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Operator: Good afternoon. Welcome to Tigo Energy, Inc.'s fiscal first quarter 2026 earnings conference call. At this time, participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Joining us today, Zvi Alon, CEO, and Bill Roeschlein, CFO. As a reminder, this call is being recorded. I will now turn the call over to Bill Roeschlein, Chief Financial Officer. Bill Roeschlein: Thank you, Operator, and it is a pleasure to join you today from our corporate office in Los Gatos, California. Also with us is Zvi Alon, our CEO. We would like to remind everyone that some of the matters we will discuss on this call, including our expected business outlook, our ability to increase our revenues and our overall long-term growth prospects, expectations regarding recovery in our industry including the timing thereof, statements about demand for our products, our competitive position and market share, the impact of tariffs, our current and future inventory levels, charges and reserves and their impact on future financial results, inventory supply and its impact on our customer shipments, statements about our revenue, adjusted EBITDA and non-GAAP net loss for the second fiscal quarter 2026, and our revenue for the full fiscal year 2026, our ability to penetrate new markets and expand our market share including expansion in international markets, and investments in our product portfolio are forward-looking statements and, as such, are subject to known and unknown risks and uncertainties, including but not limited to those factors described in today’s press release and discussed in the Risk Factors section of our most recent Annual Report on Form 10-K, our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2026, and other reports we may file with the SEC from time to time. These risks and uncertainties may cause actual results to differ materially from those expressed on this call. Those forward-looking statements are made only as of the date they are made. During our call today, we will reference certain non-GAAP financial measures. We include GAAP-to-non-GAAP reconciliations in our press release furnished as an exhibit to our Form 8-K. The non-GAAP financial measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. Finally, I would like to remind everyone that this conference call is being webcast, and a recording will be made available for replay on Tigo Energy, Inc.’s investor relations website at investors.tigoenergy.com. I will now turn the call over to Zvi Alon, CEO of Tigo Energy, Inc. Zvi? Zvi Alon: Thank you, Bill. To begin today’s discussion, I will highlight key areas in our recent financial and operational performance before turning the call over to our CFO, Bill, who will discuss our financial results for the first quarter in more depth as well as provide our guidance for 2026 and the full year of 2026. After that, I will share some closing remarks, tell you about the outlook, and then open the call for questions from the analysts. Business update. We delivered a strong start to 2026 despite the typical weather-related seasonality in our end market. To be more specific, in the first quarter of 2026, we reported total revenue of $25.2 million, representing a 33.7% increase compared to the prior year period. By geography, we saw seasonally stronger performance on a year-over-year basis in the EMEA region during the quarter, which comprised 69.5% of our revenue. Recently, we also announced that our enhanced Tigo GO battery is now available in the European residential market and is expected to further strengthen our European presence, with storage capacity up to 47.9 kilowatt-hours and integrated heating for cold-weather operations. Within the Americas region, which comprised 20.9% of our revenue, we saw higher performance on a year-over-year basis but lower results sequentially as buyers accelerated purchases late last year ahead of the expiration of the residential clean energy tax credit. By country, we performed exceptionally well in Italy, which grew 140.8% sequentially, and again in APAC, in Australia, which grew 64.3% compared to Q4. We also saw strong growth in the Czech Republic and Poland, where unusually cold weather patterns during Q4 had significantly impacted solar installations. As mentioned in our last earnings call, these results were offset by seasonal softness in Germany and weaker results in the UK market, where robust growth in 2025 moderated for us in the current quarter. As we look at the energy sector as a whole, energy security is an increasingly important priority for governments, businesses, and homeowners across the globe. The recent geopolitical developments in Iran continue to highlight the importance of energy independence worldwide. As energy markets remain volatile, we believe Tigo Energy, Inc. is well-positioned to support installers, homeowners, and commercial customers seeking flexible, reliable, and intelligent solar and storage solutions. Finally, as we look toward the rest of the year, I would like to share three specific growth catalysts that I expect will drive accelerated growth for Tigo Energy, Inc. First is our partnership with EG4, which is just now beginning to kick off with the first deliveries occurring this month. This partnership is expected to provide the U.S. market with IRS 45X and IRS 48E ITC credit benefits. Second is our new line of GO ESS batteries for the U.S. and EMEA markets. This provides a compelling and complete solution for TPOs in the U.S. and addresses market requirements for storage capacity in the EMEA region. And third is the positive activity we are seeing in our pipeline for large-scale utility deals, where we believe we have a competitive advantage. I will now turn the call over to Bill for the financial results. Bill? Bill Roeschlein: Thank you, Zvi. Turning now to our financial results for the first quarter ended March 31, 2026. Revenue for the first quarter of 2026 increased 33.7% to $25.2 million from $18.8 million in the prior-year period. On a sequential basis, revenues decreased 16.1% despite improved results coming from many countries in the EMEA region, including the Czech Republic, Italy, and Spain. By region, EMEA revenue was $17.5 million, or 69.5% of total revenues, and a 3.2% sequential decrease. Americas revenue was $5.3 million, or 20.9% of total revenues, and a 43% sequential decrease. APAC revenue was $2.4 million, or 9.6% of total revenues, and a 10.2% sequential decrease. By product family for the first quarter of 2026, MLPE revenue represented $20.8 million, or 82.4% of total revenues. GO ESS represented $4.0 million, or 15.8% of total revenues, and Predict+ represented $500 thousand, or 1.8% of total revenues. Gross profit for the first quarter of 2026 was $10.8 million, or 42.8% of revenue, compared to a gross profit of $7.2 million, or 38.1% of revenue, in the comparable year-ago period. Improvement in gross margin is largely due to the absence of warranty-related charges in the most recent quarter compared to the year-ago period. Operating expenses for the first quarter increased 18.4% to $13.2 million compared to $11.2 million in the prior-year period. The increase was driven primarily by bad debt expense of $1.0 million as a result of the bankruptcy of a European distributor during the quarter. We do expect a portion of this amount to be recoverable through insurance in a future period. Operating loss for the first quarter decreased by 9.4% to $6.4 million compared to an operating loss of $4.0 million in the prior-year period. GAAP net loss for the first quarter was $1.8 million compared to a net loss of $7.0 million for the prior-year period. Non-GAAP net loss, which we are introducing this quarter and reconcile from GAAP net loss solely by excluding stock-based compensation, totaled $100 thousand compared to a non-GAAP net loss of $5.4 million in the prior-year period. We believe this measure provides investors with additional insight into our progress toward achieving consistent GAAP net income. Adjusted EBITDA loss for the first quarter decreased 76.8% to $500 thousand compared to an adjusted EBITDA loss of $2.0 million in the prior-year period. As a reminder, adjusted EBITDA is a non-GAAP measure that represents net loss as adjusted for interest and other expenses, income tax expense, depreciation, amortization, stock-based compensation, and M&A transaction expenses. Primary shares outstanding at the end of the quarter were 75.9 million. Turning to the balance sheet. Accounts receivable, net, increased this quarter to $14.2 million compared to $13.9 million last quarter, and increased from $10.4 million in the year-ago comparable period. Inventories, net, decreased by $6.5 million, or 20.7%, to $24.8 million compared to $31.3 million last quarter, and increased compared to $18.9 million in the year-ago comparable period. Cash, cash equivalents and short- and long-term marketable securities totaled $11.6 million at March 31, 2026. On a sequential basis, cash increased by $3.9 million as we successfully closed a registered direct offering of approximately $15.0 million during the quarter. In addition, we closed on a credit facility with Wells Fargo Bank at the end of the first quarter. The facility provides up to $10.0 million of availability based upon a borrowing base formula consisting of certain accounts receivable and inventory held by the company. No drawdowns were taken during the first quarter. Turning now to our financial outlook for the second quarter and full year of 2026. As a reminder, Tigo Energy, Inc. provides quarterly guidance for revenue as well as adjusted EBITDA, as we believe these metrics are key indicators for the overall performance of our business. For the second quarter ended June 30, 2026, we expect revenues to range between $30.0 million and $32.0 million. We expect adjusted EBITDA to range between $1.0 million and $3.0 million. For the full year of 2026, we continue to expect revenues to range between $130.0 million and $135.0 million. That completes my summary, and I would now like to turn the call back over to Zvi for final remarks. Zvi Alon: Thanks, Bill. We are pleased with how we have started 2026 and the traction we are seeing across our key markets. The continued predictability of our business reinforces our confidence in sustaining growth through the remainder of the year, and we expect to maintain our competitive outperformance. We enter the remainder of the year with a strong foundation and a clear path forward, and we are excited about the opportunities ahead. We will now open the call for questions. Operator: Thank you. At this time, we will conduct the question-and-answer session. As a reminder, to ask a question, you will need to press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. Please standby while we roster. Our first question comes from the line of Philip Shen with Roth Capital Partners. Philip, your line is live. Philip Shen: Hi. Thanks for taking my questions. I wanted to start with the potential for the EU to ban Chinese inverters, and I wanted to understand if you could be a beneficiary of that. What have you learned about this, and how quickly could this ban become effective? It seems like it could be or may be effective already. So are you seeing a change in the business at all already? Thanks. Zvi Alon: We are aware of the change. It actually started, I would say, last year sometime, and there are a couple of countries already that are banning Chinese-controlled monitoring systems and devices. We do believe that it would increase the market share for our solutions. We see it as a positive contributor for our solutions in the market. We have been touting the security of being monitored in the U.S. for quite some time, and that seems to be working with those sentiments in the market in general. Philip Shen: Are you seeing a change in demand for your business because of this, or is it hard to discern that the demand is coming from this? Zvi Alon: It is hard to say that it is correlated right now. In general, I can tell you that we saw Europe starting to wake up towards the end of the first quarter, and from that perspective, we are fairly confident it will continue. The addition of the banning of Chinese products should accelerate it and help more. Our optimizers are doing exceptionally well in what we see in the market. Philip Shen: Can you elaborate more on that mix? You had a lot of volume, most of it from Europe, in the quarter. That mix of about 70% from EMEA—do you think that stays similar through the rest of this year? And maybe give a bit more color on which countries are strong and which have been less strong but could become stronger ahead? Bill Roeschlein: We have been trending in these percentages for a bit of time—about 65% to 70% from EMEA. It was once higher than that, but the U.S. has really picked up steam for us. With the repower initiatives that we have, and now with the introduction of our new hybrid inverter and battery solution along with the EG4 partnership for optimized inverters, we think the U.S. could be a market where we pick up a good share regardless of the macro condition there. That might drive the EMEA region to be a little bit less than 70% by the time we get to the end of the year. We will see how that plays out. Within Europe, we have historically been strong in Italy and Germany, those being the two biggest economies last year along with the UK. Germany has been, by most accounts, big but sluggish. We have had decent growth, but the areas where we have seen really outsized growth that are working in our favor—and I think it will work out this way in 2026 as well—include the UK, which was really great because we came in with almost zero market share and quickly established a good revenue base. In 2026, we are making a concerted effort to go after more of Eastern Europe where, as we have discussed before, some competitors have withdrawn or reduced their footprint. That includes Slovenia, Romania, Poland, and the Czech Republic, where we have been strong for a while but there is still additional market share to be picked up. We are expanding beyond our traditional strength in Italy and Germany and going a little more east and north. Philip Shen: You mentioned repowering. Can you give us some sense of the success you are having there? If you can quantify anything in terms of how much of your total revenue or total U.S. revenue that could be for 2026, that would be helpful. Bill Roeschlein: It more than doubled. It was about 2% to 3% of 2025 and most recently was about 20%. We believe we had some pull-in orders related to the 25D expiration that muddled the overall measurement, but we are still working with the same installers who have a brisk book of business, and we expect another year of growth coming from that side of the house. We have a very unique hybrid inverter with the right form factor, the ability to accept varying voltage levels, and minimal rewiring required. There are a lot of advantages to our solution that fits well with repower. Layer in our initiative with our GO ESS battery hybrid inverter for the year along with EG4, and I think the U.S. market could be very strong growth for us this year. Zvi Alon: On the repower, one additional point is that the more those systems age, the better it is for us. We identified this market early and have been planning for it for quite some time and gaining nice momentum. As it ages, it should be better for us. Philip Shen: Last one for me. Let us move over to the utility-scale solar opportunity. As you mentioned, there is a large pipeline of opportunity there. I am guessing this is tied to Predict+, which is a software package that you have. Is this also tied to your optimizer opportunity? Give us a little more color on what that looks like and how that could drive 2026. Zvi Alon: Yes, I did mention last time that we see an increase in activity in utility scale, and that continues. I do not want to make any premature announcements, but in general we see momentum in both Predict+ as well as optimization. On the optimization, we see two main drivers. One is new installations, and we mentioned the large installation in Spain, which is now operational, up and running next to the Madrid Airport. We won that late last year. It was 142 megawatts. We see similar-sized projects in the pipeline and a number of them, so we are excited and optimistic. Philip Shen: Great. Thank you very much. I will pass it on. Zvi Alon: Thank you. Operator: Thank you. Our next question comes from the line of Eric Stine with Cowen Capital Group. Eric, your line is live. Eric Stine: Hi, Zvi. Hi, Bill. I know you talked about the EU and the outlook in 2026, but it was more from a strategic point of view. Can you dig in a little bit on the market improvement—people are starting to talk about green shoots. You mentioned that you saw that towards the end of the quarter. Where does that stand? You mentioned softness in Germany and the UK in Q1, and those are two countries where you are starting to see indications of improvement. When do you anticipate you might start to see the benefit from that? Is it Q2? It seems like that type of expectation is not necessarily part of your outlook. When might you see it, and when do you become convinced that it is a sustainable market improvement? Zvi Alon: Thanks, Eric. We started seeing an improvement in the second part of Q1. The first part of Q1 was very sleepy, which is normal. Despite that, we still saw about 30% growth year over year. We believe that Q2, by the guidance we provided, also demonstrates nice year-over-year growth, and it is based on confidence we see in all regions, including Europe, which is our largest region. We believe we will continue to see market share gains. Bill mentioned our expansion into Eastern Europe in places where competitors have left, and we have seen good momentum. Europe for us is showing good signs despite Germany being a little slow. I will highlight that we saw Germany starting to come back to life in the second part of Q1. We are not sure if it will get back to the same full strength of last year or more, but we have seen improvement there, which causes us to be more optimistic. In addition, the success in utility-scale projects—many are in Europe. This is a new area for us based on the success in Spain and new opportunities we have identified, and we believe Europe will be a very good place for us moving forward. Eric Stine: Sticking with utility scale, you have talked several times about a number of opportunities. You have set the guidance in a spot that you believe is a good place to be—it is very good growth—but you have also talked about opportunities like GO ESS and EG4 that could mean potentially significant growth in 2026. Where would you put utility scale in that? Is that something where you are starting to see good signs that is more of a 2027 event where it really starts to impact financials, or could the timing be more of a 2026 event? Zvi Alon: Let me be very clear. The increase in our utility footprint is in 2026, and not at the end of the year. I will just leave it there. Bill Roeschlein: I would add that we do not normally talk about pipeline, but the deals we are working on are getting to the point where they are ripe for a decision. There are enough of those in our pipeline where we are at least finalists that we feel confident we will have something to talk about this year. Zvi Alon: We have been conservative for quite some time. We do not share prematurely, but our confidence is high. Eric Stine: Understood. Maybe last one for me on repowering. I know the primary focus is on the inverter side, but is that also something that potentially develops from an optimizer side as these older systems upgrade and perhaps, at ten years old, decide that they want control at the panel level? Zvi Alon: That is an outstanding question. It gives us access to two potential expansions. One is the optimizer, as you described, and the second is, since our solutions provide a hybrid inverter, adding a battery is very cost effective. By increasing market share with our solutions in repower, it gives us an opportunity to sell additional batteries at a very cost-effective level compared to other solutions. Eric Stine: Thank you. Operator: Thank you. Our next question comes from the line of Sameer Joshi with H.C. Wainwright. Sameer, your line is open. Sameer Joshi: Thanks for taking my questions. A lot of topics have been covered, but I do not think we covered the GO ESS opportunity and traction enough. It seems that with roughly $4 million in revenues, it is the highest since 2023. Are you looking at meaningful contribution from GO ESS during 2026, and is it a contributor to growth? Bill Roeschlein: We believe that with our next generation, we expect it will be widely accepted by the market. The feature functionality, price point, and size are all aligned to what customers are asking for. In the U.S., with new sales, TPO opportunities, and even repower—which is a captive market for us to get battery revenue from—and in Europe, we have addressed the market’s desire for larger storage capacity for both three-phase and single-phase markets, especially three-phase. Our new generation of battery has cold-weather functionality and expansion ability up to almost 48 kilowatt-hours. That is what the market has been asking for, and that is why we are excited to introduce it now. We expect 2026 to deliver a lot of positive momentum in both markets. Sameer Joshi: Inventory was down sequentially by $6.5 million. Should we read anything into this? And how is the supply chain? How quickly can you rebuild inventory, especially given outlook for the second quarter and second half as well as the hinted progress on utility scale? Bill Roeschlein: We are still in an eight-week factory-to-customer supply-chain environment, so we are not seeing major hurdles there. As a corporate metric, we try to keep 90 to 100 days of inventory. We were trending higher than that, so bringing it down was part of running working capital at an optimal level. We have no problem meeting any big utility win. The benefit of having an outsourced contract manufacturing model allows you to scale up and down very quickly. It is not difficult to do. We have the floor space to do it, and we can add another line if and when we need to. Sameer Joshi: Understood. Lastly, on operating expenses through the year, should we expect marginal increases, or do you have enough manpower and resources so that we will not see any meaningful increase in OpEx? Bill Roeschlein: I think we are trending in the $12.5 million to $13.0 million range for the rest of the year. With a wider lens, $12.5 million to $13.5 million, midpoint around $13.0 million. We should be able to grow this year without having to add a lot of OpEx, demonstrating the leverageability in our operating model. We have been at this level around $13 million for several quarters, so I think that is the right ballpark for the rest of the year. Sameer Joshi: Got it. Thank you. Thanks for taking my questions. Operator: Thank you. At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Zvi Alon for closing remarks. Zvi Alon: Thanks again, everyone, for joining us today. I especially want to thank all the dedicated employees for their ongoing contributions, as well as our customers and partners for their continued hard work. I also want to thank our investors for their continued support. Operator? Operator: Thank you for joining us today for Tigo Energy, Inc.’s first quarter 2026 earnings conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us and welcome to the Hinge Health, Inc. 2026 Q1 earnings conference call. If you are dialed in, please press 9 to raise your hand and 6 to unmute. I will now hand the conference over to Bianca Buck, Head of Investor Relations. Bianca, please go ahead. Bianca Buck: Good afternoon, and welcome to Hinge Health, Inc.'s first quarter 2026 earnings call. I am Bianca Buck, Head of Investor Relations. With me on the call are Daniel Perez, our Co-Founder and CEO, and James Budge, our CFO. Our President, James Pursley, is spending this week advancing relationships with some of the largest state and local governments in the country, so he cannot be with us today. I want to thank everyone for joining us. As a reminder, this conference call is being recorded. All relevant materials are available on the Investor Relations section of our website. Today’s discussion will include forward-looking statements that are subject to various risks, uncertainties, and assumptions. These statements reflect our current views and expectations regarding future events including expected performance of our business, future financial results, and growth strategies. While these statements represent our good faith judgment and beliefs, actual results may differ materially from those projected or implied. We undertake no obligation to update any forward-looking statements except as required by law. For a detailed discussion of the risks, please refer to our SEC filings, including our Annual Report on Form 10-K for the year ended December 31, 2025. We expect to file our latest Quarterly Report on Form 10-Q in the coming days. All income statement financial measures discussed today are non-GAAP, except for revenue, which is GAAP. These measures should be viewed in addition to and not as a substitute for our GAAP results. Reconciliations to the most comparable GAAP measures are included in our earnings release appendix. With that, I will turn it over to Daniel. Daniel Perez: Thanks, Bianca. I am excited to share our first quarter 2026 results. It was a strong start to the year, and let me tell you why. I will cover three things today. First, our Q1 financial performance, which came in well above expectations. Second, the launch of our migraine care program—our first expansion beyond muscle and joint pain—and a proof point that our platform can automate care delivery across multiple conditions. Third, where we stand commercially as we head into the sales season. Then I will hand it over to James to go deeper into our financials and updated guidance. After that, we will take your questions. Let us get into it. We delivered strong results across all key financial metrics this quarter, outperforming our expectations and demonstrating the continued strength of our business. Starting with revenue, we generated $182 million in Q1, representing 47% year-over-year growth compared to $124 million in 2025. This performance came in well above our guidance range of $171 million to $173 million, showing the continued strong demand we are seeing across our client and member base. Our last twelve months calculated billings reached $770 million, up an impressive 52% from $507 million in the prior year period, reflecting the continued expansion of our member base and strong engagement with our platform. On profitability, we achieved a gross margin of 85%, demonstrating continued care team and hardware efficiency as we scale our platform. Our operating margin was 25%, generating $46 million in operating income, exceeding our guidance range of $30 million to $32 million for the quarter. Our free cash flow performance was excellent once again. At $42 million, it was 10x higher year over year, for a free cash flow margin of 23%. These are strong numbers, and they reflect something important: our business is scaling efficiently. Our AI and automation investments are driving real operating leverage. We are serving more members, delivering improved outcomes, and reducing costs for clients, all while expanding margins. That is the triple aim in action, and it is also what makes this model durable in a world where every company is being asked what AI means for their business. For us, AI is an accelerant—helping us better deliver the triple aim whilst building a uniquely efficient business. We have spent over a decade building the number one rated digital MSK app, leveraging data from the millions of members we have served to develop technology that automates over 95% of clinician hours associated with traditional PT. Combine that with our distribution—almost 3,000 clients, 60+ health plans, PBMs, TPAs, and ecosystem partnerships—and we have a double-walled moat: advanced platform capabilities on one side, difficult-to-replicate commercial reach on the other. Frankly, in the age of AI, when things are easier to build than ever, proprietary data and preferential access to clients is a recipe for outsized returns. James will unpack the financials in more detail shortly, including our raised guidance for the year. Now let me shift to product and an expansion I have been waiting a long time to talk to you about. Our vision is to use technology to automate care, transforming outcomes, improving experiences, and reducing costs. We have proven this in 2 million people served, 21 peer-reviewed papers with demonstrable outcomes, and the top-rated digital musculoskeletal app. But here is the thing: we spent years building a unified platform for our core technical and clinical capabilities—from enrollment to treatment, outcomes collection, member engagement, nerve stimulation, and more. Combined with a leading go-to-market motion, we are well positioned to extend into adjacent conditions. This quarter, I am excited to share that we are launching our migraine care program. Migraine is a form of chronic pain that shares neurological roots with the neck and spine conditions we already treat. Nerves in the neck and head converge in a shared pain processing center, so not surprisingly, roughly 75% of people with migraine also have MSK pain. Our existing neck program members have already reported fewer migraine days and lower medication usage, simply from engaging with our existing product. The scale of the problem is massive. One in six American adults has migraine, and the prevalence rate is twice as high for women. On average, migraine sufferers drive more than $16,000 in annual healthcare spend—over double that of people without migraine. Nationally, migraine costs U.S. businesses an estimated $78 billion each year and drives absenteeism and reduced productivity. Our migraine care program delivers three things. First, rapid drug-free pain relief using our groundbreaking neuromodulation device, Enso. We just received 510(k) clearance from the FDA to extend Enso into migraine care. This means for many people, we could deliver drug-free migraine relief in minutes. Second, AI-powered tracking that helps members identify personal triggers across environmental, lifestyle, and dietary factors. Third, proactive prevention through exercise therapy and clinically proven lifestyle guidance from our care teams, designed to reduce both the frequency and severity of attacks. Our migraine care program will roll out later this month. The client response has been overwhelming. In just a few weeks, we have had over 125 clients adopt the program, representing more than 2 million eligible lives. Time and again, our clients mention that they themselves, a family member, or someone they know is afflicted with migraine. We expect revenue contribution to be minimal this year, with a more meaningful impact beginning in 2027. But the real significance is what this demonstrates. We did not come this far with digital physical therapy to stop at digital physical therapy. Migraine is a compelling data point in the broader applicability of our platform. The clinical overlap is strong, our capabilities translate directly, and the speed of client adoption—over 2 million lives approved within weeks—underlines the credibility we have built with our clients and partners. This is exactly the kind of innovation that gets us excited about the decades of work ahead. We are building infrastructure to automate healthcare delivery across multiple conditions. Migraine is our next step, but it will not be the last. With that, let me speak to our commercial progress. As many of you know, our sales cycle follows a predictable seasonal pattern. The first half of the year is primarily focused on building our pipeline and nurturing prospects. We typically close the majority of new clients during the second half of the year, as employers finalize their benefits decisions for the following year. This quarter, we created substantially more pipeline compared to Q1 2025, which gives us confidence as we look ahead to the back half of the year. The interest level from prospects continues to be strong, and we are seeing good momentum across our client verticals and markets. Our investments in the SMB space are also paying off, where we are seeing substantially more pipeline generated in that category than in years past. We continue to win at record rates, and the competitive takeaway trends we saw last year have persisted, which speaks to the strength of our platform and the value proposition we are delivering to clients. Our Hinge Select offering is also seeing positive momentum. We ended Q1 with 4,100 provider locations. We are also thrilled to share that we recently expanded Hinge Select access through one of our national PBM partners and three of the five largest national health plans by self-insured lives. We expect this to help accelerate client adoption during our sales season in the second half of the year. I do not want to get ahead of ourselves, but the fundamentals we are seeing give us good reason to be optimistic. We expect the combination of strong pipeline development, solid win rates, and the added value we can now offer through our migraine care and Hinge Select programs to position us well for the foreseeable future. With that, let me turn it over to James. James Budge: Calculated billings are driven by three key components: the number of average eligible lives, multiplied by our yield—which is the percentage of those lives that actually engage with us—multiplied by our average selling price per engaged member. For Q1, our LTM calculated billings reached $770 million, representing an exceptional 52% year-over-year growth rate compared to $507 million in the prior year period. Revenue came in at $182 million, up 47% from $124 million in Q1 2025. This result meaningfully exceeded our guidance range of $171 million to $173 million. This revenue beat was driven by better-than-expected billings, stemming from strong performance in both yields and lives. On the yield front, we are seeing two continuing and encouraging trends: we are converting members from new clients at a faster rate, and our legacy clients are also growing yields. This demonstrates that our platform continues to resonate with members across all segments and that our AI-powered personalization and targeted enrollment improvements are driving real results. On the lives side, we have seen two beneficial drivers. First, as in prior years, newly launched clients have come in with more lives than we anticipated. Second, our legacy clients have also increased in size overall, suggesting no impact on our business from any AI-driven employee displacement. This increase in eligible lives speaks to the diversification of our client base across industries and the essential nature of MSK care in employee benefits packages to create better outcomes for members and lower costs for clients. Moving to pricing, as of 2026, around 80% of our contracted lives were using our new engagement-based pricing model. We expect this percentage to stay consistent throughout the rest of the year. Moving to profitability metrics, our gross margin for Q1 was 85%, up from 81% in Q1 2025. This 400 basis point improvement reflects our continued care team efficiency gains as we leverage AI and automation to serve more members without proportional increases in care delivery costs, all while sending Ensos to more members than in prior years. We achieved strong operating leverage across all expense categories. Total operating expenses were 60% of revenue in Q1, down from 69% in the prior year period, demonstrating our ability to continue to scale efficiently as we grow. This translated to strong profitability with $46 million in income from operations, well above our guidance range of $30 million to $32 million for Q1. Our operating margin was 25% compared to 12% in Q1 2025, an improvement of over 1,300 basis points year over year. Free cash flow performance was excellent at $42 million for Q1, compared to $4 million in Q1 2025. This represents a free cash flow margin of 23%, up from 3% in the prior year period, primarily driven by higher billings and improved efficiency. From a balance sheet perspective, we ended Q1 with $407 million in cash and cash equivalents. During the quarter, we continued executing on our share repurchase program, purchasing 2.5 million shares for $105 million. Our diluted weighted average share count as of Q1 dropped to 82.4 million shares, down 2.5% compared to the ending 2025 figure. Our diluted net income per share attributable to common shareholders for the quarter was $0.45. Looking forward, based on our strong Q1 performance and strong outlook for the remainder of the year, we are raising the expected outcomes for all elements of our guidance. For Q2 2026, we expect revenue to be in the range of $104 million to $196 million, representing 40% year-over-year growth at the midpoint. For income from operations, we are projecting $47 million to $49 million for the second quarter, or a 25% margin at the midpoint. For the full year 2026, we are raising our revenue guidance to $798 million to $804 million, up from our previous guidance of $732 million to $742 million. At the midpoint of $801 million, this represents 36% year-over-year growth, up from the 25% previously expected at the midpoint. We are also raising our full year income from operations guidance to $205 million to $215 million, or a 26% margin at the midpoint, up from our previous range of $151 million to $156 million, or a 21% margin at the midpoint. Several factors are driving this upward revision to our guidance. Average eligible lives for the year are expected to be slightly higher than what we previously shared, as we are seeing stronger-than-anticipated growth from both new client launches and expansion within our existing client base. Additionally, our yield is trending up to slightly north of 4%, as both new and legacy clients are seeing better member yields than we projected. Of our guidance raise, approximately half is attributable to yield improvements and half from lives growth. The increase in our income from operations and margin expansion comes from two primary sources: first, the top-line outperformance, and second, some slower hiring than anticipated, as AI has increased our efficiency across all operating categories. We do still expect to catch up on hiring as we move throughout the year, and in the meantime, these savings give us additional operating leverage while still maintaining our commitment to investing and expanding our product portfolio and commercial reach. For share count expectations in 2026, we anticipate ending the year with 82 million to 84 million diluted shares outstanding, which does not include the impact of the continued execution of our share repurchase program. Before I turn it back to Daniel, I want to remind everyone that we will be hosting our annual client conference, Movement, in Chicago on June 10. This year, we are excited to welcome analysts and investors to attend our inaugural investor track alongside the main conference. You will have the opportunity to hear directly from leaders across our company and get to mingle with the people who make Hinge Health, Inc. a success: our clients, members, and partners. You can register on our investor relations website where we also just uploaded an agenda, and we would love to see you there. With that, let me turn it back over to Daniel to wrap up. Daniel Perez: Thanks, James. Looking at our strong Q1 performance and the trajectory we are on, I am incredibly optimistic about Hinge Health, Inc.’s future. I am bullish on our business for several key reasons. First, our core MSK market remains massive and underpenetrated. We have a tremendous runway for growth even before expanding into new areas. Second, our expansion into migraine care and strong client demand in this space signify that our platform can successfully automate healthcare delivery for other conditions. Our distribution affords us uniquely powerful paths to market, and we are deepening the value we deliver to clients. AI now lets us build faster than ever, but our distribution channels turn innovation into adoption at scale. Third, our financial performance continues to demonstrate the scalability and durability of our business model. We are generating strong cash flows, investing in innovation and growth, all while returning capital to shareholders. What excites me most is that we are just scratching the surface of what is possible. Healthcare remains one of our economy’s last redoubts of manual labor, and we have the opportunity to transform how care is delivered across multiple conditions. Our vision to build a new health system that uses technology to scale and automate care delivery is not just a long-term aspiration. It is happening right now, one condition at a time. We are moving with urgency to extend our leadership position. Our journey is just getting started. We have decades of work ahead, and I am confident our best days are still in front of us. Thank you all for joining us today and for your continued support of our mission. Bianca, let us open it up for questions. Bianca Buck: Thanks, Daniel. We will now open the call for questions. Operator, we are ready to take 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 raise your hand now. If you have dialed in to today’s call, please press 9 to raise your hand and 6 to unmute. Please stand by while we compile the Q&A roster. Your first question comes from the line of Saket Kalia with Barclays. Saket Kalia: Okay, great. Hey, can you hear me okay? Excellent. Thanks for taking my questions here, and great start to the year—congrats. Daniel, I would love to start with you and dig into the migraine program a little bit. How do you think about the market opportunity for Hinge Health, Inc. in that market? And I am sure you went through some exhaustive testing—what were some of your findings on how effective Enso and the combined offering were in addressing that problem? Daniel Perez: Great question. Overall, our vision is to transform outcomes, experience, and cost by using technology to automate care delivery, and we see migraine as a natural extension of that vision. The clinical need for better migraine care is overwhelming—one in six American adults suffer from migraine—yet there are only about 700 headache specialists in the entire country to serve tens of millions of people. Our early outcomes and member demand have been very strong. But a big unmet clinical need alone would not have justified our entry; we are extending into migraine because our existing platform makes us uniquely capable of delivering care well, at scale, and you can see that with our 125 customers who have adopted migraine so quickly. It tells us the clinical need is as acute as we believed, and our enterprise reputation and distribution are doing real work there. On distribution, the hardest part in healthcare is not actually building the product; it is getting paid for it. We spent a decade building a client base of nearly 3,000 logos and 60+ health plan, PBM, and other partner relationships. That is not something a new entrant—AI-enabled or otherwise—replicates in a quarter or even a year. It requires contracts, clinical evidence, trust, and integrations built over time. Our migraine launch sits on top of our clinical evidence base, proprietary data compounding with every member, our hardware that is not commodity in the age of AI, and our distribution moat. Those ingredients are a recipe for a durable competitive advantage, and you are seeing it show up in our free cash flow and return on invested capital. Regarding outcomes, 56% of people in our trial demonstrated that their pain went down from severe or moderate to mild or none with at least one of our Enso waveforms. Compared to placebo, members were 1.9x more likely to reduce pain with our Enso device. We submitted our packet to the FDA in December and were excited to get clearance in April. Saket Kalia: Super helpful and exciting outcomes. James, maybe for my follow-up, staying on that topic—how do you think about pricing for the migraine program from a high level? Physical therapy has ongoing exercises through your device, whereas this is more Enso-based. How would you compare and contrast the pricing models? James Budge: Maybe I will give a few tidbits, and then Daniel can add. As we said in our prepared remarks, do not expect a lot of revenue this year, but do in 2027. This year is about sign-ups, and we have already got over 125 clients with 2 million+ lives attached. With about 80% of our clients now on the engagement-based model, more usage—whether Enso connections for migraine or any other indication—means more opportunities to bill. Daniel Perez: We are using our engagement-based billing model for migraine as well—the same as our digital physical therapy model. We want to keep things as simple for our clients as possible. We have in-app treatment sessions for digital physical therapy and in-app treatment sessions for migraine. While many migraine treatment sessions are mediated by our FDA-cleared neuromodulation device, Enso, we also have exercise treatment sessions for migraine, as 75% of migraine sufferers also have comorbid musculoskeletal pain, particularly neck pain. Overall, our aim is to have a bigger impact for clients by improving outcomes and experience while lowering costs. Operator: Your next question comes from the line of Jailendra Singh with Truist Securities. Your line is open. Please go ahead. Jailendra Singh: Thank you, and congrats on a very strong quarter. It is encouraging to see consistent yield improvement and outperformance, now slightly north of 4% in the quarter. Given what you have been seeing in legacy clients, trends of new lives, and the impact from your initiatives, how do you think about the long-term view on where yield can get to? What is the ceiling there, and will that be dependent on rolling out new programs like migraine, or can you achieve that with existing offerings? Daniel Perez: Good question. About 9% of people see a physical therapist in any given year. We think with better access and lower cost, that should be closer to 12% to 15% of people. About half of us have a musculoskeletal condition in any given year. We are currently trending to a little over 4% yield this year for our digital physical therapy program, but you can see where we are targeting long term—at least 9%, and we think we are expanding the TAM of people who could see a physical therapist. Migraine typically extends that opportunity while de-risking our ability to continue growing yield overall by giving us more shots on goal. Overall, we are chasing clinical impact: helping more people every day with our care programs to transform outcomes, experience, and cost structure. Jailendra Singh: And then on the CMS ACCESS program—can you expand on what you needed to see to participate? It seems the company had an intent to apply but ultimately decided against it. Daniel Perez: We applaud CMS’s goal of expanding access to evidence-based care, and it is great to see CMS be entrepreneurial. You are right—we did not apply. We believe the ACCESS program as currently designed will not deliver any aspect of the triple aim. Moreover, it is structured in such a way as to necessitate the removal of any clinical oversight, putting one of the most vulnerable patient populations, in our opinion—Medicare—at risk. Even for employer populations, who are a full generation younger, we provide a care team. We have had conversations with CMS and are hopeful they will continue to iterate and develop models that increase access to high-quality care for Americans on Medicare. Right now, we will stay on the sidelines. Operator: Your next question comes from the line of Richard Close with Canaccord Genuity. Your line is open. Please go ahead. Richard Close: Congratulations. Daniel, could you add details on the commentary regarding the pipeline being substantially higher? And then I have a follow-up for James. Daniel Perez: We are seeing broad-based interest across several different client segments, from SMB employers to large enterprises. In our SMB segment, we recently hired several new reps and are delivering very strong results—the number of lives added to the pipeline in that segment in Q1 is up over 100% year over year. What is really encouraging is the interest in our expanded capabilities as well. Prospects—clients who have been on the sidelines or with a different solution—are very excited about our migraine program and Hinge Select, which gives us more ways to add value and start conversations. Our sales cycles have not materially changed and still follow a seasonal pattern where most decisions happen in the back half of the year, but the quality of conversations has improved because we are solving more problems for our clients. Richard Close: As a follow-up, James, you mentioned eligible lives coming in higher and driving the guidance revision. How does that work? Do you not know the lives when you sign a client? Is it just coming in with more lives when all is said and done? James Budge: Great question. Two parts. We added roughly 5 million utilized lives last year. About 80% of our new lives coming into this year came from existing clients. Half of our upside in lives comes from those existing clients when they give us the new files coming into the new year—they showed up with a lot more lives than we expected. Our clients are growing in headcount, which is great for them and for us, and it goes against the narrative that everybody is getting rid of employees. The other half is our new clients that come on board. When we sign them, we take an estimate of the number of employees, informed by our contacts at the client, but we do not get the final count until we get their official files when we get into the launch sequence early in the year. We always take a conservative estimate so we come in above it, and that happened again—final files came in quite a bit higher. Operator: Your next question comes from the line of Ryan Daniels. Your line is open. Please go ahead. Analyst: Congrats on the strong results, and thanks for taking the question. Just one on Hinge Select—looks like continued momentum there in both number of providers and covered lives. Can you talk more about what you are hearing in the marketplace about demand for that offering? And are you considering expanding that to other areas like ambulatory surgery centers or broader patient navigation opportunities? Daniel Perez: Great question. Our key focus areas as we invest in Hinge Select are: one, improving the density of our provider network—we have surpassed 4,100 provider locations and want to get that substantially higher over the course of the year; two, expanding access within our book of business, particularly making Hinge Select available via our distribution partners. We are proud to say that now three of the top five national health plans are allowing Hinge Select to be bought via our partnership with them and with our shared clients. We also want to continue to expand distribution broadly. It is having a big impact: about 85% of members who engage are able to move forward with conservative care, avoiding low-value, high-cost care—imaging, procedures, elective surgeries—and these are the highest-risk members to begin with. That is exactly the outcome we are going for, and it allows us to expand ROI conversations with clients. We anticipate most of the pipeline that we close for Hinge Select will be in the second half of the year. It is a more complicated sale than migraine. Analyst: As a follow-up, given your chronic pain focus and now migraine, there seems to be correlation to behavioral or mental health conditions. How do you view that as a potential expansion area? Daniel Perez: Our vision is to use technology to scale and automate care delivery, and we think most care delivery will eventually be amenable to automation. It will take many years, even decades, to capture most of healthcare. With roughly $640 million of trailing twelve months revenue, we are only about 1% of the PT market in America, and PT itself is about 1% of total healthcare spend—so we are 1% of 1%. We have a lot of growth ahead within Hinge Health, Inc. On the roadmap, one of the few things I can say with confidence is not in our near- or medium-term roadmap is mental health. It is a crowded space. There are many other areas where you are almost competing with non-consumption. Neurology is vastly underserved and long overdue for care automation; we are excited about planting a flag there as well as in several other areas we are evaluating. Never say never on mental health—plans could change—but at the moment, it is not on our roadmap. Operator: Your next question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is open. Please go ahead. Craig Hettenbach: Thanks. A question on the continued progress on member yield expansion. Any other details you can share—be it Hinge Connect, effective