. Thank you. Maybe just one on cash flow in the quarter. How do we think about cash flow from operations—it was down about $70 million, plus or minus? I think you guys said free cash kind of approximated EBITDA, which was, I think, a $3 million loss. How do we think about the progression of free cash as we go through the year? And then maybe just one unrelated. You have XT FDA approved; you are going to seek to get XT, XR FDA approved. Does that change at all the ability to bill both separately to your local MAC if, for whatever reason, jurisdiction changes and you have both of those FDA approved? How do we think about the durability of that going forward? Thank you. James Rogers: I will take the first one, and then Eric Lefkofsky can take the second one. In terms of free cash flow, it was a little bit elevated in Q1, which is pretty typical for us over the last couple of years. A few things going on: timing of payables plus bonuses get paid out in Q1. As we noted in the letter, we would anticipate a significant improvement in Q2 driven by, one, normalization of those payables, and, two, a number of our large Insights contracts that had prepayments or revenue that was burning down flip over to quarterly payments. We would anticipate significant improvements in the second quarter and then, from there, continued improvement as adjusted EBITDA improves. With that, I will turn it to Eric Lefkofsky for the second. Eric Lefkofsky: We are in a good spot given that we are expecting to generate about $65 million of positive EBITDA, with every quarter significantly improving performance. We are now, I do not even know, five, six, seven, eight quarters in a row of every quarter improving EBITDA pretty dramatically on a year-over-year basis. We feel great about our cash position. We do not need more cash. We do not need to do anything. So for us at this point, the quarterly fluctuations of cash flow are not that critical. We are going to generate cash. We are going to be EBITDA positive. We do not need alternative financings in terms of funding the business. We are in a pretty good spot. As it relates to XT, XR, and XF, I would suspect that over time all of our main assays are FDA approved. We have one approved today, we are expanding, as James Rogers mentioned, in solid tumor profiling. We have another that is in front of the FDA now in liquid biopsy. We will take our ADLT as well. I do not think these things will impact how the tests are ultimately ordered or billed. They are ordered and billed on an individual basis, and based on medical necessity. When they are ordered and billed, they get paid for how they get paid for. We do believe that ASPs are likely to rise over the coming years by virtue of the fact that our current ASP sits at around $17.40—somewhere in that range, $17.20. We would suspect there is about $500 worth of incremental ASP lift over the next year or two as we get all these things FDA approved. From everything we can see, nothing about the current trend is anything but significantly positive. Operator: Next question comes from the line of Bradley Bowers with Mizuho. Your line is open. Bradley Bowers: Great. Thanks for the question. I just want to get to oncology genomics trends. We see more news headlines from competitors on companion diagnostics status wins. What is the impact to Tempus AI, Inc. as therapy selection gets more widely, formally included into labels as companions to pharmaceuticals? Maybe just an update on what inning of adoption we are in on therapy selection and whether there is still a rising tide for all companies, or do you need some more formal partnerships to keep driving that 20% volume growth on that business? Appreciate it. Eric Lefkofsky: Yes. We have seen no impact. CDXs have been part of selection for years. There are many of them. They have had no impact on physician ordering in the U.S., by virtue of both how drugs are paid for in the U.S. and how diagnostic tests are ordered. In other markets where you cannot get the drug without that particular companion being ordered, it may have an impact. But in the U.S., we do not have a system set up that way. In fact, the migration has been the other way, where people have been looking to move away from companions as a precursor to ordering. I would suspect that whether we win more CDXs or not, regardless of who wins CDXs, it will not have any impact on the amalgamation of companies that represent the vast majority of external sequencing. I would suspect we will all be just fine. The differential in growth rates—the fact that we are growing faster than others or most others in therapy selection—is predominantly related to the technology platform we built, which is comprehensive and allows physicians to do their job well. We see no sign of that slowing down, and I think CDXs will not have an impact. In terms of where we are, it still feels to us like we are maybe early to the middle of the game in terms of therapy selection. There has been some research published recently that shows a significant volume of physicians still are not ordering comprehensive genomic profiling when treating cancer patients. There are lots of patients historically that have not been profiled. I would suspect there is pretty decent unit volume growth for the industry over the next three to five years. I think we will grow faster because of all the advantages we have built into our platform, but it does feel like it is a healthy space in terms of solid tumor profiling, liquid biopsy, and then even healthier on the MRD side given that it is still fairly new. Operator: Next question comes from the line of Analyst with Canaccord Genuity. Your line is open. Analyst: Thanks for the questions. Can you talk about how important Rare is going to be to the hereditary testing business getting back to the mid-teens? And then on that note, can you elaborate on the growth profile of XG that grew 50% year-over-year in Q1, I think? Thanks. Eric Lefkofsky: Yes. The XG assay for us—the percentages are meaningful, but it is small. Our MRD assay grew 500%. It was only 6.5 thousand tests. It is awesome, but percentages can be a bit misleading. The vast majority of our HCT volume is obviously on the Ambry side, given the amount of volume they do in hereditary. Because the units are so high, nothing Rare can do will move the unit volume metric. It moves the revenue metric because you get reimbursed significantly more per test, but it is hard to move the units. The fact that we expect to get back to mid-teens is a function of the business historically being a mid-teens grower. It is lapping periods of much higher growth last year, when that assay was growing at ~40%. It is a bit lumpy. Their growth has been lumpy, and when you are lapping periods of lumpy growth, it is still lumpy. I suspect as we get into the back half of the year, the growth rates will return to mid-teens. I think Rare will also do well. We had a slower start to the first half of this year. As GeneDx called out, they migrated a bunch of volume to whole genome, which has some ASP impact for them. We were a bit later to get that product in market. For us, it has been more of a volume issue; we have not been selling a bunch of tests. As our product enters market, we expect some volumes to pick up. Even at ~$3 thousand ASP, it is still going to be ASP accretive to us. I would say the back half of the year looks much better for our hereditary business as we are lapping slower periods of growth last year and as Rare starts to really take hold. I would bet that by the end of the year, that business is feeling pretty good. Operator: Next question comes from the line of Mark Schappel with Loop Capital Markets. Your line is open. Mark Schappel: Hi. Thank you for taking my question. Eric Lefkofsky, it was highlighted in the prepared remarks that you have roughly a 40% attach rate for your algos on your solid tumor assays in oncology. Could you break down a little bit further which products are driving the higher attach rates there, and what gives you confidence in expanding that within the next 12 months or so? Eric Lefkofsky: Yes. We have a variety of algorithms that we have built over the years. Some of them—for example, our homologous recombination deficiency algorithm; our tumor origin algorithm, where in about 5% of cancer patients we do not know the site of primary diagnosis—off our transcriptomic assay, or RNA assay, we can actually predict that with super high fidelity. We have an immune profile score that basically refines what is typically a litmus test like tumor mutational burden. If you were TMB high, you would get a checkpoint inhibitor; if you were not, you would not. That test is not perfect, and our immune profile score refines that test. It turns out that there is a significant population of people that would actually do well on immunotherapy that do not get it, and likewise a population that looks like they would respond to immunotherapy that does not. So we can predict that. As these algorithms get more pervasively ordered, they are another tool in the overall bag of technology-enabled assets that physicians increasingly rely on. They can do all kinds of things that they cannot do with others. We called this out years ago. We said we would experience significant growth rates over time. A couple years ago people said they did not see it, but now it is in the rearview mirror. As we called out, technology was going to drive a bunch of ordering behavior. We have demonstrated that. Physicians are overworked, they are seeing a ton of patients, they do not have time in the day to do their job, and those companies that can help them make decisions, analyze real-time data, get to the right answer, and so on—they are going to flock to that platform, no different than you and I flock to Amazon. If it is convenient and easy and I get everything I need, that is going to drive my behavior. We do not see that trend slowing down. One of the reasons that we entered the MRD space and the hereditary space is we believe that will hold true across all major assays in oncology—from “Is my patient at risk?” to “How should I treat them when they get disease?” to “How do I monitor them post-treatment?” We want to be comprehensive, embedded within the workflow, and help physicians make real-time, data-driven decisions, all of which is driving higher growth. Operator: Next question comes from the line of Casey Woodring with JPMorgan. Your line is open. Casey Woodring: Great. Thank you for taking my questions. Maybe a related one to Daniel Gregory Brennan’s earlier question, but you are guiding to adjusted EBITDA to hit $65 million this year. This quarter, it was negative $3 million. Maybe walk us through how you see EBITDA progressing over the course of the year and the cadence of gross margins and operating expenses? And then secondly, on MRD, I would be curious to hear your latest thoughts on when you really expect that to start ramping up in terms of volumes. Thank you. James Rogers: I will start on the adjusted EBITDA and then Eric Lefkofsky can take the MRD question. Similar to last year, phasing will be growing throughout the year. We had about $13+ million of improvement year-over-year in Q1, and we would expect similar trends in Q2. The back half of the year is a bigger period for data, which leads to expanded margins, and more of that drops down to the bottom line. As we highlighted at the beginning of the year, we are fortunate that we are generating a lot of gross profit dollars that allow us to make many of the investments that generate long-term growth, but we want to continue to show improvement in operating leverage, and we feel like we are set up to do that. Eric Lefkofsky: In terms of MRD, the growth is really, really robust. As we called out, we are generating these kinds of results with a very small sales force dedicated to MRD. We have not unleashed this to our entire sales machine, which is hundreds of people. In part it is because the unit economics, until reimbursement is better, are challenging, and roughly 97% of our tests are tumor-informed. Personalis is really carrying the burden of that reimbursement. They have a few indications approved. They are in the midst of getting many more. As they get a more rounded reimbursement package that looks and smells and feels a bit closer to an LDT market leader, the unit economics will improve. If we were to 10x our MRD volume tomorrow, our cash burn would go up a lot. So we have to meter it, which we are doing in close coordination with them. As reimbursement improves over time, you will see us roll that out more aggressively. You can do the math—if we really put a bunch of wood behind this, we would be a very, very formidable MRD player in the United States. Operator: Next question comes from the line of Daniel Anthony Arias with Stifel. Your line is open. Daniel Anthony Arias: Hi, guys. Thanks for the questions. Eric Lefkofsky or James Rogers, I am looking at your slide deck, and you have one that talks about expecting 25% top-line growth over the next three years. You also have a slide that talks about ASPs potentially being 30% higher. I know it is illustrative, and I think the point is to emphasize the EBITDA trend. What is either an underlying volume trend or just a revenue trend that takes into account these ASP items that we should think about? Is that 25% that you are talking about inclusive of some ASP increase? Eric Lefkofsky: Yes. We always have puts and takes. One of the things that is great about our business—and for those that have been tracking us for three or four years—is that now our guidance is around $1.6 billion, and three or four years ago we were doing $300–$400 million. We were quite small. We have had significant growth that we have been able to manage. For a long time, we have called out our guidance—now we have a small range; historically, just a number. The reason we can be relatively precise is we have a highly durable business with lots of levers we can control. Some go our way, some do not. We have never had a quarter where everything goes our way. Something always does not go our way. The good news is, in the aggregate, more things are up and to the right than are not. That is the benefit of having a diversified business with lots of different growth engines and growth levers. We felt comfortable enough to say we expect 25% growth not just in one year, but over three years. At our scale, that is not a small number. I have not done the math, but $1.6 billion goes to something like $2.0 billion, $2.5 billion, and $3.0 billion. There will be ASP lift. There will be unit and volume lift. Some things will go our way; some will not. There will be trends, weather, this and that. In the aggregate, we have built a business that is durable across a comprehensive portfolio in diagnostics that touches lots of different areas—from hereditary to therapy selection to MRD; other disease areas like rare—and a very robust data and applications business. We feel pretty good that we can sustain good growth. James Rogers: The only thing I would add, Daniel Anthony Arias, is there is nothing implied by those slides from a volume perspective, given the upside we do have in reimbursement. Obviously, the increases in reimbursement are difficult to pinpoint exactly when they will occur, and our volume trends continue to be very strong. There is nothing contradictory implied by those two statements in the deck. Operator: There are no further questions at this time. I will now turn the call back over to Elizabeth Krutoholow for closing remarks. Elizabeth Krutoholow: Thank you all for joining us today. We look forward to speaking with you again in a few weeks at our Investor Day. Have a great day. Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining, and you may now disconnect.
Operator: Greetings, and welcome to the BigBear.ai Holdings, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. Please note this conference is being recorded. I will now turn the conference over to your host, Sean Ricker. Please go ahead, sir. Sean Ricker: Good afternoon, and thank you all for joining us today for our first quarter 2026 earnings call. I am Sean Ricker, CFO of BigBear.ai Holdings, Inc. I am joined today by our CEO, Kevin McAleenan. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the Safe Harbor provisions of the federal securities laws. Actual results may differ materially from those projected in the forward-looking statements. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to differ materially from those in the forward-looking statements. We have posted charts on our website today that we plan to address during the call to supplement our comments. These charts also include information regarding non-GAAP measures that may be used in today's call. Please access our website at bigbear.ai and click on the investor relations link to view and follow the charts. With that, I will hand it over to Kevin. Kevin McAleenan: Thanks, Sean. I would like to start by expressing appreciation again for our servicemen and women who have been executing missions both overseas and here at home since our last call. We are proud to provide technology that supports their efforts, and we continue to develop solutions that will strengthen our national security posture and capabilities. We also send our well wishes to our allies and partners who have been in harm’s way in the Middle East. In critical moments like these, BigBear.ai Holdings, Inc. teams excel. It is a privilege to work alongside colleagues who have the operational experience and mission insight customers value and expect. Our teams have stepped forward for government and commercial customers involved in the Iran conflict, augmenting the capabilities of warfighters, helping businesses adjust to supply chain disruptions, and supporting the homeland security community as it prepares for a rapidly changing threat landscape here in the United States. On our last earnings call, I underscored that the BigBear.ai Holdings, Inc. growth strategy builds upon our strengths as a specialized defense and security technology company delivering mission-ready AI. We are focused on two core markets that are growing: national security and trade and travel. And we are bringing together three capabilities that make us different: deep mission understanding, expert command of applied AI, and a unique combination of scale and agility that is vital for adapting and delivering as mission needs evolve rapidly. The strategy is working. We are on a path to grow and transform as a business. On our last call, I shared that we finished 2025 in the strongest financial position in the company’s history. We closed 2026 with $131 million of cash and investments. We entered the second quarter showing clear progress on key metrics in Q1, and we are armed with a strong balance sheet and clear strategic focus, growth priorities, and target customers. We are currently implementing an enhanced go-to-market approach that aligns talent, technology development, and customer delivery teams directly against emerging customer needs where we see the greatest growth potential. Let me turn now to provide updates against each of the four company priorities before Sean covers the details of our Q1 2026 earnings, summarized in the press release issued today. As a reminder, the four priorities we outlined for the fiscal year on our last call are: number one, top-line growth; two, focusing on the operator; three, enhancing executional rigor; and four, capitalizing on catalytic M&A. Our first priority is top-line growth with high-quality revenue in our target markets. We entered 2026 in a much-improved position to take advantage of tailwinds. In Q1, we signed a large classified, sole-source contract with an intelligence community customer that we are executing now and will continue over the next two years. The ceiling value is approximately $53 million. This contract is with an existing customer that values our unique skills and underscores our national security credentials. In this instance, we are the prime contractor, which is testament to the trust our teams have established over years and our reputation for execution. I am very proud of the team that has worked hard to serve those customers’ needs at a time when operational insight and understanding matters more than ever. In our trade and travel market, we are well underway deploying capabilities under two recent contract wins at Chicago O’Hare and Dallas Fort Worth. The combined value of these contracts is $7 million and leverages our Veriskan and TruPaste products. These wins further demonstrate the demand for faster, more efficient, and more secure travel. Our technology outperforms the competition, reducing friction without compromising on security. This need becomes even more pronounced when airport staffing is under pressure, as it was when millions of travelers in the United States felt the pain of disruptions in recent months due to a confluence of factors. The global market for increased shipbuilding remains robust and is underscored by the historic $65.8 billion in new funding requested for naval shipbuilding in the administration’s 2027 budget. BigBear.ai Holdings, Inc. is leveraging our manufacturing modeling and simulation platform, Shipyard AI, to support U.S. and allied shipyards. In Q1, we won two new notable contracts in this space. The first is with Chantier Davie, Canada’s premier shipbuilder and a global leader in delivery of mission-critical vessels to government and commercial customers. The other is with Bollinger Shipyards, a leading designer and builder of high-performance vessels and a critical part of the U.S. defense industrial base. We are seeing continued demand for ProModel and our predictive analytics platforms, including Shipyard AI. ProModel simulation platforms are the foundation of a powerful digital twin, empowering industries for manufacturing, warehousing, logistics, health care, and defense to predict and enhance operational outcomes. We have also won new generative AI platform contracts with NASA, the Army’s Intelligence and Security Command in Virginia, and the Naval Research Lab, who are now using SH. The significance of the work these customers are doing to advance our collective national security is a real point of pride. Providing them with secure access to the latest generative AI models and agentic tools will support their critical missions. From a business perspective, new assays customers also contribute to a continued shift in revenue mix from services to technology contracts. These examples of new contracts illustrate following through against our strategy. Overall, we have increased our backlog from Q4 by 14% to $281.9 million while substantially improving our gross margin. Looking forward, I should also take a moment to mention developments in our ongoing work with DHS. Senator Mark Wayne Mullen was confirmed by the U.S. Senate as the ninth Secretary of Homeland Security on March 23. Secretary Mullen has strongly signaled his intent to enhance the pace of applying funds to projects where BigBear.ai Holdings, Inc. is well positioned to win, and we are actively bidding live RFPs right now. Secretary Mullen’s confirmation and initial actions were further bolstered with welcome news that the majority of DHS’s fiscal year 2026 budget was signed last Thursday, along with a plan to fully fund remaining agencies through a congressional budget reconciliation process by June 1. These are very positive developments. While the partial shutdown had not affected the majority of our work at DHS, due to the critical nature of the security missions our programs support, receiving full fiscal year funding will unlock the potential for new starts and allow DHS agencies to move forward with additional technology procurements. I am also excited to share that Troy Miller, former Acting Customs and Border Protection Commissioner and longtime Director of the National Targeting Center, joined BigBear.ai Holdings, Inc. in a full-time capacity in April after three decades of federal service. Troy is an expert in counterterrorism, internationally recognized for being the driving force behind the world’s most advanced program to screen and vet travel applications and cargo in and out of the United States. He will lead our efforts to serve DHS and the federal civilian security and law enforcement agencies, and no one has more credibility or a more substantive track record of applying emerging technologies to homeland and national security analytical missions. His operational expertise, mission focus, demonstrated leadership skills, and deep and established trust with the communities we serve will further provide momentum and lift to our growth efforts. Our second priority for 2026 is to focus on the operator. We are centering our business on serving specific groups of operators who will need BigBear.ai Holdings, Inc. technology and solutions in the months and years ahead. In April, we announced internally that we are launching a significant growth initiative that realigns teams to execute against specific mission needs with rigor and pace. We are well into the implementation phase of this change, which is generating focus and energy within BigBear.ai Holdings, Inc. Historically, growth, technology, delivery, and customer success teams have been centralized. As of the second quarter, we are taking a new approach, realigning our go-to-market. Dedicated sales, technology, delivery, and customer success teams are now integrated and aligned to our growth priorities in national security and travel and trade. This moves decision-making and action across the key organizational growth drivers closer to our customers and will allow us to innovate more rapidly with capabilities tailored to operators’ needs. In April, we launched an integrated marketing campaign in Washington, D.C., and nationally to drive the importance of mission understanding in the development of advanced technology. The center of our message is that technology built and deployed by BigBear.ai Holdings, Inc. is by operators, for operators. The campaign is focused on connecting with our customers and underscores that when you choose BigBear.ai Holdings, Inc., you are getting solutions designed for real operating conditions. By operators, we mean warfighters, intelligence analysts behind the scenes, officers protecting ports of entry, and those in the private sector protecting our supply chain and critical infrastructure. Each day, they make consequential decisions with imperfect information under immense pressure. The campaign was supported with an opinion piece placed in The Wall Street Journal. In it, I highlighted that the threat landscape is evolving rapidly and that operator insight is critical for our national security. I believe strongly that the nature of threats from homeland to the edge is morphing at a pace that outstrips traditional planning, procurement, and problem-solving structures. This threat-system asymmetry—the mismatch between the pace and complexity of modern threats and the rigidity of the systems designed to counter them—is critically important. Nations that solve this asymmetry will maintain and extend their strategic advantage. Those that do not will lose it. This is a message that I have taken to Congress. Last month, I offered BigBear.ai Holdings, Inc.’s insights to the House Homeland Security Committee roundtable on the need to invest in critical technology to protect our citizens from emerging threats. Advanced AI capabilities are already being used by our adversaries in combat zones and by criminal networks at home and abroad. I believe that the United States must be peerless in developing, deploying, and countering advanced AI threats. Pace is everything, and close collaboration between lawmakers and the executive branch will be essential. Moving to our third priority, execution rigor, in addition to the internal realignment initiatives that will strengthen our operational rigor and execution, we have strengthened our leadership team with the announcement of two experienced executives. Joanne Bjornson joined BigBear.ai Holdings, Inc. as Chief Human Resources Officer on March 16, bringing more than 25 years of experience in human resources leadership within federal contracting and commercial markets. Recognized as one of WashingtonExec HR executives to watch, Joanne has held senior HR roles at B2X, SAIC, and Leidos, and has served as the chair of the Washington HR Exec Council. Joanne has a deep understanding of the talent landscape in our sector and will play a big role centered on our culture at BigBear.ai Holdings, Inc., our efforts to scale, and our efforts to acquire and integrate companies in the future. Alex Thompson joined BigBear.ai Holdings, Inc. as the Chief Corporate Affairs Officer on March 1, bringing more than two decades of experience. He leads brand strategy, strategic communication, government affairs, and marketing. Alex has extensive international experience, having previously served as President of Global Practices and Sectors at the leading strategic communications firm globally, Edelman, and as the Chief Communications Officer for the global content-driven software company, Thomson Reuters. In that role, he also led government and regulatory affairs and spent significant time supporting engagements with U.S. government customers that BigBear.ai Holdings, Inc. also serves. Our fourth priority is to capitalize on the strategic acquisitions we made in 2025 and early in 2026—Ask Sage and CargoSear. This includes fully integrating the businesses, identifying opportunities to build on and expand their product sets, and cross-selling to our established customer base. I am pleased to update that both integrations are on track and progressing well. Platform-agnostic generative AI that gives customers flexibility to use hundreds of models in secure environments without data leakage or vendor lock-in, as well as non-intrusive inspections supported by AI analysis, continue to be technology platforms at the forefront of government and commercial procurement agendas. Both Assage and CargoSphere have launched new capabilities since our last call. For CargoSphere, supply chain disruptions and revenue collection pressures highlighted by global conflicts have reinforced the business case. Ensuring facilitated movement of trade while identifying smuggling threats and ensuring accurate revenue collection are universal priorities for customs and border management agencies. CargoSphere continues to enhance its model and is establishing new beachheads in air cargo environments to support these missions, deploying new technology to correlate documents with the contents of air cargo. For example, this week, we launched a new capability to detect fraud in invoices used by shippers in all ports of entry. The first customer will be live in the coming week. Last week, AtSage launched a new, simpler user interface. It increases ease of use for customers, and we have received great feedback so far. With version two, customers experience faster iteration, a streamlined user experience, and powerful tools like chat, workbook, code canvas, and agent builder. Each is designed to close gaps identified in user feedback. We have reimagined chat, model selection, and classification handling to eliminate friction and allow customers to focus on deriving maximum mission capability from the models and agentic tools. In response to strong customer demand, assays also launched a new commercial offering last week, extending access to our GenAI platform beyond government users and defense industrial base customers to broader industry and international partners. The platform supports most current AI models—the vast majority of foundational models available for global consumption—enabling partners to align AI capabilities directly to their mission. This deepens BigBear.ai Holdings, Inc.’s commercial relationships with a broader range of customers in the defense industrial base and security and critical infrastructure industries. I am really pleased to see this progress, and I am looking forward to sharing additional news about product and platform extensions from our GenAI team in the coming quarters. I will turn it over now to Sean to talk through the details of our financial performance in Q1. Thanks, Kevin. Sean Ricker: Now let us turn to our operating results for the first quarter. Revenue for 2026 was $34.4 million, which was comparable to 2025 and driven by increased revenue from GenAI platforms and products resulting from the Asage acquisition, which we closed on December 31. This was offset by lower volume on Army programs in 2025 that was not repeated in 2026. Gross margin was 34% in 2026, an increase of almost 1 thousand 300 basis points as compared to 2025. The expansion in gross margins was driven by a higher mix of revenue from GenAI platforms and products from the AppSage acquisition versus the comparable period. SG&A expenses in 2026 were $29.2 million versus $22.7 million in the comparable period. The increase in SG&A expenses was primarily driven by increased intangible asset amortization from the Assage acquisition, increased legal and proxy expenses related to our special stockholder meeting and our new retail voting program, and increased sales and marketing expenses resulting from partnerships and expanding our growth team. R&D expenses increased from $4.2 million in the first quarter of 2025 to $5.5 million in 2026 as we continue to invest in new capabilities and technologies across the domains of national security and trade and travel. Our net loss for 2026 was $56.8 million versus a net loss of about $62 million in the comparable period. The decrease in net loss was primarily driven by a decrease in interest expense of $4.8 million, higher gross margin of $4.3 million, and increased interest income of $3.2 million. Additionally, we had about $36 million of noncash charges in 2026, comprised of fair value changes in derivatives and losses on debt extinguishment. These items are non-operational and were mostly the result of the conversion of our 2029 notes to equity that we executed in January. Adjusted EBITDA for 2026 was negative $9.9 million versus negative $7 million in the comparable period. The decrease in adjusted EBITDA was primarily driven by increased investment in sales and go-to-market capabilities and investment in research and development, both of which were partially offset by expanded gross margins, as previously mentioned. Next, turning to backlog. We closed 2026 with ending backlog of about $282 million, roughly a 14% increase from 2025, primarily driven by the new orders that Kevin previously mentioned. We have had a solid start to the year, and we are affirming our outlook for 2026 of revenue between $135 million and $165 million. Now, I would like to take a moment to provide two updates regarding how we made it easier for retail shareholders to vote for proposals and to mention our upcoming Annual General Meeting in June. First, recognizing that we have a great number of retail shareholders, we recently launched a retail voting program, which, upon opting into the program, provides retail shareholders with the ability to automatically have their shares voted in accordance with the recommendations of the Board on future proxy solicitations. BigBear.ai Holdings, Inc. is one of the first public companies to launch such a program, and we have seen positive reception and traction. Retail shareholders who would like more information about how to enroll in the program can visit our website at bigbear.ai/sci. Second, as we look ahead to our Annual General Meeting on June 9, we would like to encourage all shareholders to vote, and we encourage all eligible retail shareholders to opt into the retail voting program. By opting into the retail voting program, your votes will be cast in favor of all the proposals at the June 9 meeting and in accordance with Board recommendations at future meetings. I will now turn it back to Kevin to discuss our priorities and to give a few closing remarks. Thanks, Sean. Kevin McAleenan: Our first quarter results show that we are making progress on our priorities to grow the business while rapidly adapting to our national security, trade, and travel customers’ needs as the threat landscape evolves. We are moving with clear intent and pace. Our strategy, realigned structure, and tech development and acquisitions are all targeted to stay ahead of the operator’s requirements, anticipating what they will need next so that BigBear.ai Holdings, Inc. continues to deploy mission-ready AI and delivers enduring strategic advantage. We look forward to continued developments over the rest of the year and appreciate our shareholders’ trust and support. I would like to close by thanking our BigBear.ai Holdings, Inc. team for their energy and focus in this dynamic climate and by expressing our appreciation and support for our military professionals serving in harm’s way. We were honored last week by the opportunity to support the USO in providing 2 thousand care packages for our servicemen and women being deployed abroad, a small token of our thanks. I would also like to acknowledge the steadfast service of our security professionals at the Department of Homeland Security, who have continued to protect us even with the disruptions of the longest shutdown in history and through multiple weeks without pay. Your professionalism is inspiring. Thank you. To conclude the call, I look forward to updating our shareholders on our next quarterly earnings call in August and welcome you to attend our Annual General Meeting in June. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines. Have a wonderful day.
Operator: Thank you for standing by. Welcome to Schrödinger, Inc.'s conference call to review first quarter 2026 financial results. My name is Rob, and I will be your operator for today's call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. Please be advised that this call is being recorded at the company's request. Now I would like to introduce your host for today's conference, Ms. Jaren Madden, Chief Corporate Affairs Officer and Head of Investor Relations. Please go ahead. Jaren Madden: Thank you, and good afternoon, everyone. Welcome to today's call during which we will provide an update on the company and review our first quarter 2026 financial results. Earlier today, we issued a press release summarizing these results and progress across the company, which is available on our website at schrodinger.com. During today's call, management will make statements that are forward looking and may relate to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including without limitation, statements related to our outlook for the full year 2026, our plans to accelerate the growth of our software business and advance our therapeutics portfolio, the clinical potential and properties of our and our collaborators' compounds, use of our cash resources, as well as our future expenses. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies, and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially due to a number of important factors, including the considerations described in the Risk Factors and elsewhere in the filings we make with the SEC, including our Form 10-Q for the quarter ended 03/31/2026. These forward-looking statements represent our views only as of today. We caution you that, except as required by law, we may not update them in the future whether as a result of new information, future events, or otherwise. Also included in today's call are certain non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and should be considered only in addition to and not as a substitute for or superior to GAAP measures. Please refer to the tables at the end of our press release, which is available on our website, for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. This afternoon, Ramy Farid, our CEO, will review our recent progress. Then Richie Jain, Chief Financial Officer, will discuss our financial results and 2026 guidance. Karen Akinsanya, President, Head of Therapeutics R&D and Chief Strategy Officer, Partnerships, will review our therapeutics portfolio. Pat Lorton, our Chief Technology and Chief Operating Officer, will join us for the Q&A. With that, I will turn the call over to Ramy. Ramy Farid: Thanks, Jaren, and thank you, everyone, for joining us today. We are off to a strong start this year, delivering $28.4 million in ACV, a 12% increase compared to Q1 last year. Our growth was broad based, reflecting usage scale-ups, new customers, and growth from new products. Drug discovery revenue of $23 million was also a significant contributor in the quarter. Lilly's announced $2.3 billion acquisition of Ajax Therapeutics, a company we co-founded and in which we have an approximately 6% equity stake, is the latest example of a multibillion-dollar deal for a Schrödinger, Inc. co-developed molecule and speaks to the power of our platform. We are pleased with our momentum transitioning customers to hosted licensing. We are seeing positive conversion dynamics upon contract renewals and with new products that are hosted. In limited cases, we are also seeing the early conversion of multiyear on-premise deals to hosted ahead of the scheduled renewal date. We are encouraged by the improving biopharmaceutical funding environment. While macroeconomic uncertainty remains, it is clear to us that there is a growing recognition of the critical importance of our computational platform as R&D organizations embrace the predict-first computational paradigm that offers a demonstrated path toward improving probability of success and reducing the time and cost of molecular discovery. We remain poised to benefit from the evolving regulatory environment, with our predictive toxicology initiatives set to address a key element of the FDA's focus on reducing animal testing and broadening the use of computational methods. Our market-leading position is built on the inherent accuracy and scalability of our physics-based approach and is further reinforced by our unmatched track record. While standard AI models are limited by the scarcity of training data, our platform generates the ground-truth simulations, accuracy, and scale required for AI to precisely navigate the vastness of chemical space. By combining the accuracy of physics with the speed and scalability of AI, we are able to evaluate key properties of billions, even approaching trillions, of molecules with a level of accuracy impossible to achieve through models trained solely on experimental data. This capability enables our customers to integrate computation more deeply into their workflows, driving the consistent demand that underpins our long-term growth trajectory. We are committed to technology leadership and evolving our platform to meet customer needs. We are very excited about the upcoming release this summer of an early access version of Bunsen, our new agentic AI co-scientist. Designed to autonomously execute complex molecular discovery workflows, Bunsen enhances productivity and accelerates the design–predict–make–test–analyze cycle that drives modern molecular discovery. Our material science and therapeutics teams have been successfully using Bunsen internally, and we are excited to offer this capability to our customers. Our throughput-based licensing model is well positioned to capture the value of this expanding utilization. The repeated success of our co-invented molecules and the continued progress of our therapeutics portfolio place us at the forefront of a digital transformation moving material science and life science industries toward a more efficient predict-first, computationally driven model of discovery. We continue to deliver the technology that transforms the way molecules are discovered, and we look forward to updating you on our progress throughout the year. I will now turn the call over to Richie. Richie Jain: Thank you, Ramy, and good afternoon. ACV in the first quarter was $28.4 million, which represents 12% growth compared to $25.4 million in Q1 2025. On a trailing [inaudible] basis, ACV reached [inaudible]. As a reminder, we believe ACV provides important visibility into the performance of our business during a period where we expect recognized revenue to be highly variable due to the accelerated transition to hosted. ACV growth was primarily driven by our top 20 pharma customers, as these customers broaden their platform access, onboard new products, and integrate our platform more deeply into their R&D organizations. Starting this quarter, we are breaking out contribution revenue as a separate line item to provide better visibility into our software and drug discovery performance. To facilitate year-over-year comparisons, we have reclassified our historical results to reflect this change as contribution was previously included in software and drug discovery revenue. Total revenue for the quarter was $58.6 million. Software revenue was $35.6 million, of which hosted revenue contributed $12.1 million, or 34% of the software total, compared to 24% in 2025. On a trailing four-quarter basis, hosted revenue increased to 27% of the software total. As we have discussed, the year-over-year software revenue comparison reflects our planned accelerated transition to hosted licenses, for which revenue is recognized ratably over the life of the contract rather than upfront. While this dynamic creates a near-term headwind on recognized revenue, over the long term it will better align revenue with operational growth, resulting in a more predictable financial profile. Software gross margin was 69% for the quarter, compared to 80% in Q1 2025, reflecting our planned accelerated transition to hosted software licensing. Contribution revenue was $0.1 million for the period, compared to $4.3 million in Q1 2025. The decline is driven by completion of the initial funding by the Gates Foundation in support of our predictive toxicology initiative. Drug discovery revenue was $22.9 million, compared to $10.2 million in the same period last year. The increase is due to the accelerated recognition of deferred revenue associated with the continued progress of the company's collaboration portfolio and the discontinuation of one collaboration program. Total operating expenses for Q1 were $78 million, a decrease of 4% compared to $82 million in Q1 2025. This reflects the impact of our efficiency measures and disciplined expense management across R&D and G&A; we continue to invest in sales and marketing to drive long-term growth. Total other expenses were $11 million, primarily due to changes in fair value of equity investments and interest income/expense. Net loss for the quarter and for 2025 was $60 million. We ended the quarter with a strong balance sheet of $[inaudible] in cash and marketable securities. We anticipate receiving our portion of the upfront cash payment from the Ajax–Lilly transaction when the deal closes. The fully diluted share count was 74 million. Today, we are maintaining our full-year 2026 guidance. For the full year, we continue to expect ACV to be in the range of $218 million to $228 million, representing 10% to 15% growth. We anticipate drug discovery revenue between $55 million and $65 million for the year. As a reminder, drug discovery revenue has quarterly variability due to the collaboration- and milestone-driven nature of the business. Our operating expenses are expected to be less than 2025, as we maintain overall expense discipline and make select investments in sales and marketing to support growth and the release of new products. We anticipate our clinical activities will be largely complete by 2026, and to incur approximately $10 million to $15 million of R&D for full year 2026 as we wind down these activities and seek partners for mid- and late-stage clinical programs. Our $19 million to $23 million guidance range for Q2 2026 ACV excludes contribution ACV, compared to $23.3 million from Q2 2025 that included $5 million of contribution ACV. Now I would like to hand the call over to Karen. Karen Akinsanya: Thank you, Richie. Our therapeutics business continues to create significant value, most recently highlighted by Lilly's planned acquisition of Ajax Therapeutics for $2.3 billion. By combining Ajax's deep expertise in blood cancer and JAK family structural biology with our industry-leading track record in computational drug design, we discovered AJ1-1095, a first-in-class type 2 JAK inhibitor which is the primary driver of the announced deal. Over a ten-year span, Schrödinger, Inc. has co-founded multiple companies including Ajax. There have been seven major transactions and liquidity events related to molecules we co-discovered across our biotech collaboration portfolio, including Lilly's acquisitions of Morphic, Petra, and Ajax, the sale of Nimbus' ACC and TYK2 inhibitors, and the successful IPOs of Relay and Structure. The success of these companies and multibillion-dollar exits establishes unquestionable validation of the impact of computation-based design and our biotech and pharma collaboration business model. The emerging results from our maturing therapeutic portfolio span internal discovery programs licensed to pharma through to co-invented molecules with late-stage clinical readouts like Takeda's Zasacitinib, which completed Phase III trials earlier this year. To date, our equity and business development activities have resulted in close to $700 million of cash as well as potential future preclinical, clinical, and commercial milestones of up to $5 billion and royalties on 15 programs. Our wholly owned programs also represent future value capture opportunities. As Ramy mentioned, the therapeutics team has integrated our new agentic solution Bunsen across the combined portfolio. Bunsen's ability to execute our powerful predictive models and orchestrate multi-step, multi-scale drug discovery workflows enables us to accelerate the design–predict–make–test–analyze cycle. This is an exciting development that we expect to have a major impact on the productivity of our team and teams across biopharma once they get access. Turning to our wholly owned portfolio, in April we presented initial clinical data for SGR3515, our WE1 inhibitor, at the AACR Annual Meeting. As a reminder, this is an ongoing Phase 1 dose-escalation study with primary objectives of safety, tolerability, and pharmacokinetics. The data presented demonstrate that SGR3515 was generally well tolerated on an intermittent dosing schedule of three days on and eleven days off. Importantly, the initial clinical biomarker data validated our hypothesis that dual inhibition can overcome compensatory resistance mechanisms. We observed encouraging early anti-tumor activity with a 65% disease control rate among evaluable patients treated at doses of 100 mg or higher. We also remain encouraged by the progress of SGR1505, our MORT1 inhibitor. We continue to see a 100% response rate and durable responses in patients with Waldenstrom's macroglobulinemia, where the drug has both FDA Fast Track and Orphan Drug Designations. As we complete these Phase 1 studies, we are actively exploring partnership opportunities to continue the mid- and late-stage development of SGR1505 and SGR3515. Our track record of generating differentiated discovery-stage breakthroughs, clinic-ready molecules, and valuable data packages is well established. We believe our drug discovery expertise, coupled with the use of our computational platform at scale, will enable us to continue unlocking high-potential target product profiles and drive the next wave of successful collaborations and transactions. I will now turn the call back to Ramy. Ramy Farid: Thank you, Karen. As you have heard, we are off to a strong start in 2026. I want to thank our employees for their hard work and commitment to our mission. We are pleased with the momentum across the company and look forward to updating you on our progress throughout the year. At this time, we are happy to take your questions. Operator: We will now open the call for questions. Your first question comes from the line of Scott Schoenhaus from KeyBanc Capital Markets. Your line is open. Analyst: Hey, guys. This is Steve on for Scott. Could you talk more about how agentic AI is driving higher utilization of high-compute calculations and how this is impacting your business? What is the upside potential as adoption increases? And then how would this show up in your customer contracts? Thanks. Ramy Farid: Absolutely. I assume you are referring to the announcement we just made about the release this summer of Bunsen, an agentic AI system for automating complex workflows. We have already been using Bunsen internally for a number of months. The impact that it has had on productivity of both our expert modelers and computational chemists, as well as non-experts, has been extraordinary. We are very excited about it. What it is doing is eliminating barriers to large-scale deployment of the technology. It is very much, as we describe it, a co-scientist, a companion that improves efficiency and productivity for both experts and non-experts. The impact of this improved efficiency and our ability to actually use the technology on a larger scale and in a more effective way is significant. As we said, we will be releasing it this summer. Feedback that we have been getting as we start to talk about the imminent release of Bunsen has been very positive. I think there is a lot of excitement about the potential. The last thing I will say is, and we mentioned this again today, that our throughput-based licensing, that is not seat-based licensing but throughput-based licensing, of course benefits from solutions like this where an agentic AI has the potential to increase the demand for the technology and the need for our customers to license that technology on a larger scale. Pat, is there anything you wanted to add? Did I cover it? Pat Lorton: I think you pretty much covered it. The one thing I would add is that we are seeing customers using more general agentic AI, and they are already having access to higher throughput of our technology using other LLM providers. That said, the reason we have built Bunsen is because our tools are such expert tools that we feel that the LLM has to be trained specifically on how to use our tools to optimize it and to run in the most efficient way. We think the solution we are putting together will be best for that. Ramy Farid: Yeah. Analyst: Great. And then just one follow-up. You mentioned you are working with them for a bit last quarter. Just any update on that partnership or collaboration, however you refer to it? Ramy Farid: Sure. Pat, do you want to give an update? Pat Lorton: Sure. Yeah. We regularly work with and talk with Anthropic as we are building out Bunsen. It is one of the top LLM providers. We are not tied to a single LLM. We are open to using whatever our customers prefer or whatever we think would work best. We are building an agentic layer on top of LLMs, but Anthropic is obviously a fantastic provider in the space, and we have learned a lot from them. We are really excited to continue to work with them. Operator: Great. Thank you. Your next question comes from the line of Mani Foroohar from Leerink Partners. Your line is open. Mani Foroohar: Hey, guys. A quick question. When you think about the percentage of customers or percentage of contract value that were previously on-prem that are renewing in 1Q, recognizing that we are off and we are recycled for many, can you give us a sense of what percentage you were able to convert over to hosted? So you can give us a little bit of real-time quantitative feedback on how that transition is going. Ramy Farid: Yeah. Richie? Richie Jain: Thanks, Mani, for the question. For the quarter, we were pleased with the progress. Hosted revenue was 34% of the software revenue in the quarter, and 27% on a trailing four-quarter basis. That compares to 23% just a quarter ago. So we are pleased with the early progress. Anecdotally, we are aiming to transition from on-prem to hosted upon the contract renewal date. That is what we achieved in the quarter, as well as all new customers were deploying hosted in the first instance. So overall, we are pleased with the first quarter, and we still have our same expectations for the year and the three-year outlook getting to 75% by the three-year period. Ramy Farid: I think it is also worth mentioning that in a few cases, which I think is quite encouraging, we were able to transition some customers to hosted before their renewal dates. Richie, do you want to add? Richie Jain: Yes. While the primary emphasis has been on transitioning at renewal, in a few instances for larger multiyear contracts that were on-premise, we were able to work with those customers and transition over to hosted well in advance of the renewal date. There was a modest impact of that in Q1, but you will start to see more impact from that in Q2 onwards. Mani Foroohar: Great. And a quick follow-up. We are seeing a substantial pickup in M&A activity in private biotech markets—Ajax is actually one example. How much velocity would you have to see in that space to start tinkering with how you think about guidance for drug discovery revenue, given the broad portfolio of co-founded, partnered companies, and your equity exposure there? Ramy Farid: First of all, on the software side, we are also quite encouraged. Things look a lot better this quarter so far compared to last year, where we saw lots of biotech companies shutting down or very significantly reducing their discovery budgets. We are not seeing that. We are even seeing a pickup in new customers. So that is very encouraging, and the dynamic that you mentioned is certainly impacting the software business. As far as the drug discovery business, Karen? Karen Akinsanya: Sure. Happy to share. As you know, we have always had a lot of interest in partnerships, both with the companies we have co-founded—you mentioned Ajax—and prior companies we have co-founded. Your comment about the private market and companies who are still in stealth, as well as public companies, are still reaching out very actively to Schrödinger, Inc. with respect to collaboration on programs that are in their pipelines, but also on new programs. We remain very enthusiastic about the potential for new collaborations. Obviously, we are not guiding to any specific BD event, but the momentum and the interactions remain very robust both with biotech and with pharma. Operator: Your next question comes from the line of Brendan Smith from TD Cowen. Your line is open. Brendan Smith: Great. Thanks for taking the questions, and congrats on all the progress here. First, I wanted to quickly ask about the predictive tox launch. If you can maybe just give us a sense—if not relative revenue breakdown between the legacy business and predictive tox—at least how new customer adds there are tracking. And then quickly on the upcoming Bunsen launch: should we think about the go-to-market strategy for the agent as an add-in with existing customers, or is there a whole separate base you could potentially reach with this? Any color on go-to-market strategy would be helpful. Ramy Farid: We can cover both of those. Thanks for the questions. With regard to predictive tox, feedback continues to be very positive for the results of evaluations now being kicked off. It is very clear that there is significant interest in the technology, and prospective testing of it in our customers' hands is validating the kind of results that we were seeing when we were developing the technology and using it prospectively internally. That is gratifying to see, and it continues to go well. With regard to Bunsen and the go-to-market strategy, that is a really good question because this, in some sense, democratizes access to very sophisticated technology. You can appreciate what kind of impact that can have on the business. Previously, systems like this may have been inaccessible and would take years of training. You might use the technology but not quite right and not get very good results. That is not good for anybody. This directly addresses that. This is similar to image processing that used to be available only to expert users. Now you just circle the area and say remove the background, and