marketing strategies—on what is keeping that momentum going? Daniel Perez: New clients are seeing faster member adoption, which we attribute to a better product launching with our latest features from day one, combined with improved outreach techniques, including targeted enrollment initiatives that leverage our Hinge Connect data. For legacy clients, yield growth is coming from improved product and member experience—we are capturing more members beginning care and bringing members back at higher rates—coupled with those improved enrollment initiatives. We like these trends, which is why we are raising yield expectations to slightly north of 4%. It is not just enrollment performing well—we have invested enormously in post-enrollment engagement. If someone enrolls but does not do treatment, we will not improve outcomes or reduce costs. Our post-enrollment engagement is performing really well—we believe it is trending 2x to 3x higher than second place—and that is where we drive much of our clients’ ROI. Craig Hettenbach: As a follow-up, we can see AI efficiencies in the numbers. What is your confidence in sustaining that as members increase? The care team has been running roughly flattish—how are you thinking about AI and technology continuing to scale? Daniel Perez: We are investing in AI across the organization. About a third of our headcount is in R&D, so many teammates are using AI in their day-to-day, allowing us to weave it throughout the organization. On care team efficiencies, there is more room to grow, but not just there—we are looking at efficiencies across our cost structure. We like where gross margin is at 85%. We want to continue investing in the product experience, including the care team experience, even if that means treading water on gross margin moving forward. James Budge: Maybe I would add a reminder: we doubled the distribution percentage of our Enso devices in 2025 relative to 2024, and we have said we will send even more Enso devices in 2026. That competes against care team efficiencies and flattens gross margin around 85%, maybe with a little more room to grow because of care team efficiencies. We are sending more Enso devices because it produces better outcomes and more opportunities to use our product—engagement in therapy sessions goes up dramatically when someone uses Enso, improving the ROI story. There is still opportunity in operating margin. We have largely hit our IPO target margins—gross margin 82% to 85% (we are at the high end) and operating margin at 25% (we are at our target). At Movement, we will provide an updated model; you can reasonably conclude there will be higher operating margin targets than what we have today. Operator: Your next question comes from the line of Jessica Tassan with Piper Sandler. A kind reminder to press 6 to unmute yourself locally. Your line is open. Please go ahead. Jessica Tassan: Hi, thank you, and congrats on the results. We are looking forward to the Movement conference. On the migraine product, how are you delivering ROI? Are you helping clients avoid prescription drugs or mitigate some of that incremental $8,000 of average healthcare spend per migraine patient per year? Are you holding new products to the same 4:1 ROI standard as the existing MSK product? Daniel Perez: You are right that a lot of migraine costs are driven by peripheral healthcare costs—people with migraine often do not sleep as well and may have broader health impacts, so addressing migraine can help reduce total healthcare spend. A big component of direct migraine spend is newer migraine drugs, which we are not opposed to—they can be very effective—but they are pricey, often $800 to $1,400 per month, and they do not come without side effects. By giving people a non-pharmaceutical option in their toolkit, our hope is that it complements pharmaceutical regimens, reduces reliance and frequency, and lowers costs overall. We will be publishing ROI studies on our impact for migraine, and we will hold ourselves to rigorous ROI standards. Jessica Tassan: As a follow-up on Hinge Select, when you go to market this selling season, how are you planning to price or commercialize this offering? Should we think about it as increasing ARPU via sessions, similar to Enso or virtual MSK sessions, or something else for modeling 2027? Daniel Perez: You are thinking about it the right way. An in-person visit arranged through Hinge Select carries an admin fee per in-person session delivered—whether PT, imaging, or a doctor visit—and that fee is added to our revenue for brokering that in-person visit as part of our network. It is not a PEPM; it is tied to utilization. We will share more about the Hinge Select model at our Movement investor conference. Operator: Your next question comes from the line of Rishi Jaluria with RBC Capital Markets. Your line is open. Please go ahead. Rishi Jaluria: Thanks for taking my questions, and great to see continued strong execution. Daniel, on migraine—what incremental investments do you have to make? What does the timeline to get market-ready look like? Is the current Enso device ready for that, or do you need to retool it? And what about marketing and driving awareness within your customer base? Daniel Perez: Great question. We have spent the last several years preparing to be multiproduct—“platforming” our capabilities so they can be mixed, matched, and reused. That includes enrollment, member outreach, outcomes collection, treatment delivery, and more. Migraine exemplifies that strategy and largely leverages what we have already built—roughly 75% was already in our infrastructure. The long pole for migraine was hardware; hardware is almost always slower than software. We had a head start and adjusted Enso for migraine, gathered data, and then submitted to the FDA, culminating in clearance. We continuously evaluate conditions where we can meaningfully transform outcomes and experience at a fraction of today’s cost and move with pace. The resources needed for migraine were very efficient relative to building digital PT where it is today. We anticipate future products to be similarly capital-efficient as they leverage our existing capabilities. Rishi Jaluria: Thanks. And James, as a growing portion of your base is on the engagement model, what are you observing? Do those clients exhibit higher yield because of lower adoption costs? Is it helping ARPU as they get over the 13-session breakeven you have talked about? Is it helping land new logos? James Budge: Great question. All of those observations are relevant at the client level. For the member, there is no distinction—members do not know whether their employer is on the engagement model or paid-upfront model, so there is no usage difference attributable to pricing model. At the client level, the engagement model helps conversations—it lowers perceived risk and aligns incentives. Daniel Perez: It also addresses cynicism in digital health about paying PEPMs or case rates without usage or outcomes. Our engagement model demonstrates confidence that people will use the product and get better. We put our fees at risk for ROI, clinical outcomes, and engagement. Others have struggled to match this client-friendly model, which underlines that they do not have our engagement. We believe we have 2x to 3x higher engagement per member than anybody else in digital MSK. We build products people want to use, and you see it in our numbers. Operator: Your next question comes from the line of Elizabeth Anderson with Evercore ISI. Your line is open. Please go ahead. Elizabeth Anderson: Good afternoon, and thanks for the question. Daniel, could you talk a bit more about your MA and full-risk strategy? I know it is not as key as some other parts, but it is still an important area of expansion. How do you see things going into 2027? Daniel Perez: Great question. In the U.S., there are three key groups of covered lives we target: self-insured, fully insured, and Medicare Advantage. Medicare Advantage is going through a lot of change right now, so we have been particularly focused on our self-insured and fully insured groups. Fully insured last year was up the highest it has ever been, and in Q1, it probably contributed more to new lives than any Q1 we have had. We are also seeing strong growth in our federal plans, which have a distinct decision-making process. Fully insured and ASO are growing robustly, particularly fully insured. That underlines the ROI we deliver. We likely have an order of magnitude more fully insured customers than second place in digital MSK. We like when fully insured customers buy Hinge Health, Inc. because actuaries have underwritten the cost based on our ROI, which is a powerful validation of our outcomes. Operator: Next question comes from the line of Brian Patterson with Raymond James. Your line is open. Please go ahead. Analyst: Thanks, and congrats on the strong quarter. I know you mentioned that you have 80% of customers on the new pricing model and that it would stay about the same. Why would that not migrate closer to 100%? Is there anything keeping that from a customer perspective? James Budge: During selling season, almost 100% of new customers come on under the engagement model. For certain legacy clients on older arrangements, switching pricing models is not always their top priority, so the mix stays roughly stable in the near term. Daniel Perez: Almost no new customer is on the older billing model—almost all new customers are on the engagement/consumption model. Operator: Your next question comes from the line of Scott Schoenhaus with KeyBanc. Your line is open. Please go ahead. Scott Schoenhaus: Hey, can you hear me? Okay, good. Thanks for taking my questions. On the new migraine program, Daniel, you talked about 12% to 15% yields as your prior ceiling. Where is that now with migraine? And how do you effectively target customers for this new program? Historically, you have leveraged claims data and EHR data—what else are you doing to target people in the migraine enrollment program? Daniel Perez: For traditional physical therapy, about 9% of people see a PT in a given year across orthopedics, with some segments a little more or less. In our view, PT is underutilized due to access constraints, and increased spend on PT—digital or in person—leads to lower downstream costs. We would like to expand access so more people use PT, moving from ~9% closer to 12% to 15% over time. Migraine gives a parallel path for enrollments. Some will enroll in both migraine and digital PT, some only PT, some only migraine. We will share more on yield forecasts at Movement and over time. With one in six adults impacted by migraine—about 20% of women and 10% of men—we are confident the unmet need is large. On targeting, approaches are similar to digital PT—broad awareness for those suffering in silence, claims, and EHR data—but for migraine, pharmacy data is often more relevant. Many migraine medications are not over the counter and will show up in Rx data. We also leverage member-to-member referrals. Overall, the same channels as digital PT, with added emphasis on Rx data. Operator: Your next question comes from the line of Ryan MacDonald from Needham & Company. Your line is open. Please go ahead. Ryan MacDonald: Thanks for taking my questions, and congrats on an amazing quarter. Two on migraine—one for Daniel and one for James. Daniel, as you talk to clients already adopting migraine—the 125 thus far—what do those conversations look like as they balance upfront costs with ROI on the back end? Are they going to have clinical eligibility requirements given the smaller clinically diagnosed population? Are they capping utilization in early stages as they experiment? And, James, given Enso is a core component of the migraine program, how should we think about the rate at which Enso deployment grows within the member base into next year and the potential impact on gross margins over time? Daniel Perez: On enrollment and the sales process, conversations with employers have been very productive. Overwhelmingly, someone on the team—or a spouse—is afflicted with migraine. We have gotten inbound from customers asking how soon they or their spouse can enroll. If someone has a migraine, they are effectively out of commission—whether in-office or remote—so employers recognize the impact on productivity and the need for better care. There is a need for ROI, but also a recognition that employees and dependents need access to better care. We are seeing straightforward, supportive conversations. James Budge: A quick reminder: in our cost of goods sold, about half is the care team and about half is Enso/devices. Increases in Enso deployment have largely been offset by efficiencies in the care team; we see that again in 2026 and likely in 2027. Specifically, we increased Enso distributions in 2025 by about 2x over 2024 as a percentage of members receiving it. This year, we will likely increase another ~40% over last year, given what we were already planning plus migraine. We had already factored migraine into our planning, so it is not brand new to our forecast. Operator: For your final question today, we will go to Stanislav Berenshteyn with Wells Fargo. Your line is open. Please go ahead. Stanislav Berenshteyn: Thanks for squeezing me in. Two quick ones. First, for the 20% of lives still on the subscription pricing, have there been any changes in pricing at renewal? And then on the pipeline, you called out Q1 as substantially higher versus prior year and SMB as materially stronger. Is the sales cycle any different for SMBs versus larger enterprise accounts? James Budge: No changes—pricing on the upfront model has remained the same for several years now. Daniel Perez: SMB sales cycles are much faster—smaller organizations make decisions more quickly, so it is a more efficient sale. James Budge: As a reminder, we talked about adding more capacity and personnel on our SMB team on a couple of calls last year. It is great to see that when we invest—whether in product like migraine or in SMB on the commercial side—we drive more pipeline. We are being thoughtful about where we invest. Operator: That is all the time we have for questions. I will now turn the call back to Daniel Perez for closing remarks. Daniel Perez: First off, thank you, everybody, for dialing in and for learning more about our business, and to our investors who have put their capital into Hinge Health, Inc. As you can see from our results and our expanding product portfolio, we are not standing still. There is a lot of runway ahead. As I mentioned, we are just 1% of 1% right now in terms of the total TAM we believe we can tackle. We hope to have many decades ahead. We are excited about the progress, and we hope to see many of you at our client conference, Movement, where we will also host our investor conference on June 10, as well as in the coming quarters as we share more products. Have a good rest of your day. Operator: This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Afternoon. My name is Trevor, and I will be your conference operator today. At this time, I would like to welcome everyone to the Teradata Corporation 2026 First Quarter Earnings 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, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would like to hand the conference over to your host today, Chad Bennett, senior vice president of investor relations and corporate development. You may begin your conference, sir. Good afternoon, and welcome to Teradata Corporation's first quarter 2026 earnings call. Chad Bennett: Steve McMillan, Teradata Corporation's President and Chief Executive Officer, will lead our call today, followed by John Ederer, Teradata Corporation's Chief Financial Officer, who will discuss our financial results and outlook. Our discussion today includes forecasts and other information that are considered forward-looking statements. While these statements reflect our current outlook, they are subject to a number of risks and uncertainties that could cause actual results to differ materially. These risk factors are described in today's earnings release and in our SEC filings. Please note that Teradata Corporation intends to file the Form 10-Q for the quarter ended March 31, 2026 within the next few days. These forward-looking statements are made as of today and we undertake no duty or obligation to update them. On today's call, we will be discussing certain non-GAAP financial measures which exclude such items as stock-based compensation expense and other special items described in our earnings release. We will also discuss other non-GAAP items such as free cash flow, adjusted free cash flow, and constant currency comparisons. Unless stated otherwise, all numbers and results discussed on today's call are on a non-GAAP basis. A reconciliation of non-GAAP to GAAP measures is included in our earnings release, which is accessible on the Investor Relations page of our website at investor.teradata.com. A replay of this conference call will be available later today on our website. And now, I will turn the call over to Steve. Steve McMillan: Thanks, Chad, and thanks to everyone for joining us today. I am very pleased to report that Teradata Corporation is off to a strong start in 2026. With solid execution globally and our pivot to AI-led value, we outperformed against expectations in a number of key metrics. Recurring revenue grew 12% as reported year-over-year. Total revenue grew 6% as reported year-over-year. And non-GAAP earnings per share was $0.88, an increase of over 30% versus Q1 2025. We continued to see solid retention in the quarter, and customer interest in our hybrid capabilities drove a healthy growth rate in both total ARR and cloud ARR. We see that security-driven demand for sovereign AI is accelerating. For example, financial services and health care customers are increasingly concerned about shared infrastructure for AI workloads, and this is driving traction with our AI Factory offer. The most demanding regulatory workloads in the world run on Teradata Corporation. These are workloads that are least susceptible to disruption. The trend we see is AI moving closer to the data, not data moving to AI, and that plays directly to our architecture. Every organization is grappling with the same challenge: putting AI to work for them and becoming truly autonomous enterprises. One thing is clear. To win with AI, organizations need to operate at speed and scale that was once unattainable. This is a core competence of Teradata Corporation. Our customers have governed data estates with years or even decades of data in their Teradata Corporation environment, including codified industry knowledge, entity models, and business rules specific to financial services, health care, telecommunications, and beyond. This is their institutional memory. The analytics and reporting workflows built on top of that data have been refined over decades. The value of those workflows vastly exceeds the cost of the platform. AI multiplies the value of that institutional knowledge, and our platform is designed to execute at the speed AI requires. Our product organization is relentlessly focused on providing the strongest execution engine—reliable, high performance, and always on. Agents never sleep, and mission-critical automation requires a platform that never slows down. In 2026, we are executing against an aggressive product roadmap and are already taking new innovations to customers. We are seeing market interest in our MCP Server. It is an on-ramp to enterprise AI, providing semantic access to the enterprise data and context that can activate real business outcomes. It eliminates friction through a natural language interface that leverages AI agents. Together, the MCP Server and our agentic framework are designed to enable querying, analysis, and management of data with full context. To address the challenge organizations face of moving from isolated pilots to production-grade agents, we are making it easy for customers to build, deploy, and manage AI agents with our Agent Stack announced earlier this year. This new comprehensive platform is designed to simplify the life cycle of enterprise AI agents. Our Teradata Corporation Agent Stack can help customers reduce the complexity of finding and integrating trusted data and applying enterprise knowledge and context. It can also aid in enforcing governance and maintaining compliance across hybrid environments. In March, we added new capabilities to our enterprise vector store. We added multimodal data spanning text, images, and audio from our partnership with Unstructured, and we added more agentic features powered by LangChain integration. These announcements demonstrate another significant evolution in our enterprise AI infrastructure, unifying structured and unstructured data within a single governed platform capable of supporting billions of vectors and thousands of concurrent queries from AI agents. In April, we announced the availability of our enterprise-grade Teradata Corporation Analyst Agent on Microsoft Marketplace. This brings AI-assisted conversational analytics directly into customers' existing Azure environments. We also recently participated in the Google Distributed Cloud Air Gap Center launch. Our platform runs natively on GDC, enabling organizations to operationalize Google's AI capabilities and our own analytics entirely within the air gap perimeter. No data leaves, no sovereignty is compromised. This capability is designed to be a real value for defense, intelligence, and public sector organizations that require air-gapped sovereign AI. One of our differentiating capabilities is helping customers leverage and get value out of their environments, and that is even more important as they work to get business value from their AI investment. Here is where our AI services shine. Our AI services momentum is growing as we see customers looking to take advantage of the depth of experience that our forward-deployed teams have gained from the successful early AI engagements we have executed. We recently issued a press release outlining how our AI services helped a sample of customers from the travel and transportation industry. Every enterprise has data, and that data is the basis of their institutional memory, yet few can turn that institutional memory into action compliantly across varied environments and efficiently at scale. Here, our expertise is driving successful engagements to help customers move from experimentation to production quickly. Third-party validation this quarter reinforces our leadership position. Nucleus Research ranked us as a leader in their 2026 Data Science and Machine Learning Platform Technology Value Matrix, ahead of platforms that have built their reputation on data science. Our hybrid capabilities are also getting noticed. Constellation Research named us to their 2026 ShortList for Hybrid and Multicloud Analytical Data Platforms. We were one of only three vendors selected from a field of more than three dozen, reflecting a breadth that competitors structurally cannot match. More broadly, ISG recognised us as Exemplary, their highest designation, across seven categories in their 2026 AI and Data Platforms Buyer’s Guides. That breadth reflects that we are meeting enterprises wherever they are in their AI journey. This recognition reflects something that takes decades to build: the trust of the world's largest enterprises running workloads that simply cannot fail. Now I will walk through a few examples of the outcomes we are already helping customers achieve. One of the largest pan-European banks renewed and expanded its Teradata Corporation relationship. The goal was to address business-critical workloads like financial reporting and regulatory data model convergence, underscoring Teradata Corporation's crucial role in the bank's operations. It also launched a customer journey transformation leveraging Teradata Corporation AI capabilities, including augmented agent work, enterprise LLM integration, and AI Studio. This positions Teradata Corporation as its emerging enterprise AI platform. The engagement reflects how large financial institutions increasingly rely on Teradata Corporation as a long-term strategic platform for both regulated analytics and AI. A leading global retailer based in EMEA—a win-back for us—selected our platform to replace its existing on-prem platform. After evaluating competitors, the customer concluded that Teradata Corporation delivered the best price-performance for its analytic workloads. This reflects the durability of our value proposition for mission-critical retail analytics at scale. A leading Latin American financial institution added our AI services to encompass its enterprise AI operations. The customer recognizes they will now get continuous oversight, governance transparency, and life cycle management of AI models and agentic applications in a regulated environment. The engagement positions Teradata Corporation as this bank's long-term operational partner across the full AI life cycle. A large government agency in India committed to Teradata Corporation as it enters a new phase of digital transformation. We help unify structured and unstructured data at massive scale to deliver real-time comprehensive profiles through its online portal. Our native object store capability was chosen to simultaneously bridge structured block storage and unstructured object storage at scale—a requirement no competing platform could meet. This example underscores our differentiated position in mission-critical, high-concurrency government analytics environments. Market data reinforces what we are seeing and hearing directly from customers. In a third-party research survey of 1 thousand senior technology and data leaders sponsored by Teradata Corporation, every single organization—100%—is actively pursuing AI; 17% have deployed it beyond pilots; and 99% have already had infrastructure scaling challenges in the attempt to move from pilot to production. The barriers are not abstract: performance at scale, cost predictability, always-on agent demands, running new workloads along with existing production systems, and deploying across cloud, on premises, and regulated environments. Enterprises are not facing one infrastructure problem; they are facing all of them, all at once. That gap between ambition and execution is something we believe we are uniquely positioned to solve. On Thursday, we will be announcing a significant and broad set of innovations that address these challenges, helping our customers move into the next phase of enterprise intelligence while bringing autonomous AI and knowledge to organizations globally. We invite you to join our livestream on May 7 at 10:30 AM Eastern time. You can join directly from our teradata.com website. We are confident that our new unified platform and integrated AI workspace will help enterprises rapidly move into production AI. We are quite excited about what is coming on Thursday and hope you can attend. As I pass the call to John, I will reinforce that we are very pleased with our Q1 results. Even with the current global uncertainties, our business model is robust, demand continues for our capabilities, and we see tremendous opportunity to create incremental value for our shareholders. We have sales momentum, customer interest, and an engaged partner ecosystem. And we have a great start to our product innovation pipeline and more coming very soon. We remain focused on driving execution, increasing our differentiation, and delivering products and services that lead customers to rapidly deploy agentic AI into production. Now, John, over to you. John Ederer: Thank you, Steve, and good afternoon, everyone. We were expecting Q1 to be a strong start to the year, and it proved to be even better than we anticipated, with total revenue, recurring revenue, and non-GAAP earnings per share all exceeding the top end of our guidance ranges for the quarter. Additionally, we got off to a fast start with strong free cash flow in the first quarter. The revenue upside was driven primarily by recurring revenue and, more specifically, the upfront portion of our on-premise subscription term license business, reflecting continued interest in our hybrid platform. Non-GAAP operating margin also improved significantly by more than 500 basis points year-over-year, driven by higher recurring revenue and a continued focus on operating leverage to deliver profitable growth. During Q1, Teradata Corporation entered into a settlement agreement with SAP. From the settlement, Teradata Corporation received a gross payment of $480 million in late March. After accounting for legal fees and other expenses related to the SAP litigation and resulting settlement, the pretax net amount was $359 million, which benefited both operations and free cash flow. On an after-tax net basis, this is expected to provide a $302 million benefit to free cash flow in FY 2026. The settlement also positively impacted GAAP diluted earnings per share by $2.90. Tax payments related to the settlement totaling $57 million are expected to be paid from Q2 through Q4 2026, with approximately half expected to be paid in Q2 and the remaining half expected to be split between Q3 and Q4. For the remainder of the year, we will also refer to adjusted free cash flow to provide a normalized free cash flow measure for the business. Adjusted free cash flow will reflect adjustments for the impact from the SAP settlement by excluding gross proceeds, legal and other expenses, and taxes specific to the settlement. In terms of our detailed financial results for the first quarter, total ARR grew 3% as reported and 2% in constant currency, while cloud ARR grew 13% as reported and 12% in constant currency. First quarter total revenue was $444 million, up 6% year-over-year as reported and 4% in constant currency, which was three points above the high end of our outlook due to higher recurring revenue. First quarter recurring revenue was $400 million, up 12% year-over-year as reported and 9% in constant currency, which was four points above the high end of our outlook. The outperformance was primarily due to higher upfront revenue from term license subscriptions, which contributed five points to the year-over-year growth rate. First quarter consulting services revenue was $43 million, down 14% year-over-year as reported and 15% in constant currency. Looking at profitability and cash flow, please note that I will be referencing non-GAAP numbers for expenses and margins, and a full reconciliation to GAAP results is provided in our press release. For the first quarter, total gross margin was 63.7%, which was up 340 basis points year-over-year, driven by a higher mix of recurring revenue and improvement in consulting gross margin. Recurring revenue gross margin was 70%, which was flat with Q1 last year, but up sequentially from Q4 FY 2025. The sequential improvement was driven by the incremental upfront recurring revenue, but we are also continuing to make progress improving our cloud gross margins. In Q2, we expect lower upfront revenue to be a headwind to our recurring gross margin. Consulting services gross margin was 4.7%. This was down from a recent high point in Q4 FY 2025, but it did improve by over 600 basis points on a year-over-year basis. Operating margin improved significantly on a year-over-year basis, coming in at 27.3% versus 21.8% in Q1 last year. The margin expansion was driven from recurring revenue outperformance and favorable gross margin benefit from upfront revenue. For 2026, we continue to anticipate approximately 100 basis points of operating margin expansion. Non-GAAP diluted earnings per share were $0.88, exceeding the top end of our outlook range by $0.09. The outperformance was largely driven by higher recurring revenue and total gross margin. We generated $390 million of free cash flow in the first quarter. This amount includes a $359 million benefit due to the pretax net proceeds from the SAP settlement. On an adjusted free cash flow basis, we generated $31 million. We now have $816 million of cash and cash equivalents at the end of Q1, up from $368 million in the prior-year period. This also returns the company to a positive net cash position of $269 million for the first time since Q4 FY 2021. Finally, we continue to return value to shareholders, repurchasing approximately $34 million, or about 1.2 million shares, in the first quarter. We continue to target using 50% of our adjusted free cash flow for share repurchases, which excludes the benefit from the SAP settlement. Before turning to our financial outlook, I would like to provide some additional context regarding the use of the net proceeds from the SAP settlement. We plan to strengthen our balance sheet by deleveraging. This will maximize our optionality to make future strategic investments in AI, as well as continuing our stock buyback program. On total ARR, we continue to expect our typical seasonality, with total ARR stabilizing in Q2 and expanding over the course of the year, showing modest sequential dollar growth from Q1 to Q2. For recurring revenue, we expect upfront recurring revenue and currency to be headwinds to the growth rate in Q2. We anticipate over a 10-point impact to the recurring revenue growth rate on a sequential basis from Q1 to Q2 due to upfront revenue. And based on the foreign exchange rates at the end of March, currency is anticipated to be approximately a three-point headwind to recurring revenue growth. Now turning to our annual outlook for 2026, we reaffirm our ranges for total ARR, total revenue, recurring revenue, and non-GAAP earnings per share. For the non-GAAP earnings per share range of $2.55 to $2.65, we anticipate being at the higher end of that range. For adjusted free cash flow, given the strength of Q1, we are increasing our outlook and now anticipate being in the range of $320 million to $340 million. And to reiterate, our adjusted free cash flow range excludes the after-tax benefit from the SAP settlement of $302 million. For 2026, recurring revenue is expected to be in the range of minus 2% to flat year-over-year, total revenue is expected to be in the range of minus 4% to minus 2% year-over-year, and non-GAAP diluted earnings per share is expected to be in the range of $2.53 to $2.57. In terms of some other modeling assumptions, for the second quarter, we expect the non-GAAP tax rate to be approximately 24% and the weighted average shares outstanding to be 96.3 million. Using the currency rates at the end of March 2026, we now expect minimal impact to the full-year revenue growth rate. Also, we now anticipate FY 2026 other expenses to be approximately $22 million. In summary, we were very pleased with the start of the year and believe that we are tracking well towards our full-year targets. We significantly improved our balance sheet and generated strong free cash flow, and we are continuing to pursue our profitable growth strategy by finding margin improvement opportunities across the business while at the same time preserving investments in R&D to support future growth. Thank you all very much for your time today. We will now open the call for questions. Operator: At this time, I would like to remind everyone that in order to ask a question, press star and then the number one on your telephone keypad. In the interest of giving everyone an opportunity, we appreciate if you would limit yourself to one question and one follow-up. Your first question comes from Radi Khalid Sultan with UBS. Your line is open. Radi Khalid Sultan: Awesome. Thanks so much. First for Steve, just now that the business is skewing more heavily towards expansions versus cloud migrations, can you walk through how you position the business, both product and go-to-market, to reflect that? And maybe just how do you expect that to impact overall sales productivity throughout 2026? Steve McMillan: Yeah. Thanks for the question. We are seeing really strong interest in terms of the AI that we launched last year and also the AI capabilities that we are going to talk a little bit more about at our product launch on Thursday this week on May 7. And that is certainly driving expansion for us. I think last year, we saw the trend in terms of a headlong rush to the cloud really starting to decline as an indicator in the market for us. What we have started to see is a real interest in expansion. We focused our sales force on total ARR growth, and they can get that growth from either on-prem or from the cloud. Our strength in a hybrid environment is a real differentiator for us and is providing a growth lever when we combine that with some of our AI capabilities and the ability to operate and execute AI workloads on-premise. And that is what really some of the examples in the prepared remarks were pointing to. As we execute against that, we see sales productivity continuing to improve as well, as the sales teams have more and more things to sell and an increased value proposition to take to our customers. Thanks for the question. Radi Khalid Sultan: Awesome. And maybe just a follow-up for John. I know it is early with AI services and the forward-deployed engineering practice. Just as you think about the P&L impact from both a top line and margin perspective, in both the near and long term from that growing services practice on the AI side, thank you. John Ederer: Yeah. Sure. No, thanks for the question. You know, in terms of the AI services and the P&L impact for 2026, I would say it is pretty minimal. This is a new offering for us and something that we are ramping up this year. Longer term, I could see it contributing more to the P&L, but still, ultimately, it is going to be a services component. It is going to be complementary to what we are trying to do on the software side. I would say that I see it as a critical connection point, though, and it helps us further develop our proofs of concept that we have been doing with customers, move them into production, and then ultimately drive AI-related ARR. Radi Khalid Sultan: Awesome. Thank you. Operator: Your next question comes from Yitchuin Wong with Citibank. Your line is open. Yitchuin Wong: Hi. Good evening. Thanks for taking the question. Great to hear the team navigate the quarter across a variety of crosswinds that we saw over the past couple of months. Historically, this kind of uncertainty elongated enterprise IT cycles, as we heard from a couple of the larger customers that reported last week. However, the enthusiasm that we are seeing with agentic AI and with your recent GA vector product, agentic, and tons of new AI product announcements with autonomous event Thursday—excited for that. Are you finding the strategic urgency to deploy AI capabilities is overriding the localized macro caution, and what are you seeing around those cost screens and on your deal cycle in the quarter? Steve McMillan: Yeah. Thanks for the question, YC. I think AI is in every strategic conversation that I and my team have with customers. And we can see that with some meaningful data points. If we look at our pipeline, we see a growing proportion of our pipeline today has AI attached to it. And so that reflects that every strategic conversation has that AI or analytics edge to it. Second thing is, as we look at customers, they are having a real challenge deploying AI in production, and they see the Teradata Corporation platform, along with the announcements we have already made and the roadmap that we are going to deliver, as a platform that can deliver AI into production for them. And then third, as John was just talking about, even though we are always going to be a technology company primarily, we do have a capability in our services organization, and the set of AI services that we have launched is enabling customers to move from those pilots into production. I am not going to pivot the company towards services. It will just be a part of enabling our technology value proposition in the marketplace, but we are certainly seeing that pivot. Everybody wants to get the business outcomes from AI, absolutely focused on doing that as quickly as possible. We intend to capitalize on that. Yitchuin Wong: That is good to hear. I have a follow-up for John. The quarter sounded like hybrid continued to be a bigger driver, especially with sovereign AI—sets of things that could be driving higher demand for hardware—and we have a refresh cycle upcoming in 2H. I just want to touch on that. In Q4, we talked about you being able to stop the memory pricing impact given the long-dated contracts. Memory prices have continued to ramp significantly over the last few months. Could you walk us through any incremental impact that you are expecting, especially going into next year as well? Are you seeing customers respond to this memory crunch differently? Thank you. John Ederer: Yeah. Thanks for the question. I would say that this is definitely a dynamic that we are watching very closely and evaluating near daily, and it is becoming quite pervasive in the marketplace. I would say that for us, from a financial standpoint, it is probably more of an FY 2027 challenge and opportunity as opposed to FY 2026. We will talk a little bit more later this week about some of the new products that are coming out, including the hardware refresh. Those will become available this year, but we would really expect more financial impact to occur in FY 2027. Having said all that, from a pricing standpoint, that is the piece that we are looking at the closest. And the thing that we will focus on is to make sure that we protect ourselves from a margin standpoint as we go to market with that. Yitchuin Wong: Thank you. Look forward to seeing everyone out there. Thanks. Operator: Your next question comes from Erik Woodring with Morgan Stanley. Your line is open. Ralph Firaoli: Hi. This is Ralph Firaoli on behalf of Erik. Good evening, and thank you for taking my question. I just wanted to ask: Are we at the start of an improving recurring revenue gross margin trajectory, given you just posted 70% for the first time in a year and the strongest quarter-over-quarter recurring revenue gross margin improvement in years? Steve McMillan: Thanks for your question. I will start, and then I will hand over to John. Certainly, from an ARR perspective, we returned the company to ARR growth in 2025, and we set the expectation that we would continue and accelerate that percentage of ARR growth into 2026. We see a good path and opportunity for that to continue, based both on the expansions that we generate inside the customer base and the incredible interest that we have gotten using the platform for AI-type workloads. And then from an operating margin perspective, we have a number of initiatives in the business that we are looking at to improve operating margins as we continue forward. John. John Ederer: Yeah. Thanks for the question. So gross margins are a little complicated on the recurring side for us. You have got different dynamics at play with both the cloud side of our business as well as the on-prem. In Q1, we did see a nice spike up in gross margin at least relative to the last couple of quarters, at 70% for the recurring, and that was largely driven by the upfront revenue that we also saw in Q1. And so this was a factor of revenue recognition and ASC 606 and getting more upfront revenue related to the on-premise piece of the business. So that had a spike in margins for this quarter. As we look out over the remainder of the year, we would expect them to be a little bit more consistent with recent quarters that we saw in 2025. Now, underneath that, we are seeing improvement in our cloud gross margin, and that is a critical factor for us. I know we do not disclose that publicly, but we have been making good, steady progress on that, and we saw some nice improvement in Q1 on cloud gross margins as well. Ralph Firaoli: Great. Thanks. And if I could just ask a follow-up. Could you help us better understand demand and sales linearity in the quarter, and maybe how the Middle East conflict is impacting sales cycles versus what you are hearing at the micro level as it relates to demand for data prep, unstructured data, etc.? Just any sense of how these factors are impacting your business? Thank you. Steve McMillan: I think we are still seeing a very solid demand environment. The challenges in the Middle East have not substantially impacted our business at all, really. And the demand patterns that we are seeing really reinforce the value that organizations want to get out of the investment they are making. As I mentioned in the prepared remarks, the survey that we did showed that despite 100% of the customers that we spoke to in that survey wanting to deploy AI and get the benefit from AI, the vast majority—99%—are having their problem getting from pilot to production. So that really is altering the conversation that we are having with customers as they look at Teradata Corporation as a platform and a knowledge platform that can deliver the agentic AI workloads that they need. So that is resulting in an environment where we can deliver on the expansions that we need to deliver to make our outlooks and actually take advantage of the market opportunity that is in front of us. Ralph Firaoli: Great. Thank you. Very helpful. Operator: Your next question comes from Matthew George Hedberg with RBC Capital Markets. Your line is open. Matthew George Hedberg: Steve, as a follow-up to that earlier question, it really does seem like there is a lot of momentum in AI, and I think we will hear more about that later this week. The MCP Server interest is high. I guess I am curious: Is there a way for you to determine what the actual ARR benefit you are seeing is from these increases in AI workloads within your base? Steve McMillan: Yeah. I think what we are seeing is that helping those customers cross the chasm from pilot to production is certainly driving usage and capacity usage of the Teradata Corporation platform. One of the benefits that we have in terms of the Teradata Corporation platform is that agentic AI workloads with always-on agents are driving a tremendous volume of queries, driving a huge concurrency of queries, and complexity of queries into the respective data platforms. That is Teradata Corporation’s sweet spot in terms of how we execute and the technology that we have got. And I think we are seeing customers really take advantage of that, and there is a little bit of a shift from standard BI workloads towards more agentic-type workloads, but we also see the opportunity opening up to serve both in the cloud and on-premise those agentic workloads. And we see it as an opportunity for us to drive incremental ARR growth, especially with the new products that we will be announcing on Thursday of this week. Matthew George Hedberg: That is great. And then maybe for John, it was great to hear that retention was solid in the quarter. I guess I am curious, is there anything we should keep in mind regarding large renewals for the balance of this year? John Ederer: No. I do not think there is anything particular on that front. In general, we are seeing improved retention rates. We actually started to see that in fiscal 2025, and we are carrying that through here in 2026, and started off on a good note in Q1. So I think in general, we have done a nice job of getting closer to the customers, understanding that process better around key renewals, and making sure that we are in a good position to do that. Matthew George Hedberg: Got it. Thanks. Operator: Your next question comes from Raimo Lenschow with Barclays. Your line is open. Joe McMinn: Hi, this is Joe McMinn on for Raimo. Thanks for taking our question. During the prepared remarks, you talked about the strong start to the year. You definitely have some tailwinds—security-driven demand, accelerating sovereign AI. AI interest seems to be healthy, and I completely understand we are operating in a very dynamic environment, but could you help us understand the puts and takes and maybe any balancing factors that motivated you to maintain the full-year ARR guide? John Ederer: Well, I think that if you look at the total ARR number for Q1, on a reported basis, 3%, that is right in line with what we had guided for the full year of 2% to 4%. So I guess I view Q1 as being very consistent with our outlook for the year. And then in general, we are seeing decent demand across the product lines, and we are optimistic about some of the things that we will start to introduce later this week. Now, those will not have a material impact on FY 2026, but in general, we are seeing better demand. Joe McMinn: Understood. Congrats on a solid quarter. John Ederer: Thanks. Operator: Your next question comes from Patrick Walravens with Citizens. Your line is open. Patrick Walravens: Oh, great. Thank you very much. Could I start by asking—your comments about the trouble that clients have getting from pilot to production—can you drill down on that a little bit? Specifically, what gets in the way of moving to production? Steve McMillan: Yeah. Pat, I think it goes to the characteristics of the workload and the data platforms that organizations are using. I have used the term before that our competitors solve complexity with incremental compute. We solve complexity with great software. And that enables us to address some of these challenges that our customers are having in terms of spiraling compute costs for their data platform. They have regulatory challenges in terms of making sure that data is well governed. And across all of these different types of data problems, we have been solving them for customers for years, as they have built out some of the most comprehensive enterprise data warehouses, and then making sure that those solutions have the right context. And context is built on industry knowledge, industry data models, the codification of business rules, and we have helped customers and organizations span those challenges for years now. It is just another reinvention of that from an AI perspective to ensure that these AI agents have the right context to get the reliable answers in a production context to really solve business problems today. And that is what our whole new series of offerings and capabilities over the past few months, and including what we are planning to launch over the next couple of weeks, really brings together in terms of delivering that context to our customer organizations. Patrick Walravens: Okay. Great. And can I ask, Steve—or maybe John, I do not know who wants to pitch in on this—so other than the financial aspect of the SAP settlement, can you remind us what this whole thing was about? And is there any fundamental benefit in having resolved this dispute? Steve McMillan: Look, I think, Pat, it is always good to clear the deck from a legal perspective and make sure that we are looking forward and looking forward to what we are actually going to do strategically with that cash. It certainly is on the balance sheet now, and it gives us a lot of strategic optionality as we move forward in terms of how we deploy that. Certainly, it solidified the balance sheet, as John pointed to, but it gives us strategic options moving forward. And we certainly see it as a vehicle that is going to enable us to increase our return to shareholders as we move forward. So we are pretty excited about it and glad to put it behind us. Patrick Walravens: Okay. Thank you, guys. Operator: Your next question comes from TD Cowen. Your line is open. Analyst: Hi. This is Jared on for Derrick. Thanks for taking my questions. First, could you comment on domestic and international revenue in the quarter and maybe pick apart some of the drivers for each of those markets? John Ederer: Yeah. So in general, if I look back over the last few years, we have seen some differences in domestic versus international. And if you go back a couple of years, the impact of some of the churn was really more felt in the United States as opposed to the international markets. We have also seen some improving trends, even from a new logo standpoint, in some of the international markets. And so I think that that is one area where the hybrid story resonates even more so than perhaps in the United States. Analyst: Awesome. Appreciate that color. And off of that regulated industry commentary, can you just talk to some of the different trends you have been seeing in your regulated base versus nonregulated base? Steve McMillan: Yeah. I think—and it reflects as well in some of the workloads that we have been winning—certainly governments, financial services organizations, and health care organizations are highly regulated. We see that as a great competitive moat for us. We are uniquely differentiated to enable those organizations to run agentic AI workloads against that data, and they can do it in the cloud or they can do it from an on-premise perspective or in a hybrid environment. You know, more than 50% of our customers in the cloud also operate on-prem Teradata Corporation systems. So being able to span data across those environments, not move data into different types of solutions, has given those regulatory workloads some real benefit in terms of how they can leverage AI and agentic AI against those datasets. Analyst: Thanks for taking my questions. Operator: That concludes today’s Q&A session. I will now turn the call back over to Steve McMillan for his final remarks. Steve McMillan: Thank you very much, operator. Thanks for joining us today. We are really proud of our strong start to the year and the value we are creating for shareholders. We have the technology, the expertise, and a really strong partner ecosystem. And we believe we are bringing real differentiation to the market with our autonomous knowledge platform. We intend to keep that momentum up as we help organizations build for their edge future, moving decisively from AI ambition to sustained business impact. We look forward to updating you again next quarter. Operator: That concludes today’s conference call. You may now disconnect.