it is done. It is the same basic idea. Very sophisticated capabilities are available to non-experts in research. Pat Lorton: I think that sums it up well. The other thing I would highlight, on top of adding additional customers, is one limiting factor we have discussed in the past: the amount of computational chemists we have per project at Schrödinger, Inc. is a lot higher than the industry average, which is part of the reason behind our very high success rate. One thing that is very limiting for our customers is they simply do not have enough people who can run this, even if they have experts. Getting this in the hands of those experts and allowing them to get a multiple of their work done—similar to how agentic coding tools have allowed developers to work much faster—means even those experts will be able to run much faster and consume a lot more of our throughput-based licensing before we even broaden to a wider user base. Ramy Farid: Exactly. Brendan Smith: Got it. Sounds good. Thank you. Operator: Your next question comes from the line of Michael Ryskin from Bank of America. Your line is open. Michael Ryskin: Hey. Thanks for taking the question. First, I want to dig into the new way you are guiding ACV. On the contribution ACV, you called out for the second quarter your guide is $19 million to $23 million, and that is excluding any contribution. Is that just your way of saying you do not know what the contribution ACV will be, or are you actually expecting it to be zero because it was relatively modest in the first quarter? And the same question for the full year—anything you could tell us in terms of how much of the full-year ACV is made up of that, or how much there was in all of 2025? Ramy Farid: Richie? Richie Jain: The guidance for Q2 is $19 million to $23 million, as you noted. The reason we explicitly called out the comparison to last year—2025 was $23.3 million, of which $5 million was contribution ACV related to our grant with the Gates Foundation—was to highlight that, on a commercial business basis (excluding contribution), we are still projecting growth for this quarter. For the full-year range of $218 million to $228 million of ACV, we do expect potentially some contribution ACV in there. That is a component of the full-year number. Michael Ryskin: But you do not want to break that out or quantify that? Richie Jain: Correct. Michael Ryskin: Okay. Fair enough. And then in terms of Ajax, how should we think about that flowing through the P&L and in terms of use of proceeds? Is that in your guide for the year? I do not believe it is. Just timing and pacing of that. Ramy Farid: Just to remind everyone, our equity stake is around 6%. Richie Jain: The Ajax sale was not contemplated in our guidance framework. Obviously, it is a private company sale that we could not have included, but its impact for our financials will mostly be to cash. Our cash position at the end of the quarter was $406 million. As Ramy noted, we own about a 6% equity stake in Ajax. When the upfront portion is received by Ajax, we will receive our approximately 6% of that. So the impact to us will be cash. The upfront amount was not disclosed in the Ajax–Lilly announcement, but as we receive the cash flow, we will reflect it in our balance sheet. There are also milestones—near-term and downstream—in which we would continue to have that 6% participation. Michael Ryskin: Does that change how you think about investment priorities in the second half, given the balance sheet will be a little bit stronger? Any early thoughts on that, or just wait and see? Richie Jain: I would say more of the latter. Our path to profitability—between growth in software and drug discovery as well as expense management over the three-year window—was based on our cash position at the time. This is just upside to that. Once we receive the cash, we will revisit if anything changes, but I would expect our three-year outlook to be unchanged. Ramy Farid: Thanks. Operator: Your next question comes from the line of Michael Yee from UBS Securities. Your line is open. Michael Yee: Great, thanks. We had two questions. First, maybe for Ramy: thinking about your overall P&L, you have attractive 70% gross margins, but overall, as an entity, you are EBITDA-negative and running operating losses. Given the general shift to reduce focus on moving things to later preclinical or clinical and looking to partner things, how would we expect the overall operating expense structure to potentially change? In other words, what percent of your R&D do you estimate is going toward those types of programs, and if I back that out, could we think about a more appropriate run rate of where you think your R&D could be? I think you have guided to be EBITDA-profitable in 2028, so that is helpful—wanted to know what percent of R&D is related to drugs. And second, I estimate that Ajax could be a roughly $1 billion upfront. So is the 6%—I think you said it is not in your current cash—something we should apply as upside to the cash? And does that book in the income statement and flow through as well? Thank you. Ramy Farid: Richie, do you want to cover the second? Richie Jain: We cannot comment on the size of the upfront, but the 6% equity stake we have is not in our cash guidance. I would expect it to run through our P&L as a nonoperating gain. Ramy Farid: With regard to the question about R&D and drug discovery, the drug discovery part of our business, which has been in existence for a long time—since around the founding of Nimbus over fifteen years ago—has been an incredibly important part of our business and is highly synergistic with our software business. We have shown that the extraordinary success of these drug discovery partnerships—Nimbus, Morphic, Relay, Structure, Ajax—has had a huge impact on validating our platform. They have also had a huge impact on helping us understand what we should be working on and how we should be advancing to have the maximum impact on projects. That will continue. There is still a huge amount of work to be done in advancing the field. We are incredibly excited about our accomplishments, which have been transformative. Our mission was to transform the way molecules are discovered, and I think we have been accomplishing that. Through initiatives like predictive tox and many others, there is more work to be done and we can continue to improve the way molecules are discovered in both material science and life science. These businesses are highly synergistic and will continue to be an incredibly important part of our overall business model. Karen, anything to add? Karen Akinsanya: Yes. As we have shared in the past, the vast majority of our portfolio—the combined portfolio of collaborations with our co-founded companies, with biotechs, and with large pharma—are an important part of the business, as Ramy described, both from a scientific point of view and, as you saw this quarter, in generating revenue. The vast majority of our activities in the R&D space are those collaborations. It is a small portion of the overall effort that is allocated to wholly owned research. As you have heard previously, we will not be taking programs into the clinic, and we are partnering programs earlier—as you saw with the Novartis deal, partnering a program that had not even reached lead optimization yet. Our investment in R&D is partly on the science side, but it is also to create value. We have 15 programs with royalties on sales and revenue coming from these programs, and across the whole portfolio we have generated close to $700 million from our collaborative R&D and drug discovery efforts. Michael Yee: That is helpful on positive EBITDA guidance for 2028. Thank you. Operator: Next question comes from the line of Evan Seigerman from BMO Capital Markets. Your line is open. Conor MacKay: Hi there. This is Conor on for Evan. Thanks for taking our question. Just a follow-up on how we should think about the rollout of Bunsen—maybe the phasing over the next couple of years. You have the upcoming early access launch this summer. Which types of accounts will you be sharing access with in the early launch? And longer term, given the throughput-based licensing, will Bunsen be a premium add-on or come included as part of your standard software? Ramy Farid: We are still working out the details, as we typically do with early versions of our technology. We work with our close partners, and we will do the same here—working together on integrating it into their workflows and, importantly, checking on the science. Everyone has had mixed experiences with LLMs—sometimes extraordinary, sometimes pretty crazy. There is a lot of work to optimize and maximize the former and minimize the latter. That requires working with close partners, of which we have a large number. As far as the future, our expectation is that this will be ubiquitous, and this technology will be available to all of our customers. Exactly how we price it is still to be worked out and will depend on the feedback we get as we roll out this early access version. Pat Lorton: That covered it. Ramy Farid: Thanks. Operator: Your next question comes from the line of Matthew Hewitt from Craig-Hallum. Your line is open. Matthew Hewitt: First, given that Q4 is such a big renewal period for you and you noted earlier that you are starting to see some earlier conversions, is it your hope that you can get through some of that before you get to Q4 just to ease the rush at year-end? How should we think about the conversion over the next couple of quarters before you get to Q4? Richie Jain: Thanks for the question. The examples we gave were more anecdotal and not the base case, but they were large contracts and we had a dedicated effort to convert those in advance. More broadly, the natural time for us to address a transition is on the contract renewal date. I still expect Q4 to be our largest quarter of the year for ACV. That said, where there are opportunities, we will pull them forward ahead of the renewal date—sometimes related to a new product, sometimes a new offering. On the margin, you may see us pull forward ahead of Q4, but I would still expect Q4 to be our largest quarter of the year. Ramy Farid: Yeah. Matthew Hewitt: Got it. And then separately, with the strategic shift where you are not going to be taking internally discovered molecules into the clinic besides the ones already there, will you provide an update on how that is progressing? How will we monitor progress on the internal molecule discovery side? Karen Akinsanya: We have, in the past, kept our pre-LO pipeline relatively quiet for a number of reasons. You want to be progressing the program before you start announcing the identity or the progress. What we have been announcing are the deals we have been doing. We do not plan to expand and expand the size of this portfolio without transacting some of these programs as they move through discovery. As you saw with Novartis, we felt those programs were well positioned to partner with that particular company because of their capabilities and synergy with those programs. You will see us do more of that. I do not think you should expect an ever-growing early-stage portfolio, but you should expect updates as we identify partners for them. Operator: I am showing no further questions at this time. That concludes today's call. You may now disconnect.
Operator: Good afternoon, and welcome to Alight, Inc.'s first quarter 2026 earnings conference call. Following their prepared remarks, we will open the call for questions. Instructions will be provided at that time. There is a presentation accompanying today’s call available on the Alight, Inc. Investor Relations website. I will now read the safe harbor statement. Today’s discussion includes forward-looking statements within the meaning of the federal securities laws. These statements reflect management’s current views and expectations and are subject to risks and uncertainties that could cause actual results to differ materially. Factors that may cause such differences are described in today’s earnings release and in Alight, Inc.’s filings with the Securities and Exchange Commission, including in the Risk Factors section of its most recent Annual Report on Form 10-K. The company undertakes no obligation to update any forward-looking statements except as required by law. In addition, during today’s call, the company may reference certain non-GAAP financial measures. A reconciliation of these measures to the most directly comparable GAAP measures can be found in the earnings release available on the company’s website. I will now turn the call over to Rohit Verma, Chief Executive Officer of Alight, Inc. Please go ahead. Thank you, Sachi. Rohit Verma: Good afternoon, and welcome to Alight, Inc.'s first quarter 2026 earnings call. Joining me today is Gregory Giometti, our interim Chief Financial Officer, and Susan Davies, our Chief Accounting Officer. It has been a busy and productive first few months for me, and I am pleased to have this opportunity to share my thoughts with you. Today, we will cover my perspective on our results, some further transparency into the business, a view of the opportunity ahead, some reflections of what I have heard from clients, including its role in shaping our strategy, a view of the team we are building, and finally, a perspective on AI. Our first quarter financial performance was solid, as we exceeded the guidance shared during the last earnings call, which, as you will recall, took place just over 30 days into my time as CEO. Our outperformance was driven by higher-than-expected project revenue, as well as better-than-expected performance of partner revenue in the quarter. While our Q1 performance was better than expected, we will continue to see a difficult revenue comparison to the prior year due to the commercial execution over the last couple of years. It will take the next several quarters for that revenue pressure to completely work through our P&L. For these reasons, the team and I are intently focused on improving commercial execution by retaining clients and winning new clients. I am pleased to share that we are already seeing improvement in our new sales activity as well as our renewal execution. First quarter revenue of $534 million was comprised of $498 million in recurring revenue and $36 million in project revenue. As you all have observed before, our project revenue has been the major driver of volatility in our results. Project revenue was up 29% compared to Q1 2025, and this comes in succession to Q4, where project revenue was down 27% to Q4 2024, showing the volatility we have discussed before. Our recurring revenue was 4% below last year, resulting in a consolidated revenue decrease of 3%, which was better than expected. Adjusted EBITDA of $104 million benefited from the revenue flow-through and lower-than-expected employee health care expenses in the quarter, which kept the margin decline to only 200 basis points. All in all, we are happy with where we landed compared to expectations and glad to see the progress we are making. We are maintaining strong liquidity and generating significant cash. We exited the first quarter with more than $500 million in total liquidity. This is after our Q1 2026 TRA payment. At the end of Q1, we had $178 million in cash on our balance sheet and $330 million available on our revolver. Additionally, we generated free cash flow of $53 million in the quarter, a 20% increase compared to the same period last year, and we believe we will continue to see solid cash generation through the end of the year. This provides us the foundation to execute our core strategies. Additionally, it gives us the flexibility to invest in our business to accelerate the service and customer excellence initiatives that are critical to enabling industry-leading outcomes for our clients. I, along with our team, have operated with considerable intensity and urgency in the first quarter. I have met 90+ clients to date in 2026, made critical senior hires, and launched initiatives all focused on strengthening our market position and demonstrating our commitment to relentless execution. As I have met with clients over the last quarter, I have been increasingly energized about the strength of our solutions and quality of our customer base. Their feedback has been instructive and insightful. What is evident is that our clients want to work with Alight, Inc., and we believe we are really the only company that can truly service the needs of a diverse client base. On many occasions, the exact quote of our clients was that they want to see Alight, Inc. successful. These interactions have reinforced my confidence in our client retention and ultimately cash generation capabilities. During the quarter, we made key hires across the organization, including the Head of Delivery Transformation, Head of Specialty Sales, Head of Account Management, and Head of Marketing, along with making some critical additions deeper in the organization. Following the close of the quarter, we announced our new Chief Technology Officer, Naveen Bhawaja, who previously led technology at the Consumer Products division of Disney. I cannot think of anyone better to help reimagine customer experience and translate technology leadership into meaningful business and customer outcomes. Additionally, last week, we announced the appointment of Dinesh Solsiani as President of Employer Solutions. Dinesh previously served as Alight, Inc.'s Chief Strategy Officer and played an integral role in the company’s strategic evolution. In his new position, he will collaborate with other key leaders across the business to continue to advance Alight, Inc.'s strategies to deliver outcomes for clients at scale. We also launched multiple initiatives across the organization to maximize operational excellence and drive consumer-level client experience. Notably, we have expanded from our previous strategic coverage of the top 100 accounts to now include our top 400 accounts that represent just over 90% of our ARR in aggregate. Our increased coverage gives us a greater handle on serving those clients even better, building stronger partnerships, improving retention, and building a deeper pipeline. We provide market-leading solutions derived from our full-service integrated approach to managing health, wealth, and leaves on behalf of our clients. Within our Health solution, we provide comprehensive health benefits, including spending accounts, as well as point solutions like health care navigation services. Our primary focus is on ensuring a seamless consumer-level experience, whether the consumer is simply checking their benefits eligibility or scheduling a physical, or contending with a life-changing diagnosis. We also integrate 50+ partners across the ecosystem, which positions Alight, Inc. at the critical nerve center of the benefits ecosystem. Wealth comprises a portfolio of solutions for financial planning, including defined contribution plans, retirement savings, and pension plans to enable employees access to a pathway for financial preparation. We administer pensions both for corporations as well as various carriers who take on pension risk from corporations. The Leaves business handles absences due to short- or long-term disability, military leave, or family and medical leaves, which are not always straightforward or easy to navigate. Our Leap Pro and Absence Connect platform help our clients and their employees develop appropriate solutions to meet the needs of both the individual and the organization when an extended absence is necessary. As we move through 2026, we are focused on leveraging our scale, market recognition, and financial strength to capitalize on attractive industry dynamics and grow our leadership role. Benefits programs are a fundamental, nondiscretionary offering for most organizations, creating a large addressable market for our capabilities. Our ability to provide effective outsourced benefits administration is an attractive alternative to employers who often lack the in-house expertise to manage the demands of compliance, delivery, and technology. Additionally, because benefits programs are fundamental and nondiscretionary, our business tends to be more resilient through economic cycles. We believe our expertise across the benefits administration landscape, coupled with our scale, experience from a diverse client base, and disciplined execution creates a competitive advantage for us to win customers and establish long-term relationships with predictable revenue. We remain energized and committed to expanding our market-leading position and believe that the market opportunity in front of us is substantial. Alight, Inc.'s opportunity in the marketplace is unique. We have established a leadership position as the only company to effectively service our customer base ranging from large Fortune 500 companies to smaller, more Main Street operations as well as organizations in the public sector. These companies and organizations are all unique in their own way and require benefits offerings that match their structures, legacy, and priorities. We have more than 30 million participants on our platform, including corporate executives, field operators, young new employees to retirees, and our products and solutions are designed to deliver the reliability and personalization these employees deserve. We understand the challenges inherent in navigating the benefits ecosystem, and we are well positioned not only to provide solutions but to manage complexity and drive adoption. In addition to human expertise, we are leveraging enterprise AI adoption to capture efficiencies and further improve service excellence and user experience. To that point, we have all heard a lot about AI and its potential impact on a variety of industries. At Alight, Inc., we are uniquely positioned to deploy AI that is personalized, predictive, assistive, and grounded in real-world data while drawing on information from our large user base, participant interactions, and decades of domain expertise. We view AI not as a stand-alone solution, but as a force multiplier across our scale platform. By strategically implementing AI, we can turn data into guidance, turn guidance into action, and action into better outcomes in the moments that define health, wealth, and leave decisions. It is important to understand that we deal with situations of varying complexity that include unions, grandfathered plans, or multiple enrollment dates. We are also embedded in our clients’ workflow as the core system of record for their benefits. Accountability is essential since regulatory compliance and outcomes both matter in our space. Health, wealth, and leaves all have a significant regulatory component. That accountability needs clear definition and ownership that cannot be made by an AI agent alone. AI is not a replacement for what we do; rather, it is a mechanism to unite the data, insights, and human expertise our clients depend on. A meaningful portion of our participants are navigating decisions related to managing a life-changing development, and those decisions cannot be made with the support of AI alone. Some of these are happy life events, and some require the empathy and guidance of the human touch. I expect to share more with you about our AI journey and its impact in coming quarters. As I mentioned on our last call, we are driving the business forward with our commitment to three clear operating principles: deliver service and operational excellence; innovate products that create value and actionable insights; build relationships that result in enduring, trusted partnerships. These operating principles are the compass as we continue to pioneer this space. We are the only company of our size and scale with a singular focus on benefits administration, providing a full range of health, wealth, and leave solutions, and we believe we have a substantial advantage in the industry where most of our competitors take a more singular approach, providing health, or wealth, or leave solutions, or where benefits administration is a small non-core part of their business. Our focus on benefits as a whole allows us to provide deeper engagement, effective solutioning, and targeted investments. I am confident that our team’s commitment to these guiding principles and our leading position in the marketplace will drive favorable results for our clients and for Alight, Inc., and we are already seeing notable progress to enhance execution. I will now turn the call over to Gregory Giometti for the financial results. Gregory Giometti: Thanks, Rohit, and good afternoon, everyone. I will now walk you through our first quarter 2026 results. Echoing Rohit’s comments a moment ago, we delivered stronger-than-expected first quarter revenue, adjusted EBITDA, and free cash flow. Revenue for the first quarter was $534 million, a decrease of approximately 3%. We had anticipated a revenue decline in the high single digits for the quarter, and we were pleased to achieve a more favorable result. As you know, we think about our revenue mix in two distinct categories: revenue from recurring, renewable business and nonrecurring, project-based business. In the first quarter, we recorded recurring revenue of $498 million, which was a decrease of 4% compared with the first quarter of last year, reflecting higher partner network revenue in the quarter that was originally expected later in the year. Project revenue for the quarter was $36 million, up 29% compared with the first quarter last year, exceeding expectations. Adjusted gross profit in the first quarter was $189 million, down $11 million from the prior-year period, reflecting an adjusted gross profit margin decline of 110 basis points. First quarter 2026 adjusted EBITDA was $104 million, or adjusted EBITDA margin of nearly 20%, as compared to $118 million, or adjusted EBITDA margin of nearly 22%, in the prior-year period. The first quarter adjusted EBITDA decrease was less than anticipated due to flow-through from the better-than-expected revenue performance and timing of expenses. Adjusted net income in the first quarter was $35 million, with adjusted EPS of $0.[inaudible], compared to $52 million of adjusted net income and adjusted EPS of $0.10 in 2025. Looking forward, with our visibility today, we expect second quarter 2026 revenue in the range of $490 million to $505 million, adjusted EBITDA between $80 million and $90 million, and free cash flow ranging from $35 million to $45 million. Our guidance reflects the continued impact of prior commercial execution, which is expected to work its way through our P&L over the coming quarters. Turning to capital and liquidity, we closed the quarter with strong liquidity of more than $500 million. At the end of Q1 2026, we maintained significant financial flexibility including $178 million in cash and equivalents, $330 million of availability on a revolving credit facility, and free cash flow of $53 million. With cash flow growth in Q1, we have continued to strengthen our liquidity, providing us flexibility to pursue our capital allocation priorities, which include investing in the long-term growth of the business, deleveraging, and opportunistic share repurchases. With that, I will turn the call back to Rohit. Rohit Verma: Thanks, Greg. My first few months at Alight, Inc. have been educational and productive, allowing me to synthesize the valuable customer feedback we received with what I have learned about the scope of our solutions and the scale of our capabilities. Since January, our team has made excellent progress executing our core operating principles and building on our solid foundation to strengthen our organization. Our success depends on our focus as a client-centric organization, and that starts from the top with me. As I mentioned, I have met with 90+ clients since joining Alight, Inc., and regular engagement with our client base will remain a top priority for me. We are assembling a leadership team that brings significant industry experience and who embrace a commitment to client engagement and service excellence. We are moving quickly and are building a team that can accelerate the pace of play. Key initiatives to decidedly strengthen our market leadership are underway. These are focused on reimagining the user experience and driving AI-based service that will help define the new standards for the industry. Our ability to deliver reliability and personalization in a scaled benefit management solution that provides value to our clients and better outcomes to their employees is a competitive advantage in the marketplace. I am confident that we have the right people and strategies in place to continue building momentum across the business, and I am optimistic about what the future holds for Alight, Inc. Finally, our CFO search is progressing well, and we expect to have some news to share shortly. Susan Davies, Alight, Inc.'s Chief Accounting Officer and Global Controller, will step in as interim Chief Financial Officer as Gregory Giometti leaves Alight, Inc. to pursue a new opportunity. We thank Greg for serving as interim CFO for the past several months and wish him all the best. Sachi, you can now open the call for questions. Thank you. Operator: We will now open the call for questions. If you would like to ask a question, please press 1 on your telephone keypad. You may press 2 if you would like to remove your question from the queue. The first question is from Kyle Peters from Needham & Company. Please go ahead. Ross Cole: Hi. This is Ross on for Kyle Peterson. Thank you for taking my question. I was wondering if you could provide any commentary on how the RFP season looked in the past quarter. In other words, have you won any business here? Thank you. Rohit Verma: Thank you. As I mentioned in my remarks, our execution, both from a renewal perspective and new business, is getting better and better. We had a very good new business as well as renewal activity season in Q1, and it was better than Q1 last year. Ross Cole: Great. Thank you. And if I can ask another question, could you talk a little more on the working capital dynamic and if it should start becoming a source of cash? And also, what percent of the book is up for renewal this year? Gregory Giometti: I can take the first part, Rohit, and then I will let you comment on renewals. We definitely did see some working capital benefits in the first quarter across a variety of areas, including cash taxes and general working capital, that helped drive the free cash flow result. Rohit Verma: And then the second part of the question was the size of renewals for the year. I would say it is definitely less than last year. I would put it somewhere within the 25% to 30% range of the total book, which is in the normal range that we would expect. Operator: Thank you. The next question is from Curtis Nagle from Bank of America. Curtis Nagle: Great, thanks very much. Maybe any help you might be able to give in terms of expectations for cadence of recurring revenue year-over-year growth? Then would you be able to size how much that influx of partner revenue—earlier partner revenue—helped in the Q1 recurring revenue in the quarter? Rohit Verma: Sure. As we have mentioned, we have been giving revenue under contract at the start of the quarter. If you recall, when we started Q1, the recurring revenue under contract was about $1.97 billion. Our recurring revenue for the start of Q1 is just over $2.0 billion, so that effectively sets a floor for where we are in terms of revenue under contract. Just to clarify, that is total revenue under contract, 94% of which is recurring. On the partner revenue side, it was about $4 million to $5 million that we had expected to come over the full year, and that came in pretty much all in the first quarter. It is recurring, but it does not recur every quarter. Curtis Nagle: Okay, great. And then any guidance you might be able to give for free cash flow for the year—expectations? Rohit Verma: We believe that we will continue to see solid free cash flow generation for the year. We saw $53 million this quarter, which was about 20% higher, and Greg shared with you that we are expecting $35 million to $45 million in the second quarter. That is as much guidance as we are prepared to give right now. Thank you. Operator: The next question is from Peter Heckmann from D.A. Davidson. Please go ahead. Peter Heckmann: Good afternoon. Thanks for taking my questions and good to see the stronger-than-expected first quarter results. In terms of your EBITDA range for the second quarter—down significantly more than the first quarter—should we infer that, number one, you do not expect quite as strong a professional services quarter, and number two, some of the timing of expenses, some of those expenses that you plan to make, will kick in? Any other factors playing into the year-over-year decline in EBITDA in the second quarter that were not present in the first quarter? Gregory Giometti: Yes, I think that is right. If you think about the guidance that we gave in terms of expectations around first quarter profitability, the second quarter guide is relatively in line with that. The exceeded expectations in the first quarter—given the high profit margin on project revenue—certainly drove higher margin in the first quarter. We are expecting a more muted project revenue at this point in the second quarter, which drives more consistency with what we had expected for the first quarter from a profitability perspective. And to your point, yes, we do see some of those expenses shifting between quarters. As a follow-up on free cash flow conversion, generally speaking, 44% to 50% is a reasonable range. There can be some variability quarter to quarter, especially with the seasonality of some of the commissions business and things we have in the back half of the year, but as we think about averages, that is a reasonable measure. Peter Heckmann: Okay. I will get back in the queue. Thank you. Operator: The next question is from Sharon House from KeyBanc Capital Markets. Please go ahead. Analyst: Hi. This is Summer on for Scott. I was just wondering if you could talk more about the momentum you are seeing building out the new team and the impacts you have seen so far. Thank you. Rohit Verma: Thank you so much for the question. We are very excited about the team that we are building. It is not just the senior hires that we have made, but also deeper in the organization. The most important piece for us is increasing the coverage of accounts. As you heard me say, we were covering about 100 strategic accounts for us with a true designated account executive. That number is up to 400 and covers 90%+ of our ARR. We believe that kind of coverage really gives us a good view of our clients, a good view of the health of our clients, and helps increase our ability to retain clients and build a pipeline along with them. As I mentioned earlier, we have had a good renewal season in Q1, we have had good commercial execution in Q1, and we are expecting to continue to build on that momentum. We still have a lot of work to do, as the team is new and we are building a newer muscle in the organization, but we feel good about the progress that we have made. Operator: There are no further questions at this time. I would like to turn the floor back over to Rohit Verma for closing comments. Rohit Verma: Thank you, Sachi, and thank you all for joining. I would like to thank our clients for their trust and confidence in us, and importantly, our employees who have been relentless in their efforts. I appreciate your continued interest in Alight, Inc., and I look forward to updating you on our progress in the quarters ahead. Thank you so much, and God bless. Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. Good day, and welcome to the Onto Innovation Inc. First Quarter Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Sidney Ho. Please go ahead. Sidney Ho: Thank you, Terren, and good afternoon, everyone. Onto Innovation Inc. issued its 2026 first quarter financial results this afternoon shortly after the market closed. If you did not receive a copy of the release, please refer to the company's website where a copy of the release is posted. Joining us on the call today are Michael P. Plisinski, Chief Executive Officer, and Brian K. Roberts, Chief Financial Officer. I would like to remind you that the statements made by management on this call will contain forward-looking statements within the meaning of the federal securities laws. Those statements are subject to a range of changes, risks, and uncertainties that can cause actual results to vary materially. For more information regarding the risk factors that may impact Onto Innovation Inc.'s results, I would encourage you to review our earnings release and our SEC filings. Onto Innovation Inc. does not undertake the obligation to update these forward-looking statements in light of new information or future events. Today's discussion of our financial results will be presented on a non-GAAP financial basis unless otherwise specified. As a reminder, a detailed reconciliation between GAAP and non-GAAP results can be found in today's earnings release. Let me now turn the call over to our CEO, Michael P. Plisinski. Mike? Michael P. Plisinski: Thank you, Sidney. Good afternoon, everyone, and thank you for joining us on our call today. The Onto Innovation Inc. team is off to an outstanding start to the year as the momentum in our business continues to build in support of strong demand for AI compute. This surge in demand across both front end and advanced packaging resulted in first quarter revenue above our original guidance range and is expected to continue with the heightened outlook for the second quarter revenue, which at the midpoint represents a 20% increase year over year. Momentum should continue into the second half of the year with rising customer expansions enhanced by accelerating new product adoption and a growing backlog, all indicating more than 15% sequential revenue growth in the second half of the year. In total, we expect revenue growth of more than 30% in 2026. This momentum is driven by the insatiable end market demand for high performance compute and supporting process technologies, including silicon photonics. Customers benefit from our broad and synergistic portfolio of optical process control technologies, which through our software are capable of working together to provide more actionable intelligence to manufacturers. The announcement of our strategic collaboration with the leader in X-ray technology, Rigaku, expands this capability significantly. While optical metrology is preferred for high-volume manufacturing, additional needs are emerging as manufacturers increase the application of exotic materials in 3D structures at transistor and chiplet scale, which is where the penetration power and precision of X-ray technology can provide additional information about material composition and underlayer data to potentially improve optical metrology robustness. The key to realizing this benefit is our AI Diffract software, where our customers were the first to see the potential benefits of leveraging AI Diffract technology to unleash the strength of Rigaku's X-ray systems to solve process metrology challenges where other suppliers struggled. Now with two competitive wins in hand and several other evaluations planned across memory and logic manufacturers, we are confident that the value of this combination to our customers will increase. In addition to revenue from licensing AI Diffract to support Rigaku X-ray systems, another revenue stream involves the development of more complex hybrid metrology solutions to provide unique production-capable metrology by combining the strengths of optical and X-ray technologies. The breadth and depth of Rigaku's X-ray technology makes them an outstanding partner as they enjoy one of the broadest portfolios of X-ray technology spanning CD, materials analysis, and films. Rigaku has over 75-year history in X-ray, with over $600 million in 2025 revenue, of which approximately 40% is related to the semiconductor industry. We are proud to be working together, and our investment of 27% of the business, which provides us a seat on their board of directors, will further strengthen our long-term alignment, provide deeper insight into X-ray technology road maps, and position us to jointly advance next-generation hybrid metrology solutions. While the Rigaku partnership expands our opportunities for growth tied to future process challenges, today's process challenges are driving increased demand for our solutions in both advanced packaging and advanced nodes. Starting with advanced packaging, we are thrilled to have announced our qualification and adoption of Dragonfly G5’s inspection system at a leading 2.5D logic customer, closely following our wins in high bandwidth memory for both 2D and 3D metrology. Our team did a phenomenal job to accelerate the development to the delivery of this completely new platform, which delivers improved sensitivity, high throughput, and the flexibility of multiple sensors to provide a compelling and differentiated value proposition to the customer. Shipments to customers are ahead of plan, and we are actively engaging with new customers and applications. With a pipeline of over 15 distinct applications across over 10 customers, the outlook for Dragonfly G5 is very promising, providing opportunities for both share gains in current markets and expansion into new markets. Just as 2D features within die are shrinking rapidly, so are the 3D interconnects between die. Two years ago, the most advanced bumps were approximately 15 to 25 microns high. Today, we are sampling bumps below 6 microns in height. This adoption of smaller, more dense bumps plays to the strength of our 3DI technology and has led to several more OSAT customers and over 10 additional orders in the quarter. Finally, the strong demand for AI and the industry constraints in packaging capacity are causing customers to look at additional processes such as panel level packaging where larger substrates can provide for greater economies of scale as the adoption of heterogeneous packaging drives larger package sizes. We are pleased to learn that JetStep was recently qualified at two packaging suppliers to AI device manufacturers, with ramp-up expectations in 2027. Considering all of these growth drivers, we believe our advanced packaging revenue will grow more than 50% in 2026. Turning to our advanced nodes business, it continues to strengthen across both logic and memory. Adoption of our Atlas G6 platform is expanding following successful head-to-head evaluations at several key accounts for next-generation logic nodes. In memory, we are seeing solid traction as DRAM customers ramp development of next-generation devices. Additionally, we secured a new application win for TSV metrology using our Atlas system, with initial shipments expected to commence in the second half of the year. With this broad-based strength in logic, DRAM, and early signs of recovery in NAND, we now expect our advanced nodes business to grow approximately 25% in 2026, ahead of the average WFE growth expectations in the low twenties. With that, let me now turn the call to Brian to review our financial highlights and provide second quarter guidance. Brian? Brian K. Roberts: Thanks, Mike. Good afternoon, everyone. As Mike noted, 2026 is off to a strong start for Onto Innovation Inc. as we exceeded the high end of our first quarter guidance range across all key financial metrics, including revenue, gross margin, operating margin, and earnings per share. Revenue of $292 million increased nearly 10% sequentially on strength primarily across our advanced nodes business highlighted by adoption of the Atlas G6 and our inspection products, including the initial commercial shipments of the Dragonfly G5. Specialty device and AP was approximately $160 million in the quarter, of which two-thirds was advanced packaging, $25 million related to Semilab, and the remainder specialty device including Power Semi. Advanced nodes was approximately $80 million, of which 60% was memory, primarily DRAM, and the remainder logic. Software and services comprised the remaining first quarter revenue. Despite increasing headwinds around certain material input costs, such as memory and higher fuel and shipping charges, we demonstrated solid margin performance as gross margin improved sequentially by 110 basis points to 55.7%, and operating margin increased by 150 basis points to 26.7%. Our performance reflects benefits recognized primarily from our move to extended factories. Earnings per share were $1.42, reflecting a 13% improvement over Q4 2025. On April 20, we announced the deepening of our strategic partnership with Rigaku, including the purchase of a 27% stake in the company from Carlyle Group for approximately $710 million. The deal is expected to close in 2026 and be primarily funded with cash on hand. We will account for the purchase using the fair value option method for investments, which means the deal will be recorded at cost, and then each reporting period, we will show an unrealized gain or loss based upon the movement in Rigaku's stock price. This will be reflected in the other income section of our P&L. While Rigaku's financials will not be consolidated into our numbers, we see three primary benefits which will enhance our financial results. First, Rigaku's X-ray tool integrated with our AI Diffract software will generate incremental licensing revenue to us at nearly a 100% margin. Second, we expect we will sell additional metrology tools such as our Atlas G6 to customers who are using the integrated X-ray tool. Third, we expect Rigaku will continue to pay dividends to shareholders which equates to approximately $7 million or more per year based on our expected ownership stake. Within a year of the close of the transaction, we would expect that the income generated from these three sources will offset any foregone interest income on cash used in the deal. Now let me discuss our outlook for the second quarter with some thoughts on the remainder of 2026. We previously announced on April 16 our Q2 revenue expectation of $320 million to $330 million, representing, at the midpoint, a 10% increase to previous analyst expectations and 28% year-over-year growth. As we look to the second half of this year, revenue is expected to accelerate to at least 15% growth over the first half of 2026. This translates to 2026 revenue greater than $1.3 billion. Alongside this outstanding revenue result is our expectation for continued second quarter gross and operating margin expansion. While we note increasing headwinds around certain material costs, fuel charges, and investments in our R&D and services teams to support the revenue ramp, we are confident in our ability to show continued margin expansion. We currently expect Q2 gross margin in the range of 56% to 56.5%, operating expenses of $90 million to $92 million, operating margin in the range of 28% to 28.6%, and earnings of approximately $1.69 per share at the midpoint. This assumes a non-GAAP tax rate of approximately 15% and slightly more than 50 million shares outstanding. While closely monitoring macro and micro headwinds impacting our cost, we remain confident that we will improve gross margins in Q3 at a rate of at least 50 basis points per quarter and exit Q4 with an operating margin greater than 30%. With that, let me turn it back to Mike for some closing thoughts before we take your questions. Mike? Michael P. Plisinski: Thank you, Brian. In summary, this quarter underscores the strength of our execution and the accelerating momentum across our portfolio. We exceeded expectations in the first quarter, advanced our leadership in advanced packaging with the successful qualification of Dragonfly G5 at multiple key customers, and took a major step forward in our metrology strategy through the partnership and investment in Rigaku. At the same time, our operational discipline continues to enhance scalability and drive strong margin expansion. Our visibility continues to strengthen, supported by record backlog, new product momentum, and deep collaboration with customers as we work together to solve their most critical process control challenges. With this visibility, market expansion, and our relentless drive to improve operational efficiencies, we believe Onto Innovation Inc. is well positioned to not only outperform this year, but also carry that momentum forward into 2027. And now, Terren, let us open the call for questions from our covering analysts. Operator: Thank you. If you are dialed in via the telephone and would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. We ask that you please limit yourself to one question and one follow-up question. Again, you may press star 1 to ask a question. We will pause for just a moment to allow everyone an opportunity to signal. We will take our first question from Craig Andrew Ellis with B. Riley Securities. Craig Andrew Ellis: Yes. Thanks for taking the question and congratulations on the real strong execution, guys. Mike, I wanted to start with a question on Dragonfly G5. Clearly, you got a marquee win that starts to ship in Q2, which is great to see. Can you talk about the way the pipeline allows for visibility for growth through the back half of the year? Then what are you hearing from customers with Dragonfly G5 relative to 2027? And then the follow-up is on advanced nodes. We are significantly raising our view for advanced nodes growth this year to 25%. Can you talk about some of the end-use drivers for that, and how we should think about linearity as we go through the back half of the year in 2026? Thanks, Mike. Michael P. Plisinski: Great question, Craig. From the G5 perspective, we are actually getting requests to pull in and serving those requests to pull in G5 shipments. We shipped several systems in Q1, we are shipping more into Q2, and even more in Q3 and Q4. We see a steady growth in demand for the G5 throughout all four quarters. From a perspective of 2027, from those existing customers we have visibility into stronger demand as you would expect as they get cut into production in 2026. As that production expands in 2027, that is what we are expecting. I also mentioned that we have a very strong pipeline of application studies. These are both studies in existing technologies—so existing markets we serve—as well as new markets. Those applications are going quite well, which would imply, if successful and resulting in orders, significant expansion in 2027. For advanced nodes, the biggest driver is the Atlas OCD metrology. Some of the latest capabilities we are providing customers include smaller spot sizes, being able to measure in-die to provide more process information that customers can use to improve yield. Historically, spot sizes were too large to do that, and you had to measure in test areas. Customers prefer to do it on die if possible, so we are seeing good drivers from that. We are also working on integrated metrology and have had good progress with logic customers, building on the strength we have in the memory market. That also contributes to the growth we are seeing, as well as in films. The Iris Films tools are seeing some level of growth in the common films. We see that contributing to some exciting news more towards the end of this year and into 2027. That is what we are seeing on the advanced node side. Operator: We will take our next question from Blayne Peter Curtis with Jefferies. Ezra Weener: Hi, this is Ezra Weener on for Blayne. Thanks for taking my question. Last quarter you were talking about big VPA potentially being two-thirds weighted into 2027 and could get pulled in half-half theoretically into 2026. Can you talk about what you are seeing in terms of demand from customers from a timing perspective? Are you seeing pull-ins? And as a follow-up, Dragonfly G5 was looked at as a margin improvement story versus G3. Can you talk about how much you are seeing that actually impact margin? Michael P. Plisinski: Broadly speaking, we are seeing pull-ins, but not at the expense of the 2027 numbers. It is really more of a broader rising of the tide. If you look at 2026 and 2027, a lot of these expansions are tied to new fabs coming online versus filling up excess capacity in existing fabs. The pull-ins are when customers are able to ramp up a fab quickly and they want to take more tools, or where we had share gains and we see a share shift and they want to pull in some tools. It is not at the expense, based on what we see so far, of 2027. In fact, 2027 continues to look much stronger than 2026. On Dragonfly G5 margins, it will be an improvement as a completely new tool with a significant improvement in value proposition to the customer. Overall cost of ownership for the customer is much more attractive. You are not going to see the margin improvement in the initial first half of the year because the relative volume is low as we continue to ramp it throughout the year, going into the second half. Where I would expect you to see a more significant impact is in 2027, when the transition to Dragonfly G5 is much stronger and it is a higher percentage of the overall inspection revenue. Brian K. Roberts: We do continue to expect to improve the gross margins throughout each of the quarters this year. Operator: If you find that your question has been answered, you may remove yourself from the queue by pressing star 2. Once again, if you would like to ask a question, you may join the queue by pressing star 1. We will move to our next question from Edward Yang with Oppenheimer. Edward Yang: Hi, guys. Thanks for the time and congrats on the G5 2.5D logic qualification. Maybe, Mike, can you give a little more detail on why the customer liked the new platform versus other options? Are you expecting any share recapture, new layer wins, or broader customer application expansion related to G5? And for my follow-up, on the 2027 outlook, you have a rich menu of growth opportunities and favorable industry backdrop but a lot of internal drivers as well. If you were to rank order the opportunities you are particularly excited about—Atlas G6, Dragonfly, 3DI, Iris, JetStep, X-ray, etc.—how do you feel about 2027 and your ability to outgrow WFE? Michael P. Plisinski: I characterized it as a 2.5D logic customer. In the head-to-head, you have to win, and if you win, then you get more orders. That, by definition, means we are going to see some opportunities shift back to us that were either served by us before or are new opportunities for us, driven by the higher resolution and the compelling value that the flexibility of Dragonfly delivers to the customer. Why the win? We have been in this market for a long time. Packaging is very different than the front end. Our tool is designed for packaging. What we needed to do was deliver on the high-resolution piece, and we have done that. We are seeing things now below 200 nanometers, where historically 800 nanometers might have been about the limit. This is a combination of new optics, new camera, new staging—basically a ground-up system—leveraging all of our experience with challenges in packaging: die warp, wafer warp, rough surfaces due to different types of CMP polishing leaving rough surfaces for metal layers, and so on. Our algorithms and experience help create a very compelling system. In addition, we added new die-to-die algorithms that allow us to eliminate die variation, a significant improvement complementary to our golden-die algorithms from the past. At the end of the day, the customer wants the best cost of ownership and most flexible system for the valuable fab space that they have. This system is designed for several generations ahead. On 2027 opportunities, asking me which child I love best: the highest growth and the highest contributions to growth or potential share gain opportunities will come from Dragonfly G5. It has the potential to expand into nearly $1 billion in new markets, and the existing markets it serves are also growing. The Atlas G6 is making good progress in gate-all-around customers and will continue to ramp. OCD continues to be a critical component for process control in gate-all-around technologies, even as we look at integrating X-ray systems in order to extend and expand the opportunities for OCD. These are complementary, not replacements. Surface charge metrology is another good growth area for us. We see more interest from packaging as chiplet architectures become more mainstream. Concerns around residual charge having a direct impact on package yield are high, and the products we are coming out with and opportunities for STI continue to grow. In addition, panel-level market products with both JetStep and Firefly: we talked about some growth there as well recently, and we see a meaningful shift now with the panel market starting to gain traction. We do expect to outgrow WFE next year as well. Operator: We will take our next question from Matthew Patrick Prisco with Cantor. Matthew Patrick Prisco: Yes, thanks, guys, for taking the question. I wanted to start on the advanced packaging market and the improved outlook there. What are the primary drivers within that? What got incrementally stronger over the last 90 days between maybe HBM, CoWoP-like, panel-level packaging? And what is included now in that number from a G5 perspective? And then can you talk more about the Rigaku collaboration and how you are thinking about revenues there ramping in the second half, primarily starting with software, and then how we should think about the combo optical/X-ray tool timing and the potential magnitude of that opportunity over time? Michael P. Plisinski: For all the growth we talked about, how much of it is G5 is still relatively small—call it less than 10%, maybe even around 5%. It is ramping. The other areas are significant contributors to growth. G3 demand is still going up. G5 is ramping every quarter and growing dramatically, starting from zero: Q1 is a handful of tools; Q2 and Q3 it continues to nearly double each quarter throughout the year. Overall, you are looking at over 50% growth in advanced packaging, and for us, 2.5D logic and HBM are very similar in growth outlooks, similar to what they were in 2024 when everything was ramping—we talked about them split roughly equally. On Rigaku, for the software piece, we will provide more guidance as we gain experience working with Rigaku as they drive the sales. We are two separate companies, so our software attach rate to their CD X-ray tools depends on their CD X-ray tool pipeline. We think it is quite healthy. We need more experience with how long it takes to close. Based on what we have seen, we expect that software revenue to grow throughout 2026 and then grow even further in 2027. We are now starting to leverage some of our contacts in the industry and with customers, looking for new opportunities now that we have a more solidified arrangement, so that number could grow. The new hybrid metrology solution is further out. That is more working with customers, understanding their challenges, and then combining information to provide production-worthy systems several generations out. OCD right now is going to cover through around 1-nanometer-type processes. There will be some incremental sales we talked about, but the hybrid metrology will be more on new technologies coming out in a couple years—starting now in R&D, working with partners in the R&D space, then timing for HVM, where the real opportunity will come. Brian K. Roberts: Matt, in its simplest form, if you think about the foregone interest income over the next 12 months, we feel very confident that we will more than pick that back up through the combination of the licensing revenue that we have talked about as the primary revenue stream, plus the dividend income that we will see from Rigaku. Those two numbers together from an income perspective should offset what we are foregoing in interest. Operator: We will take our next question from Vedvati Shrotre with Evercore ISI. Vedvati Shrotre: Hi. Thanks for taking my questions. On advanced packaging, you talked about two additional growth opportunities: silicon photonics and panel-level packaging. Can you help size the revenue opportunity here and when you expect to start