Operator: Good afternoon, and welcome to Huron Consulting Group Inc.'s webcast to discuss financial results for 2026. At this time, conference call lines are in a listen-only mode. Later, we will conduct a question-and-answer session for the conference call and instructions will follow at that time. As a reminder, this conference call is being recorded. Before we begin, I would like to point all of you to the disclosure at the end of the company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron Consulting Group Inc.'s website. Please review that information along with the filings with the SEC for disclosure of factors that may impact subjects discussed in this afternoon's webcast. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron Consulting Group Inc.'s website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers. And now I would like to turn the call over to C. Mark Hussey, Chief Executive and President of Huron Consulting Group Inc. Mr. Hussey, please go ahead. C. Mark Hussey: Good afternoon, and welcome to Huron Consulting Group Inc.'s first quarter 2026 earnings call. With me today are John D. Kelly, our Chief Financial Officer, and Ronnie Dale, our Chief Operating Officer. I will begin by noting that the execution of our growth strategy continues to deliver performance consistent with the financial goals outlined for 2025 investor day. Revenues before reimbursable expenses, or RBR, increased 12% in 2026 compared to 2025, driven by growth across health care, education, and commercial segments including record RBR performance in health care. During the quarter, we also continued our trajectory of margin expansion reflecting disciplined execution by our highly talented team. Encouraged by the strong start to the year, and the strength of our pipeline and backlog, we are affirming our annual RBR and margin guidance. We continue to believe we are well positioned to serve as our clients’ trusted adviser as they evolve their business models and organizations to succeed in challenging markets, in an increasingly complex AI-enabled world. We remain focused on executing against the market tailwinds driving demand for our business, and further strengthening our competitive position to enhance our ability to best serve our clients and achieve our financial goals. I will now share some additional insight into our first quarter performance. In the health care segment, first quarter RBR grew 14% over the prior-year quarter, reflecting strong demand for our performance improvement, revenue cycle managed services, financial advisory, and strategy offerings as well as incremental RBR growth from the integration of our acquisitions. Excluding the impact of the acquisitions, organic growth for the health care segment was 10% in Q1 2026, as compared to Q1 2025. As we have discussed in prior earnings calls, health care providers are operating amidst the convergence of competitive and regulatory pressures that continue to impact financial performance and drive the need to redesign care delivery models. Constrained reimbursements, rising operational costs, and labor shortages are intensifying the need for stronger cash flow, cost optimization, and greater operational flexibility. Health systems are facing a period of rapid transformation driven by advancements in technologies. Developing and executing an AI strategy amidst the rapid pace of change has become an increasingly important issue for a growing number of our clients. Providers are increasingly seeking trusted partners with the industry expertise that can help them integrate technology, workforce, and operating model changes into cohesive, executable strategies that deliver near-term financial benefit while positioning their organizations for sustainable growth, improved margins, and long-term competitive advantage. We see significant opportunities for evaluating and integrating a broad and growing number of applications and use cases for AI and digital tools across clinical, administrative, and financial workflows in our clients’ complex operating environments. Our ability to help clients address enduring and new challenges and opportunities is at the heart of the growth strategy for our health care business. As we rapidly expand and integrate our AI capabilities across our health care offerings, we believe our distinctive operational and technology expertise along with innovative new solutions and partnerships position us well to continue our growth trajectory. Turning next to the education segment, in 2026, education segment RBR grew 4% compared to 2025, driven by strong demand for our digital offerings. Higher education institutions are experiencing uneven demand among domestic students and a significant decline in international students. Amidst that backdrop, institutions are contending with rising operating costs, funding declines, heightened regulatory scrutiny, and further erosion of public confidence in the value of a traditional four-year degree. These dynamics are forcing higher education leaders to confront fundamental questions about scale, academic portfolio mix, cost structure, and long-term financial sustainability. We believe our strong market position in higher education provides the opportunity to serve as an experienced partner that can help our clients move beyond incremental actions toward more integrated strategic transformation. Universities are prioritizing solutions that deliver near-term financial improvement while modernizing operating models, administrative workflows, and academic offerings, while increasingly leveraging AI. We believe our strong client relationships, deep industry expertise, AI capabilities, and comprehensive portfolio of offerings position us to continue to serve as a partner of choice for our clients as they address these ongoing challenges. In the commercial segment, first quarter RBR grew 22% over the prior-year quarter reflecting strong demand for our financial advisory and strategy offerings. The increase also included incremental RBR from our acquisitions of Reliant and Wilson Parable. Excluding the impact of acquisitions, RBR in Q1 2026 grew 8% organically over 2025. Commercial industries are navigating heightened complexity driven by persistent cost inflation, global supply chain realignment, geopolitical and regulatory uncertainty, and continuously evolving customer and employee expectations. At the same time, companies are accelerating the adoption of AI-enabled, data-driven operating models to improve agility, productivity, and decision making. These forces are driving demand for comprehensive solutions that integrate strategy and operations, financial advisory, and digital and AI transformation. We continue to invest in expanding our offerings to address the rapidly changing needs of our global client base, and those investments are delivering more durable growth in our commercial business in recent quarters. We will continue to deepen our industry expertise and expand our ability to deliver differentiated end-to-end solutions to enhance our competitive advantage and best address the growing needs of our clients. Through the first quarter, our views on AI and its potential impact on Huron Consulting Group Inc. remain bullish, as we believe it will be a significant contributor to future growth, margin expansion, and shareholder value. Multiple third-party research providers forecast that the AI services market will grow in the double digits over the next several years, and we believe we are well positioned to help our clients plan and execute their AI strategies and take advantage of this rapidly growing market opportunity. We have substantially increased our investment in AI capabilities and will continue to deploy them throughout our offerings and operations, building upon our industry and functional knowledge. Beyond AI, the fundamental market tailwinds for continuing growth in our business remain, creating opportunities across all three operating segments. We believe our ability to bring together our strategy, operations, technology, and people-related offerings to redesign core business functions and processes, while integrating advanced technologies, will continue to position us for long-term growth. Now let me turn to our outlook for the year. Today, we are affirming our 2026 guidance for RBR, adjusted EBITDA margin, and adjusted diluted earnings per share. Given our strong first quarter results, I am increasingly encouraged about our prospects for the year. We remain committed to driving long-term shareholder value through continued execution of our growth strategy, which has delivered consistent RBR growth and margin expansion since 2022. Our disciplined capital allocation strategy has funded both programmatic M&A and, since 12/31/2022, the repurchase of 5 million shares, or 25% of our common stock outstanding. We believe there is significantly more value to be unlocked by our strategy, particularly as we leverage our collaborative, entrepreneurial culture to compete and win in today’s rapidly evolving technological and competitive landscape. In summary, we believe our strong competitive position in health care and education enables us to leverage our expertise and powerful portfolio of consulting, managed services, and digital capabilities. We also believe our size and scale in commercial markets enables us to be nimble and aggressive with an integrated operating model that amplifies our impact across consulting, digital, and managed services capabilities. Driven by the velocity of change and complexity facing our clients, our people are well positioned to continue to execute upon our growth strategy, and achieve our stated financial goals for low double-digit revenue growth, margin expansion, and disciplined deployment of our strong free cash flow. None of this would be possible without our strong collaborative culture. Our innovative and dedicated team continue to be the heart and soul of our company. With that, let me now turn it over to John for a more detailed discussion of our financial results. John? John D. Kelly: Thank you, Mark, and good afternoon, everyone. Before I begin, please note that I will be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. Our press release, 10-Q, and Investor Relations page on the Huron Consulting Group Inc. website have reconciliations of these non-GAAP measures to the most comparable GAAP measures, along with a discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results. Now I will share some of the key financial results for 2026. Q1 2026 produced RBR of $443.7 million, up 12.1% from $395.7 million in the same quarter of 2025, driven by growth across all three operating segments. Net income for Q1 2026 was $23.2 million, or $1.34 per diluted share, compared to net income of $24.5 million, or $1.33 per diluted share, in Q1 2025. As a percentage of total revenues, net income declined to 5.1% in Q1 2026 compared to 6.1% in Q1 2025, reflecting a higher effective tax rate during Q1 2026. Our effective income tax rate in Q1 2026 was 14.1%, which is more favorable than the statutory rate inclusive of state income taxes, primarily due to a discrete tax benefit for share-based compensation awards that vested during the quarter, partially offset by certain nondeductible expense items. Our effective income tax rate in Q1 2025 was negative 14.4%, as we recognized an income tax benefit on our pretax income driven by the discrete tax benefit for share-based compensation awards that vested during the quarter. The increase in effective tax rate during 2026 was anticipated in the 2026 guidance that we provided in February, and our expectation for a full-year effective tax rate between 28% and 30% remains unchanged. Adjusted EBITDA was $50.6 million in Q1 2026, or 11.4% of RBR, compared to $41.5 million in Q1 2025, or 10.5% of RBR. The increase in adjusted EBITDA was primarily attributable to the increase in segment operating income for all three segments, excluding segment depreciation and amortization and segment restructuring charges, partially offset by an increase in certain unallocated corporate expenses. Adjusted net income was $30.0 million, or $1.73 per diluted share, in Q1 2026 compared to $31.1 million, or $1.68 per diluted share, in Q1 2025. Now I will discuss the performance of each of our operating segments. The health care segment generated 51% of total company RBR during Q1 2026. This segment posted a record RBR of $225.2 million, up $26.7 million, or 13.5%, from Q1 2025. The increase in RBR in the quarter was driven by strong demand for our performance improvement, revenue cycle managed services, financial advisory, and strategy offerings. RBR in Q1 2026 included $7.3 million of incremental RBR from our acquisitions of Cliffs Insights and the consulting services division of Axient Systems. Operating income margin for the health care segment was flat at 28.4% in both Q1 2026 and Q1 2025. The education segment generated 29% of total company RBR during Q1 2026. Education segment RBR in Q1 2026 was $127.5 million, up $4.7 million, or 3.8%, from Q1 2025. RBR in Q1 2026 included an inorganic RBR contribution of $0.6 million from acquisitions that closed in 2025. The operating income margin for education was 21.6% for Q1 2026 compared to 18.8% for the same quarter in 2025. The increase in operating income margin in the quarter was primarily driven by decreases in compensation costs for our revenue-generating professionals, practice administration, and meeting expenses. The commercial segment generated 20% of total company RBR during Q1 2026 and grew 22.3% over the prior-year period, posting RBR of $91.0 million for Q1 2026 compared to $74.5 million in Q1 2025. The increase in RBR in Q1 2026 was driven by increased demand for our financial advisory and strategy offerings and included $11.0 million of incremental RBR from our acquisitions of Reliant and Wells Comparable. Operating income margin for the commercial segment was 16.4% for Q1 2026 compared to 15.2% in the same quarter in 2025. The increase in operating income margin in the quarter was primarily driven by decreases in contractor expenses and salaries and related expenses for support personnel, as well as revenue growth that outpaced the increase in performance bonus expense for our revenue-generating professionals, partially offset by an increase in salaries and related expenses for our revenue-generating professionals as a percentage of RBR. Corporate expenses not allocated at the segment level and excluding restructuring charges were $60.0 million in Q1 2026, compared to $52.4 million in Q1 2025. Unallocated corporate expenses in Q1 2026 and Q1 2025 included income of $1.2 million and $0.9 million, respectively, related to changes in the liability of our deferred compensation plan, which is offset by the change in fair value of the investment assets used to fund that plan reflected in other expense. Excluding the impact of the deferred compensation plan in both periods, unallocated corporate expenses increased $7.9 million primarily due to increases in compensation costs for our support personnel and software and data hosting expenses. The increase in compensation costs for our support personnel includes approximately $2.0 million of costs that have been reclassified from our operating segments in 2026 reflective of a shift to centralized support for certain functions. Cash flow used in operations during Q1 2026 was $162.2 million, reflecting our annual incentive payments during the quarter. Cash flow used in operations during Q1 2025 was $106.8 million. In Q1 2026, we used $11.9 million to invest in capital expenditures inclusive of internally developed software costs, resulting in negative free cash flow of $174.1 million. We continue to expect full-year free cash flow to be in a range of positive $180 million to $220 million, net of cash taxes and interest, excluding noncash stock compensation. DSO came in at 82 days for Q1 2026, compared to 79 days for Q1 2025 and 73 days for Q4 2025. The increase in DSO during the first quarter when compared to both periods reflects the impact of certain larger health care projects that include performance-based fee elements that we expect to bill and collect in 2026 in accordance with the contractual payment terms. During Q1 2026, we used $155.5 million to repurchase approximately 1.1 million shares, representing 6.5% of our outstanding shares as of the beginning of the year. Total debt as of 03/31/2026 was $856.0 million, consisting entirely of our senior bank debt, and we finished the quarter with cash of $26.5 million for net debt of $829.5 million. This was a $343.0 million increase in net debt compared to Q4 2025, primarily due to our annual cash bonus payment and share repurchases during the quarter. Our leverage ratio, as defined in our senior bank agreement, was 3.1x adjusted EBITDA as of 03/31/2026 compared to 2.2x adjusted EBITDA as of 03/31/2025. As a reminder, our first quarter typically represents a seasonal high leverage ratio given the payout of our annual bonuses in March. We remain committed to achieving a leverage ratio between 2.0x and 2.5x by year-end 2026 in alignment with the capital allocation strategy outlined at our most recent Investor Day. We accelerated our share repurchases during the first quarter, reflective of the decline in our share price during the quarter. I believe the reduction in share base, combined with the earnings growth objectives discussed at our 2025 Investor Day, positions us well to achieve continued compounding adjusted diluted earnings per share growth in the future. Now let me turn to our expectations and guidance for 2026. As Mark mentioned, today we affirm our annual RBR, margin, and adjusted EPS guidance, which includes RBR in the range of $1.78 billion to $1.86 billion, adjusted EBITDA in the range of 14.5% to 15% of RBR, and adjusted non-GAAP EPS in the range of $8.35 to $9.15. Thanks, everyone. I would now like to open the call to questions. Operator? Operator: Thank you. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing star-1-1 again. One moment for our first question, please. Our first question comes from the line of Andrew Owen Nicholas of William Blair. Please go ahead, Andrew. Andrew Owen Nicholas: Hi, good afternoon. I appreciate you taking my questions. Mark, you hinted at it a few times in the prepared remarks. I was hoping you could start by just talking about pipeline development throughout the quarter, where bookings sit. I think last quarter, you gave some really helpful disclosures on bookings in particular. So any update there and maybe how you are feeling about that pipeline relative to a couple of months ago? C. Mark Hussey: Go ahead, John. John D. Kelly: Yeah. Andrew, this is John. I can jump in with that. So in the trailing six-month period, the period ending 03/31/2026, bookings were up greater than 20% across all three of the segments. Backlog, after we book the sales, now gives us coverage for the remaining revenue guide for the remainder of the year and beyond. That remains at historically high coverage ratios across all three segments. And then from a pipeline perspective, all three of the segments are up as of April versus where they were as of December 31, and they remain at near-record levels even after giving effect to the bookings and the backlog that we have been talking about. Andrew Owen Nicholas: Awesome. Thank you. And I do not think that the 10-Q is out yet, so I was hoping you could maybe provide some segment-level color on growth by capability. In particular, I am interested in how digital trended within health care and commercial in particular. It looks like utilization was a little bit lower this quarter relative to a year ago. So any color at the segment level by capability would be helpful. John D. Kelly: Yeah, sure thing, Andrew. From a health care perspective, consulting is up 13% during the quarter. Managed services was up 42%. Digital was down 7% during the quarter, and that really reflects some of the dynamics that we talked about throughout last year, where a lot of the demand we are seeing right now is attached to performance improvement engagements as well as our managed services offering, as clients grapple with some of the financial strain that they are seeing within their environment. From an education segment perspective, consulting was down slightly. Digital within that segment was up 10%. Managed services was up in the mid-single-digit percent range. We continue to see really good demand across all of the capabilities within the education segment, which gives us continued encouragement about progressively increasing growth there as the year goes on, or at least into the next quarter. Digital remains an area where we see a lot of investment from our clients right now as they invest in some of the foundational tools that they need to drive operating efficiencies within the business. And then within the commercial segment, consulting was up approximately 50% during the quarter. That does include inorganic contributions from Wilson Peril and Treliant during the quarter. And the digital part of the business was down in the mid-single-digit percent range. Andrew Owen Nicholas: That is helpful. And then if I could just ask one more question on commercial. You said that bookings are up 20% plus across all the segments, high coverage ratios, strong pipelines. Did you see any change to demand within commercial as the quarter progressed? I know it is a small part of your overall mix, but I know you have some energy and utilities business. I am wondering if geopolitical conflict had any impact on that or conversations broadly. John D. Kelly: Really, Andrew, we did not see any change by industry within the commercial segment, so we did not see any change to demand for our energy and utilities. I would say demand remains strong for our digital capability within commercial. There is a little bit of timing during the quarter where we had a couple of our larger projects wind down toward the first part of the first quarter. A couple of the replacement projects that we sold during the quarter started a little later out of the gate than we initially anticipated. Our expectation is that digital more broadly for the year will get back into the mid- to upper-single-digit growth range starting next quarter. And we also expect that to pivot the growth range within the commercial segment next quarter as well. Operator: Thank you. Our next question comes from the line of Tobey O'Brien Sommer of Truist. Please go ahead, Tobey. Tobey O'Brien Sommer: Thank you. I was wondering if you could talk about the pace of headcount growth year over year and sequentially, what is driving that, where you are maybe still catching up on staffing based on the demand you are seeing? And if you could comment on domestic versus international, that would be helpful. Thanks. John D. Kelly: Sure, Tobey. I can jump in with the headcount increases. In health care, you see a year-over-year larger percent increase in the business, and let us exclude managed services, which is reflective of a lot of the hiring we did in the back half of last year to support the growth that we are seeing. I would expect that to normalize as the year goes on, as we get towards the back half of the year and it starts to pick up in the comparatives. The hiring that we did last year should normalize. From an education industry perspective, it is actually pretty steady, if not down a little bit, which reflects what we talked about previously with utilization being lower last year than our target, and the expectation that as we ramp back up into growth this year, you will see that first in the form of stronger utilization. So you see relatively conservative growth from an education industry perspective. From a commercial perspective, you do see the impact of the acquisitions that we did year over year within commercial, and beyond that, I would describe headcount as pretty much steady with the pace of organic growth that we see. In terms of geography, the majority of the global headcount adds that we have seen have been in the managed services part of the business. The health care managed services adds during the quarter are primarily coming from our global team. Tobey O'Brien Sommer: And as you look at your business, you do us the favor of describing it in a matrix way across functional area and then industry. Where do you see the company lagging or exceeding what you understand to be market rates of growth? C. Mark Hussey: Tobey, maybe starting with health care, we continue to see very strong demand. It is probably not quite at exactly the same level of strong that we characterized last quarter, but when you look at our long-term growth outlook that we described in terms of percentages, we are seeing consistent opportunities with that. Those are the secular tailwinds driving demand in our business. In education, that mid-single-digit growth continues to be consistent as well. Commercial is a mix of industries and capabilities, so it is a little bit harder to distill into a very tight description. In areas like our restructuring business, we are at market rates, maybe even a little bit better, as an example. With the acquisition of Wilson Perrigo coming in and some of the growth that we have seen there, probably at or perhaps above some market growth rates that we have seen. As John said, in digital we see a little bit of timing issues, and we would say we are probably consistent with what the broader market would be looking at in additional areas in commercial. Tobey O'Brien Sommer: After a quarter with a pretty large repurchase, could you update us on where you think you end the year from a leverage perspective and what the mix of your capital deployment we should expect? John D. Kelly: We remain committed to a low-twos leverage ratio at the end of the year. That is not a change from our objectives. We did accelerate a lot of the buybacks in our plan in the first quarter, reflective of the stock price decline we saw during the quarter. I would not say that we will be done with repurchases, but you will see us pace a little bit slower through the remainder of the year, being mindful of our perspective that we want to get back to the low twos from a leverage perspective. The other lever where we deploy capital is strategic tuck-in M&A. We are still active in terms of reviewing M&A possibilities. I think you will see some M&A, and it will be a slower pace than last year, primarily driven by the opportunity we saw with our own stock at the start of the year and the desire to buy back as many shares as we could during the first quarter at the current valuation. C. Mark Hussey: I would just add there is greater scrutiny around valuations in the current market, with perhaps a lot more rigor to understand those. So I think the cadence with patience may be a little bit slower than last year. For the full year, we have described in the past M&A contribution to our growth rate of 2% to 4%, probably a little bit closer to the lower end of that range, but certainly consistent with what we described to our investors back in 2025. Operator: Thank you. Our next question comes from the line of William Sutherland of Benchmark. Your line is open, Bill. William Sutherland: Thank you. Hey, good evening, everybody. John, you did not update the full-year expectations for segments, and I assume that means we can just use that slide from your last call, your year-end? John D. Kelly: That is right, Bill. There is no movement based on first-quarter results versus what we put out there. I do want to take a second to give one correction to a question that Andrew had asked earlier. It relates to consulting within the commercial segment. The roughly 50% growth is actually organic. I said that includes Wilson Peril and Reliant. Wilson Peril and Reliant are on top of that. I wanted to offer that one quick correction. William Sutherland: That is good to know. I have not gone through the restated headcount for the moving of responsibilities around, but it seemed to me that you had gotten ahead of the curve as far as hiring in health care into the first part of this year. Was that the case, or is there more of a steady state as far as the adds to headcount that we should expect there? John D. Kelly: You are right. The reclass that I mentioned in my commentary is a very small item. The broader story with health care is that we did do a significant amount of hiring in the third and fourth quarter last year. That was really two things: part of it was catching up a little bit—our utilization in that part of the business was too high in the first half of last year—keeping up with the demand we saw last year, and there was also the component that was getting us well positioned for the growth in that part of the business for this year. We did a lot of that hiring in the back half of last year, and that comes through in the metrics. I would expect that as the year goes on, you will see more of a normalization of headcount growth in health care, more in line with the revenue growth rate. William Sutherland: In the education segment, I know it is a little more challenging from a sales motion perspective, given the lack of centralization of some of the decision making. Is there a general sense that you are getting that they are getting more inclined to take on engagements they could benefit from, or does it feel like there is a lot of hesitation given all the wood to chop that they have? C. Mark Hussey: Bill, it is always interesting in higher ed. If you went back a year ago, we might have expected more short-term decision making, and it did not occur that way. It continues to be a fairly steady drumbeat of thinking about their universities’ positioning with a longer-term basis. Institutions have been around a few hundred years; they do not really think in the short term. We do see various pockets where the bigger projects that we thought perhaps might have gone away continue to be in the mix. I would conclude it is business as usual in higher ed right now. John D. Kelly: If you go back a year ago with the evolving regulatory landscape, while a lot of the strain within the industry was good for our longer-term demand, it did create some disruption for some clients last year. It was not the same in every client, but at some, there was significant disruption. In terms of the buying environment, where we were a year ago versus now, while it is still uncertain, a lot of our clients are focused on getting on with their agendas and making investments to pursue those agendas. It is a stronger buying environment this year within the education segment than twelve months ago. William Sutherland: Last one. John, you mentioned a couple of larger health care projects where the DSO was stretching a little bit. Is there a larger engagement trend going on in health care, or did those just occur without a trend? John D. Kelly: I would say not a change in trend this year versus last year. We did see a trend last year in terms of sales toward some larger projects, and we are still executing on those. To be clear, we are still selling some larger projects this year. I would not describe it as an even further increasing trend in 2026 versus 2025. Often within health care, when you have larger projects with performance-based fee elements, that requires some DSO investment during initial phases before you hit milestones with the client. We are in that phase on some of those projects sold last year and this year, and we expect to bill and collect upon achievement of those milestones in 2026. William Sutherland: I understand the cash issue, but I was actually thinking maybe the efficiency of extended projects—you might be benefiting from that in terms of utilization and margins? John D. Kelly: Those types of projects do provide great opportunities to get significant portions of our teams engaged for a longer duration, which is good from a utilization perspective within the segment. Operator: Thank you. Our next question comes from the line of Kevin Mark Steinke of Barrington Research Associates. Please go ahead, Kevin. Kevin Mark Steinke: Great, thank you. Most of my questions have been asked, but I wanted to follow up on a comment you made about remaining bullish on AI being a growth driver for your business. You mentioned the AI services market is expected to grow double digits. Do you feel like you have the capabilities in-house to address that market opportunity, or could there be acquisition activity in that area? I do not know how developed the market is from an AI services perspective to actually be able to make acquisitions there, but any comments would be appreciated. C. Mark Hussey: Sure thing, Kevin. We have been pretty successful at organically investing in this area. We have a Chief AI Officer who has been really helpful to elevate our game across each of our businesses and continue to deploy capabilities not only on the client-facing side, but also in our enterprise functions and delivery methodologies. Our ability to realize the opportunity in the market is something that we are confident in. We feel like we can hire the right people and we have not had a problem attracting talent. From an M&A standpoint, for the reasons you described, valuations are probably going to be pretty high, and I am not sure that would be the best use of our capital given that we can do these things organically. We think there are more investments to be made, but it is largely built into the model we have created. We have partnerships—like Hippocratic AI and other firms—that can help us accelerate impact as well. It is an area where “bullish” is the right word. We see a lot more opportunity, recognizing there will be risk and transformation in everything, but we are quite excited about it. John D. Kelly: I would add that a little-underappreciated part of our business—even going back several years before a lot of the evolution of AI tools—is that about 40% of our revenue comes from our technology business, our digital business. We have, natively within our employee base, significant talent with digital skills, using many of the platforms where AI is now being infused and where our clients are looking to get at-scale benefits. That does not mean we do not need to add additional talent with new AI capabilities, but the base was strong. If you look at the objectives we are delivering for clients in terms of outcomes—often financial outcomes within the industries that we serve—we have deep expertise in driving those outcomes. Take those two things together, and as we continue to add AI talent, we feel really well positioned to serve our clients in those core areas. Kevin Mark Steinke: Thank you. That is helpful commentary. I appreciate it. Operator: Seeing no more questions in the queue, I would like to turn the call back to Mr. Hussey. C. Mark Hussey: Thanks for spending time with us this afternoon, and we look forward to speaking with you again in July when we announce our second quarter results. Good evening. Operator: That concludes today’s conference call. Thank you, everyone, for your participation.
Operator: Good afternoon. My name is Joe. I will be your conference operator today. At this time, I would like to welcome everyone to Live Nation Entertainment, Inc.'s first quarter 2026 earnings call. I would now like to turn the call over to Ms. Amy Yong. Thank you, Ms. Yong. You may begin. Amy Yong: Good afternoon and welcome to the Live Nation Entertainment, Inc. first quarter 2026 earnings conference call. Joining us today is our President and CEO, Michael Rapino, and our President and CFO, Joe Berchtold. I would like to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to the company's anticipated financial performance, business prospects, new developments, and similar matters. Please refer to Live Nation Entertainment, Inc.'s SEC filings, including the risk factors and cautionary statements included in the company's most recent filings on Forms 10-Ks, 10-Qs, and 8-Ks for a description of risks and uncertainties that could impact the actual results. Live Nation Entertainment, Inc. will also refer to some non-GAAP measures on this call. In accordance with SEC Regulation G, Live Nation Entertainment, Inc. has provided definitions of these measures and a full reconciliation to the most comparable GAAP measures in our earnings release. The release and reconciliation can be found under the financial information section on Live Nation Entertainment, Inc.'s website. We will now open the call for questions. Operator? Operator: Thank you. The first question comes from the line of Brandon Ross with LightShed Partners. Please proceed. Brandon Ross: Hey, guys. Thanks for taking the questions. First, you call out timing shifts in fan count due to venue mix in the release. Can you first explain why this year looks different than most, and then how that translates to AOI phasing throughout the year? Joe Berchtold: Sure, Brandon. What is going on with timing is we have very strong growth globally in stadiums and strong growth in amphitheaters in the U.S. Those tend to skew more towards Q3 from a calendar standpoint. Most of the summer months are in Q3. We were calling out that as you think about the weighting of the different quarters this year, while we have strong growth across all of the pieces, that growth is really going to come more strongly in Q3 than it would in previous years. That will translate into stronger AOI for Q3 and, on the margin, also shape up to have a very strong Q4. Brandon Ross: Okay. And then speaking of amphitheaters, I guess the big stumble last year was in AMPs really on the supply side, and it seems that you have made up or more than made up for that this year. How sure are you that the demand is there on the AMPs to fill that supply? The leading indicators seem great, but AMPs are more of a real-time purchase, and every time there are elevated gas prices, there is a little more worry about amphitheater performance. And there have also been some cancellations late as there are every year, but if you could address that too. Michael Rapino: Let us start with cancellations and work backwards, because I know that I saw some of those articles. This year will be no different than any other year. We always have a few cancellations. To give you perspective, we tend to have a 1% to 2% cancellation rate historically, both at Ticketmaster across the industry and at Live Nation Entertainment, Inc. We are tracking slightly below the industry, so we see no challenges at all in that. To give you perspective, we have about 15 thousand shows on sale; 100 will be canceled. That would be typical. We see nothing about cancellations in the 2026 full calendar that would be extraordinary. There is always a tour or two that does not work out. On amphitheaters, as you said, we are having a strong 2026, focused the team on the supply to make sure we have the show count. We definitely have that this year. And we know sitting in May, on the demand side, we would know by this time of the year how we are filling up for the summer. It is not last minute. It is on sale, and as you see from the numbers in our release, we are tracking ahead of last year on show count and on ticket sales, up over double digits. We see a strong year in amphitheaters. We think they are a great product; demand will always be there. They tend to be lower priced than arenas and stadiums, a lower cost entry point to come in. It is a volume game, and on-site just started. We are days into the season; we see positive numbers so far. Our premium sales, our on-site, and our demand indicate we are going to have a strong 2026 in AMPs. Operator: The next question comes from the line of Analyst with Goldman Sachs. Please proceed. Analyst: Hey, guys. Thanks for taking the questions. Michael, maybe just broaden out the question around supply this year. In the release you highlighted concert bookings pacing up across stadiums, arenas, and AMPs. Would be curious if you could talk a little bit more about how touring activity is shaping up for this year, where in the slate you are seeing the strongest inflections year-over-year in supply, and then where there might still be opportunity to add event supply as we make our way into the summer concert season over the next couple of months? Michael Rapino: If we step back, as we discussed in our Investor Day on supply, there are more bands on the road on a global basis, so the pie is growing. Our job is to keep making sure we maintain our market share and grow with that expanding pie of supply. We are seeing this global supply of artists continually grow. That will mean ultimately more bands on the road. They will be filling all levels from the club up to the stadium, which we are seeing this year. Most of the supply is coming from the growing market on a global basis across all levels of supply. We think that will happen for many years to come as the world has flattened and bands from all over—from Latin America to K-pop to Colombia to India—are now on the road and able to travel and tour in all of the different venues and festivals around the world. We are seeing strong supply across the globe right now. Our international business is strong, maybe even stronger than America in terms of growth. Latin America is on fire, small to big to festivals. We are seeing great global supply and demand, as we predicted in our Investor Day, coming to life this year. Analyst: That is great. Thanks for that. And then, Joe, maybe on regulatory, I think this is the first time we have connected since the settlement on the federal side and then the ruling on the state case. Could you provide an update on where we stand today in that process, where you feel like your views still differ from how the rulings played out, and how investors should expect the process to play out from here? Joe Berchtold: There is a day in court on Thursday where there will be a discussion on the process. Three key elements here: one is we have a few motions that we made as it related to some of the evidence and how that proceeds, and we need a ruling on that. Two is the judge determining the process for the review of the settlement with the Department of Justice. And third is the remedies portion of the trial that just concluded. We have views on how we think it should proceed, but the judge will decide that, and that will define the timing and the exact pieces. Until then, we have to wait and see how he lays it out. Operator: The next question comes from the line of David Karnovsky with JPMorgan. Please proceed. David Karnovsky: Hey, thank you. Joe, in the 10-Q, there is some detail on a venue securitization transaction. Could you walk through the structure at a high level? And then how does this play into your Venue Nation plans over the long term as far as buying or building locations? Joe Berchtold: Sure. This is a great vehicle that the team developed to think about how we fund the venue side of the business going forward. I have talked before about how, in my mind, there is a little bit of a propco/opco two-business model that we have here, and there is an opportunity with the propco to effectively have a synthetic component of the balance sheet, while still keeping it all under one roof for flexibility and control. Effectively, think about it as having a propco that you can have more leverage on, which is collateralized by all your venue holdings. We have an initial raise that we did of just over €600 million using some of the venues as collateral. As we grow the venue portfolio, we can take the venues that we add and put those in as additional collateral, which lets this component of our balance sheet continue to grow as we build out the venue portfolio. That is being kept separate and not being used to securitize the more opco side of the business. This is an innovative financing that we came up with, which we think works very well in giving us the first step to really enable our funding and continue to build out the venue side of the business. David Karnovsky: Okay. And then maybe just sticking on Venue Nation. Earlier this year, you announced in Argentina an agreement with Club Athletico for certain booking and naming rights as it relates to the stadium there. I am curious how replicable this model is—meaning partnerships with sports teams in Latin America or even other regions where you are expanding venues—where maybe there are existing properties sitting there in need of capital or a refresh that you can enter as partner? Michael Rapino: We love that deal, and we absolutely think on a global basis it is something we can replicate. Lots of these stadiums around the world are not NFL-activity kind of venues, so they do not have as much activity going on. We are a great partner to help make sure we can put some shows in there, bring some sponsorship expertise, and some capital if we have to. We have a similar arrangement in Argentina with River Stadium. On a global basis, we like building arenas, but on the stadium side we like partnering with them. It is less capital intensive but locks up a lot of the revenue streams. Operator: The next question comes from the line of Cameron Mansson-Perrone with Morgan Stanley. Please proceed. Cameron Mansson-Perrone: Two on the ticketing business, if I could. Michael, could you update us on what you and Sam are focused on from a product perspective with Ticketmaster? And then in the past, you have talked about driving ancillaries at Ticketmaster. Do you see that as an increasingly important factor for that business going forward given what seems like increased sensitivity around fees? And then one more. Michael Rapino: I will start, then Joe will jump in. We are thrilled in general with our new hire, a strong product engineer. Joe and I have ongoing dialogue with him on the product roadmap on a global basis, how to inject AI in the consumer side and the B2B side. Our top priority is to make that on-sale smooth, more transparent, and to drive as much consumer confidence as we can in the process. He is doing a lot of work on that right now—identifying and building out our face value exchange program to be much more robust for artists to use, giving them more tools in general for the on-sale. That is our biggest pain point. We have made great progress in the last few years and are the best in the business at it, but we will continue to make that a better process with more tools for artists and fans. That is the front end. Joe will fill you in on the wider perspective. Joe Berchtold: On the back end, the biggest unlock that Sam is bringing is how we think about a lot of the new markets we are going into. The strategies he has been developing for Latin America and Asia, particularly for Japan, figure out how we are not locked into some of our legacy constraints of great platforms built in a time before we needed the flexibility we need today. In part using some AI tools and other innovative approaches, he is rapidly accelerating the pace at which we are moving into those markets with the ticketing solution. That is the big back-end piece. And then, absolutely, we are continuing to be very focused on how we use the platform to continue to drive additional economics from the scale of what we are doing. We know that the venue clients we have that are really keeping the bulk of the service fee will continue to keep the bulk of the service fee, and we need to continue to find ways that we can build value off the platform and keep our fair share of that. Cameron Mansson-Perrone: Thanks. That is helpful and interesting. My follow-up was on headwinds you call out in terms of the mid-single-digit headwind at the ticketing segment this year. Could you remind us what exactly is incorporated in that, and any guidance or expectation with regard to how you see the legal expenses that are running through ticketing? Should we expect that run rate through the remainder of the year, or any color there would be helpful? Joe Berchtold: Those mid-single-digit headwinds are really talking about steps that we have taken in the secondary, that we announced earlier—some pretty dramatic steps that limit the broker inventory being put on the Ticketmaster system—that we said would be a step down, a structural step down, that would have that level of impact. That is a one-time thing. As we grow to offset that this year and still expect to have some growth at Ticketmaster for the year, that weight we comp and it is no longer an issue as we move forward into the future. As it relates to some of the one-time expenses, I do not think we will continue to have this level of elevated expenses. We will continue to have some expenses on the legal side related to the FTC and some other activities. They should moderate over the next few quarters from where they are today. Operator: The next question comes from the line of Analyst with Wolfe Research. Please proceed. Analyst: Hi. Two for Joe, if I may. One on the velocity of new venue openings. In the last three years ending in 2025, your CapEx rose from $400 million a year to $600 million to $1 billion last year. It would be equal or higher this year. I am wondering about the dollar value of venues opening in 2026 and 2027. Are we right to assume that 2027 ought to be a bigger opening year, in terms of dollar value and revenue, than 2026 was? And then a longer-term question about your cash flow: if the business were not expanding capacity, what do you think Live Nation Entertainment, Inc. could generate in terms of free cash flow as a percentage of EBITDA? What do you think the free cash flow margin of this business is at steady state? Joe Berchtold: Algebra test in real time. I am not going to try to give you exact numbers. If we stopped investing this $1 billion and stopped buying venues, we are going to be able to throw off a lot of cash. The Ticketmaster business today is an extremely high cash flow conversion business. We have been using a lot of that cash to drive growth on the venue side, but it would be throwing off a tremendous amount of cash. On the concert side, maintenance capital is really only a couple hundred million dollars, so you would be throwing off pretty healthy cash on the concert side as well. That said, we still see a long runway of opportunities for venues. We do expect to see acceleration in their opening. I am not going to give you the exact 2027–2028 timing. The venues that we have under construction are all multiyear construction projects. The ones that we started last year and this year will take a few years, and we are opening a couple great amphitheaters this year, as well as a number of other theaters and other venues. We expect that to accelerate as we get out into 2027 and 2028. Operator: The next question comes from the line of Batya Levi with UBS. Please proceed. Batya Levi: Great. Thank you. Follow-up on the ticketing side: adjusting for that legal spend, it looks like margins were up nicely year-over-year. Can you talk about where the outperformance came from? Are you seeing benefit of these AI tools already flowing through? And on the concert side, can you talk a bit about the outperformance despite tough comps that you had in LatAm? Any regions that you would call out for the rest of the year? Joe Berchtold: I will start with the ticketing side. We are giving you the volume here: ticketing sales are up nicely. We continue to grow the business notwithstanding some of the headwinds on the secondary side because of the actions we have taken there. A lot of the growth on the Ticketmaster side is coming from additional concert tickets being sold. The business operationally and its fundamentals continue to be in good shape. We are adding more clients globally and selling more tickets. The underlying business is working very well and setting this up nicely as we go into the latter part of this year and into next year. On the concert side, there is a lot of bouncing around quarter to quarter. It was a very good quarter in Latin America, which drove both concerts and sponsorship performance. Some festivals there did well. Going forward, we see both North America and international markets performing very strongly this year. Michael talked earlier: stadiums are up globally, up in the U.S. despite a very strong year last year, and up strongly in international markets. Amphitheaters and arenas are up nicely in the U.S. That should drive solid growth throughout North America. You have Latin America, Europe, and parts of Asia; we are seeing very strong global demand for concerts, which is then translating into the sponsorship and ticketing businesses. Operator: The next question comes from the line of Ian Moore with Bernstein Research. Please proceed. Ian Moore: Hi, thanks. The secondary ticketing business is clearly undergoing a number of changes to further mitigate scalping and bot activity. In the past, you have sized secondary as a low double-digit percent of fee-bearing GTV. But given the sustainability of primary ticketing growth, where do you see secondary share of fee-bearing GTV going as those changes play out? Is it high singles or mid singles? Joe Berchtold: I think it is probably a gradual decline. Notwithstanding some of the changes we are making this year, there will be a structural drop, and I think over time primary will win. Content will control its tickets, and it will be a slow decline. We have long said we consider this to be a feature, not a standalone product. While secondary is being offered, we want to make sure fans can come to our site for a safe exchange and get tickets they know will be delivered. It is there because it is part of the ecosystem, and we do not have a strategy to grow it. If we are successful, it will decline into the single digits over the next several years. Operator: The next question comes from the line of Kutgun Maral with Evercore ISI. Please proceed. Kutgun Maral: Thanks for taking the questions. First, I know Live Nation Entertainment, Inc. is really a supply-driven business, but I did want to follow up on the demand side given investor focus. Underneath the surface, are you seeing any differences by geography, income cohort, venue type, or price points? And given the broader macro and geopolitical volatility, including the disruption in the Middle East, is there anything you are seeing in either the U.S. or international markets that could affect demand, routing, or fan behavior as we move throughout the year? Second, I wanted to ask about premium hospitality within Venue Nation. The release called out the ongoing rollout of the Vinyl Room, for example, with on-site spending at the Hollywood Palladium already over $100 per fan, which is encouraging. How applicable is that playbook across the broad venue portfolio, and as you scale these types of premium hospitality concepts globally, how meaningful can they become as a driver of per-fan monetization and Venue Nation AOI over the next few years? Michael Rapino: I will start with the Middle East since you brought it up. It does not affect our business today. The Middle East is a very small touring market overall, so it would have no material effect on our business. We expect that over the long term it will be a touring region, but it does not affect routing today. We had no tours or shows planned in that market right now. On the demand side, we have ongoing reports; we understand fan demographics and who is coming to our shows. It is very broad, as you can imagine. Concerts appeal from 12 to 90 years old depending on the artist and where they are playing. We see no slowdown in any genre or demographic. Whether it is an amphitheater in Indianapolis or an expensive stadium show in New York, we have seen no demand pullback anywhere. Same thing in the rest of the world—from Argentina to Milan to Singapore—we do not see any pullback. Consumers still consider the live show very important in their social calendar for the year. Whether they are going to one, two, or three shows a year, it is paramount that they get to that show. We have seen broad, strong demand across the board on all genres at all venue sizes. On premium, we think in general the music business, venues, and festivals can do a better job of providing a better service and product. Historically, the concert has been about 99% GA and 1% premium. We now see that people will pay for a better experience. I was in a building meeting this morning looking at two new arenas we are building, and our goal there is to have up to 30% of that house in a premium capacity so we can have a better experience where fans want to come to the night and upgrade and sit in a better suite or box or have better hospitality. A lot of the CapEx we spend at our amphitheaters is doing that. We have outfitted three this summer—Indianapolis and Dallas—where we took the existing business and added upscale premium offerings like a Vinyl Room that we have scaled or similar clubs like the Back Lot. We are taking those amphitheaters from 1%, 2%, 5% premium up to 25% premium. It is a long haul to get there; it is easier when you are building from scratch. We believe there is a lot of opportunity in premium and a better experience. It is not just about being premium. Consumers will pay for a shorter line, better parking, better hospitality. We are looking at that much like sports arenas have done over the last 10 to 15 years. Operator: The next question comes from the line of Jason Bazinet with Citi. Please proceed. Jason Bazinet: I remember back in November when you gave the Venue Nation fan count of 5 million and it sort of disappointed folks. I think in the release today you took that number up. Is that M&A happening more rapidly or building happening more rapidly, and should we take the 2029–2030 numbers up, or is it more a function of front-loading the Venue Nation fan count relative to what you said in November? Joe Berchtold: We said we are expecting to grow the Venue fan count this year by double digits. Previously it was 5 million on 65 million, so 65 million to 70-plus million tells you it is going to be somewhat more. It is probably pretty evenly distributed between increased performance at our existing venues that we are operating and what we have been adding. We feel good about this year. I do not think we are ready quite yet to start contemplating exactly what we are going to add in 2027, 2028, and 2029, but we think this year shows the power of what we are doing with the venue strategy. Michael Rapino: I agree. Operator: Thank you. Ladies and gentlemen, this concludes the question and answer session. I would like to turn the call back to Michael Rapino for closing remarks. Michael Rapino: Thank you, everyone, for your support. We are looking forward to a great summer, and we will talk to you in August. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Welcome to the Match Group, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tanny Shelburne, Senior Vice President of Investor Relations. Please go ahead. Tanny Shelburne: Thank you, operator, and good afternoon, everyone. Today's call will be led by CEO, Spencer Rascoff, and CFO, Steven Bailey. They will make a few brief remarks, and then we will open it up for questions. Before we start, I need to remind everyone that during this call, we may discuss our outlook and future performance. These forward-looking statements may be preceded by words such as “we expect,” “we believe,” “we anticipate,” or similar statements. These statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of these risks have been set forth in our earnings release and our periodic reports with the SEC. Also during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are provided in the published materials on our IR website. These non-GAAP measures are not intended to be substitutes for our GAAP results. With that, I would like to turn the call over to Spencer. Spencer Rascoff: Good afternoon, and thanks for joining us. Match Group, Inc. entered 2026 with tangible progress on the three-phase transformation we outlined last year: reset, revitalize, and resurgence. We completed the reset phase in 2025, and we are now well into revitalize, focused on improving product experiences, strengthening the ecosystem, and rebuilding growth. We are operating with greater focus and discipline. The portfolio is sharper, execution is faster, and we are leveraging our scale more effectively through our OneMG approach. We are reinvesting where we see clear opportunities to improve user outcomes, while continuing to return meaningful capital to shareholders. Our progress is showing up in three areas: First, leading indicators at Tinder are showing momentum, reflecting better product experiences for Gen Z, and that progress is increasingly translating into top-line metrics like monthly active users, or MAU, payers, and direct revenue. Second, Hinge continues to scale, combining strong revenue growth, rapid product innovation—particularly in AI-driven features—and continued international expansion. And third, we continue to streamline our portfolio and organizational structure, simplifying how we operate and focusing resources on our highest-conviction opportunities. Looking ahead, our objective is to drive a resurgence with our audience by reestablishing Tinder as a growth business during 2027 through restoring durable user engagement and relevance at scale. And all of this is happening alongside disciplined financial execution. In Q1 2026, we exceeded our revenue and adjusted EBITDA expectations on the back of strength at Tinder. Steve will walk through the details shortly. Turning now to Tinder’s product-led turnaround. From the beginning, I have said this will be a product-led turnaround, starting with user outcomes and moving up the funnel towards user growth. Our most important leading indicators—Sparks and Spark coverage—continue to improve. In March, Sparks, the number of users engaging in six-way conversations, were down only 1% year over year, a meaningful improvement from down 11% year over year in March 2025. Spark coverage, which measures the percentage of our users who experience a Spark in a given period, was up 6% year over year in March, compared to down 1% year over year in March 2025. These are our clearest signals of product efficacy and real connection, and they are improving. As we have said before, our belief is improving Sparks leads to better retention and stronger word of mouth, driving MAU over time. We are now starting to see that play out. MAU declines continued to moderate in March, down 7% year over year, the slowest rate of decline in 31 months, compared to down 10% year over year in March 2025. This improvement was driven by a few factors. First, user retention increased, up 1% year over year in March after multiple years of decline. U.S. Gen Z women retention, a critical cohort for ecosystem health, was up 3% year over year in March. Second, registrations returned to growth for the first time since June 2024, up 1% year over year in March compared to down 12% year over year in March 2025. This is proof that the brand is resonating through marketing and word of mouth, driving new users into the experience. We are seeing this progress across different geographies and demographics, including in markets where we have had the most ground to recover. Progress may not always be linear, but the year-over-year trajectory of these leading indicators and user engagement underscores our confidence in the strategy, and we expect it to translate into revenue growth over time. Let me highlight a few of the efforts driving these improvements, many of which we showcased at our Tinder Sparks event in March, which is available on our IR website. First, recommendations. We have sharpened how Tinder understands what users are looking for and how we deliver matches across the ecosystem. By learning preferences earlier, showing more relevant profiles, and better serving both active and returning users, we are helping people find matches faster and driving more conversations, with particularly strong gains for women. Next, product innovation. Features like Astrology Mode and Music Mode are gaining traction with Gen Z following their mid-March launch, reaching 19% and 8% adoption, respectively. We are also seeing encouraging early signals on user outcomes. For example, in our early read, women who swipe on astrology cards are more likely to reach a Spark than those with non-astro cards. Like Double Date, these signals show new modes are resonating by making discovery more expressive and lower pressure, which is exactly what Gen Z users have been asking for. And finally, trust and safety. We continue to scale FaceCheck into more regions, including the recent launch in the U.K. and Singapore. FaceCheck is improving authenticity and user trust, with particularly strong trends in the U.S., where net promoter scores have been trending higher. Importantly, the revenue impact from our ongoing user experience tests remains within the range that we planned. Simply put, Tinder works better now. We are not at the finish line, but the turnaround is clearly underway. Turning to Hinge, where product-led growth continues to scale. Hinge continues to build thoughtful, best-in-class experiences for highly intentioned daters. The team remains focused on a key objective: helping users get out on great dates. That clarity is driving its product roadmap, which is both rapidly advancing the core experience and introducing new and compelling features. Starting with the core experience, Hinge is strengthening profile quality through a redesigned onboarding experience that encourages users to slow down and reflect on what they are looking for before viewing profiles. Structured prompts help users more clearly communicate their relationship goals, their personality, and preferences from the start. The experience is also more interactive, giving users more visibility into how they are represented and improving confidence during profile creation. We plan to expand this globally by Q2. In parallel, Hinge continues to strengthen trust within the experience with FaceCheck, which is now fully rolled out in the U.S., U.K., Australia, Canada, Brazil, and Mexico, with additional markets planned for Q2. In these markets, the feature has reduced interaction with bad actors by 20% to 30% with minimal impact on revenue. Originally developed by Tinder, FaceCheck showcases portfolio-wide innovation, enabling Hinge to quickly iterate and bring the feature to market faster. Building on its stronger core experience, Hinge is introducing a set of category-first features designed to better express intent and help users move from connection to date. First, Hinge is reducing friction in getting to great dates with Date Ideas, a feature formerly known as Direct to Date, which allows users to propose a date idea and time upfront to clarify intent and move matches to real-life meetings faster. Early feedback has been encouraging, with nearly 9% adoption in testing—one of the highest rates we have seen for a new profile feature—and users expressing genuine excitement on social media. So far, users are defaulting to familiar, low-effort date ideas like dinner, drinks, and walks, while custom date ideas skew toward light, conversational activities like bowling, arcades, museums, and mini golf. Second, Hinge is expanding the role friends play on daters’ profiles with Friends Take, which addresses two core tensions: representing yourself authentically and navigating dating alone without community. Building on Hinge’s prompt-native format, the feature allows users to invite trusted friends, on and off Hinge, to contribute short reflections to their profiles, adding credibility and helping users get to know one another more deeply. Friends Take will begin testing by Q2 with broader rollout expected in Q3. We see potential for it to be a top-of-funnel driver similar to Voice Prompts a couple of years ago. Third, Hinge began testing Signals, a new feature designed to make effort and intentionality more visible. When users consistently demonstrate thoughtful participation—by doing things like completing their profile, responding to messages, and engaging in meaningful conversations—they earn a Signals badge on their profile. This badge signals to others on the app their level of effort and intentionality, addressing a long-standing friction point in the category, particularly for women and younger daters. Early results show improvements in dating outcomes and user behaviors that benefit the overall ecosystem. As we invest in these types of intentional features, we are creating new surface areas to potentially monetize later. Hinge demonstrates the simple principle that when product-market fit is strong and user outcomes are clear, growth follows and the model scales. Hinge continues to lead the category in product innovation through its consistent focus on user outcomes, and it has led to strong financial results. We are excited to see the impact of Hinge’s product roadmap on the business this year, as it continues on its path to be a $1 billion business by 2027. Now turning to our OneMG approach in action. We are continuing the work that we began last year to simplify the organization and operate more effectively as one Match Group, Inc. As part of this effort, we folded our MG Asia business unit into our E&E business unit. This brings our two Asia-based businesses, Azar and Pairs, closer to the rest of the company, removes a management layer, and improves efficiency, while maintaining in-region cross-brand go-to-market capabilities. We expect this change to result in roughly $15 million in annualized cost savings, including stock-based compensation. It also enables more cohesive portfolio management, faster execution, and application of shared capabilities and resources. On Azar, as we previously disclosed, Apple temporarily removed the app from the App Store on 02/22/2026. The team moved quickly to make adjustments, which led to the reinstatement of a new version on 04/06/2026. While still early, registrations and MAU are beginning to recover, but the new app experience is monetizing at lower levels than the previous version. We are testing changes to the product to improve monetization, but expect continued pressure on Azar direct revenue over the balance of the year. With the consolidation of MG Asia into E&E, we have transitioned our Seoul-based MG AI team of more than 20 talented data scientists and machine learning engineers to report into Tinder’s CTO. This team will continue building shared OneMG technologies, including AI-driven photo uploading and AI-enabled recommendation algorithms, but will now operate with closer alignment to our largest business unit. In addition, we are shifting nearly 30 product, engineering, and analytics employees from Azar to Tinder in Seoul. These moves concentrate resources into Tinder at a critical moment, supported by excellent executive leadership, an accelerating product roadmap, and improving business momentum. Following this move, we will have a nearly 60-person team focused on Tinder in Seoul, making it our third-largest tech hub after Palo Alto and Los Angeles. We have also made progress in unifying performance marketing by further centralizing teams and resources into a OneMG organization that buys digital media across brands. We spend nearly $600 million globally across 20 or more brands, with significant efficiencies available to us as coordination increases. We are also bringing certain areas of E&E closer with Tinder, starting with the executive layer where I now directly oversee both business units. This has unlocked significant opportunities for better coordination and synergies, including the marketing changes I just mentioned. As I have dug into E&E the last few weeks, we have identified many areas Tinder and E&E results can be improved through tighter coordination, collaboration, and integration. Finally, it would not be a 2026 earnings call without discussing AI. We see AI as a core enabler of improving user outcomes, enhancing product experiences, increasing relevance, and accelerating development and iteration across the portfolio. To support this, we have launched a global AI enablement program that gives every employee access to leading AI tools with the goal of becoming an AI-native company. We are also reassessing our hiring plans with AI enablement in mind and plan to reduce headcount growth over the remainder of the year. And we are standing up a cross-company AI leadership team to help ensure consistent deployment of capabilities and avoid fragmentation across brands. These changes are about operating more simply and more effectively. We are simplifying the portfolio, focusing resources on our highest-conviction opportunities, and adapting quickly where we believe the category is going, not where it has been. That is OneMG in practice. Now for some final thoughts. Stepping back, we have aligned our business around distinct user intents, with each brand serving a different and important role. Together, they expand our reach across a broad and growing market for human connection. Within that framework, in April, we made a $100 million investment for a significant minority stake in Sniffies, a differentiated platform with strong product-market fit and a highly engaged user base. We have the option to acquire the remaining equity in the future, similar to the approach we took with our initial investment in Hinge back in 2017. Sniffies reinforces our commitment with non-heterosexual men, which represent a large and growing portion of the category. We see a clear opportunity to lend our expertise in areas like trust and safety and geographic expansion, while preserving what makes the platform unique to its community. As part of this investment, we plan to wind down our gay male app, Archer, which we expect to result in roughly $10 million in annualized cost savings including stock-based compensation. We built a stronger foundation and are now seeing that translate into real momentum. By improving how people connect and delivering better outcomes for users, we are setting the business up for durable growth. That is what gives us confidence in the path to resurgence. Over to Steve now. Thanks, Spencer. Steven Bailey: We delivered a strong start to the year, exceeding both our revenue and adjusted EBITDA expectations. The outperformance was primarily driven by better-than-expected direct revenue and payers trends at Tinder and a benefit associated with Canada’s rescission of its digital services tax. I will walk through the key drivers of the quarter and then turn to our guidance. Unless otherwise noted, all amounts are on an as-reported basis and comparisons will be discussed on a year-over-year basis. More details can be found in the financial tables below and in the financial supplement on our IR website. In Q1, Match Group, Inc.’s total revenue was $864 million, up 4%, flat on a foreign-exchange neutral basis. FX was $3 million better than we expected at the time of our last earnings call. Payers declined 5% to 13.5 million, while RPP increased 10% to $20.90. Indirect revenue of $16 million was down 14%, largely driven by a decrease in spend from top advertisers as compared to a record quarter the prior year. In Q1, Match Group, Inc.’s adjusted EBITDA was $343 million, up 25%, representing an adjusted EBITDA margin of 40%. Canada’s rescission of its digital services tax positively impacted adjusted EBITDA by $11 million in the quarter. Tinder direct revenue in Q1 was $455 million, up 2% and down 3% FXN. Q1 direct revenue includes an approximately $5 million negative impact from user experience testing in the quarter. Payers declined 5% year over year to 8.6 million, a marked improvement from the 8% year-over-year decline in Q4 2025. RPP increased 7% to $17.56. Adjusted EBITDA in the quarter was $237 million, up 4%, representing an adjusted EBITDA margin of 51%. Hinge maintained momentum in Q1 with direct revenue of $194 million, up 28% and up 24% FXN. Payers increased 15% year over year to 2 million, and RPP increased 11% to $33.13. Adjusted EBITDA was $71 million, up 66% year over year, representing an adjusted EBITDA margin of 36%. E&E direct revenue in Q1 was $139 million, down 7% and down 10% FXN. Payers decreased 16% to 2 million, while RPP increased 11% to $22.97. Adjusted EBITDA was $39 million, up 37%, representing an adjusted EBITDA margin of 28%. Match Group Asia delivered direct revenue in Q1 of $60 million, down 6% and down 7% FXN. Azar direct revenue was down 6% and down 9% FXN, and was negatively impacted by an estimated $3 million from its temporary removal from the App Store. Pairs direct revenue was down 6% and down 4% FXN. Across Match Group Asia, payers declined 9% to approximately 900,000, while RPP increased 2% to $21.74. Adjusted EBITDA was $21 million, up 11%, representing an adjusted EBITDA margin of 35%. As a result of the organizational changes associated with Match Group Asia that Spencer discussed, beginning with our Q2 2026 results, we will combine the Match Group Asia and E&E business units into a single operating segment called E&E and report Match Group, Inc. results across three operating segments: Tinder, Hinge, and E&E. Now on to consolidated operating costs and expenses. Including stock-based compensation expense, total expenses in Q1 were down 5%. Cost of revenue decreased 11% and represented 24% of total revenue, down four points as a percent of total revenue, primarily driven by alternative payment savings. Selling and marketing costs increased $6 million, or 4%, but remained flat at 19% of total revenue, as a result of increased marketing spend at Tinder and Hinge, partially offset by reduced marketing spend at E&E and Match Group Asia. General and administrative costs decreased 20%, down three points as a percentage of total revenue to 10%, driven by the Canadian digital services tax reversal of $11 million and lower employee compensation, including stock-based compensation. Product development costs decreased 3%, down one point as a percentage of total revenue, at 14%. Depreciation and amortization increased by $16 million to $48 million due to impairments of intangible assets of Azar totaling $25 million, resulting from changes required to reinstate the app in the Apple App Store. Our trailing-twelve-month gross leverage was 3.1x, and net leverage was 2.3x at Q1. We ended the quarter with $1 billion of cash, cash equivalents, and short-term investments on hand, and plan to use $424 million of cash to pay off the 2026 convertible notes on or before the maturity in June. Year to date through Q1, we delivered operating cash flow of $194 million and free cash flow of $174 million. We repurchased 2 million shares at an average price of $31 per share on a trade-date basis for a total of $60 million, paid $44 million in dividends, and deployed $75 million of cash towards net settlement of employee equity awards, equating to 103% of free cash flow. Between 04/01/2026 and 04/30/2026, we repurchased an additional 700,000 shares at an average price of $32 per share on a trade-date basis for a total of $22 million. As of 04/30/2026, we reduced diluted shares outstanding by 5% year over year. We also used $100 million in cash on hand to acquire a minority stake in Sniffies, which we announced on 04/27/2026. Our capital allocation strategy centered on returning capital to shareholders through buybacks and a dividend remains unchanged. Now for guidance. We expect Q2 total revenue for Match Group, Inc. of $850 million to $860 million, down 2% to flat year over year. This range assumes a one-point tailwind from FX. FXN, we expect total revenue to be down 1% to 3% year over year. Q2 total revenue guidance assumes a $10 million negative impact from Tinder’s user experience tests and a $20 million negative impact from lower Azar direct revenue. We expect Match Group, Inc. adjusted EBITDA of $325 million to $330 million, representing a 13% year-over-year increase and an adjusted EBITDA margin of 38% at the midpoints of the ranges, as we remain financially disciplined and continue to optimize our cost structure while making the necessary investments that we believe will drive long-term growth in the business. We will now open the call for questions. Operator: We will now begin the question-and-answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question today comes from Shweta R. Khajuria with Wolfe Research. Please go ahead. Shweta R. Khajuria: Thank you for taking my questions. One on the Tinder sort of turnaround and the leading indicators you are seeing—the metrics you called out are very promising. Could you please talk to whether you saw continuation of these trends into April and I guess now early May? That is the first question. And then the second question I have is around your AI cost savings. How should we be thinking about all these cost savings that you may have either from integrating business units and also driving productivity with AI tools? And it seems that you have greater and greater potential for margin if you wanted to, either this year or next year. So how should we be thinking about that? Thanks a lot. Steven Bailey: Yes. Thank you for the questions. Spencer Rascoff: So, firstly, yes, Tinder’s momentum has continued into April. Just to take a step back, and then I will share some April data. The product-led turnaround at Tinder is clearly well underway, and I am feeling really good about it. As I said in the prepared remarks, MAU declined 7% year over year in March, which was the slowest rate in 31 months, and then it went on to decline 6.6% in April, so it continued to improve. DAU—which I do not think we talked about in the prepared remarks—but daily active users was down 9% back in March 2025, then down 6% in March 2026, and was only down 4% in April 2026. So every month, every week, almost every day, we continue to chip away at the audience declines at Tinder. The big needle movers on improving user outcomes have been, first of all, recommendations. We are just doing a much better job today of showing women the men that we think they will want to see. Obviously, that is the most important thing for a dating app—figuring out whom to show to whom—and we are much better at it than we ever were before. We have made lots and lots of changes, but for example, one set of changes improved women’s Sparks by 6%, and that improved women’s DAU by 2%, which in turn improved men’s Sparks by 5% and then men’s DAU by 1%. That is just one example of one set of recommendations changes, and that plus other recommendations changes we thought might hurt revenue actually, on balance, resulted in a $15 million annualized revenue gain because improved women’s retention then improved men’s revenue. So it is not always a trade-off between recommendations improvements and revenue—sometimes they actually work together. The second big needle mover on Tinder product improvements was Double Date. Around one in five global users aged 18 to 22 are using Double Date. Around one in four U.S. women aged 18 to 22 are using Double Date. It is an important way that people are now using Tinder. Music Mode and Astrology Mode also drove great adoption in the quarter—about 8% for global Gen Z for music and 19% for global Gen Z for astrology. Then there is a variety of things that we do not talk about very much because they are kind of mundane improvements, but this is really important blocking and tackling—things like improved CRM for better emails and notifications, better app performance so the app does not crash the way it used to, better website performance, and just a generally better operating cadence of the company. All those things really do work together. The last one I will add is the IRL pilot in Los Angeles has been successful, and we are working to expand that—just another example of how we are creating these low-pressure ways to connect. The last piece is the marketing support of these products, which I can come back to, but let me give it to Steve now to talk about the AI and cost savings. Steven Bailey: Sure. Here is the way I would think about it, Shweta. We are making a big push around AI enablement. We are giving every employee in the company access to cutting-edge tools, we are giving them the training they need to succeed, and we are setting expectations. We really want to become an AI-native company. We think it is a huge opportunity. These tools cost money, and the way we are helping to pay for that is by slowing our hiring plan for the rest of the year. I think of that as a bit of a cost neutral—lower headcount cost, higher software expense. Down the road, over the long term, it could result in cost savings, but it is a bit of a neutral for us in 2026. Hopefully, it leads to not just cost savings over time, but increased productivity and ultimately revenue growth through higher throughput and output from employees. On the structural changes, we talked about Match Group Asia and Archer. What we quoted in the prepared remarks are annualized savings including SBC. I would think of that more as a 2027 savings—it is less so in 2026 due to timing and some of the one-time costs that come along with it. But it certainly does give us optionality in 2027 around margins. Spencer Rascoff: Next question, please. Operator: The next question comes from Cory Alan Carpenter with J.P. Morgan. Please go ahead. Cory Alan Carpenter: Hey, guys. Thanks for the question. I have two—Steve, these might both be for you. Just on the Q2 guide, it implies flat revenue that you are expecting, and that is despite a $20 million headwind from Azar. My question is where are you seeing offsets and which brands make up for that? And any comments you can give on your expectations for Tinder in Q2 specifically? And then, looking beyond Q2, any update you can provide on how you are thinking about the full-year outlook? Thank you. Steven Bailey: Sure. I can take that. Thanks, Cory. On Q2, the way to think about it is, yes, Azar is a $20 million headwind because of the changes we needed to make there to get back in the App Store. That is being nearly fully offset by Tinder strength—that is really where it is coming from. Tinder performed quite well in Q1, and we expect that to continue in Q2, so that is where the offset is coming from. For the full year, we made no changes to the full-year guide, but let me give you some puts and takes. We expect that Azar revenue pressure to continue for at least another few quarters, so I would think about it for the rest of the year. The team is hard at work with a roadmap to address the added friction to improve monetization, but I think it will take some time. At Tinder, we will have to see how things play out. One of the things I am looking at pretty closely is we have a $45 million user investment budget still slated for the second half of the year, spread out pretty evenly between Q3 and Q4. I would expect us to end up at the lower end, lower half of the full-year guidance range given Azar weakness if we end up using that $45 million user investment budget. What we have seen in the last couple of quarters is that we have not had to, but for now we are assuming we will, and that is all baked into the guide. If we do not end up using it, that could offer some further offsets to Azar in Q3 and Q4. That is the revenue story. On the adjusted EBITDA story, I feel really good about the guide there, same with free cash flow, even if revenue comes in a little softer because of Azar. That is because we mitigated a lot of the adjusted EBITDA impact from the Azar changes through reducing marketing there and reallocating headcount at Azar towards other parts of the business—namely Tinder—and closed some open roles at Tinder in the U.S. We have reduced costs across other parts of the portfolio too. Our payments initiative in particular is doing better than expected, so that is helping. And then the changes we just talked about at Match Group Asia, as well as the shutting down of Archer, are helping too. Again, they are more 2027 savings impacts, but they also benefit 2026 as well. So that is the way I am thinking about it—Tinder helping to offset Azar in Q2; we will have to see how the user giveback budget goes for the rest of the year; and then feeling really good about EBITDA and free cash flow because of some of the cost savings efforts we have made. Spencer Rascoff: Operator, next question please. Operator: Sure. The next question comes from Nathaniel Jay Feather with Morgan Stanley. Please go ahead. Nathaniel Jay Feather: Thanks for the question, and really encouraging to see the progress you have been making here on Tinder. Just help me chart the path over the remainder of the year—understanding there will be some puts and takes here—but what is the hope for that glide path for MAUs as we continue in Q2 into the back half? And then given a lot of these improvements that you talked about that are driving this MAU improvement were just launched in Q1, but kind of in the cumulative impact over 2025 up until Q1, how should we think about the product release cadence and how that interplays with MAU? And have you uncovered any maybe delayed impact as the tools get released and then users start to use them that can eventually drive MAU? Spencer Rascoff: Thanks, Nathan. A couple of things. First, with respect to the product release cadence going forward, we are not taking our foot off the gas. The March 12 event was a great catalyst. It generated a ton of urgency, and a lot of the innovations that we announced or shipped came from that urgency, but the team has not slowed down since then. Upcoming initiatives include things like Video Speed Date, which we announced at the Tinder Sparks event on March 12 and we will be shipping in the next month or so; real-life events expanding to other cities; rolling out Tinder Connect with partners like Duolingo and Bally; and a number of other features that we are not ready to share publicly. The work is definitely not done, and I am excited about the roadmap for the balance of the year. In terms of how it will play out on Sparks and MAU, that is hard to predict. We have been setting ourselves up to get to flat MAU by the end of 2027, and clearly I am very proud and pleased that we are already in the negative 6% to 7% year-over-year range. You could argue that maybe it could accelerate the pace with which we improve now because product efficacy improves as you start to bring more people into the ecosystem—there are just more good people to match with. You could also argue that the rate of improvement could slow down because we started with the low-hanging fruit first when this new leadership team took over about six to nine months ago and started knocking things down. It is very hard for me to predict what the exact path will be from negative 7% MAU to flat and then MAU growth. Operator: The next question comes from Ross Sandler with Barclays. Please go ahead. Ross Sandler: Hey, guys. Hey, Spencer. The 1% growth in 30-day retention—that is pretty bullish. I know it is an early signal, but how long has it been since you had growing 30-day user retention, and it sounds like some of the safety and product changes you mentioned on a previous question are driving this trend, but any other details—any color you can provide on what is turning that key metric up—would be helpful. Thank you. Spencer Rascoff: Thanks, Ross. It had been years since we had retention improvements up year over year—at least several. Equally encouraging is that retention among U.S. Gen Z women is actually up 3% year over year, even better than the overall number that I put in the script and, I think, in the press release. What is driving this is better recommendations, Double Date, Music Mode, Astrology Mode, blocking and tackling, and changing perception of Tinder—moving more towards the fun and safe way to meet new people, improving social sentiment on TikTok and Instagram. Better marketing is now working more effectively because when we market these types of features, our marketing budgets go further. Prior campaigns were focused on more amorphous brand reconsideration—“Hey, Tinder’s great, check out Tinder.” Now we are able to market very specific features that have great resonance with our key user segments, and the marketing is much more effective. Taken altogether, this is what is improving retention. As I like to remind people, this is a network effects business. We are already seeing in certain countries in Asia and Latin America, where MAU is flat or in some countries actually up year over year, better user efficacy—better Sparks, better Spark coverage, better retention—because more people just improves user results for everybody in the ecosystem. It is really encouraging and starting to show up in some of the retention data that we are sharing. Operator: The next question comes from Eric Sheridan with Goldman Sachs. Please go ahead. Eric Sheridan: Thanks so much for taking the questions. I wanted to ask about capital allocation priorities because you have now made an outside investment in Sniffies. I believe you backed Justin’s venture in parallel with Match when he left Hinge to go down that road. How are you thinking about the competition for capital between outside investments that can be made versus application of capital internally to build and scale some of the platform product initiatives you are trying to accomplish? Just want to understand if there has been any evolution in the thought there. Thanks so much. Steven Bailey: I will take that first, and Spencer, feel free to jump in. Our approach has not changed. Our priority has always been, first, organic growth in the portfolio. We are prioritizing investments in Tinder and Hinge to drive growth in those businesses, and we feel like we have the capital needed to do that. Number two is returning capital to shareholders through buybacks and the dividend. We will continue to be acquisitive when we find opportunities to do M&A; we will do that—we have shown a good track record of it. These are pretty small investments relative to our scale. The Sniffies investment is a $100 million investment in what we think could be a big opportunity. Overtone is a much smaller investment than that. This is something we can easily handle while still remaining committed to returning the vast majority of capital to shareholders through buybacks and dividends. I do not think that is new, and over $1 billion a year in free cash flow allows the flexibility to do all those things. Spencer Rascoff: Just in case I do not have the opportunity to address Sniffies later in the call, I want to address it now. Steve is right—in the grand scheme of things, it is a relatively easy investment for us to fund because we are so profitable and have such a solid cash flow generation machine. It is also a big swing in a huge TAM. Arguably, the non-heterosexual male segment is the most attractive, largest, and most highly engaged segment in the dating category. This is a big investment in the number two player that we think has the potential to become the number one player. This is a company that is not even in the App Store right now—Sniffies, despite all their success to date, has only been on the mobile web. We expect to be able to help them create a safer experience that gets into the App Store, which will be a huge unlock. I am really excited about this investment. Since I started, we have done two deals: acquiring HER and investing $100 million in Sniffies with the right to buy the rest of it. We are very focused on these two segments—the sapphic segment and the non-heterosexual male segment. We think these are huge TAMs, and I am very excited to own the number one player in the sapphic segment and own a significant portion of the number two player in the non-heterosexual male segment with an option to buy the rest. Operator: The next question comes from Benjamin Black with Deutsche Bank. Please go ahead. Benjamin Black: Thank you for taking my questions. Spencer, you clearly have a lot of product initiatives underway right now at Tinder. If you step back and look ahead to the next 12 to 18 months, I would be curious to hear which one is the most needle-moving in your perspective, or is this maybe a situation where smaller product initiatives build on top of each other and create compounding benefits? And then quickly, Steve, I would be curious to hear what you are embedding in your guidance for the year-on-year trends for Tinder payers and maybe for RPP as well? Thank you. Spencer Rascoff: That is a hard one to choose among all these different product initiatives. As I said, the one that has driven the most improvement to date has been improvements in our recommendations algorithms. Looking ahead—and I will keep it a little vague for competitive reasons—it is kind of an expansion of Double Date and IRL, tapping into these lightweight, lower-pressure ways to connect, which is what Gen Z wants. I will give a little plug here: on June 11, we are going to have an investor- and media-focused webinar. We are creating a new investor relations product called the CEO Connection, where outside of earnings we will do a double-click on something that we think is of interest to all of you. The first one on June 11 is on this topic: decoding Gen Z dating. We will have a number of our social scientists who study Gen Z and Gen Alpha share insights and learnings of how these generations want to connect and how our roadmap reflects it. Look for more information from our IR team for that event on June 11. It will be an hour webinar, and I think it will be really insightful and interesting. Steven Bailey: I will take the question on Tinder payers and RPP. First of all, Tinder payers in Q1 were down 5%, which you probably saw, and that is a huge improvement from down 8% in Q4 and about 7% the couple quarters before—so a lot of progress there that we are really excited to see. I would think of payers as being in a similar range—maybe some small improvement—but similarly down for the rest of the year as Q1, only because of the $45 million in user investment. For now, we are assuming we make those investments because we want to give the product teams the optionality to do it, but that is what is leading to similar payer trends over the rest of the year. We gave you Tinder full-year revenue guidance last quarter, which has not changed, so you can back into the payers assumption. What I would tell you is payer growth would slow a little bit over the rest of the year too, but again, a lot of that slowdown is related to the user investments, which we will only do if we think it is the right long-term thing to do for the business. Operator: The next question comes from John Blackledge with TD Cowen. Please go ahead. John Blackledge: Great. Thanks. Two questions. I thought another good signal was the new user registrations returning to growth. Could you add a little bit more color there and how things are trending with that metric thus far in the second quarter? Second question is around FaceCheck rollout. How is it going, and should we still expect it to be about a one-point headwind to revenue growth this year? Thank you. Steven Bailey: Let me start with FaceCheck. FaceCheck is rolled out in most markets now for Tinder. It is also now rolled out in all major markets at Hinge. It is showing great results at Hinge too—just like it has at Tinder—in terms of reducing bad actors on the app. In terms of revenue impact, it is pretty negligible at this point—about 1%—and that has not changed for the total company. That is included in the guidance, and that is about where it is trending now. Spencer Rascoff: John, I do not have new registrations from April at my fingertips, but it is a really encouraging statistic. I think the registration improvement speaks to overall improving social sentiment and our ability to drive reconsideration. A lot of that speaks to the product, but a lot of it speaks to marketing, frankly, because a new registration is basically somebody that has not used Tinder before or maybe had a Tinder account many years ago but deleted the app. It speaks to general social sentiment, improving word of mouth—some of that is due to product, but a lot of it is due to marketing that is really resonating. We are encouraged by it. Operator: The next question comes from Jason Stuart Helfstein with Oppenheimer. Please go ahead. Jason Stuart Helfstein: Thanks. One on Hinge, and then a quick one on Tinder. For Hinge, RPP is accelerating. Is that reflecting mix within plans and user choice? Are there some headline price increases? And then, obviously Hinge payers did decelerate. Is there any connection between price and volume there? And then just a second quick one. Spencer, how do you know that the new product innovations have staying power—like Astrology Mode, Music Mode, Double Date? They are definitely cool. How do we know this is not like when a new AI image generator or casual game launches, gets virality, and then kind of fades after a few months? Thanks. Steven Bailey: Yes. What we have done at Hinge is optimized pricing geographically over the last few quarters. Some of that means a price up, some of that means a price down. That is what is moving the payers and RPP numbers around a little bit. It is not really package mix shifts per se. With that said, payer growth is still very strong—15% in Q1—and I expect that to be the case for the rest of the year. I still feel that the bulk of the revenue growth in 2026 will come from payer growth, not RPP growth. Spencer Rascoff: On Hinge overall, Hinge continues to crank. Revenue was up 28% year over year in the quarter, which is pretty amazing. Brazil and Mexico launches both went very well. Hinge became a top two or three dating app basically right out of the gate. Based on the success of Brazil and Mexico, we accelerated the launch of more international markets. We quietly launched 10 more markets earlier this week—Chile, Argentina, Uruguay, Peru in LatAm, and several European markets like Poland, Hungary, Croatia, Iceland, Luxembourg, and the Czech Republic. We continue to march across the world with Hinge, which has terrific product-market fit. There is huge potential for MAU growth in these new markets and monetization potential on the path to $1 billion of revenue in 2027. Hinge’s MAU in English-speaking markets has flattened as we would expect because those are more mature markets, but revenue growth even in those core English-speaking markets was up 17% year over year in the quarter. It is consistently the number one downloaded app in English-speaking markets or number one or number two. The rate of product innovation at Hinge continues to impress. This quarter we have three great innovations—Date Ideas, which lets people indicate what types of dates they want to go on; Friends Take, which brings friends into the dating experience; and Signals, which lets people show if they are high intent. Those are features that directly speak to Gen Z and Millennial needs in the category. Again, we will be talking more about that at the June 11 event. On your question about staying power of new features: a lot of the improvements in our data have come from recommendations algorithm improvements, which are not “shiny new features.” Regarding the shinier features and whether their appeal might fade over time, Double Date is a good indicator—its usage continues to grow every month and quarter as more people become aware of the feature. The same thing is happening with Music and Astrology. Right out of the gate with Music Mode, when few people had it, there were not many profiles to see in Music Mode. Now that you see more users with their music connected to their Tinder profile, it becomes more immersive; you are more motivated to connect your Spotify to Tinder to bring in your music, and awareness grows as the network effect fills out. In that sense, it is quite different from feature launches in mobile games. Operator: The next question comes from Youssef Squali with Truist. Please go ahead. Youssef Squali: Spencer, a couple of questions for you. Can you talk a little about the health of the overall online dating market, both from a competitive standpoint with some of the new modalities that we are seeing offline—like run clubs and book clubs and all kinds of other clubs? How is that impacting the online dating environment, if at all? And then on Sniffies, what makes that model so successful and so superior to Archer’s that you decided to invest $100 million and fold Archer into it? Spencer Rascoff: On the overall market, Gen Z desperately wants to connect. They know they want to meet new people; they just want to do it in a low-pressure, low-stakes way that does not feel like a job interview. Traditional dating apps are very highly structured and can be intimidating to a user under 30. The growth of these alternative ways to meet new people speaks to how Gen Z is trying to find lower-pressure ways to connect. We have adapted our roadmap to this reality. Double Date was our first foray into this; the in-real-life events product in Los Angeles was our next big foray. At Tinder and Match Group, Inc. more broadly, we are embracing this trend of meeting people IRL in different modalities rather than hiding from it. Again, the June 11 event will give us an opportunity to bring a lot more data and learnings from our team of experts into this conversation. In terms of the Sniffies investment, Sniffies is very different from Archer. Sniffies is basically a map-based experience for more instant connection—people looking to meet right away, this evening, or nearby—whereas Archer was much more of a serious, high-intent “helping a man find a husband” type experience. Sniffies has incredible product-market fit with 3 million monthly active users—again, only on web, not even on app—and it really resonates with this community in a way that Archer did not. Because Sniffies has such a huge audience, the network effects are self-reinforcing—people use Sniffies because people use Sniffies. People were not using Archer because people were not using Archer. It is a very different product and has a wildly different level of product-market fit. That is why we decided to place this bet on the non-heterosexual male market on the Sniffies team and experience. We have moved our Archer team—mostly New York-based—either into Hinge, Tinder, or E&E. It was a very talented team that built a beautiful product that had not yet found product-market fit, and with the Sniffies investment, that team has found other roles at Match Group, Inc. Operator: The next question comes from Analyst with Jefferies. Please go ahead. Analyst: Yes, great. Thanks for the question. I just had one. You talked in the letter about your objective to get Tinder back to growth in 2027. When you say a growth business, do you mean revenue, payers, MAUs, or just some other engagement metrics? Just trying to understand how you are thinking about growth in 2027. Spencer Rascoff: I think the line in the sand that we have committed to is: by 2027, year-over-year MAU growth, and for full-year 2027, revenue growth. So those are the stated goals, and you know where we are at on our path to achieve them. Operator: The last question comes from Bradley D. Erickson with RBC. You may go ahead. Bradley D. Erickson: Thanks, guys. When you think about collaborating across brands—Spencer, earlier in the call you talked about this—Hinge has had so much success with lots of new product innovation in the last few years. Is there anything you could add or bring over to Tinder that could be impactful there—anything you have done to date where you are seeing similar results—or how do you think about the collaborative opportunity there? Thanks. Spencer Rascoff: Great one to end on. This is a huge focus of mine, and I have changed the culture internally away from being siloed to being much more deeply collaborative and communicative, and in some cases integrated organizationally. Probably the most notable example is something we call Project Mercury, which cross-sells one app to another. A BLK user, for example, might get a pop-up that says, “You have been invited to join Tinder,” and they can create their Tinder profile with one tap, or an OkCupid user might get a notification that they have been invited to join Hinge and can create a Hinge profile with one tap. That has driven a lot of incremental revenue and goodness across the different apps. There are many other initiatives brewing that extract greater synergy between the brands. Pairs, for example, in Japan has been a leader in the in-real-life events space; so has Meetic in France. Tinder is learning a ton from Pairs and Meetic and what they have built out in the events space. There are many dozens of examples around the company, and we are just getting started in terms of extracting the full benefit of the combined scale and synergies as we move away from being siloed and more towards being deeply integrated. We will wrap with that. Thanks, everyone, for joining. I am incredibly proud of the team and the last couple months of accomplishment. We are not out of the woods yet, but things are much improved and improving more every day. We will talk to you again at the June 11 event, Decoding Gen Z Dating, and thanks everyone for your time today. Bye-bye. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