seeing volumes? And for my second question, what are your tool lead times? Are there any supply chain bottlenecks starting to creep up? Michael P. Plisinski: We are already starting to see some volumes in silicon photonics. From a size perspective, the end-market demand is quite high. If you think about all the AI servers going in and the desire to reduce power consumption and provide additional speed between memory and logic—two different areas—silicon photonics are being used for co-packaged optics. It can mean quite a bit of volume, but the question is how quickly it gets cut in. We have talked about several customers where we have already been selected and are gaining traction and orders. We have a good visibility and pipeline into additional opportunities through the next 12 months. From a sizing perspective, it is a little early to be too specific, but I would see this as one of our high-growth areas—from a relatively low base, but very high growth based on end-market demand and need. On panel-level packaging, we have not come off of the approximately $200 million we have said over the several years, and that includes JetStep and Firefly. There is a bias that as the industry shifts and more manufacturers move to a panel packaging format, that number could go up meaningfully, but for now that is a range you can think about. On lead times and supply chain, in general we are managing through issues. None are impacting our production or commitments to customers. This is one of the benefits of moving to the extended factories. Through that process, we also pruned our supply chain tree, making changes to suppliers that did not have the scale and capability to grow with us and support our overseas factories. Lead times are extending out a little bit, but so far no big issues, and we are able to meet customer demand. Operator: We will take our next question from Charles Shi with Needham. Charles Shi: Hey, good afternoon, Mike and Brian. Regarding the Rigaku collaboration and the expected licensing revenue, can you give us a sense of the economics on a per-tool basis—is it a few hundred thousand, a few million? And a longer-term question on your positioning for hybrid bonding-related inspection and metrology opportunities: there may be some overlap between your EchoScan and potential X-ray-based solutions. How do you think about positioning between your offering versus theirs, and how do you solve any overlap where you may end up competing for the same opportunities? Michael P. Plisinski: We are not going to break down per-tool licensing economics, but Brian highlighted the components. If you look at potential interest income of the investment we made and subtract roughly $7 million for dividends, then the residual is what we would expect to see from license revenue and from profits from potential hybrid metrology sales. That gives you a rough idea. Overall, that is not game-changing for Onto Innovation Inc. from a revenue perspective this year. The point is this is a strategic initiative that expands our opportunities significantly as we look out three to six years. On overlap, you picked about the only one that exists. There is a potential overlap in packaging for X-ray inspection between our EchoScan and that. Optical systems should always be much faster. EchoScan, if it reaches its full potential, should be much faster, and that is a benefit. The X-ray benefit is precision and penetration depth. There could be opportunities where one is the inspection tool and the other is the high-end review tool—they can work together and coexist. That is part of the reason we like this expanded opportunity to offer customers the best-of-breed technologies together. Otherwise, films, CD SAXS versus optical CD—these are complementary. As long as OCD can measure it, which so far we have demonstrated we can push beyond where most people thought possible, customers will go with OCD. But there are gaps, especially as 3D becomes more dominant in customers’ process road maps, where penetration depth is critical. X-ray will provide insight into the OCD modeling engines that will make OCD more valuable and extend OCD further, getting the speed of OCD with the precision and penetration depth of X-ray. Operator: As a reminder, if you would like to ask a question, you may press star 1 on your telephone keypad now. We will take our next question from Brian Edward Chin with Stifel. Brian Edward Chin: Hi there. Good evening. Thanks for letting us ask a few questions. Mike, referencing the 2.5D logic win, are you baking in a relatively modest contribution from G5 sales to this customer in the second half? Could that be conservative? And when you think about that qualification improving and strengthening your competitiveness for the variety of applications that that customer has, can you hazard a guess where your market share at that customer might shake out moving forward? And as a follow-up, is the Atlas TSV application win you referenced an example of the synergy between the two companies’ optical and X-ray technologies? Also, given a large portion of Rigaku’s business is outside of semi, are there any opportunities or plans to engage in markets beyond semi? Michael P. Plisinski: I do not want to say exactly what could happen, but we have new opportunities within the account that with the previous resolution we could not serve. Could our forecast be conservative? Sure. Could there be upside to the second half? Sure. But we gave the guidance now, and next quarter we will provide additional guidance and see how things shake out. It is not all tied to this customer. We mentioned 10 additional customers looking at the G5 for over 15 applications, many of which we would not have been able to serve in the past. The opportunity to expand our overall SAM is creating excitement and growth and upside for maybe the second half, but definitely into 2027. Relative to the breadth of potential customers, there is a lot more breadth now versus recent years where it was more concentrated. As advanced packaging is migrated and customers focus on high value-add process steps and outsource others, we are growing our position with those outsourced partners. On TSV, that was not part of the Rigaku synergy. That was homegrown, leveraging the capabilities of our Atlas to do specific metrology that was previously done by a different OCD supplier. Specific to Rigaku, we are focusing on semi, and they also see semi as one of their key growth pillars. That is a great synergy and a great reason why working together we can provide strengths not just of technologies but also of footprint and infrastructures. That will be our focus for the foreseeable future and where the biggest benefits will be realized. Operator: It appears there are no further questions at this time. I would like to turn the conference back over for any additional or closing remarks. Sidney Ho: Thanks, Terren. We will be participating in a number of investor conferences throughout this quarter. We look forward to seeing many of you there. A replay of the call today will be available on our website at approximately 7:30 p.m. Eastern Time this evening. We would like to thank you for your continued interest in Onto Innovation Inc. Terren, please conclude the call. Operator: This concludes today's call. Thank you again for your participation. You may now disconnect, and have a great day.
Operator: Please standby, your meeting is about to begin. Hello and welcome everyone joining today's Neurocrine Biosciences, Inc. Q1 2026 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. To register to ask a question at any time, please press 1 on your telephone keypad. Please note, this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Todd Tushla, Vice President of Investor Relations. Please go ahead. Todd Tushla: Thank you, and happy Cinco de Mayo to everyone. Welcome to Neurocrine Biosciences, Inc. first quarter 2026 earnings call. Joining me today are Kyle Gano, Chief Executive Officer; Matthew C. Abernethy, Chief Financial Officer; Eric S. Benevich, Chief Commercial Officer; Sanjay Keswani, Chief Medical Officer; and Sameer Sadanti, Vice President of Strategy and Corporate Development. During today's call, we will be making forward-looking statements, including statements containing projections regarding future events, such as the anticipated closing of our acquisition of Solano Therapeutics. These statements are subject to certain risks and uncertainties and our actual results may differ materially. I encourage you to review the risk factors discussed in our latest SEC filings. In addition, some of the information discussed today includes non-GAAP financial measures that have not been calculated in accordance with U.S. GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of Neurocrine Biosciences, Inc.’s website. Following prepared remarks, we will address your questions. With that, I will hand the call off to Kyle. Kyle Gano: Thanks, Todd. Good afternoon, everyone. Over the past several years, we have articulated a clear vision to become a leading biopharmaceutical company driven by growing and diversifying our revenue base while advancing and expanding our pipeline. Our first quarter performance reflects meaningful progress along that path. For the first time in Neurocrine Biosciences, Inc.’s history, quarterly net product sales exceeded $800 million, representing 44% year-over-year growth. These outstanding results were primarily driven by INGREZZA, now in its ninth year since launch and continuing to grow at a double-digit rate. With INGREZZA guidance reaffirmed at $2.7 to $2.8 billion, Cranesini now annualizing at over $600 million per year, and the pending addition of iCAT XR to our commercial portfolio, we are well positioned to deliver record net product sales in 2026. Regarding VICAT XR and the pending acquisition of Soleno Therapeutics, we will be limited in our ability to address questions today given the ongoing tender offer. The acquisition remains on track to close in the second quarter. That said, we have been impressed by the Solano team's accomplishments in delivering strong clinical results in a complex disease, enabling broad utilization with a simple label, and overseeing a strong launch of iCAD XR. We look forward to formally welcoming them to the Neurocrine Biosciences, Inc. team shortly. Together, we will remain focused on ensuring a seamless integration with a singular goal of serving patients with Prader-Willi syndrome in the United States. Beyond strengthening our commercial portfolio, we continue to invest in our R&D engine across neurology, psychiatry, endocrinology, and immunology. Our pipeline progress is evident by our plan for six new phase 1 and four new phase 2 programs this year alone. In 2027, we will report key data readouts for rosuvampodoro in major depressive disorder, dereclidine in schizophrenia, and MBIP 2118 in obesity, just to name a few. When you combine the durability and remaining growth opportunity for our commercial assets, our innovative R&D engine, and our strengthening financial profile, Neurocrine Biosciences, Inc. is uniquely positioned to deliver sustained value for both patients and shareholders. Enterprise-wide momentum has never been stronger, and we are just getting started. With that, I will turn the call over to Matt. Matthew C. Abernethy: Thank you, Kyle, and good afternoon, everyone. First, congratulations to our commercial and medical teams on an outstanding quarter. We delivered more than $800 million in total revenue, with over 40% year-over-year growth. Importantly, for both INGREZZA and Carnicity, this performance reflects strong underlying demand and the meaningful impact we are having on patients' lives. Starting with INGREZZA, first quarter 2026 sales were $657 million, up 20% year-over-year, driven by double-digit volume growth in new patient additions. When adjusting for one less order week in Q1 2025, growth was approximately 11%. We are encouraged by the strength of the business exiting Q1 and are reaffirming our 2026 INGREZZA guidance of $2.7 to $2.8 billion. Consistent with our historical approach, we will revisit guidance following the first half of the year. Turning to Cranesity, first quarter 2026 sales were $153 million, driven by strong persistency and consistent new patient enrollment forms compared to Q4. We continue to see broad prescriber adoption and favorable reimbursement dynamics. As anticipated, we saw some slight gross-to-net pressure in Q1 due to commercial copay resets. As we look ahead, we remain very encouraged by what we are seeing and continue to believe Princeton is well positioned to become a blockbuster medicine. Our revenue performance continues to support R&D investment while expanding profitability. During the first quarter, we generated around $200 million of net income on a GAAP and non-GAAP basis, respectively, reflecting strong operating execution. On a GAAP basis, these results included gains related to equity investments and the sale of the Diurnal business. On a non-GAAP basis, these results include $44 million in milestone expense and IPR&D. As you model operating expenses for the rest of the year, the full impact of the commercial expansion will be seen starting in the second quarter. So stepping back, INGREZZA and crenicity together provide a growing commercial foundation generating durable cash flows that enable continued investment in innovation and strategic business development opportunities. This aligns directly with our capital allocation priorities to, number one, drive revenue growth; number two, advance our pipeline; and three, invest in business development. Regarding the announced acquisition of Solenno and Bicat XR, we are excited to add this asset to our portfolio and strengthen our long-term growth profile. We are not providing financial guidance related to the transaction at this time and will limit commentary during Q&A. Assuming a second quarter close, we expect to provide additional financial details on our Q2 earnings call. Overall, the first quarter reflects strong momentum across both our commercial portfolio and pipeline, with multiple key data readouts expected over the next 18 months, including osavampitur, dereclidine, and our CRF2 obesity program. With that, I will hand the call over to Eric S. Benevich, our Chief Commercial Officer. Eric S. Benevich: Thanks, Matt. May 1 marked the nine-year anniversary of the INGREZZA launch. It is remarkable that, now nine years post FDA approval and launch, we continue to deliver record new patient starts. This is a testament to both our commercial execution and the high unmet need of the tardive dyskinesia community. Our ongoing investments in the sales force, marketing initiatives including DTC, and improved formulary access are clearly driving strong results. I want to acknowledge our commercial and medical teams who continue to make a meaningful difference for patients to relieve the burden of tardive dyskinesia or chorea associated with Huntington's disease. While proud of these achievements, we are even more encouraged by the significant opportunity that remains. Approximately 90% of the estimated 800,000 TD patients in the U.S. are currently not receiving standard-of-care first-line treatment with a VMAT2 inhibitor like INGREZZA. With continued rapid growth in antipsychotic utilization, the prevalence of tardive dyskinesia is expected to rise over time at a rate exceeding U.S. population growth. With an increased base of psychiatric health care providers to call on for our recently expanded sales force, we anticipate these tailwinds to support strong demand and sales through the back half of the year. Before I wrap up my comments on INGREZZA, I would like to remind everyone that May is Mental Health Awareness Month and this week in particular is TD Awareness Week, what we affectionately refer to as TDAW. This is an important week we circle on our calendar each year where we partner with key patient advocacy organizations in mental health along with state and local governments across the country to raise awareness and to deliver hope to the many thousands of people needlessly suffering from TD. Now returning to Crinesity, the strong momentum from 2025, the first year of our commercial launch, carried over into our Q1 2026 performance. The Crinesity launch continues to progress extremely well, with steady new patient starts, high persistency and compliance rates, and favorable reimbursement, consistent with the trends we observed in 2025. Importantly, we are seeing growing trial and adoption across all prescriber segments including CAH centers of excellence, pediatric endocrinologists, and community adult endocrinologists. Through Q1, we have seen over 1,200 health care providers prescribe Cranesiti. Adoption remains balanced across both pediatric and adult populations, as well as between female and male patients, with a modest ongoing skew toward pediatrics and females consistent with prior trends. As Sanjay will discuss in more detail, we continue to generate compelling long-term efficacy, safety, and tolerability data that further reinforce the value proposition and chronicity's emerging position as a standard-of-care treatment together with low-dose GCs for patients with classic CAH. With sales now annualizing at greater than $600 million, Cranesity is well on its way to achieving blockbuster status. With that, I will turn the call over to Sanjay Keswani, our Chief Medical Officer, to discuss progress with our exciting clinical pipeline. Sanjay Keswani: Thanks, Eric, and good afternoon, everyone. I would like to begin with highlights from two recent scientific conferences. Firstly, the American Association for Clinical Endocrinology 2026 annual meeting in Las Vegas. At this meeting, we presented new two-year KRONASTI data from the phase 3 CATALYST adult study demonstrating sustained and substantial reductions in glucocorticoid doses in adults with classic congenital adrenal hyperplasia. Approximately 70% of patients achieved glucocorticoid doses within the physiological range without compromising androgen control. Indeed, a similar proportion of patients, i.e., 70%, sustainably achieved normal levels of androgens. These two-year findings demonstrated that Cranespi provided durable androgen control while enabling meaningful reductions in glucocorticoid exposure, resulting in positive impacts on bone health, bone aging, hirsutism, acne, weight, and insulin resistance. Importantly, these benefits were sustained over time with greater than 80% study retention and no new safety or tolerability signals were observed. Collectively, these findings support chronicity as a long-term treatment that meaningfully advances the standard of care for people living with classic CAH. We look forward to providing additional two-year data across a broader set of clinical endpoints and outcomes at upcoming medical meetings, including ENDO 2026 in June. Also in April, at the Academy of Managed Care Pharmacy 2026 annual meeting, we presented the first real-world head-to-head claims data comparing INGREZZA to deuterated tetrabenazine. These data demonstrated greater treatment persistence with INGREZZA capsules, including higher rates of long-term treatment continuation and lower rates of switching between medications among adults with tardive dyskinesia. Importantly, this higher persistence with INGREZZA was observed early in treatment and sustained over a six-month follow-up period. As a first real-world comparison of its kind, these findings provide meaningful evidence to inform decisions in clinical practice and further reinforce INGREZZA's differentiated profile. Turning to our clinical portfolio, our focus this year is on building and advancing the pipeline. We have initiated three phase 2 studies, all of which are currently enrolling. These include NBI 890, our next-generation VMAT2 follow-on in tardive dyskinesia; dereclidine, our selective M4 muscarinic agonist in bipolar mania; and NBI 570, our selective dual M1 and M4 muscarinic agonist in schizophrenia. Our fourth phase 2 study will be for crinecerfont in patients under four years of age with classic CAH. This study is on track for initiation in the coming months. In addition, we currently have a total of nine phase 1 programs underway, including NBIP 2118, a corticotropin-releasing factor type 2 receptor peptide agonist for obesity, with top-line data expected in 2027. We plan to initiate four additional phase 1 studies in 2026, including NBIP 1968, our proprietary triple G agonist in combination with NBIP 218 for obesity; NBIB 223, our gene therapy program for Friedreich's ataxia; and NBI 188, our CRF1 antagonist for an indication in women's health. This strong pipeline momentum in 2026 positions Neurocrine Biosciences, Inc. for multiple significant data catalysts in 2027, including top-line phase 3 readouts for osavapitor in major depressive disorder and the first phase 3 study of direct renal schizophrenia, with a second phase 3 study readout anticipated the following year. In summary, our execution in 2026 is focused on advancing a broad and diversified pipeline, setting the foundation for significant clinical and commercial value creation beginning in 2027. And as we highlighted at our 2025 R&D Day last December, this is just the beginning. With that, I will hand the call back to Kyle. Kyle Gano: Thanks, Sanjay. Nikki, I think we are ready for questions now. Operator: Thank you. If you would like to ask a question, please press 1 on your keypad. To leave the queue at any time, press 2. And once again, that is star and 1 to ask a question. We will take our first question from Tazeen Ahmad with Bank of America. Please go ahead. Your line is open. Tazeen Ahmad: Hi, guys. Thanks for taking my question. Congratulations on a strong quarter. I wanted to ask about KRONESTEDY growth relative to where you thought it would be at this stage. How is that launch progressing, and can you talk to us about what the physician activation efforts have been? Are they reactivating older patients, and where are most of their scripts currently coming from? Thanks. Kyle Gano: Thanks, Tazeen. I will let Eric take that question. Eric S. Benevich: Tazeen, hi. I would say overall that we are ahead of where we expected to be at this point, approximately five quarters into the launch. Certainly, we are very pleased with the continued adoption that we saw in Q1. I would describe the new patient starts as very steady and consistent with the trend that we saw in Q4, along with continued strong persistency, compliance, and favorable reimbursement. As a result, the prescriptions and the sales are really accumulating nicely. I will point out, though, that most physicians that have prescribed Cranesiti have only treated one patient thus far. And even though we have made great progress in the first year of the launch, the majority of patients have yet to be treated. So we see substantial opportunity ahead. Operator: Thank you. We will move next to Paul Andrew Matteis with Stifel. Please go ahead. Your line is open. Paul Andrew Matteis: Great. Thanks very much, and let me add my congrats on a great quarter. For INGREZZA and KRONESITI, can you confirm that there were not any material changes in inventory build or other one-offs that would have temporarily boosted the results for this 1Q? And then as a second part, for INGREZZA, in prior years there has been some nuanced seasonality considerations and headwinds in 1Q that have been problematic for you temporarily in January and February, but then ultimately lead to some tailwinds into 2Q. I was wondering if you can speak to what that seasonality dynamic might have been this quarter. Has it gotten better now that you have contracted, and what could the cadence look like sequentially this year versus prior years? Thank you. Matthew C. Abernethy: Yes, so on the inventory, there was nothing material, nothing to note. A really clean quarter reflecting very strong underlying demand. The team did a really good job managing through seasonality this quarter. We would expect it to be somewhat similar to what you have seen historically, so well done to the team, and we are set up for a nice growth year the rest of 2026. Operator: Thank you. Our next question comes from Brian Corey Abrahams with RBC Capital Markets. Please go ahead. Your line is open. Brian Corey Abrahams: Hey. Good afternoon. Thanks for taking my question, and my congrats on the strong quarter as well. On KRONESTENESITI, it sounds like the new patient start forms have been steady and consistent. I was wondering if you could elaborate a little bit more on that, and maybe what is the right way we should be thinking about the expected cadence going forward just based on the trends that you have been observing of late? Thanks. Kyle Gano: Thanks, Brian. I think Eric did a nice job articulating what we have seen in terms of new patient starts for Q1. As we mentioned previously, we are moving away from sharing specific numbers and focusing more on top-line net sales moving forward, which would be consistent with other companies that sell orphan medicines. But leaning into that and providing color where we think it is relevant, in terms of Q1 we did see good steady new patient starts going from Q4 to Q1, and that extended to persistency and compliance as well, and then continued good reimbursement rate of dispensed scripts. With that, there has been broad accumulation of patients over time since launch, and that is what has given rise to our strong performance in Q1. We look forward to building on that with our expanded sales team for the remainder of the year. Operator: We will move next to Cory William Kasimov with Evercore ISI. Please go ahead. Your line is open. Cory William Kasimov: Great. Thanks. I appreciate you taking the question, and yeah, it was a great quarter, but I do want to switch gears a little bit and ask about the pipeline. I am curious if there is anything you can say as to the accrual of your ongoing phase 3 neuropsych assets in both MDD and schizophrenia, and when do you think you might be in a better position to provide more granular or narrow guidance on timing of these top-line readouts that might attract a little bit more attention there? Thank you. Sanjay Keswani: Thanks. I appreciate the question. With respect to our current phase 3 programs, specifically osafampitur for MDD and dereclidine in schizophrenia, they are all enrolling really well. We are very happy with the current enrollment rate, and indeed they should be reading out next year for losobambital, all three phase 3 studies. As for dereclidine, we are expecting the first phase 3 next year, with the second phase 3 the following year. So everything is on track as originally envisaged. Operator: Thank you. Our next question comes from Corinne Johnson with Goldman Sachs. Please go ahead. Your line is open. Corinne Johnson: Thanks, good afternoon, guys. I was just curious if you could talk a little bit about the reauthorization processes you saw for KRONESITI in 1Q and if you could provide any kind of commentary on reimbursement trends you are seeing in that population. Thanks. Eric S. Benevich: Hi. As a reminder, the patient population with classic CAH that are starting chronicity are quite different from a payer perspective than what we see with tardive dyskinesia. The CAH population is primarily commercially insured, and secondarily Medicaid is the second biggest segment. So we do not see a surge in reauthorizations at the beginning of the calendar year like we do with INGREZZA because of the low Medicare exposure. Typically, when a patient gets authorization for their first prescription, it is normally either six or 12 months, and then those reauthorizations happen as that initial set of prescriptions runs out of authorized fills. Overall, we have seen a really high rate of reauthorization approvals, just like we saw with initial approvals for crinesidine. It is going very well. Operator: Our next question comes from Philip M. Nadeau with TD Cowen. Please go ahead. Your line is open. Philip M. Nadeau: Good afternoon. Let me add my congratulations on a good quarter. I want to follow up on the answer that you gave to Tazeen’s question. I think in answer to her question, you said that the vast majority of physicians have only written for Clinicity once. We are curious to have a little bit more detail on where the patients starting are coming from, whether it is community or expert centers. Our own checks suggest there have been a decent proportion of patients coming from expert centers. Is that likely to continue? Do you feel like you have begun to saturate that part of the market and are moving more on community, or is there still a lot more room to go at the expert centers? Thanks. Eric S. Benevich: In a nutshell, we have not saturated any part of this market yet. It is still early days with the commercial ramp for Crinesity. As a reminder, thinking about the three segments of prescribers out there—the centers of excellence, the pediatric endocrinologists, and the adult and community endocrinologists—what we estimated was about roughly 15% of the patients are currently under the care of one of those centers of excellence. In general, the distribution of the business so far has been proportional in terms of sources of business. Ultimately, we recognize that probably the biggest rate limiter for getting patients started is the flow of patients through these practices. Most of these patients only see their physician once a year if they are an adult patient, and if it is a pediatric patient, it could be two or three times a year. I think that contributes to this very steady rate of new patient adds. Being early in the launch, some of these physicians are getting their initial experience and they have additional patients; they are just waiting for them to come through. I think the sales force expansion is really going to allow us to increase not only the depth of prescribing, but also the breadth of the prescriber base. Operator: Thank you. We will move next to Brian Peter Skorney with Baird. Please go ahead. Your line is open. Brian Peter Skorney: Hey, good