Operator: Hello, everyone, and welcome to SSR Mining Inc.'s first quarter 2026 conference call. This call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Alex Hunchak from SSR Mining Inc. Please go ahead. Alex Hunchak: Thank you, Operator, and hello, everyone. Thank you for joining today's conference call to discuss SSR Mining Inc.'s first quarter 2026 financial results. Our consolidated financial statements have been presented in accordance with U.S. GAAP. These financial statements have been filed on EDGAR and SEDAR, and they are also available on our website. There is an online webcast accompanying this call; you will find the information to access the webcast in this afternoon's news release and on our corporate website. Please note that all figures discussed during the call are in U.S. dollars unless otherwise indicated. Today's discussion will include forward-looking statements, so please read the disclosures in the relevant documents. Additionally, we refer to non-GAAP financial measures during our remarks and in the accompanying slides. See our press release for information about the comparable GAAP measures. Rodney Antal, Executive Chairman, will be joined by Michael J. Sparks, Chief Financial Officer, and William MacNevin, EVP, Operations and Sustainability, on today's call. I will now turn the line over to Rodney Antal. Rodney Antal: Great. Thank you, Alex, and good afternoon to you all. It has been a strong and productive start to the year, and I am proud of the outstanding work delivered across the company in recent months. Most notably, in March, we announced and advanced a definitive agreement to sell our interest in the Çöpler mine for $1.5 billion in cash. This transaction is progressing well, and we expect it to close before the end of 2026. The divestment of Çöpler provides a strategic repositioning for SSR Mining Inc. as a focused Americas-based gold and silver producer with a clear emphasis on free cash flow generation. Our portfolio is now anchored by the Marigold and Cripple Creek & Victor operations, two high-quality, long-lived assets that together form the third-largest gold production platform in the United States. Both operations offer meaningful runway to future growth and mine life extensions. Operationally, it was a solid quarter with our results tracking well against our internal plans and full-year guidance. Financially, the business generated an impressive free cash flow of more than $210 million in the first quarter of the year. As a result, and following the settlement of our convertible notes in March, we finished the quarter with more than $630 million in cash and zero debt. Our substantial cash position provides us with a robust balance sheet and flexibility to continue to invest in the organic growth opportunities across the portfolio and consideration for further capital returns to shareholders in the future. On that note, we completed $300 million in share repurchases, acquiring more than 9 million shares subsequent to the quarter in April. Since 2021, we have repurchased over 29 million shares at an average price of $21 per share, underscoring our disciplined capital allocation strategy and delivering meaningful per-share value accretion to our shareholders. I am sure you will agree that after a busy and successful first quarter, we have created a very strong position for SSR Mining Inc. moving forward. We expect our low-risk, Americas-focused platform and track record of disciplined capital allocation will position SSR Mining Inc. as an attractive vehicle for investors seeking exposure to both gold and silver in the Americas. Before I move on to the next slide, I want to highlight some of the catalysts ahead for our business. First, we expect to provide an updated life-of-mine plan for Marigold in the coming 12 months, incorporating growth opportunities like Buffalo Valley as we push to optimize and extend mine life at Marigold. Next, we are continuing to advance various brownfield growth opportunities across the business, including both Puna and Seabee. William is going to speak more on these in the coming slides. Further, we anticipate providing an update on our strategic review of Hod Maden in the coming months. Lastly, as noted, we expect the Çöpler transaction to close before the end of the third quarter, which will add a further $1.5 billion in cash to our balance sheet. These catalysts in and of themselves present an opportunity to create additional value for our shareholders and will be further bolstered by the ongoing free cash flow from our Americas operations. Let us move on to Slide 4 and talk more about our track record of value creation. The figures on this slide illustrate a powerful picture of discipline and value creation. Over the past few years, we have clearly demonstrated a track record of value creation in per-share metrics, capital returns, and M&A. I have spoken to our commitment to capital returns and particularly share buybacks, but separately, we also have a clear track record of value-accretive M&A. This was most recently illustrated by the remarkable returns being generated from the acquisition of Cripple Creek & Victor in 2025. This is further supported across the portfolio where we have consistently demonstrated our ability to add value through mine life extensions and optimizations. These successes combined with a supportive gold price environment have driven a more than 300% increase in our consolidated consensus net asset value per share since 2024 and a better than 400% increase in consensus cash flow per share over the same period, a fantastic outcome that differentiates SSR Mining Inc. amongst its peers. I am going to turn it over to Michael on Slide 5 to discuss the quarterly results. Michael J. Sparks: Thank you, Rod, and good afternoon, everyone. In the first quarter, we produced 110 thousand gold-equivalent ounces at all-in sustaining costs of $2,433 per ounce, well aligned with our expectations. As highlighted in our guidance release, we continue to expect 55% to 60% of full-year production in the second half with higher sustaining capital spend in the second and third quarters. William will speak in more depth about each operation in the coming slides, but I wanted to call out two notable milestones from the Q1 results. First, Puna delivered more than $120 million in site-level free cash flow in the quarter, an excellent result that reinforces Puna's position as one of the highest-margin primary silver mines globally. We are excited about the opportunities for meaningful mine life extensions and are advancing these programs through 2026. Second, following another strong quarter from CC&V, the operation has now generated approximately $325 million in mine site free cash flow since its acquisition in 2025. This is a phenomenal result given the $275 million acquisition cost and the long mine life ahead for the operation. Overall, it was a strong and solid start to the year operationally, and we look forward to building on this momentum through the rest of the year. Now let us move to Slide 6 for a brief review of our financial results. Our solid operational results translated into strong first quarter financials, including nearly $600 million in revenue and 113 thousand ounces of gold-equivalent sales. With the sale of our ownership in Çöpler announced in March, the asset is now classified as a discontinued operation in our financial reporting. The results from discontinued operations largely reflect a one-time non-cash adjustment to fair book value on the announcement of the sale of Çöpler. Looking at the rest of the business, net income from continuing operations in 2026 was $1.16 per diluted share, while adjusted net income per diluted share was $1.15. Free cash flow from continuing operations in the quarter was $211 million. This strong free cash flow increased our cash position to $634 million at the end of Q1, inclusive of the $87.5 million contingent payment made to Newmont during the quarter as part of the CC&V transaction. Also during the quarter, we fully redeemed our outstanding convertible notes, leaving the balance sheet debt free as of March, and with total liquidity of $1.1 billion. As Rod mentioned, subsequent to quarter end, we completed $300 million of share repurchases under our buyback program, reflecting our continued commitment to shareholder returns. Looking ahead, we expect our ongoing free cash flow combined with proceeds from the sale of Çöpler before the end of 2026 will further strengthen the balance sheet and enhance our ability to continue to allocate capital with discipline while prioritizing high-return growth opportunities and long-term value creation. Before turning the call over to William, I will briefly touch on global cost pressures with a focus on fuel. At Marigold and CC&V, nearly 70% of our diesel exposure is currently mitigated through zero-cost collars executed in late 2025, which extend through 2026. At Seabee, diesel is secured through annual winter road deliveries, and at Puna we are not currently seeing meaningful impacts given domestic supply conditions. As a guide for the remainder of 2026, for every $10 per barrel increase in oil prices, it translates to approximately a $7 to $10 per ounce increase in our consolidated AISC. We will continue to monitor fuel markets closely as we maintain a disciplined focus on cost control and operational efficiency across the portfolio. Now over to William on Slide 7. William MacNevin: Thanks, Michael. I will first start with EHSS. Getting our people home safe and healthy each and every day is foundational for our business. This is highlighted in one of SSR Mining Inc.'s three core values, being safety first, always. This year, as part of our ongoing improvement focus, we are commencing implementation of I Care We Care across SSR Mining Inc. This is a safety leadership and culture program prioritizing people and how we each own and take responsibility for ourselves, our workplace, and our teams. I am very encouraged by the energy and input coming through from this early work and look forward to this making a difference in both people's safety and overall business performance. Now on to Slide 8 to start with Marigold. Marigold had a solid start to the year with production results well aligned with expectations. We continue to expect full-year production at Marigold will be 55% to 60% weighted to the second half of the year, driven largely by higher grade stacked midyear. AISC at Marigold are expected to peak in 2026, driven by timing of spend on fleet replacements and upgrades. Full year remains on track against the original guidance range. We are seeing cost pressures stemming largely from higher royalty costs driven by gold prices. Nearly three-quarters of our diesel fuel usage at Marigold and CC&V is hedged for this year, which has helped to insulate us against the current elevated fuel prices globally. Our focus remains on equipment productivities, maintenance quality, and efficiency with consumables to manage current and potential future inflationary pressures. Work continues on growth initiatives across Marigold, particularly at Buffalo Valley, as we work to include the project into an updated life-of-mine plan at Marigold within the next 12 months. We have also had some great results from near-mine drilling across the property, including some high-grade intercepts at DG-80 targets to the southwest of the current Mackay Pit. Our teams are also continuing to evaluate longer-term open pit expansions at New Millennium. These initiatives combined with additional near-mine drilling campaigns and project evaluation work point to significant potential for mine life extensions at Marigold in the future. We are excited by what is ahead and look forward to providing more details in the new technical report. Now on to Slide 9 for an update on CC&V. CC&V had another great quarter with better than expected recoveries driving strong production and delivering more than $120 million in mine site free cash flow. Since acquisition at the end of last February, CC&V has now generated $325 million in free cash flow, an excellent result that now exceeds the total transaction consideration in just 12 months. CC&V remains well on track against its full-year production and cost guidance targets, with higher sustaining capital expected in the second and third quarters. We are continuing to evaluate opportunities to improve the longer-term production and cost profile of CC&V through trade-off studies and potential for future mineral reserve conversion. CC&V has an exciting future ahead, and we look forward to continuing to deliver value at that operation going forward. Now on to Slide 10 to discuss operations at Seabee. First quarter at Seabee saw our continued focus on underground development as we aim to deliver stronger grades and production in the second half of the year. Production was also impacted by extreme cold in the quarter, which caused some temporary downtime in the processing plant. AISC reflected costs incurred with the winter road season, and overall, Seabee remains on track for its full-year guidance ranges. Exploration and resource development activities at both Santoy and Porky continued in the quarter, with both programs targeting potential mineral reserve growth. At Santoy, near-mine drilling is focused on higher grades at depth, while our teams continue to evaluate Porky as a potential new mining front to support future mine life extension. Now on Puna on Slide 11. Puna continued its recent run of excellent operating results with a strong first quarter. Average daily processing plant throughput set another record, the fifth consecutive quarter Puna has delivered improvements in process plant efficiency. As planned, mining was focused on waste stripping in the quarter, and Puna remains well on track for full-year production and cost guidance. Average realized silver prices in 2026 exceeded $90 per ounce, enabling Puna to deliver more than $120 million in mine site free cash flow in Q1. Puna has been an excellent contributor to the business over the last few years and continues to clearly demonstrate its exceptional margins and free cash flow in the current silver price environment. We are advancing a number of opportunities to extend the current life at Puna, including additional laybacks at the existing Chinchillas pit, evaluation of the Malena target adjacent to Chinchillas for open pit potential in the medium term, and continued advancement of the Cortaderas underground project. With multiple avenues for growth at Puna, we are very excited for the future of this operation and see potential to meaningfully extend the mine life well beyond our current reserve base. On to growth on Slide 12. I have touched on the majority of these projects and targets as we worked through each asset, but it is still worth highlighting the wealth of potentially meaningful growth opportunities that currently exist across our portfolio. These projects have been identified through successful exploration and development work completed at each asset in recent years. In my view, there is no better way to serve value for our shareholders than through the advancement of organic growth opportunities. It is also important to note these projects are compelling at current mineral reserve prices of $1,700 per ounce of gold and $20.50 per ounce of silver. We do certainly see future upside at each of these assets, but we will be diligent in ensuring we advance the highest-returning growth opportunities. I am excited about the growth potential of this portfolio and look forward to executing on these opportunities to deliver value for our shareholders. I will turn back to Rod for closing remarks. Rodney Antal: Great. Thanks, everyone. With such an important and transformational quarter behind us, our focus is now on building on this momentum during the remainder of the year. We are in an excellent position and have a number of meaningful catalysts ahead of us as I mentioned in the introduction to this call. With a low-risk, Americas-based business, continued delivery of strong operating results, organic growth initiatives, and the potential for further capital returns, we are well positioned to benefit from the ongoing re-rate of SSR Mining Inc. So with that, I am going to turn the call over to the Operator for any questions. Thank you. Operator: We will now open the call for questions. Thank you, Mr. Antal. We will now begin the question and answer session. Our first question is from George Eadie with UBS. Please go ahead. George Eadie: Yes, good evening, team, and thanks for the call and nice update today. On the Hod Maden strategic review, can you just remind me what are the goals and what does it look like? I guess my question is if a sale is concluded as the outcome, do we have to wait another two or so quarters for that process to run and then another couple of quarters to close? And I guess, could we be 12 months away from that deal closing if a sale is the decided outcome? Rodney Antal: Yes, hi, George. No. We have not really given much guidance on the process that we are going through other than to obviously announce, with the sale of Çöpler back in March. I think the objective of the review was to consider all of the options from actually building the project all the way through to sale. And then within sale or other strategic options to remove ourselves from Hod Maden and what does that mean, because there are multiple ways that can be achieved. Other than we are still in the process of doing that and going through those different trade-offs, there is really not much else to update you on, and I think some of the details that you are looking for here will come once we set a clearer picture for the direction. George Eadie: Okay. Yep, that is cool. Thank you. And then just two payment questions. Can you remind me what the Carlton Tunnel payment is at CC&V? And then secondly, just with the buyback, $300 million bought back 9.2 million shares. That says $32.6 a share average, but the shares were only really in that range for about five days in April. Is that right, or am I missing anything there, or you just bought at that little peak in early April? Michael J. Sparks: Yeah, George, I will take the second one first and then circle back to the Carlton Tunnel. With the share buyback program that we announced in the middle of the quarter, we did put an NCIB in place which allows us to give directions to the banks to exercise that outside of us having material information. That process did move very quickly in a range anywhere from $21 up to $32, but with the volatility of the price during that period, it did come in around that $32 a share average. Circling back to Carlton Tunnel, the $87.5 million that we paid to Newmont during the quarter was for the Carlton Tunnel milestone, and that leaves one more $87.5 million additional payment which would come in connection with the Amendment 14 and the updated closure plan to that site as we look at that deal structure. George Eadie: Okay. Yep, awesome. And so if Amendment 14 closes, say, in some months, whenever it is, that payment is straight after you get that approval. Is that right? Michael J. Sparks: Yes, that is right. Amendment 14 remains on track, anywhere from 12 to 18 months is kind of what we are penciling in, and then that payment will be due once that work is completed and that permit is issued. Rodney Antal: I will just chime in here a little bit, George. It is all going to plan, and we are leading that work now. William and the team have taken that over, and the work that we have done to establish our presence with the community in Colorado and also locally down at Cripple Creek has gone really well. So that is all tracking to plan. Analyst: Thank you, Operator, and good evening, Rod and team. Thank you for today’s update. Could I ask about the buyback and just thinking about your situation today, the balance sheet is very strong, the outlook for free cash flow generation is quite robust. You mentioned an intention to look at the buyback again, and now the buyback authorization is totally exhausted. Why not go to the board prior, along with the results, and ask for the renewal then? And what is your thinking on timing around a renewal? Rodney Antal: I think it is important to take a step back to take a step forward. The share buyback that we just executed, particularly on the announcement of the Çöpler sale, made a lot of sense to do, and it was executed very quickly given the parameters that we had put in place. The step back that I am talking about now is that post the incident where we suspended our capital allocation strategy with Çöpler a few years ago, we said once we have clarity on the outcome post that, we would then go back and have a look at our capital allocation and reimplementing and reinstituting it. That is what we are doing at the moment. The work around more holistically how do we manage our capital allocation, and then looking at the requirements for the business in the future with all the various growth opportunities we have in front of us, the balance sheet, and other things before we go and make our mind up on the mechanisms we use for returns to shareholders. That work is underway with Michael and the team. Analyst: So part of it is just a discussion between whether it is going to be increased dividend or increased buyback, rather than just whether you are going to do it? Rodney Antal: I would not say increase because we have not got a dividend in place at the moment because we suspended it, and that is the point. It is a question of whether we reinstitute our yields that we had in place before. We actually had that way back in 2021, as well as supplementing that through the share buyback program. That was how we had managed it before with the three pillars: balance sheet strength, growth, and returns. It is really just pulling all that work together with the emerging growth opportunities we have as well to ensure that we are making sound decisions. Analyst: Fully acknowledging those growth opportunities, I think it would be interesting to hear your views on M&A, particularly in light of your strong free cash flow and balance sheet position. That must compete with options within the portfolio, I assume. What is SSR Mining Inc.'s appetite right now for growth through M&A? Rodney Antal: If you go back to the start of the call, the reason we go to the pains of setting out our track record around M&A is to highlight we have been really good stewards of capital for a long time. We look at a lot of opportunities; we have never made a secret of the fact that we are active, always looking at different trade-offs and different opportunities around the market. When we do bring deals to the table and to our shareholders, there is usually a multiple of upside, and the results speak for themselves. That is part of who we are, and I think we are particularly good at it. We have a number of filters that we look at for M&A through any cycle. It has to align to our business strategy. It has to compete for capital. It has to make sense for us in terms of what we want to build. We have a particular focus now, with the reset of the business, on the Americas. That is a bit of a nuance to what we had before, but beyond that, we are staying active in that space. Operator: The next question is from Josh Wolfson with RBC. Please go ahead. Josh Wolfson: Thank you very much. Following up on the question about the buyback and capital allocation, I can appreciate the company’s desire to be measured here, but with pro forma net cash over $2 billion and $200 million generated in free cash flow this quarter, why not continue a little bit of the buyback in the interim before closing of Çöpler? Or is there another way that we should be thinking about this in terms of maybe capital needs being higher for some of the development projects? Thank you. Rodney Antal: Hi, Josh. Look, I think it is pretty simple. First things first, we want to close the deal and get the cash into the bank. That is really important through any transaction, and, as we said, we expect to achieve that within the third quarter. That is the most important catalyst. It does not mean we cannot do more share buybacks, but as we noodle through the various options and have the discussions with the board, the work that Michael and the team are doing really needs to be as holistic and predictable as possible. It is not because we have an aversion to doing any more share buybacks. It is really around just getting the deal closed, getting the cash in the bank, and then the rest will come. Josh Wolfson: Thank you. And then on Hod Maden, you had signaled minimal costs. You did spend $31 million in the first quarter. How should we think about what minimal costs are going forward? Michael J. Sparks: Yeah, Josh. A lot of the work under Hod Maden right now is around early site works. That is where you are seeing the majority of that $31 million coming in. A lot of that was advanced during the first part of Q1. We anticipate that as we go through the strategic review in the coming months that will be much lower. It will not be zero, but it will be towards the lower end of that range. Josh Wolfson: Got it. Thank you. And then there was some commentary earlier on the call about fuel price sensitivity, thinking of $7 to $10. Just clarifying, what does that number incorporate? Does it reflect the hedging program that is in place, and does that include secondary impacts that may not be just direct fuel usage? Michael J. Sparks: You bet. The hedge program goes through the end of this year, so that $10 per $10 oil move in AISC is really tied to this year with the hedge programs in place. Without the hedge programs, if we do not have anything in place going into 2027, that goes up to about double that, which is $20. Only about 10% of our operating costs are fuel. As William mentioned, we are focused on operational efficiency and controlling those costs. It is a bit early to look at the knock-on effects; we are monitoring it, but we are not seeing anything that is tangible at this point. We will continue to update as the year progresses. Operator: The next question is from Ovais Habib with Scotiabank. Please go ahead. Ovais Habib: Hi, Rod and SSR team. Congrats on a Q1 beat. Great to see CC&V outperforming. The amount of free cash flow this operation is generating is really impressive. Just a couple of questions from me. Sticking with CC&V, just a follow-up question regarding the Carlton Tunnel payment. Is there a positive read-through on the fact that you made this payment in terms of Amendment 14 permitting, and is that coming imminently? Rodney Antal: No. They are mutually exclusive. Think of it the other way. Amendment 14, as you recall, we put out the technical report for Cripple Creek as the first update from SSR Mining Inc. It was constrained around the already-in-process Amendment 14, which is an expansion permit that Newmont had already begun when we acquired the asset. The Carlton Tunnel discussions and considerations were another unique piece of work going on with the regulators around the long-term management of the water discharge. So it is entirely separate from Amendment 14. Ovais Habib: Got it, thanks for the color on that. Moving on to the mine plan expected at Marigold that includes Buffalo Valley, are you expecting any significant improvement in the production profile, or are you looking more at an increase in mine life? Any color on that? Rodney Antal: The first priority is to include some of the growth options we have to understand the requirements for those growth options—permitting requirements, where we might need more infrastructure, where we might need to develop a new area, where we might need to do more technical work—to ensure we are in good shape for that growth profile. Some of those growth options will feature later in the life of Marigold, not so much initially, because of permitting and other requirements. Some of it is to do trade-offs across various parts of the property—southern part around New Millennium and Buffalo Valley, and some of the extensions there—to see whether we could share infrastructure rather than having long haulage. There are optimization opportunities as we go through the mine plans. In the initial years, the key focus is to show and demonstrate that we have production that now accounts for the blending requirements we talked about last year. The importance is having different faces open to allow for blending requirements of the final ore on the heap leach pad. The next five years, as we said at the end of last year, will probably stay about the same overall, but then the growth options beyond that can bring in ounces where we can along the way and extend the life of mine at Marigold, which has a substantial amount of resources. Operator: The next question is from Cosmos Chiu with CIBC. Please go ahead. Cosmos Chiu: Hey, thanks, Rod and team. My question is on the contingent payment related to the Carlton Tunnel—$87.5 million. If I go back to your original agreement, it was due when there is regulatory relief relating to flow-related permitting requirements, achieving highest feasible allocation, or an alternative to water flow. I guess you have achieved that point. Could you explain what that means and where we are today in terms of that water flow? Rodney Antal: This remains a Newmont-led piece of work. They did achieve some of the permitting requirements from the regulators in Colorado that necessitated us paying that $87.5 million milestone. In layman’s terms, they achieved what they set out to achieve. There is ongoing dialogue by Newmont with the regulators to consider the overall requirements for what is going to be the ultimate plan for the Carlton Tunnel discharge—whether it needs intervention through some sort of water treatment facility in the long term, etc. Remember, the way that we carved that out through the deal was that it would always be on Newmont’s account. It is important that they take the lead on that and continue that dialogue. We are a stakeholder, but not a stakeholder who is leading the discussions on this. Cosmos Chiu: Maybe a question on Çöpler. As you had mentioned in your guidance, there was about $80 million to $100 million in care and maintenance costs budgeted for the full year. If I take the difference of your free cash flow in Q1—$210 million—and $175 million, the difference is about $35.6 million. Is that related to care and maintenance for the quarter, which seems a bit high because you had guided to about $20 million to $25 million? What should we expect in Q2, and when would it stop? Would it stop only when you close the deal? Michael J. Sparks: Yes, Cosmos, a couple of points on that. In Q1, you will remember there are a number of tax and license renewals, so our Q1 costs—care, maintenance, and otherwise—are always a little bit higher. The original guidance of $20 million to $25 million would be what I would use for Q2. We will maintain that care and maintenance and ongoing support through the closing of the transaction. For your modeling, use that $20 million to $25 million rough estimate, and that would continue until we announce the close of the deal. Cosmos Chiu: What else needs to be completed for closing of the deal? The due diligence period has been completed, so what else needs to happen in terms of closing? Rodney Antal: The work on the ground has been excellent, with discussions around the transition requirements with Cengiz Holdings. All of the cooperation you would expect through a transaction like this has been very good. The only things required, as we set out with the announcement, are regulatory approvals. We await those, particularly from the Ministry of Mining and Energy, and once they are achieved, we can close the deal. We expect that by Q3. Operator: The next question is from Don DeMarco with National Bank. Please go ahead. Don DeMarco: Hi, good evening, Rod and team. Thanks for taking my questions. First on Seabee, I heard that guidance is on track. Can you provide any incremental color on the costs in Q1 beyond what you already mentioned about the cold weather? Should we model a step-change to lower costs in Q2? Rodney Antal: Look, the feature here is development. At the end of last year and into the first half of this year, the real focus at Seabee is on development, which is ongoing and will continue through this quarter as well. We will start to see incrementally better production coming out of Seabee, but it is really fourth-quarter heavy in terms of production. That flows from the development work we began in the second half of last year and continued in the first half of this year. It will progressively get better, but the big quarter will be Q4 this year. The all-in sustaining costs will average themselves out over the year as we get ounces back into the guidance range. We are still incurring costs while doing development, but ounce production is much lower in Q1–Q2, moving up into Q3, and then a great Q4. Don DeMarco: In other words, Q1–Q2 might be above the top end of the guidance range for AISC, and Q3–Q4 could be below the lower end. Is that fair to say? Michael J. Sparks: Yes, I think that is right, Don. Just remember, a good chunk of our costs for Seabee come across on that ice road, so Q1 is always going to be a little higher for us. As we increase production throughout the year and get out of the Q1/early Q2 ice road spend, that will normalize. Don DeMarco: On Hod Maden, looking forward to your update on the strategic review. Can you remind us what your book value is for this asset? Michael J. Sparks: I do not have it on the top of my head, Don. We will get that for you and follow up. Don DeMarco: Finally, on M&A, you had mentioned the Americas. Do you have a bias in terms of stage or jurisdiction? Given your cash balance, would you favor development projects? And with the Americas, does that imply North and South America, and do you equally weight all the jurisdictions? Rodney Antal: We look at the full life cycle of assets—everything from greenfields opportunities, which we quietly acquire over time, particularly around our current assets, through brownfields development and producing assets. We do not have a strong preference across the spectrum. The most important thing is strategic fit—does it align with our long-term vision of building from the platforms we have—and the value we can add. Each opportunity is unique. We have a reputation as good discoverers, mine builders, and operators, so there really is not anything we would not look at. It is more about whether it is on strategy. Do I have a bias from North to South America? Right now our focus is North America, to continue to build out the lower-risk ounce base we now enjoy with Marigold, Cripple Creek & Victor, and Seabee. That would be a preference, not forgetting that we have a platform in Argentina and, more recently, we have seen a much better environment there for foreign investors. That is another thing we will keep looking at, given it is fairly under-explored and we already have a presence there. Our focus at the moment is really North America and then trying to build around the platform we have in Argentina. Operator: This concludes the question and answer session and today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
Operator: Good afternoon, and welcome to the Latham Group, Inc. First Quarter 2026 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Casey Kotary, Investor Relations representative. Please go ahead. Thank you. This afternoon, we issued our first quarter 2026 earnings press release, which is available on the Investor Relations portion of our website. Casey Kotary: On today's call are Latham Group, Inc.'s President and CEO, Sean Gadd, and CFO, Oliver Gloe. Following their remarks, we will open the call to questions. During this call, Latham Group, Inc. may make certain statements that constitute forward-looking statements, which reflect the company's views with respect to future events and financial performance as of today or the date specified. Actual events and results may differ materially from those contemplated by such forward-looking statements due to risks and other factors that are set forth in the company's Annual Report on Form 10 and subsequent reports filed or furnished with the SEC as well as today's earnings release. Latham Group, Inc. expressly disclaims any obligation to update any forward-looking statements except as required by applicable law. In addition, during today's call, the company will discuss certain non-GAAP financial measures. Reconciliations of the directly comparable GAAP measures to these non-GAAP measures can be found in the slide presentation that is available on our Investor Relations website. I will now turn the call over to Sean Gadd. Sean Gadd: Thank you, Casey, and thank you all for joining us today to review our first quarter results and discuss our business outlook. Our first quarter results represent a good start to 2026. We are especially pleased with our performance given the adverse weather conditions that plagued most of North America. There are several key takeaways from the quarter that are worth noting. First, this was another quarter in which we saw year-on-year sales growth in each of our product lines. Latham Group, Inc.'s category leadership position across our product portfolio and our geographic diversification are key competitive advantages for us. Secondly, we continue to effectively execute our Sand States strategy, showing double-digit sales gains in fiberglass pools in our priority Florida market. We are taking further actions to accelerate our growth in this region. Third, we expanded our margins, benefiting from operating leverage inherent in our business model and from the lean manufacturing and value engineering initiatives that continue to yield very positive results. Oliver will provide additional detail on this later on in the call. And lastly, we are pleased to confirm our 2026 guidance, which anticipates significant sales growth and even stronger growth in adjusted EBITDA within a challenging macro environment, where pool starts will be about flat to last year. Our guidance includes a moderate increase in transportation and commodity costs due to today's high oil prices, which we are mitigating with temporary fuel surcharges. We are closely monitoring the dynamic situation in the Middle East and the potential impacts on costs and consumer demand. Taking a closer look at our first quarter results, in-ground pool sales increased 3.5%, and virtually all of that growth can be attributed to the one-month contribution from the Freedom Pools acquisition. Adverse weather was definitely a factor in our organic performance, keeping organic in-ground pool sales steady year on year. However, April sales trends were in line with our expectations, and we are on track for fiberglass pools to approach 80% of our full-year in-ground pool sales in 2026. The Freedom Pools acquisition we completed on February 26 is integrating as expected. As we have noted, the acquisition expands our presence in Australia and New Zealand, markets where fiberglass pool models have a strong foothold, and broadens our reach into new markets in Western Australia, including Perth, which is the fastest-growing city in the country. We recently spent a week in Australia bringing together the Narellan and Freedom teams. In addition to this transaction being immediately accretive to Latham Group, Inc., giving us a market-leading position in the country, we anticipate achieving considerable revenue synergies from this combination over time, as well as gaining firsthand experience from the direct-to-consumer business model. Cover sales advanced 6% in the first quarter, driven by growth in auto cover demand as consumers increasingly recognize the safety and economic benefits of this excellent product. Our industry-leading auto covers are compatible with all in-ground pool types. In many parts of the U.S., they provide the homeowner with an alternative to fencing while delivering additional cost savings from reduced evaporation and chemical usage. Educational marketing campaigns, including our partnership with Olympic Gold Medalist and pool safety advocate, Bode Miller, and his wife, Morgan, to promote pool safety are surging consumer awareness and increased attachment rates of auto covers to new pool installations. First quarter liner sales were up 9% year on year, reflecting increased demand and buying in advance of the pool season. We continue to gain traction with our Sand States strategy in the first quarter and are moving forward with plans to accelerate our growth in this important region. Many of the investors and analysts who I have met since taking on the CEO role in January have asked me where I see the major growth opportunities ahead for Latham Group, Inc. and what our playbook is for capturing that growth. Let me start by saying that the opportunity is substantial. We do not need to wait for the recovery in the U.S. pool markets to drive growth. There are enough pool starts for us to go and attack the Sand States now, given our relatively low penetration in that region. The key here is that fiberglass is a growing category, and we are the number one player in it in the U.S., and so we are best positioned to gain share. Fiberglass pools are an excellent fit for the Sand States for many of the same reasons that the category is growing nationally: fast and easy installation, lasting durability, low maintenance, and we have an exceptional design range of sizes and options to choose from, many of which are smaller, rectangular-shaped pools with attached spas that are perfect for our target community. Latham Group, Inc. has laid a good foundation for growth in the Sand States. There is definitely increased brand awareness among consumers and dealers in Florida, thanks to several high-profile marketing campaigns paired with local activations. In 2026, we plan to build on that foundation to set the stage for accelerated long-term growth. As you know, I have many years of experience successfully selling against the standard in the building products industry. When I apply that experience to Latham Group, Inc.'s current position in the Sand States, I have identified several actions to capture consumer demand and provide additional value for our dealers. First, we are building out our commercial organization, with the key pillars being sales strategy, sales operations, and sales execution, with responsibilities to design and drive sales plans, product leadership, and sales effectiveness. Our goal is to provide a world-class commercial organization that supports our growth not just in Florida, but across all the Sand States and all of North America. Second, we have introduced a new market development framework and approach at Latham Group, Inc. that I believe will make us even more effective in capturing share. The key element of this framework is segmentation, meaning that we will be very selective with our targeted Sand State markets, determining the specific sections and neighborhoods that offer the greatest opportunity for us. In essence, it is all about neighborhoods. We are looking for neighborhoods with a large number of homes with home values, lot sizes, and household incomes that fall within our parameters. These can be in, adjacent to, or outside of master-planned communities. Third, we will be adding sales resources in the field to make sure we stay close to the consumer throughout the pool-buying process. In this way, we will be able to assist our dealers in converting more leads into sales and gain greater understanding of the consumer journey. We know that consumers are looking for designs that fit their lifestyle. We believe that Latham Group, Inc. has the best range of products to meet those needs. In 2026, we are increasing our investment in branding and marketing in a very targeted way to capture greater consumer awareness. Together with our network of trusted dealers, we are able to fulfill the demand we generate. In support of all this, we are revamping our marketing and advertising campaigns to give homeowners a full understanding of the true benefits of fiberglass, and why it is the right solution for their backyard to enable their dreams of creating wonderful memories to come true. With that, I will turn over the call to Oliver Gloe, our CFO, for a financial review. Oliver Gloe: Thank you, Sean, and good afternoon, everyone. I am pleased to report on what was a solid start to 2026. Please note that all comparisons we discuss today are on a year-over-year basis compared to 2025 unless otherwise noted. Net sales for 2026 Q1 were $117 million, 5% above $111 million in 2025, of which 3% represented organic growth and 2% represented the one-month benefit of the Freedom Pools acquisition we completed in February. Organic growth was led by the continued strength of auto covers and increased demand for our pool liners. By product line, in-ground pool sales were $60 million, up 4% from Q1 2025, with virtually all the year-on-year growth coming from Freedom's fiberglass pool sales. Cover sales were $33 million, up 6%, and liner sales were $24 million, up 9% compared to 2025. We achieved a first quarter gross margin of 32%, reflecting a 220 basis point increase above last year's 30%. This performance is primarily due to volume leverage, along with production efficiencies driven by our lean manufacturing and value engineering initiatives. SG&A expenses increased to $37 million, up 20% from $31 million in 2025. This was largely tied to strategic investments in sales and marketing to accelerate fiberglass adoption, digital transformation initiatives, and acquisition and integration-related costs, which include $2.3 million of performance-based compensatory earnout expenses related to our Coverstar Central acquisition in 2024. Target synergies have been realized for Coverstar Central, and we are pleased with the contribution from the acquisition, which has exceeded our initial expectations. This earnout will total roughly $9 million over the course of the year, with a similar impact in each remaining quarter in 2026. Net loss was $9 million, or $0.07 per diluted share, compared to a net loss of $6 million, or $0.05 per diluted share, for the prior year's first quarter, primarily due to the aforementioned increase in SG&A expenses. First quarter adjusted EBITDA was $12 million, 9% above $11 million in the prior year period, primarily resulting from volume leverage and efficiencies gained through our lean manufacturing and value engineering initiatives. Adjusted EBITDA margin was 10.4%, a 40 basis point expansion compared to last year's first quarter. Turning to the balance sheet, we continue to maintain a strong financial position, ending the first quarter with a cash position of $27 million, in line with our expectations. Net cash used in operating activities was $48 million, reflecting a seasonal increase in working capital needs ahead of peak pool selling season. We ended the quarter with total debt of $311 million and a net debt leverage ratio of 2.8, also in line with our expectations. Capital expenditures were $23 million in Q1 2026, compared to $4 million in the prior year period. The increase is primarily due to the purchase of four key fiberglass manufacturing facilities in Florida, Texas, California, and West Virginia for $18 million, including a $12 million deposit made in 2025 that was settled in Q1 2026. Additionally, we incurred $5 million of CapEx relating to ongoing projects in line with our expectations. As a reminder, we expect CapEx to range between $42 million and $48 million in 2026. This includes $25 million of maintenance CapEx expenditures related to the purchase of the fiberglass manufacturing facilities that I just mentioned, and investments to upgrade our newly acquired Freedom Pools manufacturing facilities. While the beginning of 2026 was affected by adverse weather conditions across North America, we are encouraged that April sales trends have been in line with the historical seasonal ramp. We continue to monitor geopolitical developments and their potential impact on our freight and raw material costs, but we believe we are well positioned to manage effectively through this pool building season. We are pleased by the steady progress we are seeing from our fiberglass awareness and adoption initiatives, highlighted by strong consumer engagement with our branding and marketing campaigns, and continued gains in Florida, our initial Sand State target market. Based on our performance to date and our current visibility into the remaining season, we are pleased to reaffirm our guidance for 2026 revenue growth of 9% and adjusted EBITDA growth of 13% at the midpoint, amid expectations for new U.S. pool starts to be flat with last year. With that, I will turn the call back to Sean for his closing remarks. Sean Gadd: Thanks, Oliver. In summary, we are pleased with our first quarter performance, encouraged by recent order trends, and excited by the growth opportunities we see on the horizon. Latham Group, Inc. is firmly on track to outperform the market for new U.S. pool starts again in 2026, and we intend to take advantage of soft markets to accelerate our Sand States strategy and strengthen our execution. I see tremendous opportunity for Latham Group, Inc. to drive market penetration in the Sand States as well as the rest of North America, Australia, and New Zealand. With that, operator, please open the call to questions. Operator: We will now open the call for questions. If you are using a speakerphone, please pick up your handset before pressing the keys. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ryan James Merkel with William Blair. Please go ahead. Ryan James Merkel: Everyone, appreciate the question. I wanted to start off with the fiberglass backlog and orders as you enter season. How is that looking, and then have you seen trends pick up now that the weather has cleared? Sean Gadd: Yes. Thank you for that question. We are seeing what we would have expected to see coming out of the first quarter. The order file in April looks strong to us, and it looks like it is picking up for the season. We feel good enough that we have reaffirmed guidance. Generally, we are seeing the pickup in orders and feel pretty good about the trend. Ryan James Merkel: Got it. Thanks for that. And then my second question: the fiberglass conversion is key to the story, and you are adding a bunch of resources. What are the biggest tweaks that you are making to the strategy, and then any early results, or is it a little too early? Sean Gadd: We are definitely making some tweaks. It is too early for definitive results. The main thing, as I talked about earlier, is we are segmenting the market a little bit differently than we have in the past. We have criteria now built up where we feel like if a neighborhood fits that criteria, the likelihood of them going to Latham Group, Inc. and then to fiberglass is higher. We like that. We are starting to test that, and if we get those right with the right dealers, we will be able to start building out more and more neighborhoods. We are early, but that is on a good path for us. The second thing we are doing is adding heads, and really I am organizing commercialization into three areas: sales strategy, which is understanding where to play, doing more of the segmentation, becoming a little bit smarter around sales; sales operations, which for me is about converting what we think about the market into real game plans that the sales team can execute and then measuring that team; and then sales execution, to go and execute. We are getting a little bit more organized so that we get the most out of our sales organization across the whole U.S., including the Sand States. Operator: Thank you. Our next question comes from Gregory William Palm with Craig-Hallum Capital Group. Please go ahead. Gregory William Palm: I wanted to piggyback on the first question a little bit since a lot has happened in the last couple of months since we were all on the phone together. It does not sound like the demand environment has changed all that much, relative to what you would have thought a couple months ago. Can you confirm that? And from an input cost side of things, you mentioned freight. I wanted to get your sense on how you are dealing with that and anything else on your radar, whether it be increasing resin prices. Are you seeing any availability shortages of key inputs like that? Anything else that should be on our radar? Sean Gadd: Thanks, Greg. I will start by talking about the market a little bit. We still see the market overall for this year likely to remain flat, so our assumption for that has not changed. But we are seeing some green shoots, and we feel good about that. Our order trend for April looks strong and into May, so we feel good about that. PK data would have indicated some growth starting to occur with cheaper pools. We like that. Pools are getting smaller, so that is good. The volatility is not helping, but I know we have a sound approach, and we will work through that. From a dealer perspective, when we catch up with dealers, they will tell us it is pretty competitive — four or five quotes per job, which is generally up. My take is it is certainly uncertain, but I believe fewer people will be traveling — the price of gas does not help — and so they are staying at home. I think that is the opportunity and what the green shoots are that we are seeing: that people would rather spend time at home and hopefully let us help build a pool. Oliver Gloe: Let me address the second part with regards to the conflict in the Middle East and updates on input costs. We do not see availability to be an issue as of today. Partially that is due to our supply diversification coming out of COVID. We aimed to be multisource and as diversified as possible. But we are seeing headwinds in freight. That comes in two forms. One is transportation — the price at the pump. Especially in the world of fiberglass, we are incurring transportation costs. It is expensive to ship those fiberglass pools across the nation. In terms of mitigation, we have introduced temporary fuel surcharges that we plan to fully mitigate us on transportation costs. I think it is too early to tell what the impact will be on the commodity side. We are exposed to oil derivatives in the world of resins, HDPE, and so forth. It is too early to tell. We are in discussions with suppliers and making the first purchase orders as we speak under slightly higher price levels. We will have to see how the very dynamic situation evolves. But I am confident in the playbook that we have. We applied that playbook during COVID and last year, and we have confidence that the playbook could also work this year as we work through commodities. Gregory William Palm: On some of these initiatives that you talked about — resegmentation, adding sales resources — how do you feel about your current dealer network, and how important of a lever can that be, not just adding new and more dealers, but also leaning into some of your more successful ones? Sean Gadd: Dealers are very important. They are the extension of us as they sit across the kitchen table, and we need them to represent us well. I believe we have the opportunity to get more out of our current network, which is goal number one. In our core markets — Midwest, Northeast, Canada — that is really about account management. We are defining what account management looks like for Latham Group, Inc. and making sure our organization is trained around good account management. I expect to get more out of our current network. Then we will add where we have white space. We will always look for dealers to take on white space if our current dealer network does not get us there. That is part of the strategy. In the Sand States and material conversion, we have a good network of dealers there right now that we will be feeding as we go into these neighborhoods, and they will benefit from referrals and everything else that comes out of those neighborhoods. We feel good about the network in the Sand States, particularly Florida, and our intention will be over time to grow it. Operator: Thanks, Greg. Our next question comes from Timothy Ronald Wojs with Baird. Please go ahead. Timothy Ronald Wojs: Good afternoon. First question on the resegmentation of some of the sales force and things like that. Is the plan that there are incremental investments in terms of dollars going into some of the initiatives, or are you just reallocating what you have? Sean Gadd: A little bit of both. We are definitely going to get ahead a little bit because we need more people on the ground and people thinking about the game plan. That would be additive, but our intention is that SG&A as a percentage of sales should stay the same over the medium and long term. We will continue to fund that as we grow. We will also look at opportunities to trim back on the back side of the business to give us some space to spend on the front side of the business and invest. Timothy Ronald Wojs: And, Oliver, on the price/cost question, is higher resin in the guide, or is it more of a wait-and-see approach? If you do see higher resins, do you have the ability to take cost out or improve efficiencies or pass them on price? Is that the main message? Oliver Gloe: It is probably more the latter. Transportation cost is relatively foreseeable, and that is in the guide. Commodities are too early to tell. Timothy Ronald Wojs: Sounds good. Thank you. Operator: Our next question comes from William Andrew Carter with Stifel. Please go ahead. William Andrew Carter: I wanted to double click to make sure we understand exactly what the pricing is for the year. You are putting in temporary fuel surcharges — can you give a magnitude of how much that is incremental to the old guidance? You are not taking any price increases on products for resins — just want to triple check that. And you said we are well prepared for materials during the season. Is that a comment that everything is good for now and you take a price increase later? Finally, if you have to take a price increase, can you take one mid-season, or does that mess things up? How do those dynamics work around when you have to make a decision on pricing? Oliver Gloe: Perfect. For transportation cost and the temporary surcharge, for the year it is probably worth about 60 basis points. Again, it is very dynamic and volatile, and as the headwinds change, the temporary surcharge can change over time as well — but that is the order of magnitude. For commodities, it is too early to tell. We are just about to start ordering materials that would be subject to a change in pricing. Materials get shipped to our sites, work their way through inventory, and ultimately into the P&L as they are consumed. We have our playbook, and we will react in time if necessary. As a reminder, last year we did a mid-season price increase in June. It is not preferred, but it is not unheard of. Operator: Thanks. Thank you. Scott Stringer: Our next question comes from Scott Stringer with Wolfe Research. Please go ahead. The adverse weather mentioned in Q1 — did that push some sales into the second quarter? The guidance implies some acceleration through the rest of the year, so it would be helpful to know the tailwind from sales being pulled into Q2, if that is the case. Oliver Gloe: I would say the adverse weather really means we had a lot of snow and ice on the ground in January and February. If you think of our annual organic growth of 6%, we certainly did not quite achieve that in Q1 — it was probably half of that — and I would attribute that to weather. If you translate that to shipping days, that equates to about one shipping day in today’s seasonality. I am not reading too much into that. The season is young; Q1 is a comparatively small quarter. Translating our under-proportional organic growth in Q1 vis-à-vis the annual guide into shipping days, it is one day. Another way of saying it: April trends have been as expected. We are seeing the seasonal ramp. Whether we catch up on that one day in Q2 or Q3, nothing we have seen in Q1 and in our ramp in April would make us change our view on 2026 and the guide. Scott Stringer: Got it. And then on visibility into Q2 and Q3 for in-ground pool installs — is that pretty much set, or how much variability is there over the next two quarters? Sean Gadd: For Q2, we are all but set based on our current lead times. We started the quarter really well. For Q3, while we have orders that fall into Q3, it is probably too early to tell, but from what we are hearing in the market and what we are seeing, we remain very confident in what the order file looks like and will continue to hold guidance. Oliver Gloe: If I compare today’s order book versus prior years, there is really nothing that would cause us to think differently about the seasonal pattern vis-à-vis last year — all confirming the guide. Scott Stringer: That is helpful. Thanks for the time, guys. Operator: Our next question comes from Analyst with Barclays. Please go ahead. Analyst: Good afternoon. For my first question, what are the top concerns you are seeing from buyers today? Between rates, economic uncertainty, and the need to step up consumer awareness of fiberglass pools, what is the biggest challenge today? Sean Gadd: The number one thing tied to interest rates is financing — basic financing is difficult to get. Anyone who does not have the cash or a strong FICO score is unable to get financing. We are hearing that a fair bit, similar to last year. Dealers are saying they are having to fight for the sale a little harder than previously. When I mentioned four to five quotes, it is typically two to three quotes, so everyone is fighting for the business. In an environment where things are tough, I actually feel good about fiberglass pools because pools are getting smaller — that fits our trend. Fiberglass pools have low maintenance, so the ongoing cost is lower than alternatives. The expenditure on chemicals and evaporation is lower, especially if you have an auto cover. And the composite pool means there are no ongoing resurfacing expenses. While we see the market as a little tough, we do not see it adversely affecting us relative to last year. Analyst: Got it. In terms of your increased branding and marketing spend, can you walk us through the cadence through the year and its impact on SG&A? And what does this look like — a targeted program for dealers, more salespeople on the ground, or more on ads and marketing? Sean Gadd: It is a bit of both. We are running a national campaign — that lifts all markets, which is great. With the trend of people moving from the Midwest and Northeast into the Sand States, we like that because fiberglass is the standard in those markets, so they know us. The timing for the national campaign is set for the pool season — we started mid-to-late February and are running through July/August. For the neighborhoods, that will be much more tactical — digital marketing, door hangers, localized marketing around homes, and events to inspire the neighborhood. Those are tactical, smaller expenses that we will run city by city, neighborhood by neighborhood. Oliver Gloe: On the increase and cadence, over the foreseeable future, SG&A as a percent of sales will be flat. It was 22.5% last year; we expect a similar amount this year. The majority is spent as-you-go in the sales organization and marketing. There is a little bit of digital transformation and also inflation on core G&A. Additionally, we have about $3 million of SG&A from Freedom. I would like to remind you that in addition, we have the earnout expenses for Coverstar Central — about $9 million — tied to 2026, so it will not recur in 2027; it did not occur in 2025. With regards to cadence, it is roughly the same as usual. Q1 and Q2 are a little bit heavier because we are running our national TV campaign earlier and longer in 2026 versus 2025. Operator: Our next question comes from Charles Perron in for Susan Maklari with Goldman Sachs. Please go ahead. Charles Perron: First, I would like to shift gears and talk about auto covers and the opportunities you see in this market. Considering the changing macro dynamics, is there any impact you are seeing in terms of adoption, and any efforts you can undertake to further expand penetration over the coming years? Sean Gadd: We are not seeing a decrease in adoption. We had a pretty good quarter in auto covers and covers in general. We had very large growth last year; we expect it to grow this year and in the coming years as well. It is really about awareness. The reality is most people still do not know that auto covers are available. Auto covers can fit on every pool, so the market is very large for us. We have our value-added resellers set up to take advantage of that. We are also getting our licensed sales organization focused around that product, and it is still early. We see that as more upside as we go. It is a good product; it does what it needs to do; consumers who have it love it, and we just need to continue to drive awareness. We do not see that trend changing. Charles Perron: And on input costs and inflation, should we see more unfavorable dynamics, can you further lean on lean manufacturing and value engineering initiatives to protect margins? Oliver Gloe: Lean and value engineering continue to be key contributors to our P&L. The contribution is about $2.0–$2.5 million per quarter. In Q1, it was $2.0 million — Q1 is a light quarter and value engineering programs move with volume. As programs mature, you see the tailwind becoming part of our DNA — how we lead our plants and factories — as part of the everyday cadence. You will see a lot more programs, maybe not all of the same magnitude, because the low-hanging fruit in lean manufacturing has been largely addressed. In value engineering, we are in the beginning of the journey; there are still some low-hanging fruits our team is pursuing. Both initiatives are under full steam and in Q1 delivered what we expected, with no change in our thoughts for the rest of the year. Operator: Our next question comes from Sean Callan with Bank of America. Please go ahead. Sean Callan: Hi, thank you for taking my question. First, the double-digit growth in Florida was quite impressive. What do you think has led to the success in Florida versus the other Sand States, and what lessons can you take from Florida to apply to the other Sand States? And then one cleanup question on the surcharges — are you aiming to offset the higher transportation cost on a dollar basis or a margin basis? Sean Gadd: Florida is our largest focus of all the Sand States. We are set up quite well from a sales headcount perspective. We have worked on dealers for the last eighteen months, so we have dealers that are really the right partners to help fulfill the demand we are creating. We have been running a marketing campaign for eighteen months, so we are seeing the flow of that. We have a strong value proposition relative to concrete, and we are getting deeper into the market and communicating it better. We feel that if a homeowner understands the benefits of fiberglass over concrete, there is a high chance they go with fiberglass. We are still early in the adoption curve. Our mission is to drive awareness and connect that awareness to our dealers’ positioning at the kitchen table. While we are pleased with the numbers, we intend to accelerate from here, and we are still working off relatively small numbers in Florida. Oliver Gloe: On the surcharges, we are aiming to offset transportation cost on a dollar basis. The headwind we incur is being passed on with temporary surcharges. Operator: Our next question comes from William Andrew Carter with Stifel. Please go ahead. William Andrew Carter: Hey, thanks. I wanted to double click and make sure on that incentive cost — you are not backing that out. So if you were to put that back in, the incremental here is still $28–$38 million in investment year? I just want to understand that. No — sorry, the earnout around Coverstar. My fault. Oliver Gloe: The earnout is included in SG&A and will be sitting on top of roughly 22.5% of revenue as it is an expense tied to an acquisition. For EBITDA purposes, it is backed out. William Andrew Carter: Okay, so it is not excluded — it is within guidance, that expense. Just double checking. Oliver Gloe: Correct. It is an add-back to EBITDA, and it is in the ceiling. William Andrew Carter: My fault. Sorry about that. Thank you. Operator: This concludes our question and answer session. I would like to turn the call back over to management for closing remarks. Sean Gadd: Thank you very much. I want to thank everybody for joining the call. We felt like we had a strong quarter — mildly impacted by weather — but the momentum is there. April looks strong, and we feel confident about our guide. With that, I want to conclude the call. I look forward to seeing you over the coming weeks and months at different events, and again, thank you for attending. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Federal Agricultural Mortgage Corporation First Quarter 2026 Earnings 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, I would now like to turn the conference over to Jalpa Nazareth, Senior Director of Investor Relations. The floor is yours. Jalpa Nazareth: Good afternoon, and thank you for joining us for our first quarter 2026 earnings conference call. As we begin, please note that the information provided during this call may contain forward-looking statements about the company's business, strategies, and prospects. These statements are based on management's current expectations and assumptions and are subject to risks and uncertainties that could cause our results to differ materially from those projected. All forward-looking statements are based on information available to Federal Agricultural Mortgage Corporation as of today's date, and Federal Agricultural Mortgage Corporation assumes no obligation to update or revise any forward-looking statements whether as a result of new information, future events, or otherwise, except as required by applicable law. Please refer to Federal Agricultural Mortgage Corporation’s 2025 annual report on Form 10-K and subsequent SEC filings for a full discussion of the company's risk factors. On today's call, we will also be discussing certain non-GAAP financial measures. Disclosures and reconciliations of these non-GAAP measures can be found in the company's most recent Form 10-Q and earnings release posted on our website. Joining me today are Chief Executive Officer, Bradford Todd Nordholm; our President and Chief Operating Officer, Zachary N. Carpenter; and our Chief Financial Officer and Treasurer, Matthew Pullins. At this time, I will turn the call over to our CEO, Bradford Todd Nordholm. Bradford Todd Nordholm: Thanks, Jalpa. Good afternoon, everyone, and thank you for joining us. I also want to thank everyone who joined our Investor Day event in New York City. We really appreciate the strong engagement and the opportunity to spend more time discussing our strategy, our performance, and our outlook. And as always, it is great to hear your feedback. Our first quarter 2026 was outstanding, a reflection of the continuation of the acceleration in business volumes we saw in the fourth quarter 2025. We delivered a record-setting quarter with business volume, quarterly revenue, and quarterly core earnings all reaching all-time highs, underscoring the strength of our business model and the disciplined execution across our organization. Outstanding business volume approached $35 billion, revenue totaled approximately $110 million, and core earnings totaled approximately $52 million. Our diversified business model, strong capital position, and disciplined risk management allow us to provide vital liquidity to American agriculture and rural infrastructure sectors during all economic cycles. Demand for our products remains robust, our customer relationships continue to deepen and expand, and our mission-driven approach continues to resonate across rural America and motivates our talented employees. With that, I will turn the call over to our President and Chief Operating Officer, Zachary N. Carpenter, to walk us through our operating results in more detail. Zachary N. Carpenter: Thank you, Brad, and good afternoon, everyone. The first quarter was an excellent start to the year, with strong results and meaningful momentum across every aspect of our business. Total revenues increased 14% year-over-year with strong contributions from outstanding business volume growth paired with disciplined funding execution and stable asset credit quality across all of our platforms. We delivered $1.5 billion in net new business volume in the first quarter, bringing total outstanding volume to a record $34.8 billion as of quarter end. Broad-based growth this quarter was supported by a strong pipeline, particularly in the farm and ranch segment, where we approved loans for 2026 approaching $1 billion, almost 30% above 2025, our previous record. Sustained customer demand across our products continues to be underpinned by disciplined underwriting and risk management. Now let me walk through the portfolio in more detail. Our agricultural finance outstanding business volume grew $777 million in the first quarter, with the farm and ranch segment accounting for $675 million of the net growth this quarter. Loan purchase activity in farm and ranch accelerated meaningfully in 2025 and has continued throughout 2026. Specifically, we saw net growth of $384 million for the first three months of this year, compared to only $54 million of farm and ranch loan purchase net growth in the same period last year, significantly outpacing the seasonally large number of loan repayments we typically see in the first quarter due to the January 1 payment date. We are operating at an elevated pace for new volume and expect loan purchase growth to continue as lenders seek liquidity, primarily driven by the balance between diversifying from high-cost deposit needs due to continued strong loan growth and a focus on capital efficiency. In addition, agricultural borrowers continue to face tighter conditions driven by higher input costs, trade and tariff concerns, and low commodity prices. We remain proactive in discussions with our customers to ensure we find the right solutions to support their liquidity and capital needs, as well as understanding their borrowers' liquidity needs in a challenging and volatile operating environment. Our farm and ranch AgVantage securities portfolio grew $325 million in 2026. As we discussed on our prior call, this increase reflects the additional fundings we anticipated after closing a new $4.3 billion facility with a large agricultural counterparty in late 2025. We believe we are on track to return to sustained net growth in this product set as we work closely with our counterparties to determine the right structure for providing incremental liquidity based on current market conditions. The Corporate Ag Finance segment delivered solid results, ending the quarter with over $2 billion in outstanding business volume, up approximately 5% sequentially and 9% year-over-year. Deal flow activity in the broader agribusiness market was relatively muted during 2026 as companies continue to navigate a volatile market coupled with global tensions impacting trade and inflation. Looking ahead, however, we have seen a modest pickup in second quarter deal flow activity, primarily reflecting refinancing transactions. We are also starting to see more indications of potential mergers and acquisition activity, which could result in an increase in volume opportunities as we support the food, fuel, and fiber supply chain. Turning to our infrastructure finance line of business, outstanding business volume increased $717 million sequentially, or 6%, to $12.6 billion as of quarter end, with all three segments contributing to net growth. This is a continuation of the similar themes we saw in 2025, specifically the strong interest and investment in data center construction, broadband expansion, and the construction and completion of renewable energy projects, reflecting the overall need for significant energy generation and transmission capacity in rural America. Net growth in our power and utility segment this quarter was $115 million, largely due to strong loan purchase activity supporting investment needs of rural electric generation, transmission, and distribution cooperatives. We continue to see a steady demand for capital in this segment as borrowers invest in system upgrades and modernizations to support a significant increase in electrification demand. Our renewable energy segment grew $445 million, or 18%, to $2.9 billion as of quarter end. Growth primarily reflected transactions approved in late 2025 that subsequently closed in 2026, in addition to a strong deal pipeline and accelerated construction deadlines. Looking ahead, while we anticipate the continuation of the construction-related rush in the first half of this year tied to the July 4 construction start time frame described in H.R. 1, we believe growth in this segment will continue well into next year as a substantial need for new power generation will continue to drive growth in this segment. Currently, deal flow remains robust, allowing us to be selective with our capital deployment in this sector to pursue deals that are appropriately structured with strong counterparties, underscoring the strength of our reputation in the market. While the industry is facing potential evolution in the near future as tax and other incentives are set to expire, we project the growing demand for energy to position the industry for continued growth, as the underlying economics of these projects remain highly competitive even without tax incentives. Alternate generation capacity takes years to develop, and we expect capital structures and power purchase agreement pricing to adjust as H.R. 1 incentives are phased out. Accordingly, we expect to continue to participate in renewable energy transactions for both new projects and refinancing of existing projects. Beyond 2027, we anticipate stable growth in this space as more market-driven rather than policy-driven, as the underlying driver remains a massive surge in power demand requiring significant new power supply. Broadband infrastructure also posted strong quarterly results, net growth of $158 million, ending the period at $1.7 billion outstanding, with nearly 70% of the volume growth tied to data center-related demand. We are seeing robust demand for data centers quarter to date, as 87% of new deals approved in our broadband infrastructure pipeline are data center-related, a reflection of the ongoing expansion of artificial intelligence, cloud storage, and enterprise digitization. While this segment has grown substantially, we remain disciplined in maintaining geographic and sponsor diversification with a continued focus on well-capitalized, investment-grade hyperscaler tenants. We are mindful of the macro backdrop with uncertainties stemming from interest rates, trade policy, and regulatory shifts. Our diversified portfolio, strong capital position, and disciplined underwriting give us confidence in our ability to continue delivering consistent results. We are also closely monitoring the recent spike in global energy prices, which has pushed fuel and fertilizer costs higher ahead of the growing season. While higher energy prices have historically been supportive of higher commodity prices, the net impact on producer margins will depend on the duration of the disruption, the degree to which growers lock input costs in advance, and whether commodity prices adjust to offset higher production costs. Regardless of how these dynamics unfold, we believe Federal Agricultural Mortgage Corporation is very well positioned to navigate the environment. We are extremely proud of the results this quarter and excited about what lies ahead in the balance of 2026 and beyond. The momentum from 2025 has not only continued, but in several areas accelerated, reinforcing our confidence in the outlook and durability of our business model. We are dedicated to broadening the pursuit of our mission in response to the evolving economic landscape in rural America, and this proactive business diversification continues to deliver meaningful benefits to the communities and industries we serve as evidenced by the strong growth across all our portfolios. With that, I will turn it over to Matthew Pullins, our Chief Financial Officer, to review our financial results in more detail. Matthew Pullins: Thank you, Zach. Before turning to our results, I would like to share a few reflections from my early experience at Federal Agricultural Mortgage Corporation. What has stood out most to me is the tangible positive impact our organization has on rural America, something that resonates deeply with me given my own personal connection to agriculture. I have also been struck by the dedication, focus, and execution of our team, whose commitment to our mission is evident every day. It is exciting to be part of an organization that operates from such a position of strength, supported by excellent credit fundamentals, disciplined cost management, exceptional access to the capital markets, along with the unique strategic funding advantages that come with being a government-sponsored enterprise. Looking ahead, the opportunities for growth are exciting, and it is energizing to be part of the momentum we are building. Turning to our results, we had an exceptional start to 2026. First quarter results were record-setting by every measure: nearly $35 billion in outstanding business volume, $110 million in revenue, and $52 million in core earnings, or $4.74 per diluted share. This quarter's record results were driven by several distinct financial performance factors. Net effective spread reached a record $102 million in 2026, an increase of $12 million year-over-year and $600,000 from 2025, our prior quarterly record. The year-over-year growth was driven by record business volume and continued disciplined funding execution. On a percentage basis, net effective spread was 116 basis points, modestly below 117 basis points in the year-ago period, and 122 basis points in the fourth quarter. Quarter-over-quarter spread compression was driven primarily by fewer days in the period, which disproportionately impacts revenue from our fastest-growing, highest-spread segments. In addition, we saw a mix shift towards growth in our lower-spread farm and ranch AgVantage securities and somewhat lower contribution from the investment portfolio. Even with that dynamic, net effective spread dollars grew again this quarter, reinforcing the durability and earnings power of our expanding, increasingly diversified portfolio. Our net effective spread performance reflects disciplined, proactive, and purposeful balance sheet management. The foundation of our approach is positioning the balance sheet to be largely rate agnostic, underpinned by a very short duration profile and a strong interest rate risk management framework. Our differentiated funding advantage remains a key strength, allowing us to access liquidity at highly competitive levels. Within this rate-neutral posture, we remain strategic and nimble, actively evaluating and capturing opportunities to enhance long-term economics when market conditions are favorable. Together with our ongoing use of innovative hedging strategies, these actions demonstrate our ability to manage risk effectively while consistently supporting financial performance. Partially offsetting strong earnings growth this quarter was an increase in compensation and benefits, primarily driven by increased headcount and seasonal factors. We maintain our deliberate and balanced approach to expense management and, accordingly, will continue making targeted investments in business development and in our operational and technology platforms to support future growth and scalability while managing expenses within our long-term efficiency ratio target of 30%. Moreover, this quarter our revenue growth outpaced expense growth by nearly four percentage points compared to the prior-year period. This outcome reflects our team's sound execution along with the strength and scalability of our operating platform. Also contributing to our first quarter 2026 core earnings was a $4.2 million income tax benefit from the purchase of $45 million of renewable energy investment tax credits, which was fully recognized in the quarter. As of quarter end, we had approximately $30 million of remaining capacity to utilize additional credits through carrybacks to prior-year federal income tax liabilities. Subject to market conditions, we expect to largely utilize that remaining carryback capacity in the second quarter, and we will continue to evaluate additional tax credit purchase opportunities on a current-year basis going forward. As discussed at length last quarter, Federal Agricultural Mortgage Corporation operates a comprehensive credit framework that aligns with our risk appetite while accounting for the unique risks present within each of our five operating segments. While credit risk is inherent in our business, we believe our disciplined credit framework and proactive risk management enable consistent execution of our mission to deliver liquidity to the agriculture and rural infrastructure markets. Turning to first quarter credit and asset quality results, we recorded $4.3 million of provision for credit loss expense in 2026. The provision expense reflects $3.4 million attributable to new volume growth across all our segments, particularly in the renewable energy segment, and $900,000 related to credit migration across the portfolio. Credit migration this quarter reflects the ongoing discipline of our portfolio management process. As we do each quarter, we conducted a comprehensive review of our portfolios. Certain credits experienced deterioration—specifically in agricultural storage and processing and select permanent plantings exposures—and required additional reserves. Others, on the other hand, demonstrated meaningful improvement through collateral sales and improved borrower performance, and therefore resulted in reserve releases. The net effect was a largely offsetting outcome. Allowance for losses was $40.1 million as of 03/31/2026, reflecting a $2.1 million increase from year-end 2025 and a $14.7 million increase from the same period a year ago. The sequential increase primarily reflects the cumulative impact of portfolio growth and select credit migration, partially offset by charge-offs recorded during the quarter. On a year-over-year basis, the increase is consistent with significant growth in outstanding business volume over the past twelve months. As of quarter end, the total allowance represented 15.4% of nonaccrual assets, compared to 16% as of 12/31/2025 and 12.9% as of the year-ago period. As we have discussed previously, nonaccrual assets as a percentage of total allowance is a useful gauge of reserve adequacy relative to loans where full collection is unlikely. We remain comfortable with our allowance levels given the strength of the underlying collateral. Ninety-day delinquencies were 52 basis points at quarter end, up from 40 basis points in the fourth quarter 2025, and an improvement from 54 basis points in the year-ago period. The sequential increase is consistent with the seasonal pattern we have historically observed in our portfolio. Delinquency levels tend to be higher at the end of the first and third quarters, reflecting the annual and semiannual payment dates on the majority of farm and ranch loans. Total substandard assets as a percentage of our entire portfolio were 1.87% this quarter, up from 1.71% at year-end, with the increase concentrated in credit downgrades in the agricultural finance line of business. Infrastructure finance substandard assets, however, declined sequentially this quarter due to improvements in the renewable energy segment. Federal Agricultural Mortgage Corporation’s core capital increased by $27 million in 2026 to $1.7 billion, which exceeded our statutory requirements by $663 million, or 62%. Our Tier 1 capital ratio was 13% as of 03/31/2026, compared to 13.3% as of year-end 2025. Our capital levels remain well in excess of regulatory thresholds following an active quarter where our outstanding business volume grew by $1.5 billion and we returned $32 million of capital through a combination of common and preferred dividends along with modest share repurchases. Our strong capital position has enabled us to grow and diversify our revenue streams, remain resilient through volatile credit environments, and continue providing competitively priced liquidity to our customers and their borrowers. Looking ahead, we will maintain a thoughtful and balanced approach to managing our overall capital position. Organic capital generation, selective capital issuance, and the use of risk transfer tools will help ensure we have sufficient capital to support future growth, particularly in more accretive segments, which are generally more capital-consumptive. In closing, we are very pleased with our first quarter results and confident in our outlook for the remainder of the year. We remain committed to thoughtful capital deployment, strong asset quality, and creating long-term value for our shareholders. With that, I will turn the call back over to Brad. Bradford Todd Nordholm: Thanks very much, Matt. In summary, this was an exceptional quarter and a powerful start to 2026. The strength of our results reflects the disciplined execution and strategic positioning that define Federal Agricultural Mortgage Corporation today. A number of you have asked about CEO succession, and I am pleased to report that the process is progressing very well, and in fact, a bit ahead of schedule. I can say with great confidence that Federal Agricultural Mortgage Corporation has never been in a stronger position than it is today. The depth of talent across our leadership team, the clarity of our strategy, and the momentum in our business give me tremendous optimism and confidence in the future of this organization. We will now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star, then the number one, on your telephone keypad to raise your hand and join the queue. Your first question comes from Bose Thomas George with KBW. Your line is open. Bose Thomas George: Hey, everyone. Good afternoon. I wanted to ask first about return on equity expectations. Obviously, you had a very strong quarter at 17% ROE. Just with the pipeline and what you are seeing out there, where do you think that trends? And I wanted to ask about spread as well, but that moves around with the mix. Is it better really to focus on the ROE outlook? Matthew Pullins: Well, good afternoon, Bose. Thank you very much for the question. In terms of return on equity, as you noted, we printed 17% for the quarter, and that is a metric that we are very focused on in terms of deploying capital and purchasing assets within our business. We are looking to maintain the business in that range of outlook in terms of return on equity going forward. In terms of spread, or net effective spread margin, that is a metric that can vary from quarter to quarter. A variety of factors weighed on that margin this quarter, including asset mix. As we purchase high return-on-equity but, in some cases, lower-spread assets—particularly in our AgVantage portfolios—that can dilute margin but is very much accretive to return on equity, which is our principal focus in terms of managing the business and managing the balance sheet. Bose Thomas George: And then, you noted the potential impact on the farm economy from geopolitical volatility. If this persists, is the bigger focus on what it could do to loan activity, or are there areas from a credit standpoint that you are looking at as well? Zachary N. Carpenter: Hi, Bose. The conflict in the Middle East has created more volatility. The question has a couple of prongs. First, the duration of the conflict, which has exacerbated the increase in fertilizer prices, could weigh on margins going forward. It clearly depends on if a grower pre-purchased inputs prior to the uptick. While that could stress the ag economy and certain borrowers, it also could lead to the need for additional liquidity and capital, and we stand ready to support those borrowers as they need to work through stress. As it pertains to our portfolio, we feel fairly confident with the strengths we are seeing with new applications and new loan purchases. In fact, all the loan purchases in the first quarter had very strong credit scores and very solid loan-to-values. The use of proceeds was typically for refinancings or new purchases, be it land or equipment. While we recognize there are stresses in certain parts of the ag economy, the diversified model that we have across the country and across commodities helps support us to be there in good times and bad times. Bose Thomas George: Okay. Great. Thank you. Operator: Your next question comes from William Haraway Ryan with Seaport Research Partners. Your line is open. William Haraway Ryan: Hi. Good afternoon, and thanks for taking my questions. Great to see the volume increase that you talked about at the Investor Day. First question, I want to follow up on the margin outlook. Obviously, there is a little bit of a seasonal factor, so the fourth quarter will not be a good guide going into Q2, but if you look at your mix of business in the pipeline that you are seeing right now going into Q2, do you expect a little bit more net pressure on the margin, or do you expect it to start to stabilize maybe in the next couple of quarters? That is the first question. Zachary N. Carpenter: Hi, Bill. A couple of comments as it pertains to net effective spread percentage. As we noted, two primary factors, and I would say both relatively positive. First and foremost, in the fourth quarter of last year, we put on almost $700 million of AgVantage volume. That dramatically increased the average daily balance of AgVantage heading into the first quarter. As we have discussed, AgVantage is one of our highest returning products—we are leveraging our capital—although the net effective spread percentage is the lowest across our portfolio. And as Matt indicated, we are really focused on return on equity and return on invested capital. So the impact of that increase in average daily volume weighed down on the net effective spread percentage this quarter. In addition, we had two fewer days in this quarter versus the fourth quarter, and that compressed our fastest-growing segments, which would be renewable energy and broadband infrastructure. The combination of those two dynamics was predominant to the lower net effective spread percentage. What I would highlight as we look forward: about $800 million or more of our volume was put on in the month of March, and that was broadly diversified across all our segments. So we feel very strong about the durability of our net effective spread heading into the second quarter in a broad fashion. Clearly, the lumpiness of AgVantage could alter that mix going forward, but as we look right now, all operating segments have very strong pipelines. One thing I would note is that the broadband infrastructure and renewable energy segments have significant loan commitments. As those constructions take place and those commitments are funded, you will see a much higher net effective spread in those businesses. I will turn it over to Matt to talk a little bit about the liquidity and funding mix dynamics. Matthew Pullins: Hello, Bill. I mentioned in my prepared remarks some points around our balance sheet management and liquidity positioning in the quarter. One thing that also impacted spread this quarter is we had the opportunity to call about $500 million of callable debt when rates dipped in the middle part of the quarter. That is ultimately accretive to our spread going forward but did weigh on spread in the quarter by about 1 basis point as we had to accelerate the amortization of original issue discount attributed to those bonds that were called. Going forward, the pickup in spread from being able to roll down the rate paid on the bonds that were called is annualized at a little over $3 million a year. We expect to pick that up beginning in the second quarter. In addition, we continuously look at ways to strategically evaluate market opportunities within the funding segment to fund our balance sheet in a way that is accretive to returns but not taking incremental funding risk. We are very diligent about managing it that way. Portfolio layer method hedging is something that we introduced into the balance sheet management process this quarter, and the impact of that is going to grow over time. It will be somewhat muted initially, but we believe that the impact of that hedging strategy will ultimately be accretive to net effective spread. That is just an example of the types of strategies that we are deploying as we manage the balance sheet and interest rate risk. William Haraway Ryan: Okay. Thanks for the detailed response on that. One other question on data centers—it probably gets a bit more attention than it really needs—but there have been some headlines in the last few weeks about some delays in data center construction coming online. Maybe you could give us a little more detail on what you are seeing specifically in your own portfolio. Zachary N. Carpenter: Hi, Bill. As we mentioned at Investor Day, we are very thorough and methodical in the types of data center transactions we look at. We will not pick up a pencil to assess or underwrite a transaction unless we are working with top counterparties—developers, sponsors, tenants—that have significant experience in constructing and operating these data centers. We want to make sure that there is a power purchase agreement signed and in place, and over 80% of our tenants in our data center portfolio are two to four top investment-grade hyperscalers. We have the opportunity, given the market, to focus on the best structures and the highest-rated data center opportunities. We do not deviate, and we do not feel the need to deviate or stretch given the growth that we see available to us. Focusing on these counterparties and these tenants, we have seen very few issues in terms of delays in construction or delays in operations. We are not speculating; everything needs to be signed up and in place, including water and other key inputs, before we enter into a transaction. That limits and reduces a lot of risk as you go through the process. In speculative opportunities, something not being in place can delay the project and further delay construction and completion. We feel very good about the counterparties and the transactions we are looking at, and we do not feel the need to look at anything different or stretch in any way. William Haraway Ryan: And thanks. One clarification question for Matt. Just to make sure I heard it right, you have $30 million of investment tax credits remaining. Do you expect most of that to be recognized in the second quarter? Matthew Pullins: Our capacity for carrybacks to prior-year income tax credits is $30 million as of 03/31/2026, and our expectation is that we will fully utilize that carryback capacity in the second quarter. Going forward, we will be operating on a current-year basis and will be monitoring market opportunities to potentially monetize additional tax credit purchases, but it would be on a current-year basis from that point forward. Operator: Your next question comes from Brendan Michael McCarthy with Sidoti. Your line is open. Brendan Michael McCarthy: Great. Good afternoon, everybody. I appreciate you taking my questions. I just wanted to start off on the net loan volume growth in farm and ranch. I think you mentioned $384 million, which well exceeded last year's number of $54 million, and that is net of repayments, I believe you mentioned. Can you dissect that a little bit further? What ultimately drove that gap relative to last year's number? Zachary N. Carpenter: Hi, Brendan. We continue to see an acceleration of loan velocity and applications in farm and ranch following up from a very strong fourth quarter. As I noted, we had a record quarter of loan applications at about $1 billion, which is about 30% above the prior record in 2025, and the pipeline continues to be robust. The team does a fantastic job working with our customers to convert those loan applications to loan closings. Some reasons why we are seeing this accelerated growth: clearly, components of the ag economy where liquidity and working capital are necessary to bridge timing gaps between the receipt of government payments or the selling of crops is one component. Another component is working with our customers—the financial institutions lending to these borrowers. They need to manage deposits, which in this environment end up being a very high-cost component of funding. In that scenario, they are looking for other liquidity sources to help continue the stronger loan growth they see with their customers and leveraging the secondary market in a broader fashion. We have spent a lot more time broadening our relationships across financial institutions. We had a record number of sellers—financial institutions that sold a loan—in the first quarter. We continue to deepen our relationship with existing sellers to find new and unique ways to support liquidity for their borrowers, with a much more focused relationship orientation with the market. We put a new head of our farm and ranch segment in place to really drive growth. We continue to see this as we work with our customers and support their borrowers in this economic time. Brendan Michael McCarthy: Thanks, Zach. I appreciate the detail there. You touched on some of the headline risk—mainly around fuel and fertilizer costs spiking ahead of the planting season. Do you have any insight on potential impact looking ahead to loan loss provisioning for Q2? Zachary N. Carpenter: I think we are too early in the environment to assess any future impacts to the credit portfolio, and there are a couple of reasons why. There are competing factors here. The spike in, most notably, nitrogen prices can further stress margins, and it is unknown how many growers pre-locked fertilizer before the growing season or need to purchase in this higher-price environment. Another unique dynamic is that as fuel prices rise, typically you see an increase in ethanol prices—which we have seen, from about $1.80 a gallon to over $2 a gallon since the crisis started. Higher ethanol prices typically lead to higher commodity prices, especially corn, and we have seen that. So there are numerous dynamics at play. The duration of the conflict in the Middle East will determine the impact—either positive or negative—from either higher inputs and margin pressure or commodity prices increasing. It is just too early to tell at this point. Brendan Michael McCarthy: That makes sense. Last question for me, just on the credit side. The allowance for losses as a percentage of nonaccrual assets has remained pretty stable. I think it has ranged from 13% to 16%–17%. Do you have a long-term target for that ratio? Matthew Pullins: Hi, Brendan. We do not have a long-term target for that particular ratio. We do view the level of the allowance and our confidence in covering the risk in the portfolio through that metric, but it is important to also take into account that we are looking at the allowance against nonaccrual assets that, in nearly all cases, are supported by very high-quality collateral. In terms of how that metric lines up with a similar metric at other financial institutions, it certainly needs to be taken into account relative to the type of collateral that we have backing our loans. But in terms of a target operating range—like we have for our efficiency ratio—we do not have such a metric for allowance as a percentage of nonaccrual assets. Brendan Michael McCarthy: Got it. I appreciate the detail. That is all for me, and congrats on a strong quarter. Operator: Your next question comes from Gary Gordon, a private investor. Your line is open. Gary Gordon: Thank you for taking my questions. Two questions. One, it looks like your charge-offs were about $2 million. Any color on what was charged off during the quarter? Zachary N. Carpenter: Hi, Gary. No new issues with transactions or borrowers. This incremental charge-off reflects the transaction we spoke about in the fourth quarter. In these situations, the process is very fluid as we work with the bank group and the lead arranger to assess restructuring and other options to either support the business going forward or potentially look at asset sales and liquidations. We continue to monitor this on a weekly basis with the lender group. We are dealing with the owners of the assets and working with them. Timing delays can persist, and that is what we saw, so we felt the need to further write down to the value we feel is appropriate and charge that off. We feel the remaining exposure is very manageable—frankly immaterial—from the overall portfolio perspective, but we will continue to assess this transaction and options going forward. We feel good with where we are from an exposure perspective. Gary Gordon: Thanks. The other question is on loan growth. Clearly, you made a much bigger marketing effort. It does not sound like you are changing your underwriting standards. Are there any other contributors? Any noticeable change in the amount of competition for the type of loans you are looking for? Are there more willing sellers for some macro reason? Zachary N. Carpenter: I think it differs by business segment. In AgVantage, we saw bottoming out in 2025, and we have been more focused on broadening our counterparties and closing new facilities, and that has contributed to growth in the fourth quarter and the first quarter. We feel optimistic that will continue given outreach and the relationships we have developed. In our newer lines of business—specifically renewable energy and broadband infrastructure—the pipeline and growth reflect our investment in the teams and expertise across business development, credit, and operations to support an increasing velocity of loan opportunities. There are plenty of counterparties looking for a strong and respectable secondary market to provide liquidity to their transactions. As we have invested in the people and the processes, we are able to step up to more transactions and put more through the pipeline. In farm and ranch, we are seeing the ag environment plus our focus on broadening relationships with a greater number of sellers, engaging in product and platform enhancements. The combination of all of that and banks’ focus on capital efficiency is really driving incremental share to the secondary market. Operator: That concludes our Q&A session. I will now turn the conference back over to Jalpa Nazareth, Senior Director of Investor Relations, for closing. Jalpa Nazareth: Thank you everyone for listening and participating in our call this afternoon. We will be having our next regularly scheduled call in August to report our second quarter 2026 results and look forward to sharing more information with you at that time. As is always the case, if you have any questions that you would like to discuss with us, please do not hesitate to reach out. With that, thank you very much, and have a good day. Operator: That concludes today's call. Thank you for attending. You may now disconnect, and have a wonderful rest of your day.