afternoon, everyone. Thanks for taking the question. Great quarter. It seems like we have become pretty adept at modeling the first quarter headwind that INGREZZA faces. You have spoken about much of an impairment for Carnassity, but I am just wondering if you could give any color or even quantification of any sort of seasonality you are seeing there. Should we look at this as a step-up here on out that would be somewhere in the $20 million per quarter range? Matthew C. Abernethy: On the gross-to-net front, maybe a couple points of improvement coming off of Q1. But overall, we are still pretty early in this launch cycle, so to be able to tag a normal seasonality would be hard for us to say. Eric S. Benevich: We do know, as I was mentioning earlier, the flow of patients is pretty consistent quarter in, quarter out, just because of how constrained the prescriber universe is. I would not necessarily point to massive levels of seasonality like you see with INGREZZA. We do not have the bolus of reauthorization in Q1 like we do for INGREZZA, and it is still early in the commercial ramp for crinicity. We are learning a lot about the patient dynamics and the ebbs and flows, but the overarching theme has been really consistent adoption across the community. With the sales force expansion, we will be able to get deeper with the existing base and also expand that base over time. Operator: Our next question comes from Anupam Rama with JPMorgan. Please go ahead. Your line is open. Anupam Rama: Hey, guys. Thanks so much for taking the question. Just a quick question about the upcoming ENDO meeting. What are some of the key market or physician outreach initiatives that you are going to have at the conference, as well as any reminders of any data updates we could be expecting for Kinesseti at the meeting? Thanks so much. Eric S. Benevich: Anupam, I will handle the first part of your question. We are looking forward to ENDO coming up in June as an opportunity to engage with the broader endocrinology community. In fact, we were just at a couple of important endocrinology meetings these past few weeks. This past weekend, the Pediatric Endocrine Society meeting was in San Francisco, and I was there and was really impressed with the energy and enthusiasm that we were seeing from the pediatric endocrinologists that had experience with Crinesity. There were two different seminars on CAH at that meeting, and both of them were packed rooms, which I think is indicative of the level of interest. We had a bunch of KOL engagements at that meeting, and we certainly came away with a lot of momentum. We expect to have similar momentum coming out of the ENDO meeting in June. Sanjay Keswani: I will answer the second part of the question, Anupam. The community continues to be enthused by our two-year open-label data showing the impact of decreased doses of glucocorticoid and also decreased androgen levels. That relates to better weight control, decreased insulin resistance, as well as decreased issues of virilization like decreased acne, and also decreased advancement of bone age, which is incredibly important in terms of attainment of adult height for children. This is all in the context of really good safety and tolerability. We have now had 35,000 patient-week exposures. All in all, we are really excited about the reception we are getting from the community, both at recent ENDO conferences and at future ones this year. Operator: Our next question comes from Jay Olson with Oppenheimer. Please go ahead. Your line is open. Jay Olson: Hey. Congrats on all the progress, and thank you for providing this update. Since you are planning to move your Friedreich's ataxia gene therapy program to the clinic this year, can you talk about the phase 1 study design and what sort of initial data we should expect in 2027? And then separately, for your NLRP3 program that you recently licensed, if you could maybe talk about the timeline for moving that into the clinic and where that model fits into your core therapeutic areas. Thank you. Kyle Gano: Jay, thanks for the question. I will focus on the Friedreich's ataxia program, and we can catch up offline on the other programs in the portfolio. We are looking at starting the FA program here shortly. Once we have all the details ironed out, you will see that up on clinicaltrials.gov. We will talk in more detail, but we are planning on sharing patient-level data toward the end of next year. Consider this a phase 1b trial. We will be starting initially in the patient population. We are excited to potentially offer curative therapy for patients and look forward to talking more about this later this year, in particular at R&D Day, when we can go over the program in more detail. Operator: We will move next with Myles Robert Minter with William Blair. Please go ahead. Your line is open. Myles Robert Minter: Thanks, everyone, for taking the question. Congrats on the quarter. Just wanted to get your updated thoughts on your GGG agonist here. We have Lilly’s type 2 diabetes data, which is pretty impressive but did show pretty high rates of vomiting, diarrhea, and nausea. Considering you are still proposing to put this in a combo with a CRF2 agonist, what are your updated thoughts on the therapeutic window here as you put that into phase 1 development this year? Thanks. Sanjay Keswani: Thanks for your question, Myles. It is still early days for us. We are very excited about the readout for our CRF2 agonist for obesity next year, and we are assuming that will be a core constituent of a number of different combinations, including one with the triple G program. The GGG program we are targeting for first-in-human this year, and we will have the potential to look iteratively at clinical data for both programs to understand the ideal combination as it affects the risk-benefit profile. Operator: We will move next with Ashwani Verma with UBS. Please go ahead. Your line is open. Julian: This is Julian on for Ash. Thanks for taking our question. For INGREZZA payer coverage standpoint, we saw that a state of XR has lost preferred coverage with a few key plans recently. We wanted to understand the implications of that for INGREZZA for the rest of the year and next year. Do you think it is possible that PBMs are switching commercial coverage in front of the IRA or to defend their rebates? Thank you. Kyle Gano: I will take this question. Our coverage as it relates to 2026 is very similar to where we exited 2025. We have about 70% of all TD and HD Medicare beneficiary lives covered for INGREZZA, and that puts us in a good spot. In terms of the loss of deuterated tetrabenazine on certain plans, I think on a relative basis, things are approved for INGREZZA, but we would not expect any wide changes out there in terms of reimbursement for INGREZZA. Operator: We will move next with Analyst from Leerink. Please go ahead. Your line is open. Basma: Good afternoon. This is Basma on for Mark. Thank you for taking our question. To follow up on the 24-month data: can you remind us again of the prevalence of insulin resistance and obesity in pediatric CAH patients and also in adults? How was this data received by physicians and how clinically meaningful did they find it? Regarding persistency, it has also been very strong to date. Can you remind us what are the main reasons for patients discontinuing Chronicity? Thank you. Sanjay Keswani: With respect to the first part of the question, unfortunately weight gain as well as issues with insulin resistance and other cardiometabolic issues are quite common in the pediatric CAH population, and this largely relates to the high doses of glucocorticoids that they receive. It is also thought that the elevated androgen levels can contribute to this cardiometabolic morbidity. The impacts we have seen with Cranesity in our two-year data have been really well received by the community as clinically meaningful. Eric S. Benevich: I would emphasize that we have seen very strong persistency and compliance with Crinesiti in the real-world setting, consistent with what we saw in our phase 3 trials. As a reminder, in the adult and pediatric studies, around 95% of patients completed and rolled over. In the two-year open-label data we have been presenting recently, over 80% of patients completed two years. It has been very favorable in terms of patients continuing to stay on treatment, and that is a big contributor to the accumulation of prescriptions and sales we are seeing this early in the launch. Operator: We will move next with Analyst from Wells Fargo Securities. Please go ahead. Your line is open. Susan: Hi. This is Susan on for Mohit. Congrats on the solid quarter. Two questions. One on Carnestine: did you quantify new patient starts versus persistent patients? If you cannot give a specific answer, just high level, what does that look like? And then on pipeline, for schizophrenia and MDD, how do you envision positioning the drugs? Eric S. Benevich: I will handle the first part of your question. No, we did not give a specific number of new patient starts. What we did say is that the rate of new patient adds in Q1 was very steady, and the trend was very consistent with what we saw in Q4 of last year. Sanjay Keswani: For the second part, our current phase 3 MDD patient population includes patients who have not done well on an antidepressant. Typically, they are on an antidepressant that has not achieved a good response, and we are essentially adding on to that antidepressant to achieve a superior response. This is potentially the niche we could occupy in the marketplace as well. Clearly, we are also looking at other life-cycle opportunities with respect to this molecule. Operator: We will move next with Analyst from Needham. Please go ahead. Your line is open. Puna: Hi. This is Puna on for Ami. Thank you for taking our question, and congrats on a great quarter. For Chronicity, you have previously noted that you have penetrated approximately 10% of the addressable market, with higher demand in pediatric, followed by other females and other males. How do you see those trends evolving this year? And for NBIP 2118, what would you need to see in the phase 1 data that would support further development? Thank you. Eric S. Benevich: We are not at the point yet where we are giving guidance on KRONESITY. We are still early in the commercial ramp and are learning a lot about this patient population and this prescriber base. We saw a very steady and consistent rate of new patient adds in Q1. With the sales force expansion, we expect we will be able to build depth in the prescriber base and continue to add new prescribers. There are also many patients not under the care of an endocrinologist. With our patient-finding efforts, we expect to reach and activate some of those patients this year as well. We feel very good about where we are with the launch of Crinesity, and there is a lot of room for organic growth going forward. Kyle Gano: On NBIP 2118, we are just getting that study up and running, and we will have data on that in 2027. Operator: We will move next with David A. Amsellem with Piper Sandler. Please go ahead. Your line is open. David A. Amsellem: Thanks. Wondering if you could talk more about 1435 given that you are going to have phase 2 data in CAH next year. Can you talk about relative potency versus crinesity at the CRF1 receptor, and what do you need to see in terms of differentiation versus crinessity in terms of clinical outcomes and biomarker outcomes in order to justify further advancement? Sanjay Keswani: We are really excited about our 1435 program. For context, this is an injectable peptide. The nice thing is we could administer this infrequently to individuals. We have some nice preclinical data with respect to durable efficacy that relates to both the length and the depth of efficacy as well. One of the nice things from a drug development point of view is that we have good biomarkers in CAH. We can directly compare the biomarker readouts, including androgen reduction, for this phase 2 program compared to our prior results with Crinesity. Kyle Gano: To add more here, recall at our R&D Day, we outlined a tiered strategy for our endocrine franchise as it relates to diseases of HPA axis dysregulation. Quineste is going to be the foundational therapy that is part of this for many years into the future, so you can consider that first line. NBIP 1435 offers patients an alternative route of administration and potential other types of differentiation as we identify them in the clinical program. You can think of that as second line, and it is part of a whole series of programs that can target different patient populations for CAH moving forward. Operator: We will take our next question from Yigal Nochomovitz with Citi. Please go ahead. Your line is open. Yigal Nochomovitz: Hi. Thanks, and congrats on the strong quarter as well. I was curious with regards to the 90% of TD patients that are not currently on a VMAT2 inhibitor. With the recent consensus recommendations on TD screening in the long-term care setting, to what extent might that help advance gains in market share in that 90% segment? Eric S. Benevich: Certainly, it is going to help. Over time, in part due to our educational efforts, we have raised awareness of tardive dyskinesia, and we more commonly see routine screening for tardive dyskinesia across different care settings, including long-term care more recently. Having consensus around the need for screening and how to screen, especially for residents in long-term care, raises that index of suspicion in nursing homes, and we can get more people helped. I will also reinforce that the month of May is Mental Health Awareness Month, and this week in particular is TD Awareness Week. Our sales and medical teams are leveraging TD Awareness Week to really raise the energy and excitement around TD screening across all care settings, including long-term care. Matthew C. Abernethy: Yigal, I will follow up with you after the call. Thanks. Operator: We will move next with Sumant Satchidanand Kulkarni with Canaccord. Please go ahead. Sumant Satchidanand Kulkarni: Thanks. It is a two-parter. What are your thoughts on developing CRF antagonists in cognition and working memory–related indications? And you have a lot of pipeline programs now that target several therapeutic areas. Are there some that are already earmarked for external partnering depending on how they progress? Kyle Gano: I will take the partnering piece. Our goal right now is to move forward programs across our key therapeutic areas—neurology, psychiatry, endocrinology, and immunology. Right now, our pipeline is more weighted to psychiatry, but as our R&D engine moves more programs into the clinic, you will see that evolve into other modalities—small molecules, proteins, peptides—as well as therapies across disease modification and symptomatic treatment. We will follow the science into these different therapeutic areas as we have expertise across them. Right now, we do not have anything slated for partnering, but as time moves along and we see how these programs progress, we would certainly consider those types of relationships. It is not foreign to us; Neurocrine Biosciences, Inc. was built on partnerships, both in- and out-licensing. Sanjay Keswani: With respect to the first question, it is a really interesting concept. Anecdotally, in our CAH patients, we have reported improvements in executive functioning, suggesting there may be a link to CRF and cognition. That is an area of study for us, and we expect to produce data on that down the road. Operator: We will move next with Yatin Suneja with Guggenheim. Please go ahead. Your line is open. Yatin Suneja: A really quick one for Matt. Can you help me understand the tax rate? I think last year was about 30% for the year. How should we model this year and maybe in the long term? Thanks. Matthew C. Abernethy: I always love tax questions. I would expect our non-GAAP effective tax rate to be between 22% and 24% this year and within the low 20s going forward. I think that is the appropriate way to model. Operator: Thank you. We will move next with Danielle Brill Bongero with Truist Securities. Please go ahead. Danielle Brill Bongero: Hi, guys. Good afternoon. Thanks so much for the question, and congrats on the strong quarter. You mentioned with KRONESITY that you have slightly more traction with females and pediatrics as expected, but what additional clinical or real-world evidence would help drive broader buy-in from male and adult CAH patients? And was there any rationale behind the Diurnal sale—anything to read into on that? Thank you. Kyle Gano: I will start with the Diurnal piece. Looking at the opportunity in Europe, which is primarily where the medicine is currently available, we felt it was better suited in an organization that had other products in the commercial landscape. We will consider looking at our own medicines as they evolve through the pipeline, but we felt that was the right move earlier this year. Eric, on the other question? Eric S. Benevich: Thinking about different patient segments, it is clear there is high motivation to treat pediatric patients. At the Pediatric Endocrine Society meeting this past week, the theme was that with younger patients you need to protect bone age, protect the growth trajectory, and prevent early-onset puberty. For older patients, depending on gender, the rationale for treatment is a little different. For adult patients, there is concern about bone mineral density, potential for increased cardiovascular risk, mood disorders, etc. Depending on one’s gender and stage of life, there is benefit from treatment with chronicity. For males in particular, as an adult male myself, we are not the best at seeing our doctors frequently and we are not very compliant. Our expectation from pre-approval work was that it would probably take a little bit longer to onboard adult male patients relative to female and pediatric patients. Operator: We will move next with Laura Kathryn Chico with Wedbush Securities. Please go ahead. Laura Kathryn Chico: Hey. Thanks very much for taking the question. I have one on Trinicity. I will not ask about the pace of new patient adds the remainder of 2026 versus 2025, but I might ask about your expectations for maintaining compliance and persistence this year versus last year. You mentioned the expanded field force and gains on the reimbursement side. How should we think about the persistency and compliance rates in 2026? Thank you. Eric S. Benevich: Thanks, Laura. We have been looking at compliance and persistency throughout the first year of the launch, and it has been very consistent regardless of when patients started on treatment—early last year, mid last year, or the latter part of last year. I think it is really a function of two things: one is the really great tolerability profile of crinesity that emerged in the clinical trials and the open-label extension; and two, the fact that we have a single pharmacy distributor, Panther, that does a great job of reaching out to patients and following up with them. They have had a lot of success in terms of contacting patients when it is time to get a refill and getting it authorized. Operator: We will move next with Analyst from Deutsche Bank. Please go ahead. Your line is open. Sam: Hi. This is Sam on for David. Thanks for taking my question. Just a quick one on crinecerfont in CAH patients under the age of four: the impending phase 2 study—how should we be thinking about the opportunity for this patient subset, perhaps in terms of patient numbers or unmet need, or potential contribution to the existing CAH franchise down the line? And is there anything else you can share in terms of the regulatory or commercial timeline for this development? Thanks. Eric S. Benevich: I will tackle the unmet-need part. For these younger patients, the earlier you can intervene, the better, in terms of protecting the growth trajectory and bone age, and so on. Right now, the labeling is limited to patients age four and above. We have gotten a fair number of inquiries from parents with children under four asking about the availability of treatment, and certainly from their pediatric endocrinologists. We recognize that there is an unmet need there, and we would like to be able to address it. Sanjay Keswani: With respect to the regulatory path, we clearly need data in patients less than four years of age. That is the main rationale for starting this U.S.-based study. With respect to timelines, assuming things proceed as planned, in the next couple of years we will have the data to potentially expand the label. Operator: We will move next with Analyst from Wolfe Research. Please go ahead. Your line is open. Analyst: Thanks for taking my question. Congrats again on the strong quarter. I have a follow-up on INGREZZA. We touched on seasonality already. Can you provide more color on the pattern for the remaining three quarters, especially given the relatively stronger 1Q versus prior years? And did you notice any changes in the market dynamics following the IRA negotiation? Eric S. Benevich: In general, we expect 2026 to be similar to prior years, where we experience seasonal payer disruption in Q1 primarily related to Medicare patients needing to get reauthorized and commercial patients having a reset of their out-of-pocket copay. Thankfully, we have moved through that phase already. This year, we were also in the midst of a sales force expansion, and our team did an incredibly great job of continuing to keep the momentum going with our business. The expansion became effective in early Q2. Generally after Q1 payer seasonality, we see a strong focus on execution and driving new patient starts through screening initiatives over the balance of the year. With an expanded field sales team, as I mentioned in my prepared remarks, we expect to see tangible lift and benefit as we get into the latter part of the year. Operator: We will move next with Evan David Seigerman with BMO Capital Markets. Please go ahead. Malcolm Hoffman: Hello. Malcolm Hoffman on for Evan. Thanks for taking our question, and congrats on your quarter. Doubling back on the persistence and compliance rates for Pranesti: you noted these have been really strong and consistent since the launch. For the few discontinuations that do occur, are those mostly due to insurance-related issues or product profile? Have those changed over the course of the first year at all? Thanks. Eric S. Benevich: It is hard to comment on what has turned out to be a very low rate of patients discontinuing. In general, we have not seen people discontinuing due to insurance reasons. In fact, out-of-pocket costs are really low—less than $10 per patient per month—and many patients pay nothing at all. Affordability has not been an issue or a reason to discontinue. There have been instances where patients have moved or have been lost to follow-up, but those are very few and far between. We have been very pleased with the persistency we have seen about five quarters into this launch. Operator: At this time, there are no further questions in the queue. We will now turn the call back over to Kyle Gano for closing comments. Kyle Gano: Thanks, Nikki, and thanks, everyone, for joining the call today and for your continued interest and support in Neurocrine Biosciences, Inc. We are very encouraged by the strong start to the year that gives us a lot of momentum when we think about the remaining quarters, and likewise our continued momentum across our commercial portfolio, the progress to advance our clinical pipeline, and we are very much looking forward to connecting with you all at upcoming investor conferences and events. Thanks again, and talk to you soon. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, everyone. Thank you for joining us, and welcome to Bumble Inc. First Quarter 2026 Financial Results Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Will Taveras, Head of Investor Relations. Please go ahead. Will Taveras: Thank you for joining us to discuss Bumble Inc.'s first quarter 2026 financial results. With me today are Bumble Inc.'s Founder and CEO, Whitney Wolfe Herd, and CFO, Kevin Cook. Before we begin, I would like to remind everyone that certain statements made on this call today are forward-looking statements. These forward-looking statements are subject to various risks and uncertainties and reflect our current expectations based on our beliefs, assumptions, and information currently available to us. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of factors and risks that could cause actual results to differ materially from these forward-looking statements are discussed in more detail in today's earnings press release and our periodic filings with the SEC. During the call, we will also refer to certain non-GAAP financial measures. These non-GAAP measures should be considered in addition to, and not as a substitute for or in isolation from, our GAAP results. Reconciliations to the most comparable GAAP measures are available in our earnings press release, which is available on the Investor Relations section of our website at ir.bumble.com. With that, I will turn the call over to Whitney. Whitney Wolfe Herd: Hello, everyone, and thank you for joining us today. This is a period of real transformation at Bumble Inc. Over the past few quarters, we have executed a deliberate reset of our member base. We made a clear choice to prioritize quality over quantity, focusing on well-intentioned, engaged members. That decision reduced overall scale but meaningfully improved the health of our ecosystem. Importantly, this quality reset was not isolated. It was the first step in a broader strategy to reestablish Bumble Inc. as the brand that sets the pace for innovation in our category. We focused first on strengthening the underlying supply of our platform, because scale without quality degrades the experience and stifles the outcome people are seeking: high-quality, relevant connections. At the same time, we continued rebuilding our technology and product platform to better serve our member demand for real dates and in-real-life connection. These moves required short-term trade-offs, but they were deliberate and necessary. Now, with healthier supply and stabilization in our member base, we are entering the next phase: activation. This phase is anchored by two innovation initiatives. First, the introduction of our new technology platform. Second, the launch of a fully reimagined experience for Bumble members, including a new interaction model and profile system. The new Bumble platform and experience will roll out over the balance of the year, beginning with the first stage of the new tech platform in the coming weeks. Our direct member engagement and our research, including our work with author and professor Dr. Arthur Brooks, reinforce a key insight: the biggest friction in dating today is not discovery; it is the gap between online interaction and real-world connection. People get stuck in that in-between. This is a central challenge faced by every scaled dating app. Everything we are building is designed to close that gap and drive real in-person dates between high-quality connections. Accelerating each member's progression toward finding that connection and getting out on a date is our priority. We have been doing foundational work on this problem ahead of introducing our new platform and reimagined experience. We have improved profiles, strengthened intent signaling, enhanced safety, and built more dynamic onboarding. These changes have helped members show up better, even within the limits of our legacy systems. We are also continuing to improve the current Bumble experience by addressing core member pain points, improving recommendations, and enhancing usability. Early tests are showing promising results, including improvements in matching behavior and monetization trends, but results are expected to be relatively limited on the legacy tech stack. We have more to do here in the months ahead. What comes next will go much further. The innovation starts with our technology platform. As we shared last quarter, we have been actively rebuilding our new cloud-native, AI-enabled tech stack. This modern platform will allow us to move faster, iterate more efficiently, and begin to unlock entirely new product experiences. Today, making meaningful changes to our recommendation engine or introducing new features can take months. This has been a real constraint on the rate of innovation. Our new tech platform is expected to eliminate this constraint. As the platform rebuild nears completion, we are ramping development of the next-generation Bumble Date application, a merging of the new back end and the reimagined member experience, launching in select markets in Q4 of this year. Between now and then, elements of our new technology platform will begin powering a parallel roadmap of incremental improvements in the existing product. With our new app experience, the opportunity is not just to improve the current interaction model but to evolve beyond it. We are designing a system that shortens the distance between intent and outcome, eliminating the friction caused by multiple steps between interest and connection. Clearer signals drive more mutual engagement and faster progression toward in-real-life connection. Early reactions to this new model have been very positive. Our AI layer, Bee, is expected to play a key role in the reimagined experience. Testing Bee in onboarding new members has been especially encouraging—not just in Bee's effectiveness, but in members' willingness to engage deeply and share richer context about who they are and what they are looking for. Bee’s ability to capture more signal and process information quickly improves our understanding of each member and will strengthen our recommendation engine. Onboarding is just the first step in how Bee will be used in the new experience. We also expect Bee to help facilitate connection and to suggest and plan real dates, among other roles. Bee is a great example of what we can accomplish on the new modern tech stack and how AI will be an important catalyst for our business. It is important