Operator: Good afternoon, and welcome to MNTN Inc.'s First Quarter 2026 Earnings Conference Call. This call is being recorded for replay purposes, and at this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session following prepared remarks from MNTN Inc.'s management. I would now like to turn the call over to Mirza Plesche, from the Gilmartin Group, for a few introductory comments. Great. Thank you. Mirza Plesche: By now, you should have received a copy of the earnings press release. If you have not received a copy, please call (513) 644-4484 to have one emailed to you. Before we begin today, let me remind you that the company's remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond MNTN Inc.'s control, including risks and uncertainties described from time to time in MNTN Inc.'s SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for MNTN Inc.'s franchises and growth initiatives, future product approvals and clearances, competition, reimbursement, and clinical trial enrollment and outcomes. MNTN Inc.'s results may differ materially from those projected. MNTN Inc. undertakes no obligation to publicly update any forward-looking statement. Additionally, we refer to non-GAAP financial measures, specifically constant currency revenue, adjusted EBITDA, and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website. And with that, I would like to turn the call over to Mike Carroll, President and Chief Executive Officer. Mike Carroll: Great. Good afternoon, everyone, and welcome to our call. MNTN Inc. is off to a strong start in 2026, with worldwide revenue of $140 million in the first quarter, reflecting 14% growth year-over-year. We are building on the momentum we established in 2025 from new product launches, with this quarter marking an acceleration in our worldwide growth rate from the preceding quarter and the comparable quarter last year. Fueling this acceleration is our U.S. business, which drove approximately 15% in the quarter from expanding adoption of AtriClip Flex Mini and Pro Mini devices, Cryosphere Max Probe, and continued strength from our Encompass clamp. In addition, we generated $17 million in adjusted EBITDA, nearly double the first quarter of last year. Our results this quarter once again demonstrate our ability to deliver durable, double-digit revenue growth and expand profitability. Beyond our financial results, we have made exceptional progress in our BOX NOAF clinical trial. Since initiating trial enrollment in the fourth quarter of last year, we have enrolled approximately 300 total patients to date in this 960-patient randomized controlled trial. We are tracking well ahead of our original timeline and now expect complete enrollment around the end of this year, nearly one year ahead of plan. The pace of enrollment in this trial reflects an extremely high level of engagement from surgeons who experienced firsthand the impact postoperative AFib has on their patients. As a reminder, up to half of cardiac surgery patients without preexisting AFib will develop postoperative AFib, which is the most common complication of cardiac surgery. Because there is no established treatment today, postoperative AFib is a substantial burden on health care spending, with estimates exceeding $2 billion annually in the U.S. alone. We are confident that our BOX NOAF clinical trial utilizing our Encompass clamp and AtriClip device has the potential to meaningfully change treatment outcomes for this patient population and address the significant unmet clinical need. BOX NOAF is also highly complementary to our LEAF's clinical trial studying stroke reduction benefit of left atrial appendage management in cardiac surgery patients without atrial fibrillation. We expect both of our landmark clinical trials to generate robust clinical evidence in support of preventative treatments for cardiac surgery patients, unlocking a massive global market opportunity for MNTN Inc. while establishing new standards of care in cardiac surgery. We at MNTN Inc. are well positioned to realize these significant catalysts for our business in the coming years. Now on to updates covering franchise performance in the first quarter. Pain management once again led our portfolio growth, increasing 28% year-over-year. The CrowdStrike Max Pro continues to be the primary driver of growth, contributing roughly 70% of our pain management sales this quarter. Surgeons across both new and existing accounts recognize the significant time savings and clinical effectiveness it provides, leading to more patients having their postoperative pain managed effectively. Building on our legacy of innovation, we are also pleased that our Cryo XD Pro for amputation procedures is beginning to gain traction. We continue to receive outstanding feedback from each new surgeon that uses this device, and through our registries we are capturing clinical outcomes for this therapy. We are still in the early innings for Cryo XD therapy development and adoption; however, we remain confident in Cryo XD contributing more meaningfully as we move to the back half of 2026. Within our cardiac ablation franchises, worldwide open ablation revenue grew 15% in the first quarter, led by steady adoption of Encompass clamp in the United States and Europe. Encompass is delivering growth from both new and existing accounts, even as we approach the four-year anniversary of our U.S. full market launch. As mentioned in our fourth quarter earnings call, our drive to treat AFib in cardiac surgery patients was validated with a recent announcement from the Society of Thoracic Surgeons annual meeting, including concomitant AFib treatment as a quality metric. There is strong precedent for the impact of quality metrics in cardiac surgery, and we believe this change will support increased adoption for surgical AFib ablation and appendage management, serving as a durable tailwind for growth for years ahead. Our minimally invasive ablation franchise continued to face headwinds in the first quarter. We believe there is a role for hybrid therapy in the current and future treatment landscape and remain committed to providing a solution for the unmet need for patients with long-standing persistent AFib. Finally, turning to our appendage management franchise, which saw 16% growth worldwide driven by both our open and minimally invasive appendage management products. Our open left atrial appendage management business benefited from strong adoption of AtriClip Flex Mini in the United States, where we exited the quarter with Flex Mini contributing approximately 40% of our open appendage management revenue. More importantly, we believe our Flex Mini device has been impactful in driving share gains in this market. Surgeons using or trialing competitive devices are impressed by the small form factor of AtriClip Flex Mini, along with robust clinical evidence and superior product performance of our AtriClip devices. In minimally invasive procedures, AtriClip Pro Mini is building upon that adoption in the U.S., providing a pricing uplift that offsets pressure of our hybrid AF therapy procedure volumes. It remains clear that differentiated innovation plays an important role in maintaining our position as the leader in appendage management in cardiac surgery, and we continue to prioritize investments in this platform. In our international markets, we are growing adoption across our legacy left atrial appendage management devices. Following the first quarter, we received CE Mark under EU MDR in Europe for both AtriClip Flex Mini and Pro Mini devices and expect to launch both products in Europe later this year. New product launches in Europe, the United States, China, and Japan, coupled with the future LEAF's clinical trial outcomes, provide a long runway for growth in our appendage management franchise. In closing, the performance we delivered this quarter underscores the power of our innovation and focus on execution, while the rapid progress in our BOX NOAF clinical trial reinforces the significant opportunity ahead at MNTN Inc. We remain committed to advancing standards of care, scaling responsibly, and delivering durable growth with improving profitability for our shareholders. I will now turn the call over to Angie Wyrick, our Chief Financial Officer. Angie? Angie Wyrick: Thanks, Mike. Worldwide revenue for 2026 was $141.2 million, up 14.3% on a reported basis and 12.8% on a constant currency basis versus 2025. Our performance reflects substantial growth driven by the continued adoption of key new products in the United States and many regions throughout the world. On a sequential basis, worldwide revenue increased approximately 1% compared to the fourth quarter 2025. First quarter 2026 U.S. revenue was $116.2 million, a 14.9% increase from 2025. Open ablation product sales grew 17.3% to $39.1 million, fueled by the strong and sustained adoption of our Encompass clamp across new and existing accounts. U.S. sales of appendage management products were $48.4 million, up 14.9% over 2025, driven primarily by increasing adoption of our AtriClip Flex Mini and Pro Mini devices. U.S. MIS ablation sales were $6.4 million, a decline of approximately 25% over 2025. And finally, U.S. pain management sales were $22.4 million, up 29.5% over 2025, led by the Cryosphere Max Pro, which contributed approximately 70% of pain management sales in the quarter, driving increased adoption in both thoracic and sternotomy procedures. International revenue totaled $25 million for 2026, up 11.5% on a reported basis and up 3.3% on a constant currency basis as compared to 2025. European sales were $16.1 million, up 13.2%, and Asia Pacific and other international market sales were $8.9 million, up 8.4%. International growth was tempered by continued uncertainty in the U.K. as well as lower distributor sales in Asia. Offsetting these headwinds, we saw significant growth across franchises in other major geographies, largely driven by our direct markets. Gross margin for 2026 was 77.4%, up 246 basis points from 2025. The increase was driven primarily by favorable product and geographic mix, with strong U.S. performance propelled by our new product launches and adoption. Transitioning to operating expenses for the quarter. Patrick Pohlen: We expect adjusted EBITDA to be between $96 million and $101 million. To wrap up, we delivered another solid quarter and believe MNTN Inc. will continue to gain market share in the massive performance television market. We are confident that our future growth initiatives and the strength of our operating model will position MNTN Inc. to drive continued growth and profitability. With that, we will open up the line 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 use the raise-your-hand function. If you have dialed in to today's call, please press 9 to raise your hand and 6 to unmute. Please stand by as we compile the Q&A roster. Your first question comes from Shyam Patil of Susquehanna. Your line is open. Please go ahead. Shyam Patil: Hey, guys. Congrats on the continued strong execution and results. Mark, I had one question for you. You mentioned in your script that the company has made some pretty significant hires with some very strong backgrounds in this space. Can you just talk a little bit more about this and maybe what you are envisioning? Mark Douglas: Yeah, thanks for the question. What we are seeing is that we think the market that essentially we created, which is the concept of performance TV and bringing television to the small and mid-sized business sector, is starting to move from early adopter to mainstream. We added these individuals to the team—Garland Hill and Peter Blacker—and they, of course, are also adding people to the teams that they are building out in the company in order to meet that mainstream market head on. Garland, in particular, has been involved in significant buildouts in the performance marketing space, so his experience, his knowledge, his skills, and his network are incredibly valuable to the company. Same with Peter. He was there day one building out streaming at NBCUniversal, building out that team and that whole concept at NBCUniversal and Peacock. I am pretty excited about these individuals, them being on the team, the people they are going to bring, and I am excited as the year unfolds and we see the market moving from that early adopter phase into the mainstream segment, where every company starts to expect that they can be on television as part of their marketing mix. Thanks. Operator: Thanks, Mark. Your next question comes from the line of Ronald Josey with Citi. Your line is open. Please go ahead. Ronald Josey: Great, thanks for taking the question. Mark, I wanted to ask about your streaming partners, and with the addition of more and more events like March Madness and NHL playoffs and the hire of Peter, talk to us about how your partnerships have evolved here and how your partners are viewing you as an additional source of monetization. Has anything changed here or perhaps accelerated? And then I wanted to ask about QuickFrame AI 3.0. We are now on version three after having been in beta maybe since the fall. Talk to us about how the sales cycles have been post QuickFrame, how conversion rates are trending—anything along those lines. Thank you. Mark Douglas: Sure. In terms of the streaming partners question, what is really critical is that for performance marketing to work, you have to reach the consumer where they are. You cannot pick a single network; you need to reach everyone within the target group of consumers you are going after. We have built out relationships with virtually every streaming network in America. As the overall connected TV space has brought on things like live sports and tentpole events like the Oscars, we think it is important that we bring our customers to those events also. Bringing Peter on—this year NBC is covering virtually everything; they have the Olympics, the World Cup—his experience and knowledge in terms of how that content plays out, with all the relationships we already have with these networks as well as those he has, made this a role where we wanted someone with tremendous industry experience to make sure that MNTN Inc. is giving our customers access to everything. In terms of our relationships with networks, I believe they view us as a growth channel. Ninety-five percent of our customers have never advertised on television before, so that is net new revenue to the industry, to MNTN Inc., and to our partners. His role is important: wherever the target consumer is, MNTN Inc. is there, and we are bringing our customers there with us. On QuickFrame AI, the product is new. We wanted to go beyond video clips to full-blown professional-quality commercials, so we did a long beta. Many companies have used QuickFrame AI and continue to use QuickFrame. With version three, we believe it is fully ready for anyone to use. The team is excited, and we are excited with the commercials people are building in the product. Regarding the sales cycle, most of our younger customers—small businesses—are in some way using QuickFrame AI. We are measuring how quickly companies get live and how frequently they refresh creative once live. Those are the stats we are focused on, and we are excited about where that is headed. Operator: Your next question comes from Andrew Boone with Citizens. Your line is open. Please go ahead. Andrew Boone: Thanks so much for taking the questions. I would like to start with guidance. The full-year guide implies an acceleration in the back half. Can you explain that to us or talk about the confidence you have to achieve that? And then, Patrick, I think in your comments earlier you talked about throttling new customers in terms of onboarding. Can you talk about how you think about the pacing of onboarding customers—what may be a good fit versus not—and help us understand the dynamics of what you are looking for in terms of customer adds? Thanks so much. Patrick Pohlen: Sure. I will take the first one, and Mark and I may share the second. We continue to see a lot of strength in the PTV business, indicated in both our Q2 guide and our fiscal year guide. We anticipate continued growth in revenue and adjusted EBITDA and see a long runway of growth ahead. The Q2 guide is $81 million to $83 million, $82 million at the midpoint—20% year-over-year growth. The fiscal year guide is $347 million to $357 million—24% growth at the midpoint. We continue to invest strategically in areas that will drive revenue growth, particularly in sales and marketing, and we also have initiatives to continue to improve our gross margins. The combination of strong customer and revenue growth, gross margin strength, and disciplined investment to drive more revenue sets us up very nicely for the future. Mark Douglas: On onboarding, we think about small business and what we call mid-market. One line of distinction is size, but an even more important distinction is that larger companies have dedicated marketing teams with very specific needs. Our platform initially focused on the needs of those mid-market customers. Smaller businesses are often owner-led, with individuals handling a lot of marketing who may not have a fully developed marketing skill set. The core platform is the same, but some needs differ. Our mid-market has been consistently growing since we launched version one of the concept of performance TV. For small business, we want to make sure they come on, are successful, our cost to acquire them is where we want it, and that they have long and sustained growth. Each day we adjust how much small business we drive toward, and we make adjustments to the product and reporting. When Patrick says we control it, he means we control the marketing investment in acquiring those customers, we control where they come on board in terms of product minimums, and we make sure we continue our success in mid-market while bringing on small businesses at a sustainable, responsible, and profitable rate. That part of our business we tune to land exactly where we want it, and it will continue to evolve this year and beyond. We have dedicated teams on it. Patrick Pohlen: And we did grow 46% year-over-year in terms of customer growth. Operator: Your next question comes from Robert Coolbrith with Evercore ISI. Your line is open. Please go ahead. Robert Coolbrith: Hi, everybody. This is Rob on the call for Mark. Thanks for the opportunity to ask a question. Two if I could. First, to follow up on the QuickFrame question, are there any benefits you are seeing in the beta period that give you more confidence on go-live times, creative refresh, and matching up the product with where it needs to be for customers to have success, especially as you go down market into SMB? Does that give you any additional confidence, Patrick, to invest incrementally or press a little harder on the accelerator? And second, gross margin came in better than expected. Any particular levers you pulled in the quarter that you would like to call out? Thank you. Patrick Pohlen: Mark and I will share the first one. Mark Douglas: On QuickFrame AI—why is version three the version we are calling full production? We announced that today and you will see more marketing. We have been watching customers use the product, looking at their rates of starting projects, getting them live, and how much time it is taking. We are pleased with where those metrics have gotten. We have brought the effort down and the go-live rate up. We are seeing that people with less creative skills are increasingly successful. Part of that is our technology investment—savable characters (AI casting), savable locations, the ability to pick products you want in the video—all that functionality. Part of it is that the AI generative models keep getting better, and we are integrated with the best models—Sora, Kling, Gemini, and others. It is hard to remember, but last March you could not create a usable AI video. A little over a year later, the evolution of these models, as well as our orchestration, has reached the professional-grade level. In terms of benefit to sales cycle or go-live times, we are seeing benefits, especially in small business—mainly because there are no approvals involved. A person can create an account, create the video, and go live. In mid-market there are typically more approvals and sometimes professional video people involved, so improvement is smaller but present. We are not ready to quantify those numbers yet, but we are really excited about the production release and what it means for customers and for MNTN Inc. Patrick Pohlen: Rob, we have enough anecdotal evidence that it is what we thought it would be—an enabler to our core PTV business, particularly in small business, but we also see many mid-sized customers using it. We have not quantified the cost yet because we just came out of beta, but we are managing costs quite well. It is worth it for enabling both mid-sized customers and small businesses to get TV commercials and get on the platform. We will start to track it more now. We did not build it primarily for a revenue stream, but rather to enable the core PTV business. Robert Coolbrith: And then, Patrick, anything you can call out on gross margin? It was a little bit better. Thank you. Patrick Pohlen: Sure. We had a nice quarter in terms of gross margin at 81%. That reflects a mix of strong revenue growth—revenue growth drives gross margin improvement—as well as specific actions. We spun out Maximum Effort, which gives us a significant benefit in creative COGS. And for Q1, we had the full benefit of switching hosting providers. The combination is quite strong, and we think it continues. We believe the combination of revenue growth driving gross margin, the creative COGS, the hosting COGS, and discipline on other COGS will keep us within the long-term target of 75% to 80%. Operator: Your next question comes from Matt Weber with Canaccord. Your line is open. Please go ahead. Matt Weber: Hi, thanks so much for taking the question, and congrats on the strong quarter. As we think about the broader macro backdrop, how would you describe the health of your SMB advertiser base over the past few months? Have you noticed any changes in budget pacing or campaign duration that might reflect a tighter discretionary spending environment? And are large enterprise customers behaving any differently? Mark Douglas: In the SMB sector, we do not think they are greatly affected by macro unless circumstances are very extreme. You can look back to COVID when business activity nearly stopped, and that was one of the biggest years many in advertising had. SMB customers do not lose their ambition in difficult environments; if anything, they are more determined to grow and outpace competitors. We are seeing nearly zero impact from macro concerns. In the enterprise space—truly large global brands—that is not really part of MNTN Inc.'s business, so I would look to others for that read. In the SMB market, it is full speed ahead. Macro is not mentioned. They are entirely focused on return on ad spend and hitting their goals—often with personal incentives tied to metrics. In a metrics-focused business like ours and theirs, these are not generally issues we have had to deal with. Matt Weber: Got it. As a quick follow-up, is there any update you can share on your media planning tool? When are you targeting to bring that to market, and any key points of differentiation versus existing solutions? Mark Douglas: I was joking today that I am obviously not Steve Jobs, but I usually have one more thing. You will be hearing more about that very soon. We think it is another exciting AI development from MNTN Inc. It is with customers now and getting very positive reviews. I have a tendency to talk about things before they are fully released, but you will hear more soon. Operator: Your next question comes from Andrew Merrick with Raymond James. Your line is open. Please go ahead. Andrew Merrick: Hi, thanks for taking my questions. Two, please. First, on the recent Pinterest announcements with TV Scientific—how does that affect the broader performance TV space and you in particular? Second, given what you saw from events in Q1 like March Madness and the pro playoffs, how are you thinking about a World Cup boost as we get into the summer months? Thank you. Mark Douglas: On Pinterest and TV Scientific, at one time TV Scientific was a company trying to copy the concept of performance TV. I think Pinterest’s interest is driven by their data and finding more ways to monetize it. That makes sense for them. We are not seeing that as competitive in the sense of running into TV Scientific in sales cycles. For the World Cup, it is a massive event, especially with it in the U.S. this year, and MNTN Inc. is making World Cup inventory available to our customers. One reminder: our customers are always focused on return on ad spend first. We think television has the best content in the world and our customers should be on all of it, including the World Cup, but spend on our platform is driven by ROAS, not specific events. Being on all available content, including the World Cup, supports that. It is not a separate line item or driver in our guidance or internal forecast. Operator: Your next question comes from Robert Sanderson with Loop Capital. Your line is open. Please go ahead. A reminder that you may have to unmute locally. Robert Sanderson: Good afternoon. Thanks for taking my question. I want to talk about your go-to-market evolution. In past years, your business has really been driven by inbound leads—90% plus of new customers—but you have expanded the sales team meaningfully and seem to be focusing more on developing agency relationships. Can you talk about how these efforts are going so far and when you expect to see more fruits of those efforts? Are direct sales and agencies incremental to inbound, or are you shifting the mix deliberately? And any notable margin implications if the mix changes? Mark Douglas: On go-to-market, this speaks to the market moving from early adopter to mainstream. The agencies MNTN Inc. works with are generally performance agencies—not holding companies like WPP or Publicis—independent agencies built around paid search and paid social that now see performance TV as a new channel. We want to power that opportunity and help them grow. That is not a shift in strategy. More than 90% of performance TV advertisers do not use an agency. Even if we wanted to shift, we could not meaningfully because the vast majority of performance advertisers are direct—direct users in our platform and in other performance platforms. There is a sizable portion—around 10%—larger mid-sized brands that do use agencies. We want to be a great partner there, too. We announced agency as one of our fastest-growing segments and continue to see it as a big opportunity. With Garland coming on as Chief Revenue Officer, he is shaping the organization to ensure we have coverage wherever there is opportunity—both direct to brand and via agencies. In terms of mix, we ultimately count brands. Agencies are a “one-to-many” opportunity, but the brand is the financially responsible party and decision-maker on platform use, so it ultimately goes back to the brand. Robert Sanderson: And the direct sales expansion? Mark Douglas: As you noted, it is a bit early, but we have no concerns. We think the opportunity is large, and there is room to continue expanding our sales organization to meet it head on. It takes time for individuals to become fully productive, but we are pleased with where it is headed. We view it as a low-risk investment. Patrick Pohlen: On margin, as you have seen, our model has a lot of natural leverage. We do not think this will impact our bottom-line margin. Robert Sanderson: If I could do another on competitive dynamics and sustainability: larger players aspire to move down market and focus more on SMBs—Amazon, Roku, AppLovin, and maybe eventually The Trade Desk. What are common misperceptions about your differentiation, and what are the most durable elements of your competitive moat? Mark Douglas: We are purpose-built for the SMB market. The targeting is incredibly important because the smaller the business, the smaller the target pool of customers; these businesses are often trying to reach thousands, not millions. You need pinpoint targeting, which is why leveraging AI technology early as part of our targeting engine was so important. Ninety-five percent of companies that come to MNTN Inc. do not have a TV ad, and they do not have the budget for production crews—so we addressed that. Even the way we buy ads—our programmatic bidding engine—is purpose-built to respond to performance signals and alter the ad buy to purchase the right media. We talked about media planning—giving customers a single solution that addresses their needs across nearly every streaming network in America, with premium content, not remnant, and that gets consumers to respond. Finally, the go-to-market motion: if you have a sales team built around large enterprise customers, getting that team to pursue small businesses is nearly impossible. You need to build a separate sales and marketing organization, drive more traffic to your brand, and get them to sign up. All of this has to be built out. I respect the efforts of other companies; their interest validates the scale of the opportunity. But we are not standing still—we are moving forward and capturing more of the opportunity. You cannot just take an enterprise motion and technology and repackage it for small businesses; you have to build a whole new organization and platform. We think we have done that, we are good at it, and we never stand still. More than half of MNTN Inc. is software engineers. We are excited about that. Operator: Your next question comes from Laura Martin with Needham. Your line is open. Please go ahead. Laura Martin: Hi there. I want to talk about orchestration. You have talked about orchestration, and Amazon is saying they are seeing on Bedrock that almost all companies are using multiple AI LLMs. Have you moved forward in being an orchestration layer? And on the competitive landscape, everyone is getting into omnichannel performance and adding connected television. Is there a competitive advantage for you in not being omnichannel and just being performance CTV? Thank you. Mark Douglas: On orchestration, I use that primarily in the context of creative, though it can apply elsewhere. It means using the best-of-breed LLM and generative AI capabilities for the specific task. In creative—a 30-second TV commercial—different scenes might be using different base models. Some are better at showing products, some at multiple talking actors. To reach professional quality, you need a layer of technology that knows that and can orchestrate them, plus voice-overs and music. We recognized that early and built a proprietary layer of tech, using our own AI to do it. Others will likely recognize this need too. On omnichannel, our biggest advantage is that we have the highest level of performance for TV. We have never been in a head-to-head where we lost. We built models and a programmatic ad stack to drive outcomes. Being the highest performer in a channel is a big competitive advantage. As to going omnichannel, we are not doing that right now. I think about it and will follow the customer. If the customer wants to hand a single bag of money to one company to spend across channels, that is intriguing, but I am not sure customers are fully on board yet. We will see how it develops, and it is an interesting area we will continue to talk about. Operator: There are no further questions at this time. I will now turn the call back to Mark for closing remarks. Mark Douglas: I thank everyone for their time. We are happy with this quarter, and we are excited about the rest of the year. Stay tuned, and we will keep doing this. Thanks, everyone. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Investor Relations. Roy Nir: Joining me today to discuss our results are Michael Christenson, our Chief Executive Officer, and Mark A. Boelke, our Chief Financial Officer and Chief Operating Officer. Before we begin, I would like to inform you that this call will contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ. Please refer to Entravision Communications Corporation’s SEC filings for a list of risks and uncertainties that could impact actual results. The press release is available on the company’s Investor Relations page and was filed with the SEC on Form 8-K. Additional information may also be found in our Quarterly Report on Form 10-Q, which was also filed today. If you would like to ask a question, please use the Q&A function on your screen, indicate your name and company, and submit your question. We will try to answer any questions that relate to the topics contained in today’s call during the Q&A session. I will now turn the call over to Michael Christenson. Michael Christenson: Thanks, Roy. And thank you to those of you joining this call today. We appreciate your interest in Entravision Communications Corporation and your support. As you saw in our press release, on a consolidated basis, Entravision Communications Corporation revenue increased 114% to $197 million in Q1 2026 compared to Q1 2025. We had operating income of $21 million in Q1 2026 compared to an operating loss in Q1 2025. We report our results for two segments, Media and Advertising Technology and Services, which we call ATS. This is the first quarter of our third year with this segment reporting. As you may know, we started in 2024. For our Media segment, revenue increased 4% in Q1 2026 compared to Q1 2025. This increase was primarily due to higher digital advertising revenue and retransmission fees. This was partially offset by lower broadcast advertising revenue and lower revenue from spectrum usage rights. Our Q1 2026 results included a 6% increase in local advertising revenue and an 18% decrease in national advertising revenue. These numbers exclude political revenue. Local advertising revenue is from our sellers working with local advertisers. They sell broadcast and digital marketing solutions. National advertising revenue is from our partners, primarily TelevisaUnivision, selling our broadcast to national advertisers and agencies. Our local advertising operations had 4% higher monthly active advertisers in Q1 2026 compared to Q1 2025, and a 2% increase in revenue per monthly active advertiser. Our operational priorities are to grow monthly active advertisers and revenue per monthly active advertiser. In terms of operating expenses and profitability, as we have discussed in the past, we made a number of important investments in our Media business in 2025 that we continued into Q1 2026. We added capacity to our local sales teams—more sellers—and we added digital sales specialists and digital sales operations capabilities. More digital. When we analyzed our local markets and our local advertiser base, we saw an opportunity to increase revenue by adding sales capacity. All of our local advertising customers are advertising in digital channels—search, social, streaming video, and streaming audio—and we believe we can serve their needs in those digital channels as well as our traditional broadcast video and audio channels. As we discussed in our fourth quarter report, we have two other important initiatives underway to generate incremental revenue. We are broadcasting a new network on our multicast capacity called Altavision across all of our markets. We produce the local news for Altavision, and we provide the sales and the broadcasting infrastructure. The balance of the programming is currently provided by Grupo Multimedios from Monterrey, Mexico, and we share the revenue. It is still early in the development of Altavision, so we have operating expenses but no significant incremental revenue. In addition, at the beginning of this year, we launched new programming on our full-power Orlando television station WOTF-TV, in partnership with Hemisphere Media. Hemisphere owns WAPA-TV, the number one television station in Puerto Rico. We launched WAPA Orlando channel 26 to serve the large and growing Puerto Rican, Caribbean, Central, and South American Spanish-speaking communities in Central Florida. More than 500 thousand Puerto Ricans live in the Orlando market, and we are very excited about this new revenue opportunity. Again, since it is early in the development of WAPA Orlando, we have operating expenses but no significant incremental revenue. Pulling this all together, in our Media segment, operating expenses increased $2 million in Q1 2026 compared to Q1 2025, so we had an operating loss of $5 million in Q1 2026 compared to an operating loss of $3 million in Q1 2025. As we discussed on prior calls, we are committed to growing our business and earning a profit. So we acknowledge that we have more work to do to improve our operating performance and profitability in our Media business. The new leadership team that we announced in March is evidence of this commitment: Maria Martinez Guzman, President of Entravision Media; Eduardo Meitorrena, President of Entravision Audio; and Winter Horton, our new Chief Revenue Officer. These new leaders are aligned on our core objectives: serve our audience as a trusted source of news, information, and entertainment, and serve our advertisers by connecting them with our audience. This team is committed to growing revenue and earning a profit. Now for our Advertising Technology and Services segment. ATS revenue was $155 million in Q1 2026 compared to $51 million in Q1 2025. We had more monthly active customers and more revenue per monthly active customer. We continued to invest in our ATS segment in Q1 2026 to grow revenue and operating profits. We invested in our engineering team to continue to improve our technology and build more powerful AI capabilities into our platform. And we invested to increase the capacity of our sales and customer service organizations. In addition, our infrastructure costs continue to grow as our revenue grows, but we are beginning to see operating leverage with infrastructure costs growing at a slower pace than revenue. The combination of these investments in ATS increased operating expenses by $10 million in Q1 2026 compared to Q1 2025, or $40 million on an annualized basis. Operating profit for ATS was $34 million in Q1 2026 compared to $7 million in Q1 2025. So to summarize, in Media, we are investing to increase our local sales capacity and to expand our digital sales and digital sales operations capabilities—more sellers and more digital. In ATS, we are investing to add more engineers to advance our technology and to increase our sales and customer service capacity—more technology, better technology, more selling. We believe these investments will help us build a stronger company. I will now turn the call over to Mark A. Boelke to share more details of our financial results for Q1 2026. Mark? Mark A. Boelke: Thank you, Mike. I will start by reviewing the performance of each of our two reporting segments—again, Media and Advertising Technology and Services. In our Media segment, first quarter revenue was $42.4 million, which was up 4% compared to first quarter 2025. This increase was primarily due to increases in digital advertising revenue and retransmission consent revenue, partially offset by decreases in broadcast advertising revenue and spectrum usage rights revenue. We have undertaken initiatives focused on increasing our Media advertising revenue, and we are seeing momentum and progress in the execution of these initiatives, particularly in local ad sales and digital ad sales. Let us look at total operating expense for the Media business—that is the sum of direct operating expenses plus selling, general, and administrative expenses as those two line items are reported in our segment results. Media segment total operating expense in the first quarter increased $2.1 million compared to first quarter 2025, an increase of 6%. One of our goals in the Media segment is to optimize organizational structure and expenses to be aligned with revenue and to generate profit, as Mike noted. We continue to work on achieving this goal, and we have taken steps under an ongoing organizational design plan begun in Q3 2025 intended to support revenue growth and reduce expenses in our Media segment. Key components of this plan have included a reduction in our Media business workforce, reduction in professional expenses, and the abandonment of several leased facilities. We recorded a charge during the first quarter totaling $1 million for the expenses associated with moves under this plan, and these charges were reported as restructuring costs on our income statement. The Media segment had an operating loss of $5.2 million in Q1 2026 compared to an operating loss of $2.6 million in Q1 2025. The decrease was mainly due to higher cost of revenue associated with the increase in digital advertising revenue in our Media segment. We remain focused on providing compelling content, growing revenue, streamlining our organization, and reducing operating expenses during 2026 and beyond. At this time, I will turn to our Ad Tech and Services segment, or ATS. First quarter revenue for the ATS business was $154.6 million, an increase of 204% compared to first quarter 2025, and a sequential increase of 74% from fourth quarter 2025. We had a higher number of monthly active accounts and higher revenue per monthly active account. As discussed on previous calls and as Mike noted earlier, we have had success executing our strategies in the ATS business, including strengthening the AI capabilities that are part of our technology platform and expanding the ATS sales team and geographic sales coverage. ATS total operating expenses increased 72% in the first quarter 2026 compared to first quarter 2025, an increase of $9.8 million. The ATS expense increase was primarily related to the increase in revenue. For example, the expense of cloud computing services has increased as a result of processing more transactions and using stronger AI capabilities in the ad tech platform. There was an increase in sales commissions and performance compensation as a result of the revenue increase and achievement of other performance metrics. And the ATS business has also hired additional sales, engineering, and ad operations staff in recent quarters in order to drive ATS growth and expand into new geographic territories. One of our goals for the ATS business is to continue to grow revenue and generate positive operating leverage, and the ATS revenue increase exceeded the expense increase in terms of percentage and absolute dollars. Operating profit for the ATS segment was $34.3 million in Q1 2026. This was an increase of 427% versus Q1 2025, and a sequential increase of 178% from the prior quarter, Q4 2025. Combining our two operating segments, on a consolidated basis, revenue for first quarter 2026 was $197 million, up 114% compared to first quarter 2025. The two segments together generated a consolidated segment operating profit of $29.1 million in Q1 2026 compared to $3.9 million in Q1 2025. The increase was a result of operating profit in the ATS segment partially offset by a decreased operating profit in the Media segment. We had consolidated operating income of $20.7 million in Q1 2026 compared to an operating loss of $52.8 million in Q1 2025. Corporate expenses in first quarter 2026 were $7.2 million, an 8% decrease compared to first quarter 2025, or about $600 thousand. The decrease was primarily due to expense reductions in professional services and rent. We have taken significant steps to reduce corporate expenses over the past few years, and for additional context, looking back one additional year to 2024, corporate expense in 2026 was 41% lower than corporate expense in 2024. Entravision Communications Corporation’s balance sheet remains strong, with over $71 million in cash and marketable securities at the end of first quarter 2026. We are proud of our strong balance sheet, which we believe sets us apart from others in the industry. Our strategy regarding allocation of cash is, first, reduce debt and maintain low leverage, and second, return capital to our shareholders, primarily through dividends. In first quarter 2026, we made a debt payment of $5 million, reducing our credit facility indebtedness to about $163 million at the end of first quarter 2026. We remain committed to reducing our debt and maintaining a strong balance sheet. In addition, we paid $4.6 million in dividends to stockholders in the first quarter, or $0.05 per share. For 2026, our Board of Directors has approved a $0.05 dividend per share, payable on June 30, 2026, to stockholders of record as of June 16, 2026, for a total payment of approximately $4.6 million. I would like to thank you all for joining our call today. At this time, Mike and I would like to open the call for questions from the investment community. Roy, I will turn it back over to you. Roy Nir: Thank you, Mark. We will now open the call for questions. As a reminder, if you have a question, please use the Q&A function and submit your question. Please hold as we review questions. Mike, the first question is regarding the outlook for political revenue in 2026. Any updates since the last call that you can provide? Michael Christenson: Yes. Thanks, Roy. I guess next quarter, we will put political comments in the prepared remarks. We are 182 days away from Election Day 2026. As everyone knows, primaries are underway across the country, and we are positioning ourselves for a strong political spending environment in 2026. For Entravision Communications Corporation, we have big races in our markets—governor races in Nevada and Texas. Those are the three biggest governor races for us, but we have some others. Then we have the Texas U.S. Senate race, and we have at least seven critical contested House races. So we will be busy this year focusing on political revenue. As everyone knows, this will be one of the most consequential congressional elections in our lifetime. We believe that the Latino vote will be critical to the outcome of all these elections. Studies we have shared with our clients and that studies have shown that Latinos are the most persuadable segment of the electorate, and we have a powerful channel for reaching that audience. So political will be an increasing focus for us as we go through the rest of this year. Roy Nir: Thank you, Mike. The next question we received was related to the status of the negotiations with TU and the affiliation agreement. Can you provide any update on that? Michael Christenson: No new news on the affiliation agreement for this call. This affiliation agreement runs through December 31, 2026, so we have time. We have been partners for three decades, and our plan is to renew this agreement, but there is no news on that at this time. Roy Nir: Thank you, Mike. Again, please hold as we review any potential questions. At this time, we do not have any additional questions. We would like to thank you all for joining our call today. We welcome our investors to connect with us through the Investor Relations page on our corporate website, entravision.com, where you will have access to a transcript of this call, the press release containing our first quarter financial results, and a copy of our Quarterly Report filed with the SEC on Form 10-Q. We look forward to speaking with you again when we report our second quarter results. Thank you very much. You may now disconnect.