to note that we built Bee separately from the legacy system. I have said a lot here. Let me summarize. First, demand for love and human connection is as vital as ever before. We have done the heavy lifting to reset our business with healthy supply that is ready to engage. We are giving members the tools to show up authentically as their best selves. Next is our new platform, which will accelerate product innovation. Right behind that will be an entirely transformed Bumble experience, which dramatically reduces friction and gets members to in-real-life connection faster. We believe this is our path to deliver what daters are seeking today. This is the path to restoring revenue growth, and we are already at work building the monetization model behind it. That is the core of the Bumble app transformation, but it is only part of the picture. Beyond dating, we are also investing in broader connection, which we see as both a critical need in the world and a competitive advantage for us. We have expanded groups on Bumble BFF and are seeing strong early traction with total group joins nearly doubling between December and March. This success is driven by Gen Z women, who comprise the largest cohort on the platform, highlighting our opportunity with this core demographic. Overall, more than 80% of BFF members are women, reinforcing the durability of our overall brand. We will continue to expand on group connection and in-real-life meetings for platonic purposes through BFF. But we are also bullish on the opportunity of romance beyond one-to-one in terms of how people come together and meet for love. We are testing new ways to bring people together for both platonic and romantic purposes, including a new product beta launching next month, which we are super excited about. Across all of these efforts, our approach remains consistent: test, learn, iterate, and do it quickly. We are data-driven, member-obsessed, and more passionate about the opportunity and problem we are solving than ever before. In terms of timing, members will first experience the rollout of our new platform, delivering a faster and more reliable experience starting in the coming weeks from a back-end standpoint. From there, we expect to introduce the initial features of our new interaction model and profile. This is our big bang. It will start to roll out to select markets in Q4, backed by a 360 marketing campaign. Then we will continue to refine the experience into 2027, including adding features like group dating and expanded access to Bee. Ahead of our upcoming unveil, we are continuing to deliver innovations in the current Bumble experience that help members show up better, more confident, and ready to engage. Not all of these improvements will be immediately visible to members. The critical signal enhancements they enable will drive more relevant connections on the back end, and the UI/UX will be on our modernized back end, which will enable the rollout of our transformed experience later this year. As we execute this transformation, we remain disciplined. We delivered a strong Q1 compared to our expectations, and we are managing our cost structure carefully while continuing to invest in product, technology, and selective marketing. Of note, we have reduced our performance marketing spend to less than 50% of pre–quality reset levels. We are starting to see the benefit of organic marketing again, including positive word of mouth, now that we have improved the member base quality. Despite tech limitations, we have been able to drive meaningful improvement, which we believe signals the opportunity ahead with a modern tech stack in place. To close, we have been hard at work rebuilding our foundation. Now we are focused on translating that into a meaningfully better product experience, which members will start seeing in the coming months. We cannot wait to reignite our brand, product, and mission as we transform Bumble Inc. and our category. We look forward to sharing more in the months ahead. Thank you so much for your time, and now I will turn it over to Kevin. Kevin Cook: Thank you, Whitney, and hello, everyone. In the first quarter, we delivered results in line with our expectations as we move past our quality reset to focus on product and technology innovation. As Whitney noted, we are seeing signs of stabilization in our member base as we enter the next phase of activation. I will review our quarterly results before turning to our outlook. Unless otherwise noted, my comments are on a non-GAAP basis, and comparisons are year over year. Total revenue for the first quarter was $212 million compared to $247 million in the year-ago period. Foreign currency exchange rates contributed $9 million to revenue in the quarter. The loss of revenue from Fruitz and Official equated to approximately one percentage point of headwind in the quarter. Bumble app revenue was $173 million compared to $202 million a year ago. Foreign currency exchange rates contributed $6 million to Bumble app revenue. Adjusted EBITDA was $83 million, representing a margin of 39%, compared to $64 million and 26% in the prior-year period. Higher adjusted EBITDA despite the year-over-year revenue decline is a function of how we have executed through our reset period, most notably with more intensive operating discipline and thoughtful marketing spend. Selling and marketing expense was approximately $20 million, or 12% of revenue, compared to approximately $60 million, or 24% of revenue, in the prior-year period. In addition to the reduced overall spend, we have increased our focus on lower-cost and higher-return organic and targeted marketing channels. This strategy brings us back to our historical marketing strengths and, we believe, also supports long-term brand health. Product development expense was approximately $25 million, or 12% of revenue, compared to approximately $24 million and 10% in the prior-year period. Our product development spending is focused on core product innovation and platform modernization. General and administrative expense was approximately $24 million, or 11% of revenue, compared to approximately $26 million, or 10% of revenue, in the prior-year period. I will now turn to the balance sheet and cash flows. For the quarter, we generated $77 million in operating cash flow, $74 million of which converted into free cash flow. We ended the quarter with $246 million of cash and cash equivalents and continue to generate substantial cash flow while maintaining a strong liquidity position. In April, we completed the refinancing of our term loan as had been previously announced. Consistent with our plans to continue deleveraging, we paid down $114 million of debt in connection with the transaction. Pro forma for the refinancing, we had $150 million of cash and cash equivalents at the end of April. Turning to the outlook, as we move beyond the quality reset, our focus is now on activating our higher-quality member base through product innovation and improved member experience. This transition will unfold over the balance of the year as we introduce our new tech platform and accelerate the introduction of new member experiences. While this work will take time to be reflected in our financials, we believe it best positions us to drive more durable engagement and monetization. For the second quarter, we expect total revenue in the range of $205 million to $213 million, including Bumble app revenue of $168 million to $174 million, and adjusted EBITDA of $65 million to $70 million, representing a margin of approximately 32% at the midpoint. As we move through 2026, we expect revenue headwinds to moderate as the most acute effects of the quality reset dissipate and we transition from stabilizing to rebuilding the member base. Adjusted EBITDA margins are expected to normalize over the remainder of 2026 as we increase investment in technology and talent to modernize our platform and drive product innovation. We also plan to increase marketing spend to support our innovation initiatives, organic member growth, and brand strength. In closing, we have made meaningful progress on our transformation and are now focused on executing the next phase of the business. Preparing a healthier, more engaged member base with a modernized platform will enable faster product innovation and more effective revenue generation over time. Operator, let us take some questions, please. Operator: Thank you. We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question, and if you are muted locally, please remember to unmute your device. Your first question comes from the line of Eric James Sheridan from Goldman Sachs. Your line is open. Please go ahead. Eric James Sheridan: Thanks so much for taking the questions. Whitney, I want to come back to some of the comments you made in the prepared remarks and go a little bit deeper. When you think about the tech stack and how it will iterate going forward, I wanted to ask a two-parter. One, should we be thinking about the velocity of innovation and your speed in terms of going to market that will result from that as we continue to monitor the business from the outside in? And two, what do you think about your opportunity around personalization, and how much of it will be either AI-driven or non–AI-driven when you think about what the tech stack might enable you to do in the years ahead? Thanks so much. Whitney Wolfe Herd: Hey. Thank you, Eric. Great to hear from you. I will take this piece by piece. I think before we talk about the actual incredible opportunity we have ahead with this new tech stack, I want to double down on a couple of the prepared remarks I had around what we have been dealing with. We have had extraordinary tech debt. What do I mean by this? We have, frankly, not been able to make the changes that both our members are wanting, needing, and demanding, and that we have wanted to roll out. All of the results you have seen to date are done on the back end of a very legacy system, which really does inhibit the second part of your question—the personalization of the experience. So let us talk about velocity, my favorite word. Velocity is going to go up in such a way with this new tech stack. As an example, if we wanted to make a change to the recommendation engine right now—which is the algorithm, essentially—it could take us months. It is extremely clunky, cumbersome, and difficult to navigate. On this new tech stack, we are talking about being able to put tests in immediately. We can be monitoring in real time. We can have A/B tests going at levels we have never been able to access before, and, frankly, we can make changes in a matter of days or weeks versus months, or even, frankly, years. When you really start to wrap your head around the opportunity there, I think you can understand why I am personally so excited about this new system finally hitting members’ back ends in the coming weeks. Let us talk about personalization. This is the name of the game. What is the one reason why people come to a product like ours, particularly Bumble? They are not coming for entertainment or to use it like a social media platform. They are coming to meet people. If you want to meet someone, you have to be shown people you want to see and that you want to meet. With this new system and this next-gen recommendation engine—which goes side by side with the new tech infrastructure—we will be able to personalize the system in ways that we have just, frankly, never had access to. It is not lack of innovation, roadmap, or talent; it has been lack of technical capability. So you will see extreme personalization. Turning to the last part of your question—AI or not AI—no, it is a hybrid. I think it is important to end with a quick moment on how I look at AI for this business. AI should never replace human authenticity or human connection. I have been saying this for a long time, but I certainly hope the rest of the world is starting to see it the way I am, in the sense that human connection is starting to matter more now than ever before, and real, authentic human connection. For those of you that have been following and watching people fall in love with AI bots, this is not the future we want for ourselves or the next generation. This is why I am at work. I am giving it my all to make sure that we can bring people closer to in-real-life, face-to-face, human, meaningful relationships and connections. We will leverage AI to enable that, but we will not use AI to replace that. I hope that answers the question. I could talk about this for six hours, but I want to give other folks an opportunity to jump in. Thank you again, Eric, for your question. Operator: Your next question comes from the line of Shweta Khajuria from Wolfe Research. Please go ahead. Shweta Khajuria: Okay. Thank you for taking my question, and thanks for the commentary in your prepared remarks, Whitney. As we think about the timeline, could you please talk to what gives you confidence post the activation phase of the renewed tech platform in 2026 into 2027? You will start seeing potentially marked improvements in the refreshed tech platform. Could you point to what you saw in your tests that gives you that confidence, and what should we be looking for starting in Q4 into next year? Thank you. Whitney Wolfe Herd: Thanks, Shweta. It is great to hear from you. Let us talk about these different workstreams. I want to be very clear that the back-end tech rebuild is different from the forward-facing, member-facing interaction model and profile redesign. These are two separate things that will converge into each other; however, one comes before the other—that is the back-end technology migration, enablement, and rebuild. That is coming in the coming weeks for select members and will start to roll out globally and more broadly over the weeks and months following. That is the enabler of everything. That is where we can go in and make algorithmic improvements. We can start to make matching and recommendation economics better for folks and really make sure that you are seeing who you want to see. Now, very importantly, that is the back end that will start to enable everything. But very importantly, I fundamentally believe—and I feel that I am a trusted source here because I have been on the front line of this industry from its mobile explosion inception—that the interaction model is outdated, not just for us, but for the industry at large. I believe it is time to leapfrog anything that currently exists and help people break through these areas of friction where these cliffs exist. Right now, to get somebody from first sight to first date is extremely difficult. There are so many areas of drop-off where that mutuality of needing to like each other, needing to chat, needing to keep the conversations going on this double-sided format—it is quite difficult to get you to a date. Frankly, Shweta, we are a dating app. We are not a matching app or a swiping app, but have we really been behaving like that? That is the impetus of the new interaction model. We have listened to our members. We have been in the trenches with them. I personally have been on the front lines of research and deep in the data. That forward-facing, member-touching interface transition and profile redesign is what you will start to see in a major market in Q4, and then, of course, rolling out more broadly through the end of Q4 and early into 2027. To answer your precise question—when do we start to see a rebound in the numbers you are all looking for? The answer is very simple: when our technology and our next-gen recommendation engine can help better connect people more compatibly, show people who they want to see, and then get them out on great dates. That is where the magic happens. Every single thing we are doing—I am spending every waking hour of my life right now—in service of that one goal: get people out on great dates. I hope that this starts to answer your question, and thank you again for taking the time. Operator: Your next question comes from the line of Nathaniel Jay Feather from Morgan Stanley. Please go ahead. Nathaniel Jay Feather: Hey, everyone. Thanks so much for the question. I am thinking a little bit more about that pipeline from discovery to getting out on dates. What do you feel are the current real pinch points that cause people to maybe have a match but not convert that into an in-person connection, and what can actually solve that problem? You know, is there any issue from the perspective of a lot of people having different state or preference dynamics, local markets, etc.? Are there ways that you can solve those? That is the first part of the question. And second, we see really strong performance on gross margin. Can you give an update on what you are seeing in terms of direct payment adoption, and how should we think about the uplift that is driving these? Thank you. Whitney Wolfe Herd: Thanks, Nathan, for the question. I will take the first half and kick the second part to Kevin. The reality is you are right—everyone has different dating preferences. But the one thing everybody can agree on at this point is that everyone is exhausted from this passive model of just low-effort likes, low-effort interest with very little follow-through. Frankly, the industry at large—and us included—has made it too easy to express low-intent interest. We are turning that on its head. I cannot say much more. I really believe that this is going to be category-defining, and we want to keep it close to the chest. What we will tell you is the early testing has come back remarkably positive. There is very little concern that this is not the right direction. To your point, every market is culturally different, and preferences are different. We have no issue with being really agile and making sure that we test our way into the appropriate sequencing and rollout strategy to make sure that those nuances are accounted for. Listen, I am now 36. I have been doing this since I was 22. I cannot tell you how much this is needed right now for people to really feel reinvigorated with finding love. There are a few frank realities: we are on our phones more than we have ever been before—much more so than when I started this company. The need for human connection and love is greater right now than ever. We are more disconnected. Everything is working in our favor. The only thing that has been going wrong is our ability to execute on product innovation, and that is simply due to legacy tech debt. We are working extraordinarily hard. The teams are incredible, and they are so close to getting us to a place where we can finally innovate and deliver a modern product to our members so that they can continue to make meaningful connections in the real world. Kevin Cook: The improvement in gross margin is primarily a function of increased adoption of alternative billing methods and therefore reduction in aggregator fees. You are right to point out that we had very strong gross margin in the quarter—about 300 basis points higher than the prior-year period—and we continue to see strong adoption of our Apple Pay program, for example, in the U.S. That program is slightly ahead of expectation, and we expect alternative billing to be a tailwind to margin throughout 2026. Operator: Your next question comes from the line of Andrew Jordan Marok from Raymond James. Your line is currently opening. One moment. Please go ahead. Raj (for Andrew Marok): Hi. This is Raj dialing in for Andrew Marok. Thank you for taking our question. As it relates to the post-reset disclosures made today, could you update us through March and April and explain how the curves for registrations, retention, MAUs, and payer penetration trended from October until now, given that October was the first month dubbed as the post–quality reset? Which metric should best predict payer recovery going forward? Kevin Cook: Yeah. Hey, Ron. Thanks for the question. The disclosures were provided specifically as a way for us to meet a contractual obligation to prospective lenders to cleanse data that we shared with them in connection with the refinancing. That information is all for the periods provided. You can see them outlined in the specific disclosure on the website. They are all reflected in our current financials. They are out of date, stale, and have no import in terms of the business today. The only thing I can share is that the business has stabilized with respect to KPI performance. In particular, on registrations, I think you see highlighted there the steps that we took—quite intentionally—to bring the member base down to what we viewed as a healthier, higher-quality ecosystem from which, now, we can build. That is all I have for you on that. Operator: Next question comes from the line of Ken G. from Wells Fargo. Please go ahead. Ken G.: Thank you so much. As you look out a couple of years and success as you transition the business, can you talk about how you could see the financial profile of the business relative to the 2022–2024 time frame? The tech debt that built up in the past—you obviously want that to not recur. Could you talk about any changes we might see to the financial profile of the business as you get back to growth in 2027–2028? Kevin Cook: Hey, Ken. So apologies—you broke up a bit, but I believe I got the question. You are right to point out two key things. First, in the time frame you referenced, it was a marketing-led business, not a product- and technology-led business as it has been since Whitney returned as CEO. What you will continue to see is a much more efficient marketing spend. Marketing should never return to the levels that you observed in 2024 and 2025. Marketing is used in support of and as a tool to enhance product—contributing to new product introduction, launch, and, of course, to some degree, brand. You will see a higher overall rate of technology and product development spend. We are in a period of investment now. You see us beginning to gently increase product development expense to deliver all of the innovation that Whitney described and that is expected for the second half of the year. Overall, with steady revenue or revenue growth, there is substantial operating margin in the business. You should expect to see continued adjusted EBITDA margin expansion—again, so long as revenue is stable or increasing. Let me know if that answers the question. Ken G.: Yes. Thank you. Operator: At this time, there are no further questions. This concludes today's call. Thank you all for attending. You may now disconnect.
Operator: Greetings, and welcome to Jacobs Solutions Inc.'s fiscal second quarter 2026 earnings conference call and webcast. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. If you would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Bert Subin, Senior Vice President, Investor Relations. Thank you. You may begin. Bert Subin: [inaudible] Robert V. Pragada: Solid year-over-year margin expansion and continued robust sales activity. I will quickly highlight a few key takeaways. First, adjusted EPS grew 22% to $1.75 supported by 9% organic net revenue growth, outpacing the 8% growth rate in Q1, and 70 basis points of year-over-year margin expansion. Second, our backlog grew 22% to $27 billion, setting another new record, with a trailing 12-month book-to-bill of 1.4x on gross revenue and 1.2x on net revenue. And third, we completed the acquisition of PA Consulting, which we celebrated together by ringing the closing bell at the New York Stock Exchange in March. In summary, we are exiting Q2 with significant momentum, and the strong first half of the year gives us confidence to increase our FY 2026 outlook for the second time in two quarters, which Venk will walk through shortly. Turning to slide four, we provide a detailed overview of the quarter. We are very pleased with Q2 results as strong operating performance, paired with our lower share count, drove the fifth straight quarter of double-digit growth in adjusted EPS. During Q2, we also delivered another quarterly book-to-bill above 1.0x with both gross and net coming in at 1.2x. The addition of the net revenue book-to-bill metric will provide useful context for our investors and analysts and reinforces the strength in our bookings over the last 12 months. Turning to slide five, I would like to highlight a few notable project awards from the second quarter. But before I do that, I want to recognize a major achievement. Jacobs Solutions Inc. has been ranked the number one design firm by Engineering News-Record in their newly released 2026 Top 500 report, marking the seventh time in the last eight years we have held this ranking. Our strong organic growth profile helped us earn this honor, and I want to thank our 47 thousand colleagues for delivering leading solutions to our clients every single day. Now moving on to Q2 awards. In Water and Environmental, Jacobs Solutions Inc. was selected by the San Francisco Public Utilities Commission to deliver the Southeast Wastewater Treatment Plant, a landmark investment in environmental protection for the San Francisco Bay. The project will upgrade San Francisco's largest wastewater facility, positioning the plant as the first major discharger to proactively meet new nitrogen limits for the Bay. This highlights another significant award in one of our fastest growing sectors, and positions Jacobs Solutions Inc. for similar regulatory-driven investments emerging across Northern California, the Pacific Northwest, and the Great Lakes. Also within Water and Environmental, Jacobs Solutions Inc. and PA have secured a two-year economics and policy consultancy contract with Ofwat, the UK water regulator. The engagement brings together industry-leading expertise across water regulation as well as financial, technical, and strategic consulting. Our solution will be delivered to support pricing, performance oversight, and policy development tied to substantial investment across the AMP8 cycle and beyond. In Life Sciences and Advanced Manufacturing, we had multiple wins with hyperscalers and other data center customers spanning the full project lifecycle—from advisory, design, program management, and digital solutions, to full EPCM. This includes our recently released data center digital twin developed using the NVIDIA Omniverse DSX Blueprint. Our strategic partnership with NVIDIA continues to gain momentum as we work to expedite the delivery of AI factories with compute load requirements rising substantially. Last year at our Investor Day, we laid out a roadmap for how we believe our data center business would evolve, and the combination of our deep domain expertise, our full asset lifecycle model, and the expansion of AI investment has accelerated that journey. We grew our data center business by more than 100% year-over-year in Q2, and we see very strong runway to build on that success in the second half of the year. And it is more than the data center sector. We are seeing rising demand in semiconductors, water, and energy and power as the technology and infrastructure go hand in hand. This is bolstering total revenue growth, with our backlog and pipeline indicating the investment cycle is still in the early stages. Moving on to Critical Infrastructure, Jacobs Solutions Inc. was selected as lead designer at Dallas Fort Worth International Airport as part of the Terminal F expansion. The project involves existing bridge span operations essential to allow for up to 16 additional gates and support the airport's growing demand. Combining bridge design expertise with the unique challenge of maintaining operability of the Skylink people mover during all phases of construction, we are modernizing the infrastructure while keeping passengers moving. Jacobs Solutions Inc. is ranked as Engineering News-Record’s number one firm in aviation, a sector where we continue to see significant growth in demand for terminal upgrades and new builds. In summary, we continue to build on our industry leadership in sectors like wastewater, aviation, and data centers, securing key awards that position us for growth in the second half of the year and into FY 2027. Now I will turn the call over to Venk to review our financials in further detail. Venkatesh R. Nathamuni: Thank you, Bob, and good afternoon, everyone. Please turn to slide six where I will walk through our results for Q2. Gross revenue increased 27% year-over-year, and adjusted net revenue, which excludes pass-through revenue, grew by 9%. These both represent the highest consolidated growth rates for the company since the separation of our government services business in 2024. Q2 adjusted EBITDA was $327 million, growing more than 14%, with our margin coming in at 14.1%, up 70 basis points year-over-year driven by good operating discipline. This resulted in adjusted EPS rising 22% year-over-year. Consolidated backlog was also up 22% year-over-year to a record $27 billion, with a trailing 12-month book-to-bill at 1.4x. Book-to-bill was strong again in Q2, driven by good awards activity across our end markets. Additionally, on a year-over-year basis, net revenue and gross profit in backlog increased 12% and 15%, respectively, during Q2. We are demonstrating faster organic growth in the business today, and our strong bookings position us well as we look out to fiscal year 2027. As you have seen since the separation of our government services business in fiscal year 2024, our earnings quality has been improving. However, as a result of the PA transaction, which we have previously communicated, there was a wider than normal spread between GAAP and adjusted EPS in Q2, and we anticipate a more normal differential between GAAP and adjusted EPS in Q3 and beyond. Regarding our performance by end market, please turn to slide seven. At a high level, we continue to see strong growth rates in Life Sciences and Advanced Manufacturing as well as in Critical Infrastructure. Focusing on Life Sciences and Advanced Manufacturing, net revenue grew 12% in Q2, our highest growth rate since we began reporting end markets in late 2024. Combining acceleration in advanced manufacturing with continued solid performance in the life sciences sector has resulted in a double-digit top line increase for the end market, and we expect revenue growth will likely exceed Q2’s level in the second half of the year. Shifting to Critical Infrastructure, net revenue increased 9% over Q2 2025. Critical Infrastructure continues to be led by strong growth in the transportation sector, where our rail, aviation, and ports businesses grew double digits, as well as in the energy and power sector on the heels of high demand for transmission and distribution services. Net revenue growth in our Water and Environmental end market came in at 2% as strength in water, which continued to grow in line with our target, was offset by softness in the environmental sector. Performance for our environmental business is on track to show meaningful year-over-year improvement as we reach Q4. In summary, we saw diversified strength across our end markets during Q2. Moving now to slide eight, I will provide a brief overview of our segment financials. In Q2, I&AF operating profit increased 11% year-over-year, or just over 8% on a constant currency basis. PA Consulting operating profit increased 19% as revenue grew 17% and operating margin came in strong at 22%. On a constant currency basis, operating profit grew 12%. PA has seen demand tailwinds from national security and public sector work in the UK. The business is well positioned to help advise on European defense strategy as well as implement digital solutions across the entire region. Combined with Jacobs Solutions Inc.’s proven history of delivering complex manufacturing and national security infrastructure, we see a compelling opportunity to augment growth in the sector. Focusing on the second half of the year, we believe PA will continue to grow revenue high single digits on a constant currency basis. Now moving on to slide nine, we provide an overview of cash generation and our balance sheet. For Q2, we had an adjusted free cash outflow of $272 million, partly as a function of a favorable Q1 cash timing item that reversed in Q2. This brings our first half adjusted free cash flow to $93 million, a solid increase over fiscal year 2025. I just want to note we are highlighting an adjusted free cash flow figure as we have to account for a portion of the PA transaction proceeds in operating cash under US GAAP reporting guidelines. These entries impacted Q2 reported free cash flow by approximately $233 million and will impact Q3 reported free cash flow by just over $100 million. It is important to keep in mind these amounts were already included as part of the upfront consideration paid in connection with the transaction. Focusing on capital returns, we remained aggressive repurchasers of our shares during Q2 to take advantage of the value of our stock. Consequently, our total repurchases in the first half of the year were $472 million, which puts us ahead of our annual target of returning at least 60% of free cash flow back to our shareholders. Our balance sheet is in good shape following the acquisition of PA Consulting, with net leverage of 2.1x ending the quarter, and we plan to return to below 2.0x by year end. Additionally, our weighted average interest rate has declined to around 5% following the successful refinancing of our debt stack and issuance of new bonds to fund the acquisition. Net leverage is roughly half a turn above our target range, but the increase in EBITDA from the full inclusion of PA as well as our strong outlook for cash generation positions us to lower our net leverage ratio back toward 1.5x during fiscal year 2027. Please turn to slide 10 for our updated fiscal year 2026 outlook. Inclusive of our acquisition of PA Consulting, we are increasing our forecast for adjusted net revenue growth, adjusted EBITDA margin, and adjusted EPS relative to our guidance from last quarter. We are increasing our FY 2026 organic net revenue growth range to 8% to 10.5% year-over-year, adjusted EBITDA margin range to 14.6% to 14.9%, and adjusted EPS range to $7.10 to $7.35. We continue to anticipate adjusted free cash flow margin will range from 7% to 8.5%. Notably, our outlook for FY 2026 now implies 18% year-over-year growth in adjusted EPS at the midpoint. As it pertains to Q3, we expect our adjusted EBITDA margin to be approximately 15% with year-over-year net revenue growth of approximately 7.5%. This implies a margin above 16% in Q4 on double-digit top line growth inclusive of the extra week we will have this year during that quarter. Additionally, we expect our adjusted effective tax rate will be in the 27% to 28% range in Q3 and in Q4. We have good line of sight to achieving our updated fiscal year 2026 targets, and we are pleased to be trending well ahead of our initial outlook for the year. Now turn to slide number 11 for a few updates to our fiscal year 2029 targets. We are reaffirming our range of 6% to 8% organic growth on a five-year compounded annual growth rate basis for net revenue. Combining our fiscal year 2025 result and the midpoint of our fiscal year 2026 guidance, we would be ahead of the midpoint in the first two years. Adding this to our central positioning in the buildout of AI infrastructure, and the potential for growing revenue synergies with PA, leads us to believe we will meet or exceed a 7% compounded annual growth rate. As it pertains to adjusted EBITDA margin, we are increasing our target 100 basis points to 17%+ for fiscal year 2029. This is due to the implementation of gross margin and G&A initiatives that are well underway as well as the acquisition of the remaining stake in PA Consulting, where we currently see opportunity for at least $20 million in annual cost synergies. This implies at least 75 basis points of identified annual margin improvement from fiscal year 2027 through fiscal year 2029, in addition to the 200 basis points we are expecting to deliver over the course of fiscal year 2025 and fiscal year 2026. And lastly, our high-margin expectation and working capital management give us confidence we can now reach or exceed an 11% free cash flow margin, also up 100 basis points from our prior target. At our forecasted growth rate, that implies $1.2 billion to $1.3 billion of annual free cash generation by fiscal year 2029. We are off to a great start just about one-third of the way through our strategy cycle. With that, I will turn the call back over to Bob. Robert V. Pragada: Thank you, Venk. In closing, we are tracking very well heading into the second half of the fiscal year, with strong Q2 performance enabling us to increase our full-year outlook for the second consecutive quarter. We are seeing momentum in our growth rate, margin, and bookings trajectory, all of which give us confidence in our outlook. Operator, open the call for questions. Operator: We will now open the call for questions. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press 1 on your telephone keypad. To withdraw your question, press 1 again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Steven Fisher with UBS. Your line is open. Please go ahead. Steven Fisher: Thanks. Good afternoon, and congrats on the quarter. I just want to ask you at a high level, how much of the raise is driven operationally by, say, better-than-expected demand or operational performance versus bringing the rest of PA Consulting in? We had done some calculations that maybe it would be about a $0.10 to $0.20 increase from PA Consulting. Maybe our math was off. But just curious how much was operational and, if so, where within the segment did you see that upside? Robert V. Pragada: Yes. So, Steve, maybe I will start and then I will hand it over to Venk. At a high level, it is purely based on our operational performance. The drive we are seeing in our bookings and how that is translating into our run rate drove the top line. Venkatesh R. Nathamuni: Yes. Thanks, Steve, for the comment. As Bob mentioned, pretty solid performance on the I&AF side of the business. We got a little bit of a tailwind from PA from an FX perspective, but the bulk of our operational performance is driven by the I&AF section. In addition, from a margin perspective—and I alluded to this in my prepared remarks—a lot of operating discipline in terms of keeping tight controls and, in conjunction with some of the margin improvement that you saw, that is what drove the true outperformance. Steven Fisher: Okay. That is very helpful. And then just talking about AI and digital enablement, can you give us an update on what the customer receptivity has been in the past few months to your digital tools and anything AI-enabled? And to what extent are you seeing incrementally more margin opportunities coming from that and when might we see some of that coming through more materially? Robert V. Pragada: Yes. Steve, thanks for asking the question. AI is absolutely driving our business in what is going on with the AI infrastructure buildout. We are seriously at an inflection point, and it is accelerating our entire business. I will quantify what that means. Within the data center space, which right now represents between 3% to 4% of our overall business, that is growing at 100% year-over-year. Now the AI ecosystem—which would include all the way from the beginning to the chips, through the power and energy requirements, and then how that is feeding the data center world—represents, in its entirety with our diversified offering, between 10% to 11% of our overall business, and that is growing in excess of 40%. So you are talking about a significant part of our business that is growing at a very fast rate, all centered around the AI infrastructure build. Then it is having an indirect effect on AI in drug discovery and what is happening with sectors that would not traditionally be affiliated with AI. We are well positioned in the AI CapEx and AI infrastructure world, and our enablement internally is helping us become more efficient and deliver to that demand. Thank you. Operator: Your next question comes from the line of Sabahat Khan with RBC Capital Markets. Your line is open. Please go ahead. Sabahat Khan: Thanks, and good afternoon. Extending the line of questioning that Steve started, one of the themes we are discussing a lot is the visibility to these types of projects for suppliers and vendors like yourself. Can you talk about demand? It sounds like it is growing at a very high clip, but what is the line of sight to projects? Is it six months, 12 months, multiple years? Please talk to us about near- to medium-term visibility in that end market specifically. Thanks. Robert V. Pragada: Yes. Saba, just to clarify, specifically around the AI infrastructure build, or are you talking broadly across all of our end markets? Sabahat Khan: More specifically the data center and the 100% clip you talked about—the growth in that end market. Robert V. Pragada: Absolutely. Let me quantify it first, Saba. Our AI infrastructure pipeline—the data center component of that—has gone up 400% year-over-year. We have visibility well through 2027, going into 2028. Our long-term, relationship-based client model is gaining share of that client spend. These are the top hyperscalers as well as now the neo-cloud providers that are being supported. What is backing that visibility is our relationship with NVIDIA—our work on the digital twin, the work we are doing around the plan of record, and then as that is evolving with the next-generation chip. Now we are talking about Rubin, and we are in the middle of developing that plan of record. It is tying us back into these AI players, so the visibility is strong. Sabahat Khan: Great. And then maybe just a question for Venk. On the balance sheet side, assuming you are at 2.1x, just above your targeted year-end range, can you help us think through the likelihood of buybacks? Is it going to be more opportunistic, and how are you thinking about broader capital allocation given the free cash flow and the leverage for the rest of the year? Thanks. Venkatesh R. Nathamuni: Yes, Saba. As we highlighted during the press announcement, we did take on some debt to fund the acquisition. We are about 2.1x, but we have a clear plan to delever pretty quickly, and we said we will be below 2.0x by the end of fiscal year 2026, which is just a quarter and a half away. We have also been very aggressive in terms of our share repurchases. We are big believers in the value of our stock and will continue to maintain the share repurchase activity. We will modulate the quantum based on market conditions, but our goals are to continue to reduce our leverage—as I said, we can get to 1.5x in fiscal 2027—as well as repurchases of our stock. One thing to note is that our second half tends to be very seasonally strong from a free cash flow perspective. We are expecting $600 million to $700 million of free cash flow in 2H, so that helps us delever fairly quickly. We have a lot of optionality and the ability to do both the buyback as well as delever without straining the balance sheet. Sabahat Khan: Thanks very much. Venkatesh R. Nathamuni: You are welcome. Operator: Your next question comes from the line of Michael Dudas with Vertical Research. Your line is open. Please go ahead. Michael Stephan Dudas: Good afternoon, gentlemen. Hey, Bob, you have had five years of insight into what 100% ownership of PA Consulting means for Jacobs Solutions Inc. What areas should we look for over the next six to 12 months that might show up and help not only bookings, or be more lifecycle-driven, or maybe even better on the margin front as you move through the plan of the combined company? Robert V. Pragada: Yes, Mike. I would probably segregate it into two parts. One is a capability set that we have been working on over the course of that runway of five years together and the relationship we have had. And then second, applying that to the adjacencies where we have already got a track record by end market. On capabilities, over the last five years we have really built out our digital capability set. This spans everything from software developers through to digital platforms and digital products that are enabling innovation within our clients’ businesses, as well as our own. Together, we have nearly 2 thousand digital experts, and we are integrating that as one company platform. For end markets, in Europe we are seeing activity in national security and the public sector. In the US, energy and utilities, and transport. In Europe, with a more independent defense posture, PA’s deep entrenchment—not just with the UK MOD, but also now with sovereign nations in Europe building up their own defense posture—is turning into defense infrastructure. That asset lifecycle is something that we are primed as a combined entity to deliver, as well as increased digitization enablement in government where PA is in the middle of it. In the US, it is really around energy and utilities and transport—end-to-end from transport advisory through to delivering complex programs and projects. With the combined digital capability and driving that in energy and utilities, again driven by the AI infrastructure we just talked about, we are excited about the future. Michael Stephan Dudas: My follow-up: Critical Infrastructure is showing very strong growth this quarter. It has been chugging along quite well and probably gets lost in the headlines given all the data center and advanced facilities work. Do you continue to see very solid opportunities in the second half and into 2027? And any additional thoughts on IIJA 2.0 and whether your clients are concerned about potential issues if there is a delay with Congress and changes? Robert V. Pragada: Mike, I will separate that into two as well. We are proud about the Critical Infrastructure piece. That is being driven by two primary areas. One is global transportation. We are seeing strong high single-digit, and in certain geographies double-digit, growth within transportation. That is around continued buildout of the aviation sector as well as ports and maritime, which is a strong subsector for us. These have long-tail design-and-build cycles, and we are really starting to see the fruits of that. Second, in the US, on IIJA and what happens with the election this year—we have modeled every scenario. In each scenario, we see at a minimum a continuing resolution, which would be good for us. Then what happens on the extension of IIJA—whether there is a new bill—looks promising, but it is too early to speculate. Even on a continuing resolution, these are long-tail programs, and we are only about 50% outlaid on the current IIJA. So things continue to look solid. Thank you, Michael. Operator: Your next question comes from the line of Adam Bubes with Goldman Sachs. Your line is open. Please go ahead. Adam Bubes: Hi. Good afternoon. Can you help us parse out the new, more universal guidance? Is there a way to frame what incremental EBITDA in the new guide is coming from the acquired stake in PA Consulting and how much of the incremental EBITDA uplift is underlying? Venkatesh R. Nathamuni: I will take that, Adam. I will separate it into fiscal year 2026 guidance and the fiscal year 2029 targets. In fiscal year 2026, we increased our adjusted EBITDA margin range from 14.6% to 14.9%. That is primarily driven by the full consolidation of PA, but there are additional measures and initiatives we are putting in place that drive margin expansion. On fiscal year 2029, it is not just the PA consolidation but also multiple identified initiatives in terms of gross margin drivers, how we engage with the commercial model, and the increased use of AI, and our global business and global delivery model. The vast majority comes from operational improvements across both the commercial model and delivery, and that is progressing well. We are also making a commitment to continue to drive operating leverage such that we will grow OpEx at a substantially lower rate than revenue. It is not one thing—it is a multitude of tools we have to drive continued margin expansion. Adam Bubes: Great. And can you update us on how you expect your AI-integrated offerings to evolve over the next 12 to 16 months? Any incremental investments or opportunities on that side? Robert V. Pragada: Adam, on incremental investments, we do not see the need. We have been investing in digital enablement for the better part of seven years. I do not see us needing to make a huge investment to continue on our current trajectory. The way it is evolving is that it is being pulled from the market with the acceleration we are seeing in our end markets. What we are doing for our clients and for ourselves is in full gear and accelerating. Again, AI infrastructure—which is the virtuous cycle—is driving that, and we are centrally positioned for that entire buildout. Adam Bubes: Great. Thanks so much. Operator: Your next question comes from the line of Analyst with KeyBanc Capital Markets. Your line is open. Please go ahead. Analyst: Great. Thank you so much. Bob, can you give us an update on the Middle East and what you are seeing there in terms of activity levels, and how your folks are handling the situation? Robert V. Pragada: First and foremost, we have been acutely focused on the safety of our people. From the beginning until now, every single day we have crisis management teams stood up and are doing not just daily, but hourly, check-ins on our people, and they continue to be extremely resilient. Second, we have been very deliberate and vocal about focusing on time-based, mission-critical programs and projects in the Middle East—predominantly in Saudi and in the Emirates. Those have continued, centered around transportation as well as water and time-based venues, and those have not stopped. I would characterize it as minimal disruption, and the team has been extremely resilient in delivering, including from the confines of their own home. Just today, we went back into a work-from-home scenario. The backbone of this, as Venk has talked about several times before, is our global delivery model. We are delivering services for our clients not only with folks in-country and in-region, but also from around the world. That has really been highlighted and has served as a strength. Analyst: Great. That is super helpful. And then I know we have talked about data centers on this call, but can you tell us what you are seeing in life sciences and advanced pharmaceuticals, and if there is any appetite to reshore even further back to the US? Robert V. Pragada: Absolutely. The life sciences business is, in real-time pipeline, up 81% year-over-year. A lot of in-flight pursuits where we have been in the early stages are soon to be going into the field. That business—into the field in the US—remains strong, and we are now starting to see a bit of a build going on in Europe as well. It goes through different phases, so some of that reshoring activity that started a year or two ago will start to mature in the field over the course of the next few quarters. Analyst: Thank you so much. Operator: Your next question comes from the line of Jamie Cook with Truist Securities. Your line is open. Please go ahead. Jamie Cook: Hi. Good evening, and congrats on a nice quarter. Venk, I am looking at the EBITDA margin trajectory implied in the back half of the guidance. I think you said Q3 approximately 15%, Q4 approximately 16%. Understanding it is PA Consulting and maybe an extra week, but structurally there seems to be margin improvement. Given where the margins are implied in the back half, what is the setup for fiscal year 2027? It does not seem like the Street is factoring in margins implied in the back half. Are we missing the margin opportunity potential? Thank you. Venkatesh R. Nathamuni: Jamie, thanks for the question. As you pointed out, we guided for 15% in Q3, which would represent about a 90 basis point sequential improvement, which is pretty good. That would imply 16%+ in Q4. As I have talked about, we are investing in some programs that are margin-accretive in Q4. We have identified them and are ramping those investments for delivery in Q4. The fact that we have executed on that gives us good visibility to 16%+ in Q4. We feel pretty good about the margin trajectory. Looking beyond Q4, there is still substantial margin improvement ahead of us. To put things in context, fiscal 2025 and 2026 together would deliver about 200 basis points of margin expansion, and then we are guiding for another 75 basis points per year. Some of the other margin drivers apart from gross margin initiatives include global delivery and mix. As we combine PA Consulting and Jacobs Solutions Inc., the opportunity to deliver on the entirety of the asset lifecycle, and the fact that PA margins are substantially higher, gives us the option to upsell those margins as well. Lots of room to continue to execute on margins, and we feel pretty good about our guidance. Thank you. Operator: Your next question comes from the line of Jerry Revich with Wells Fargo. Your line is open. Please go ahead. Jerry Revich: Yes. Hi. Good evening. Nice to see the really strong bookings performance. Do you have the resources on hand, from a capacity standpoint, to ramp up to potentially double-digit organic growth—the extra week notwithstanding in the fourth quarter? And if you do get to that level of growth, what are the implications for additional margin beyond what you laid out? Robert V. Pragada: Absolutely. The short answer is yes, we do have the capacity. This goes to what we have been talking about and highlighted in our strategy—the global delivery model. Year-over-year, the growth in what we call global delivery is well into the double digits. Our ability to access talented labor delivering at a very high level has been very strong. Our resourcing to meet what is in our backlog, coupled with the progress on those programs and engagements, is strong, and it is driving the margins. So it is yes on the margin front as well. Jerry Revich: Super. And then on reshoring, one area where we are seeing significant progress is in semis, and the industry group is talking about a return to 2024 highs of CapEx for semis into next year. Is that consistent with the opportunities you see? Is there potential for additional projects to move forward beyond what the group is looking for in 2027? Robert V. Pragada: Jerry, yes and yes. We are seeing that investment in the semi sector, and we see that cycle transcending well into 2027. What is important is what is driving it, and it goes back to the earlier comments around the AI infrastructure. Where we are positioned right now on high-bandwidth memory manufacturing facilities is putting us on the front end of what then translates into the utility sector and eventually into the compute load in the data centers. Seeing it across that ecosystem is what is driving our business right now. The relationships we have with high-bandwidth memory manufacturers, as well as ASIC and other logic providers, are coming through. Jerry Revich: Thank you. Operator: Your next question comes from the line of Andrew John Wittmann with Baird. Your line is open. Please go ahead. Andrew John Wittmann: Thanks for taking my questions. On the longer-term margin outlook—the 75 basis points a year—you have talked about the various areas: commercial models, global delivery, etc. Are those out-year drivers any different from the ones you have been realizing over the last two very strong years? And are the benefits in those out years going to come from basic blocking and tackling, or do you have to launch new initiatives to achieve those things? In other words, is that going to cost you cash to implement changes? Venkatesh R. Nathamuni: Thanks, Andy. The margin trajectory—200 basis points over fiscal 2025 and 2026, and then 75 basis points per year thereafter—is a combination of several things that are well underway. In the first year, I would characterize it as mostly driven by operating line benefits from the separation of the CMS and C&I business and rightsizing. Everything thereafter has been driven by specific initiatives—gross margin actions, the global delivery model increasing in pace, scope, and scale, and operating leverage. On the enterprise side, how we run functions like finance and legal, deploying AI, is also driving margin expansion. On CapEx, our investments have been about 1% of revenue, and we are reallocating capital—traditionally in SaaS software—now more to AI-based tools. That is giving us productivity improvements without having to raise our CapEx numbers. Andrew John Wittmann: Thanks for that. For my follow-up, you alluded in your prepared remarks to the unusually high level of transaction costs. I am guessing some of the consideration you paid for PA was required to be recognized as operating cash rather than investing cash—that is probably most of it. Was there anything else in there? And because you mentioned there will be a fiscal third-quarter cash outflow in addition to the substantial cash outflow recognized this quarter, does that mean the exclusions next quarter might be relatively high as well? I know you commented it was mostly contained in the second quarter, but I am trying to get a sense of the balance of the year and then that “nirvana state,” hopefully in Q4, where these kinds of exclusions will not be as apparent. Venkatesh R. Nathamuni: Andy, you are exactly right. The accounting treatment necessitated that part of the consideration be included in cash flow from operations as opposed to investing or financing, and that is why you saw the exclusion. Roughly $235 million of it was compensation expense acceleration for the vesting of shares. In Q3, we called out about $101 million to $105 million of employee benefit trust payments, and then we are done. Even with Q3, that is already imputed in the P&L, so it is only a cash flow item in Q3. One other point: over the last couple of years, we have been steadily decreasing our restructuring cost, and we are on track to be substantially lower in fiscal 2026 compared to fiscal 2025. Andrew John Wittmann: Great. Thanks for that. Operator: Your next question comes from the line of Natalia Bach with Citi. Your line is open. Please go ahead. Natalia Bach: Hi. Good evening. Congrats on a nice quarter. Now that PA is 100% under Jacobs Solutions Inc., can you frame for us the potential for sales synergies accelerating? Robert V. Pragada: Very high. We had certain elements—mostly UK regulations around conflict of interest—affecting visibility into each other’s sales pipelines. The way I described the joint opportunities before—expanding the shaded area of the Venn diagram—now that restriction is gone. The pipeline has really increased with joint go-to-market opportunities. The innovation and delivery across the entirety of the asset lifecycle, which we did collaboratively when we had the majority, will also accelerate. It will increase the operating TAM. The main areas: defense infrastructure and national security in Europe, and in the US, transportation and energy and utilities—again feeding the AI infrastructure. Natalia Bach: Got it. Much appreciated. And then on the cost synergy side, any low hanging fruit opportunities in the near term? Venkatesh R. Nathamuni: Yes. In terms of cost synergies, when we closed the transaction a few weeks back, we announced roughly £12 million to £15 million of synergies. We have now identified specific opportunities from a cost perspective and see at least $20 million in annual cost synergies as we scale through fiscal 2027. Operator: There are no further questions at this time. I will now turn the call back to Bert. Bert Subin: Thank you, Kara. I know we got cut off in the beginning—we lost about a minute due to audio challenges. I want to mention that I refer you to slide two of the presentation for information about our forward-looking statements, non-GAAP financial measures, and operating metrics. I apologize for the technical difficulties. I will now pass it over to Bob for some closing remarks. Robert V. Pragada: Thanks, Bert, and thank you, everyone, for joining our earnings call. We look forward to engaging with many of you over the coming days and weeks. Have a good evening, good day, and good morning, depending on where you are joining from. Thanks, everyone. Operator: This concludes today’s call. You may disconnect.