Operator: Good afternoon and welcome to the Curaleaf Holdings, Inc. First Quarter 2026 Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions on your touch-tone telephones. To withdraw your questions, you may press star and 2. Please also note today's event is being recorded. At this time, I would like to turn the floor over to Camilo Russi Lyon. Sir, please go ahead. Camilo Russi Lyon: Good afternoon, everyone, and welcome to Curaleaf Holdings, Inc. first quarter 2026 conference call. Today, I am joined by Chairman and Chief Executive Officer, Boris Jordan, President, Unknown Speaker, and Chief Financial Officer, Edward Kremer. Before we begin, I would like to remind everyone that the comments on today's call will include forward-looking statements within the meaning of Canadian and United States securities laws, which by their nature involve estimates, projections, plans, goals, forecasts, and assumptions, including the successful integration of acquisitions, and are subject to risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements on certain material factors or assumptions that were applied in drawing the conclusion or making a forecast in such statements. These forward-looking statements speak only as of the date of this conference call and should not be relied upon as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. Additional information about the material factors and assumptions forming the basis of the forward-looking statements and risk factors can be found in the company's filings and press releases on SEDAR and EDGAR. During today's conference call, in order to provide greater transparency regarding Curaleaf Holdings, Inc.'s operating performance, we will refer to certain non-GAAP financial measures and non-GAAP financial ratios that involve adjustments to GAAP results. Such non-GAAP measures and ratios do not have a standardized meaning under U.S. GAAP. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by U.S. GAAP, should not be considered measures of Curaleaf Holdings, Inc.'s liquidity, and are unlikely to be comparable to non-GAAP financial measures provided by other companies. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable U.S. GAAP financial measure under the heading Reconciliation of Non-GAAP Financial Measures in our earnings press release issued today and available on our Investor Relations website at ir.curaleaf.com. I will now turn the call over to Chairman and CEO, Boris Jordan. Boris Jordan: Thank you, Camilo. Good afternoon, everyone, and thank you for joining us to discuss our first quarter results. 2026 is off to a strong start across macro, fundamental, and regulatory landscapes, and more importantly, we are seeing a clear shift in the trajectory of our business and the industry. The macro headwinds that constrained growth over the past three years are now beginning to turn into meaningful tailwinds. In the U.S., consumer spending remained healthy in the first quarter; however, we are closely monitoring current inflationary pressures. Stronger income tax refunds versus last year have supported spending power to the benefit of robust cannabis sales, reinforcing the resilience of underlying demand even in the face of higher gas prices. At the same time, we believe the anticipated hemp ban is already benefiting the regulated market. Alcohol retailers have begun destocking hemp-derived products, and we expect that trend to accelerate as we approach the November 11 implementation deadline, driving consumers back into the regulated channel, increasing traffic, and further strengthening the position of scaled operators like Curaleaf Holdings, Inc. From a fundamental standpoint, our strategy is delivering. The investments we have made in the core pillars of our Built for Growth framework—customer centricity, brand building, and operational excellence—are translating directly into tangible P&L performance. First quarter revenue of $324 million grew 6% year-over-year, exceeding both our guidance and internal expectations. Our domestic and international segments grew 2% and 35%, respectively, underscoring the durability of our core business and the strength and scalability of our global platform. Without question, Curaleaf International is a key differentiator and an increasingly important driver of long-term value. Gross margin was 49%, and adjusted EBITDA was $63 million, or a 20% margin, including a 170 basis point drag from our international segment as we continue to invest in driving growth and market share gains abroad. We ended the quarter with $106 million in cash on the balance sheet. Net income from continuing operations was $70 million, or $0.09 per share, compared to a net loss of $50 million, or $0.09 per share last year. We also continued to strengthen our balance sheet. We reduced our acquisition-related debt by $9 million and successfully refinanced our $475 million senior secured note with an oversubscribed $500 million three-year facility backed by strong demand from both new and existing investors. This transaction is a clear signal of investor confidence in our strategy, execution, and credit profile. Additionally, we completed the buyout of the remaining 45% minority interest in our German subsidiary Four 20 Pharma, bringing our ownership of Curaleaf International to 100%. Based on a recent comparable public market transaction, the implied value of Curaleaf International is approximately $1 billion, highlighting the significant embedded value within our global platform that we believe is not yet fully reflected in our current valuation. The U.S. cannabis industry has now entered what we believe is the most important regulatory inflection point in 55 years. Two weeks ago, under the direction of President Trump, Acting Attorney General Todd Blanche rescheduled medical cannabis from Schedule I to Schedule III, while simultaneously restarting the broader rescheduling process, with an ALJ hearing set to commence on June 29 and conclude no later than July 15. This dual-track approach is deliberate, designed to move with urgency while ensuring a durable and legally sound outcome. The practical and financial implications are highly transformative to the industry. First, federal funding for medical research will be allowed. Our U.K. team has been conducting research in concert with Imperial College London on cannabis-derived solutions for neuropathic pain. We plan to share this research with the DEA and FDA while also leveraging our partnership with the University of Pennsylvania, whose cannabis research we also support under our special research license. Access to cannabis research should shed light on the medicinal properties of the plant, and further remove the stigma that cannabis carries. Second, the removal of 280E taxation on medical cannabis, expected to be retroactive to at least January 1, immediately unlocks meaningful balance sheet benefits. 60% of Curaleaf Holdings, Inc.'s business is medical and stands to get substantial 280E relief. When the adult-use process concludes, which we expect later this summer, these benefits should extend across the adult-use portion of our business as well. The remaining open question relates to the IRS look-back period for retroactive 280E relief, and we expect further clarity in due course. Equally important, the DOJ's order opens an unexpected step that reforms medical cannabis beyond Schedule III. The order provides that we can get DEA licenses for our medical cannabis businesses, which would make our business fully legal under the CSA. In fact, today, we filed applications to register with the DEA. Proceeds from CSA-compliant cannabis cannot be deemed money laundering. The practical implications of this are yet to be seen, but we and the industry are racing to explore increased access to banking, financial services, and credit card use for our medical cannabis business. Normalized banking relationships and, critically, the ability to accept major credit cards would remove friction at the point of sale, improve conversion, and lower transaction costs, continuing the normalization of the consumer experience. It would also improve cash management and expand access to credit, representing another meaningful step change in profitability and scalability for Curaleaf Holdings, Inc. Our adult-use business may also benefit from increased access to financial services when the expected adult-use rescheduling happens later this year. Furthermore, after adult-use rescheduling, the probability of uplisting to a major exchange meaningfully increases once guidance from Treasury is provided later this year. With the glass ceiling now broken, we are seeing increased momentum at the state level as non-cannabis states, including North Carolina, South Carolina, Tennessee, and Indiana, are actively exploring medical programs. Importantly, the upside here goes well beyond tax relief and banking access. The DOJ framework introduces a catalyst from which Curaleaf Holdings, Inc. is particularly well positioned to gain. The issuance of DEA licenses to state-legal cannabis operators makes them compliant providers of cannabis under the CSA and in the international treaty framework. This opens the door for us to participate in import and export transactions. The real import-export market will require permits from the DEA, and many states have already indicated that they would support both exports and interstate commerce. For Curaleaf Holdings, Inc., this represents a significant and highly strategic opportunity. We already have built one of the largest and most efficient, sophisticated cultivation and manufacturing footprints in the United States. This established network of facilities positions us to supply our international operations with domestically grown product, dramatically improving margins and strengthening control over our supply chain. Today, we produce approximately 20% of the product we sell internationally. That leaves a substantial opportunity to vertically integrate, expand margins, and unlock incremental profitability at scale, while further leveraging our existing domestic infrastructure. Interestingly, in the U.S., the mix has flipped. We produce approximately 80% of our own products, and buy 20% third-party products. Put simply, we believe we are uniquely positioned not just to benefit from the regulatory shift, but to lead the next phase of industry growth. Curaleaf International delivered a strong start to the year with revenue growing 35% year-over-year, ahead of our internal expectations. Performance was led by continued momentum in Germany and the U.K., with early signs of recovery in Poland. In Germany, after a soft January reflecting accelerated pharmacy stocking late last year, sales rebuilt through the quarter, and March was our strongest month, a positive setup heading into Q2. In the U.K., consistent growth in patients at Curaleaf Clinic more than offset competitive pricing dynamics and patient fees. Margins were pressured this quarter as we worked through transitional dynamics in our international supply chain. Prior to the recent U.S. rescheduling developments, we had been evaluating meaningful CapEx to expand our international cultivation footprint. We are now reassessing that investment in light of a more compelling alternative—leveraging our domestic cultivation assets and award-winning U.S. genetics to supply international markets. We would not only avoid significant CapEx, but also unlock meaningful gross margin expansion as we scale. Looking ahead, we remain optimistic that Spain and France will begin contributing in 2027 as those programs finalize their frameworks. And importantly, U.S. rescheduling could act as a catalyst for other countries to embrace medical cannabis. We are actively monitoring each market, and will share more as visibility increases. With that, I would like to hand the call over to our President to discuss our U.S. strategy and operations. He has been with us for nearly a year, bringing his CPG experience from Pepsi and Albertsons to Curaleaf Holdings, Inc., and has already made an impact on the business. Unknown Speaker: Thank you, Boris. Our domestic business grew 2% year-over-year, and more importantly, we are seeing clear proof points that our strategy is working. The three pillars of our Built for Growth framework—customer centricity, operational excellence, and brand building—are coming together to create a durable and scalable foundation for growth. We saw the clearest early success in Florida, where we implemented the strategy first. By improving flower quality and strain diversity, introducing new products, aligning assortment with demand, and delivering a seamless customer experience, we drove 15% transaction growth year-over-year, more than offsetting price compression. We have now taken this playbook and are deploying it across other key markets, including Utah, Ohio, and Pennsylvania, with similarly encouraging early results. Ultimately, our entire network of states will benefit from these actions. Let us discuss the pillars of our Built for Growth strategy beginning with the first, customer centricity. Our R&D efforts have always started with a deep understanding of our consumer, and that focus continues to drive meaningful insights and innovation. BRIC 2, which launched in March, is a clear example, addressing key consumer pain points like clogging, enhancing the overall experience through flavor protection technology and Meter Mode intelligence, providing a measurable draw each time. Soon, the Flavor Series and Legacy Series of BRIC 2 strains will be complemented by the Live Series consisting of live resin and rosin to round out the portfolio. Similarly, the launch of Dark Heart last month establishes a new benchmark in ultra-premium flower. With best-in-class genetics, limited drops, and disciplined distribution, the brand is driving strong full-price sell-through and reestablishing Curaleaf Holdings, Inc. as a leader in the premium segment. Second is operational excellence, which speaks to delivering consistent improvements across our business, as we have seen in our cultivation facilities and, more recently, our retail store experience. By matching retail assortments with customer demand and optimizing pricing, we are driving steady gains in key metrics such as traffic and units per transaction. These incremental improvements are compounding into meaningful financial performance. Third is brand building, which is critical to long-term staying power as the market evolves. In Select, we have simplified the product architecture to clearly communicate its value proposition, and we are seeing positive consumer reception that will add to its market-leading position. We are also investing in trade marketing and elevated visual merchandising in partner doors, with encouraging results as domestic wholesale grew 19% this quarter. At the same time, we are expanding distribution with a disciplined focus on profitable growth. For example, last month's takeover of The Travel Agency in New York showcased our brands across both physical and digital channels, delivering outstanding results by significantly increasing traffic and AOV, benefiting both Curaleaf Holdings, Inc. and The Travel Agency. As the industry scales, we believe leading brands will capture disproportionate share. Today, according to Headset and BDSA [inaudible], the Curaleaf Holdings, Inc. portfolio holds a top share position, with Select maintaining the number one position in vapes, and we see substantial opportunity to expand on that leadership. When these three strategic pillars come together, they create a powerful flywheel, driving repeatable revenue growth, margin expansion, and increasing returns over time. I will close by recognizing that these results and the opportunity ahead are a direct reflection of the execution, discipline, and commitment of our over 5 thousand-member team across the organization. As we look forward, we believe the three-year down cycle the cannabis industry has navigated is now turning upward. The combination of improving fundamentals, accelerating regulatory momentum, and our scaled global platform positions us exceptionally well for what comes next. We thank President Trump for delivering on his commitments, turning promises into tangible results. Promises made, promises kept. Alongside Acting AG Blanche, he achieved what others had started but were not able to complete. As a result, patients, consumers, Curaleaf Holdings, Inc., and the burgeoning cannabis industry are meaningfully better today. With that, I will turn the call over to our CFO, Edward Kremer. Ed? Edward Kremer: Thank you. Total revenue for the first quarter was $324 million, a 3% sequential decline compared to the fourth quarter due to normal seasonality, and increased 6% compared to the same period last year. Strength in Ohio, Curaleaf International, New York, Utah, and Massachusetts was offset by challenges in Nevada and Illinois. By geography, our domestic segment grew 2% year-over-year, with retail contracting 2%, which was more than offset by 19% year-over-year growth in domestic wholesale. International revenue grew 35% year-over-year, beating our internal plan, driven primarily by Germany and the U.K. By channel, total revenue was [inaudible] Ohio and solid growth in Curaleaf International. Our first quarter gross profit was $157 million, resulting in a 49% gross margin, a decrease of 220 basis points compared to the prior year period. The primary drivers of this contraction were price compression and discounts, partially offset by continued cultivation efficiency gains and disciplined labor expense controls. Our domestic gross margin was 50%, flat with the fourth quarter, underscoring the stabilization we are seeing in our U.S. business. While price compression remained present in most of our markets, we continue to find ways to offset that impact through cultivation efficiencies, product innovation, and selective price increases in states where demand is outstripping supply. Notably, we have recently begun to see the rate of price compression decelerate. International gross margin was 42%, a decrease of 190 basis points sequentially, driven by pricing pressure in our U.K. business and in German flower, and lower service volume sales, which carry a higher margin. SG&A expenses were $113 million in the first quarter, an increase of $7 million from the year-ago period. Core SG&A was $108 million, an increase of $5 million from the prior year. The year-over-year increase in our core SG&A primarily reflects international expansion, additional headcount, and new store openings in Florida and Ohio. Core SG&A was 33% of revenue in the first quarter, a 35 basis point decrease compared to the prior year due to leverage and stronger sales. First quarter adjusted EBITDA was $63 million, a decrease of 4% compared to last year, while adjusted EBITDA margin was 20%, inclusive of a 170 basis point drag from international, a decrease of 200 basis points versus last year. First quarter net income from continuing operations was $70 million, or $0.09 per share, compared to a net loss of $50 million, or negative $0.09 per share in the year-ago period. During the quarter, prior to the rescheduling news, we completed a routine tax review with external counsel. Based on new information that came to light, we determined that certain tax positions in previous years met the more-likely-than-not standard required under ASC 740. This conclusion allowed us to release a significant portion of our previously recorded tax reserves and accrued interest from our balance sheet. These positions will also reduce our uncertain tax position liabilities going forward. Separately, following Treasury and IRS guidance on medical cannabis rescheduling, we expect to recognize additional 280E tax benefit in future periods. Now turning to our balance sheet and cash flow. We ended the quarter with cash and cash equivalents of $106 million. Inventory increased $16 million, or 7%, compared to the fourth quarter due to planned inventory builds in anticipation of our BRIC 2 and Dark Heart launches, coupled with inventory stocking ahead of April. Capital expenditures for 2026 continue to be expected at roughly $80 million. We generated first quarter operating cash flow and free cash flow from continuing operations of $21 million and $4 million, respectively, largely due to the aforementioned inventory investments ahead of the two product launches. We expect operating cash to build as the year progresses consistent with the cadence of our business. Our outstanding debt was $565 million. During the quarter, we reduced our acquisition-related debt by $9 million and completed refinancing of our $475 million note with a three-year $500 million note. Before moving on to guidance, I would like to announce that we are transitioning independent audit partners to BDO. BDO is the fifth-ranked global accounting firm known for its expertise, innovation, and global reach. The move reflects our commitment to strengthening transparency, enhancing financial oversight, and aligning with best-in-class partners who can support our continued growth. Notably, we are the first in the cannabis industry to make this shift, setting a new benchmark for operational excellence and forward-thinking leadership. By partnering with a firm of BDO's caliber, we are positioning ourselves to navigate an increasingly complex business landscape with greater confidence and precision as we get closer to U.S. exchange uplisting. I want to extend my sincere thanks to our accounting team for their exceptional work in making this transition possible. This achievement is a direct result of their dedication, expertise, and tireless efforts, and I would like to thank PKF for their support and partnership over the past seven years. Now on to our outlook. While we are experiencing strong increases in traffic due to the many initiatives we have in place, we are closely watching the impact higher energy prices will have on our consumers' disposable income as inflationary pressures arise. Taking these macroeconomic factors into account, and assuming current market conditions persist, we expect total revenue for the second quarter to increase 2% to 3% sequentially from the first quarter, which at the midpoint implies approximately $333 million. With that, I would like to turn the call over to the operator to open the line for questions. Operator: We will now open the call for questions. Ladies and gentlemen, at this time, we will begin the question-and-answer session. To ask a question, you may press star and then 1 on your touch-tone phones. If you are using a speakerphone, we do ask that you please pick up your handset before pressing the keys. To withdraw your questions, you may press star and 2. In the interest of time, we do ask that you please limit yourselves to one question. Again, that is star and then 1 to join the question queue. Our first question today comes from Aaron Thomas Grey from Alliance Global Partners. Please go ahead with your question. Aaron Thomas Grey: Hi. Good evening, and thank you for the question here. Nice to see that growth continue on international. I know it has decelerated a bit from 2025, so first off, I would love to hear your outlook for growth for international for 2026. And then second, in terms of your prepared remarks on potential exports from the U.S. to international, is there any color you could give on timing, and then as we think about whether or not the existing cultivation footprint would suffice, or potentially you would want to acquire, given the climate that your current cultivation is in, and also the potential need for or the need for EU-GMP or GACP? Thank you. Boris Jordan: Thank you for that question. Let me first start with the international supply chain. As everyone knows, the international supply chain has been very difficult for everybody in the sector. A lot of cultivators are not producing the type of flower that passes very strict regulations, and therefore we have been looking, mostly in Canada, for increasing our own production, our own growing of product to ship to the international markets. However, this recent rescheduling—the language in rescheduling—really has given us pause, because we could use our U.S. infrastructure. The timing of that, we do not know. It very explicitly says that we should be able to. Upon my return from Europe—I am in Europe now—I plan to spend some time in Washington meeting with the DEA as well as the DOJ to see what the timing could be. But because once we submit our application, we are deemed rescheduled from Schedule I to Schedule III, in theory we could start very quickly. We do need state cooperation as well. We need export permits from them. There will be some time. So I really expect not to be able to do this probably until the end of the year, and we will see at that point in time. On the outlook for international growth, I think we mentioned in the last call we are looking at around 25% to 30% growth internationally this year, reduced down from over 50% last year due to no new markets. We expect that to accelerate significantly going into 2027. Operator: Our next question comes from William Joseph Kirk from Roth. Please go ahead with your question. William Joseph Kirk: Thank you, everybody. During the prepared remarks, the President gave transaction numbers for the quarter. I think he said plus 15% year-over-year, I believe, was how he said it. What is that on a same-store sales basis, and how has that transaction growth year-over-year been trending the last couple of quarters? Boris Jordan: President? Unknown Speaker: From a same-store sales basis, we are not going to comment on that, but the trends are moving in the right direction in general, and we will be able to talk about that on next cycle. But overall, as we look at transactions, they are moving up, and they are eclipsing right now the price compression that we see in the marketplace. William Joseph Kirk: Okay. And then a separate kind of follow-up question. We have seen some comments today or some reported comments out of Senator Tim Scott about banking. My question would be, how much of what we need to see or want to see from here requires some sort of congressional action versus things that can be done by the administration and the agencies, who appear to be pretty well aligned? Boris Jordan: I will take that. I think that we knew that Senator Scott was going to say this. As a matter of fact, I think last year on several podcasts and things I did, I mentioned that Senator Scott said that once we got rescheduling, as Chairman of the Senate Banking Committee, he would move SAFE Banking. So we do expect him to do that. I think we will probably see that in the third quarter, most likely. I do not think it will fit the agenda for the second quarter, and maybe we could even get a vote before the midterm election. I do not know, but certainly I think we could get a vote before year-end. It is a very popular issue, as you know. It has passed the House many, many times. I suspect that it will pass the Senate now. It seems to be more bipartisan today than it was under the previous Senate. The main person blocking it was Senator McConnell. As we know, Senator McConnell is retiring in 2027. So I do expect that SAFE Banking should be able to make it through. However, there is a chance also that we could get guidance—like the crypto industry did—from FinCEN and from Treasury that would indicate that the banking industry could start to serve the sector. However, I believe that that will be good enough for certain institutions, but I believe other institutions will want to see some level of legislation because, as we all know, one presidential administration to another could change the view, and so ramping up banking operations to then have to shut them down if the next President, for instance, had a different view, or the next Attorney General or Treasury Secretary had a different view—I think that they will want to see legislation. So certainly money-center banks, I believe, will want to see SAFE Banking legislation go through before they get involved. But I do think a lot of other financial institutions, including credit card companies and mid-sized regional banks, as well as working capital facilities and things like that, can open up with simple guidance from FinCEN and Treasury. Operator: Thank you. Our next question comes from Kenric Tyghe from Canaccord Genuity. Please go ahead with your question. Kenric Tyghe: Thank you, and good evening. This is at least the second quarter I can recall where you have highlighted lower price compression and a fairer domestic environment in terms of that price compression actually decreasing. Could you speak to, one, how broad-based that lower promotional intensity is; and two, the extent to which you think that hemp relief you were calling out—with alcohol retailers destocking and increased traffic into the regulated channel—is a factor? Thank you. Boris Jordan: I think there are several factors that are driving our comments on price compression. The first one is Curaleaf Holdings, Inc. has substantially, over the last year and the six months that I have been CEO, increased the quality of our products. We have rationalized our product SKUs. We have increased the quality of our flower substantially. And so we have been able to start to increase prices ourselves because of that, and we are seeing better margins both in our wholesale business and our retail business based on our own product quality. The second thing I would say is there are certain markets in the U.S.—I will bring two as an example, Florida and Massachusetts—that are starting to see stabilization in pricing, and we are not seeing the type of decline, or maybe even any decline, in those markets at this time. There are other markets, however, that are still compressing, but we are starting to see stabilization in certain markets. So overall, I would say that I am getting a slightly better feeling that that is partially maybe because hemp products are starting to disappear. Even though we still have many hemp sellers that have until November, we definitely think that the supply chains are starting to break down. We think there is less product availability. We think certain retailers, as they sell the inventory, are not replenishing it. And so I think we are starting to see the early part of a recurrence. I do not believe that that will really hit until early 2027, when I do expect somewhere between 10% to 15% organic growth in the sector just based on the hemp shutdown. Operator: Our next question comes from Frederico Yokota Gomes from ATB Cormark Markets. Please go ahead with your question. Frederico Yokota Gomes: Hi. Thanks. Good evening. Congrats on the great quarter here, guys. Just a question, more big picture on rescheduling. We got the medical portion, and we are probably going to get the recreational portion in the second half. We know about the 280E impact, but could you talk about the potential impact that rescheduling could have on sales, margins, the overall competitive environment, and M&A? Could it accelerate consolidation? Would it maybe let some companies that are struggling survive for longer? What do you think are some of the puts and takes here in terms of a post-rescheduling world in the industry? Boris Jordan: I think that it is too early to tell whether it will or will not have an impact on pricing. Let us be honest: most companies were not paying but accruing UTPs in their balance sheets. So I do not know yet whether we can talk about pricing changes in the marketplace at this point in time. I do not expect it to have a significant effect there. I do, however, think that it will have a significant effect on consolidation and M&A. We are already seeing a tremendous amount of tuck-in acquisitions across the country. Many companies have not announced them yet, but I can tell you we know of literally probably 10 to 15 transactions that have been done in the last two quarters regionally. Maybe they are waiting for approvals or something. And I do also expect, as I have said earlier, to see larger consolidations between MSOs as well. This is very much a velocity business. A lot of these companies compete literally across the street from each other with stores. We are seeing more transactions and we are seeing transactions increasing. And with the price compression that happened during the hemp period, we are seeing less capacity availability and less product availability in markets and shortages of products in the regulated market. And so by combining grow facilities, you are going to have massive cost savings, and you are also going to have massive synergies to be able to provide the market with product and branding. And so I do think you are going to see it. It is a compelling story to see significant MSOs starting to merge on the back of rescheduling. I think you will see it because now you have certainty on the balance sheet. And so, certainly, after we get the IRS guidance on 280E and we get, hopefully, the rescheduling of adult use in the second quarter, at that point in time, I do think that you are going to start seeing consolidation in the second half. Operator: Our next question comes from Russell Stanley from Beacon. Please go ahead with your question. Russell Stanley: Good afternoon, and thanks for the question. Just around the scheduled hemp ban and efforts that are starting to interfere with the implementation date. I would love to hear your confidence level that it will go into effect as scheduled. Do you see any risk to the date at this point? Thanks. Boris Jordan: I think that, obviously, the hemp industry is doing everything they can. They raised quite a bit of money and they are lobbying very aggressively. And this is politics, and it is Washington—never say never. But at the moment, as we speak right now, I can tell you I believe there is very little appetite within the House and Senate to change the rules that they set last year at this early stage. I do think, however, going forward, maybe a few years from now, you might get some changes, particularly around beverages. But I do not think you are going to get any changes here between now and November. Operator: Our next question comes from Pablo Zuanic from Zuanic & Associates. Please go ahead with your question. Pablo Zuanic: Thank you. Two quick questions. One, in the past, Boris, you have talked about spinning off part of the international business. On the math you are giving—$1 billion—that is about 5x system sales. Your domestic business is trading around 2.5x. Is that still in the cards, especially with stocks—although you have moved up—stocks have not moved up as much as we would have expected given all this good news? So if you can comment on that. And then the second question, which is somewhat related: I know we are all, including myself, very excited about the news flow and about the fact that companies that register with the DEA will become federally legal, supposedly, but the product will remain federally illegal, right? And will that create a problem as we move forward trying to implement a lot of these changes? When I say federally legal—you know, Iowa, Kansas, Indiana—it is still illegal there for medical even. So I am just trying to reconcile one and the other: an illegal product and a legal company. Thank you. Boris Jordan: The medical product in those states where medical product is approved will be legal under federal law, and I believe many of the states will be passing medical cannabis legislation. We already know of at least five states that in the past have not even considered it that are already now looking at passing medical cannabis legislation in those states. Some of the states you mentioned are part of that group that is looking at doing that. And so I do think that you will have that. Under the CSA, medical cannabis is going to be legal. I want to stress that point. Under our plans on international, we always have that option if we want to do it. Right now, we would like to see what happens with the rescheduling of adult use in the second quarter. Our business—if you take a look at Curaleaf Holdings, Inc.—in fact, if you add in our European business, 80% of our business is medical. And so if you combine the U.S. and the European business, 80% of our revenue actually comes from medical. However, the impact of 280E will only impact our U.S. business, which is 60% medical. And so we have a lot of options available to us if we decide. But at the moment, I am assuming and hoping that as this legislation passes in the second quarter, I do think that at that point in time, and as we get banking legislation, you will have significant institutional interest in the sector. I have spoken to many large-scale investors—large long-only funds that manage trillions of dollars. Today, they cannot really look at this sector until they have, one, visibility into adult use; two, visibility into what effect that has on the balance sheet. And at that point in time, they need to start doing their research. They need to go to their compliance committee. So I believe that it will take six to twelve months post final rescheduling for large institutional players to start participating in the market. And if that is the case, I do not see a reason for us to have to split the business up. However, I will never say never, because the European business is growing very aggressively. I do believe our margins, as we start to vertically integrate that business, are going to improve also quite dramatically, obviously helping the overall margin of the business because Europe is starting to become a bigger part of our business. And so we will take a look at things at the time that we feel necessary. Right now, I feel pretty good about keeping the business together. Operator: And with that, we will be concluding today's question-and-answer session. I would like to turn the floor back over to Camilo Russi Lyon for closing remarks. Camilo Russi Lyon: Thank you, everyone, for joining us today. We look forward to speaking with you again in about 90 days. Have a great day. Operator: And with that, ladies and gentlemen, we will be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen, and welcome to the Exelixis, Inc. first quarter 2026 Financial Results Conference Call. My name is Sherry, and I will be your operator for today. As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Andrew Peters, Senior Vice President of Strategy and Investor Relations. Please proceed. Andrew Peters: Thank you, Sherry, and thank you all for joining us for the Exelixis, Inc. first quarter 2026 financial results conference call. Joining me on today's call are Michael M. Morrissey, our President and CEO; Christopher J. Senner, our Chief Financial Officer; Dana T. Aftab, our Executive Vice President of Research and Development; and Patrick Joseph Haley, our Executive Vice President, Commercial, who will review our progress for the first quarter 2026 ended 03/31/2026. During the call today, we will refer to financial measures not calculated according to Generally Accepted Accounting Principles; please refer to today's press release, which is posted on our website, for an explanation of our reasons for using such non-GAAP measures as well as tables deriving these measures from our GAAP results. During the course of this presentation, we will be making forward-looking statements regarding future events and the future performance of the company. This includes statements about possible developments regarding discovery, product development, regulatory, commercial, financial, and strategic matters, potential growth opportunities, and government drug pricing policies and initiatives. Actual events or results could, of course, differ materially. We refer you to the documents we file from time to time with the Securities and Exchange Commission which, under the heading Risk Factors, identify important factors that could cause actual results to differ materially from those expressed by the company verbally and in writing today, including, without limitation, risks and uncertainties related to product commercial success, market competition, regulatory review and approval processes, conducting clinical trials, compliance with applicable regulatory requirements, our dependence on collaboration partners, and the level of costs associated with discovery, product development, business development, and commercialization activities. With that, I will turn the call over to Mike. Michael M. Morrissey: All right. Thank you, Andrew, and thanks everyone for joining us on the call today. Exelixis, Inc. is off to a strong start in 2026, with meaningful progress across our discovery, development, and commercial activities. Our strategy has a singular focus: to build a multi-franchise business in solid tumor oncology focused on GU and GI histologies, based on the depth of the cabozantinib business, the potential breadth of the zanzalintinib opportunity, and the scope of our early-stage pipeline. Key highlights for the quarter include: first, we saw continued strong performance of the cabozantinib business in 2026. CABOMETYX continued to grow in revenue, demand, and market share, as the leading TKI for RCC and the market leader for neuroendocrine tumors in the oral second line plus segment. Importantly, we expedited the buildout of our GI sales team in the first quarter to accelerate the growth of the CABOMETYX NET opportunity before ZANZA could come online for CRC later in 2026. First quarter 2026 U.S. cabo franchise net product revenues grew 8% year-over-year to $555 million compared to the first quarter 2025. Continuing its role as a worldwide leading TKI, global cabo franchise net product revenues generated by Exelixis, Inc. and its partners grew 12.5% year-over-year to $764 million in the first quarter 2026. Chris and PJ will share our financial and commercial highlights in their prepared remarks. Second, ZANZA is in the pole position as our next potential oncology franchise opportunity. The NDA for the ZANZA + atezo combination in third line plus CRC based on the STELLAR-303 data is currently under review and is the top priority for the entire Exelixis, Inc. organization. The ZANZA development program is rapidly advancing with seven ongoing or soon-to-start pivotal trials, along with additional Phase II trials planned in prostate cancer and lung cancer. Dana will review the highlights for ZANZA and our extensive pipeline of early-stage assets in his prepared remarks. Third, the goal of our development effort is to establish ZANZA as the TKI of choice in the 2030s for RCC and other important indications that could surpass the impact of cabo in the 2020s. ZANZA already has a meaningful development footprint in RCC, with three ongoing Phase 3 studies across multiple lines of therapy, underscoring both the breadth of our ambition and the confidence we and others have in this molecule. At the same time, as our experience with COSMIC-313 highlighted, and as was also recently seen with news from competitive trials, navigating the complexities of first-line RCC to improve upon existing regimens is a challenging endeavor at best and requires careful selection of combination partners to improve efficacy parameters while managing tolerability and safety considerations. We remain committed to raising the bar in first-line RCC and continue to prioritize orthogonal MOAs to combine with ZANZA. In parallel, we seek to expand the breadth and depth of our ZANZA pivotal trial efforts, positioning ZANZA for durable leadership in RCC and other important tumor types. Fourth and finally, we remain committed to running the business at the highest level of efficiency as we advance our R&D priorities, and at the same time generate substantial free cash to invest in the pipeline through the right targeted BD at the right price to access external sources of innovation and to continue our share repurchase program, including an additional $750 million that was just authorized by the Exelixis, Inc. Board. See our press release issued an hour ago for our first quarter 2026 financial results and extensive list of key corporate milestones achieved in the quarter. I will now turn the call over to Chris. Christopher J. Senner: Thanks, Mike. For the first quarter 2026, the company reported total revenues of approximately $611 million, which included cabozantinib franchise net product revenues of $555 million. CABOMETYX net product revenues were $552.8 million and included $3.6 million in clinical trial sales. As a continued reminder, clinical trial sales have historically been choppy between quarters and we expect this to continue into the future. Gross-to-net for the cabozantinib franchise in 2026 was 30.2%, which is higher than the gross-to-net we experienced in 2025. This increase in gross-to-net deductions in 2026 is primarily related to higher 340B volume, higher Medicare Part D discounts and rebates, and higher co-pay assistance when compared to the fourth quarter 2025. Our CABOMETYX trade inventory was slightly lower at 2.1 weeks on hand at the end of the first quarter 2026 when compared to the fourth quarter 2025. Total revenues in the first quarter 2026 also include approximately $45.9 million in royalties earned from our partners Ipsen and Takeda on their sales of cabozantinib. Our total operating expenses for the first quarter 2026 were approximately $359 million compared to $363 million in 2025. The sequential decrease in these operating expenses was primarily driven by lower clinical trial costs, offset by higher FTE-related costs and stock-based compensation expense. Provision for income taxes for the first quarter 2026 was approximately $57.2 million compared to a provision for income taxes of approximately $8.2 million for the fourth quarter 2025. This increase in tax provision was related to certain items that were recognized in the fourth quarter 2025. The company reported GAAP net income of approximately $210.5 million, or $0.81 per share basic and $0.79 per share diluted, for the first quarter 2026. The company also reported a non-GAAP net income of approximately $232.8 million, or $0.90 per share basic and $0.87 per share diluted. Non-GAAP net income excludes the impact of approximately $22.3 million in stock-based compensation expense, net of the related income tax effect. Cash and marketable securities for the quarter ended 03/31/2026 were approximately $1.4 billion. During the first quarter 2026, we repurchased approximately $430.8 million of the company's outstanding common stock, resulting in the retirement of approximately 10 million shares of the company's outstanding common stock at an average price per share of $42.99. As of the end of the first quarter 2026, we had $159.4 million remaining under the $750 million stock repurchase plan authorized by the company's board in October 2025. We expect to complete the October 2025 stock repurchase plan this month. Additionally, in May 2026, the company's board authorized a new $50 million stock repurchase plan that expires on 12/31/2027. Finally, we are reiterating our full-year 2026 financial guidance, which is detailed on slide 16 of our earnings presentation. I will now turn the call over to PJ. Patrick Joseph Haley: Thank you, Chris. The CABOMETYX business continued to grow in 2026. The team is executing at an extremely high level, with CABOMETYX continuing to be the number one prescribed TKI in renal cell carcinoma, the number one TKI plus IO combination in first-line RCC, and the number one oral agent in second line plus neuroendocrine tumors. Importantly, Q1 had the highest number of new patient starts in a quarter ever for CABOMETYX, representing strong momentum in the business. At the same time, CABOMETYX plus nivolumab had the highest quarterly first-line RCC market share to date. This is an exciting time for the team with zanzalintinib on the horizon as we prepare to launch our next franchise molecule, which would also expand the Exelixis, Inc. GI franchise. The prescription data in the oral TKI market basket of cabo, lenvatinib, axitinib, sunitinib, and pazopanib convey the strength of cabo relative to the competition. Looking at 2025 to Q1 2026, CABOMETYX grew three share points from 44% to 47%. Additionally, CABOMETYX TRx volume grew 14% in Q1 2026 compared to Q1 2025, outpacing the growth rate of the market basket, which was 7% for the same period. Physicians are responding positively to the broad NET label and the contemporary trial design, and perceive the efficacy and tolerability of cabo as favorable relative to other small molecule therapies in the space. Both academic and community prescribers are using cabo broadly across patient and tumor characteristics, including patients with neuroendocrine tumors arising in the pancreas, GI tract, and lung, across all tumor grades, functional and SSTR status, and those who have received prior treatment with Lutathera. Turning to new patient market share for second line plus neuroendocrine tumors in the first quarter, we are pleased that CABOMETYX remains the market leader in the oral therapy segment. Additionally, our research indicates that there is opportunity to continue to grow market share, particularly in the community. For that reason, we expedited the expansion of our GI sales team in Q1, and the team was in the field providing greater reach into the community in order to continue to grow NET market share for CABOMETYX. Our new representatives joined us with significant oncology sales experience, particularly colorectal cancer and GI oncology. Importantly, the expanded team will be able to gain valuable experience selling cabo before we turn our focus to the potential launch of zanzalintinib in colorectal cancer. If we are thinking about building on and expanding our GI franchise, we are thrilled with the results of STELLAR-303 and the PDUFA date set for later this year. Pending regulatory approval, we believe that these data would provide Exelixis, Inc. with a compelling commercial opportunity in one of the big four tumors. The third line plus CRC setting consists of approximately 23,000 patients in the U.S. and represents an overall market opportunity of approximately $1.5 billion in terms of contemporary pricing. Our market research and advisory boards demonstrate positive feedback and excitement for the STELLAR-303 data. Physicians reiterate the significant unmet medical need for patients in the third line plus CRC setting and are excited for the potential to have an ICI option available for the broader population of CRC patients. In closing, we are pleased with the growth of the cabo business both in RCC and NETs. In neuroendocrine tumors, prescribers see CABOMETYX as a more favorable choice versus other previously approved generic small molecule therapies. Simultaneously, our internal team is in full launch preparation for ZANZA, and the excitement around these efforts is palpable. We look forward to the opportunity to launch the next Exelixis, Inc. franchise later in the year to be able to help appropriate patients with colorectal cancer. Beyond STELLAR-303, we are enthusiastic about the significant development plan for ZANZA, which could position the ZANZA franchise to far exceed cabo in terms of the number of patients that could be impacted across tumor types and settings. With that, I will turn the call over to Dana. Dana T. Aftab: Thanks, PJ. Our strategy in R&D continues to focus on developing ZANZA as a multidimensional solid tumor oncology franchise molecule. As you will hear in my upcoming remarks, we continue to be focused on maximizing our productivity with disciplined investment in high-value opportunities for ZANZA as well as the rest of our portfolio. Today's update provides a little more clarity on the seven ongoing or soon-to-start pivotal studies for ZANZA, so my update today will be focused mostly on those trials, but I will also spend some time on additional exploratory studies that we have designed to investigate ZANZA's potential in certain patients with prostate or lung tumors. Starting with our NDA for ZANZA plus atezo in colorectal cancer, which is based on the results from the STELLAR-303 trial, our team has been highly engaged during the review process, and from our standpoint, the review has been proceeding on schedule toward the PDUFA date in early December. As a quick reminder, the trial has dual primary endpoints designed to assess overall survival both in the broad intention-to-treat, or ITT, population, which includes patients both with and without liver metastases, as well as more specifically in the population of patients without liver metastases, which we refer to as the NLM patients or population. The study met one of its dual primary endpoints, demonstrating a 20% reduction in the risk of death with the combination in the broad ITT population at final analysis, while data pertaining to the other dual primary endpoint of overall survival in the NLM population showed a trend in overall survival favoring the combination. The NLM data were immature at the data cutoff, and the trial has been proceeding to the planned final analysis for this endpoint, and we continue to expect to have those top-line results around the middle of this year depending on event rates. The level of excitement here is really high right now about what a potential approval would mean for this large and underserved patient population. As you heard from PJ, our preparations for launch are in full swing. We will be ready to go the moment we receive a positive decision. But as we have discussed since late last year, we believe there is significant additional franchise potential for ZANZA in colorectal cancer in an earlier stage of the disease. To realize that potential, our team has been highly focused on launching the STELLAR-316 trial, which will investigate ZANZA with and without an immune checkpoint inhibitor in patients with resected stage 2 or 3 colorectal cancer who, following definitive therapy, have tested positive for molecular residual disease, or MRD, and have no radiographic evidence of disease. About 20% of patients are MRD positive following definitive therapy, and these patients typically have a poor prognosis, with median disease-free survival times in the six- to eight-month time frame. Critically, these patients have no therapeutic options that have been shown in a Phase 3 trial to prevent or delay metastatic progression of their disease, so this represents a significant opportunity in the colorectal cancer landscape. As we have communicated in the past, MRD in STELLAR-316 will be determined with the Signatera circulating tumor DNA test, with Natera as our diagnostic partner. Their database, built from testing thousands of patients each year, has been incredibly helpful to us in terms of prioritizing activation of clinical trial sites that are already known to have the highest cadence of testing and the highest numbers of eligible patients. We are quite pleased with the level of enthusiastic feedback on STELLAR-316 that we have gotten from key opinion leaders and other stakeholders, and we are on track for initiating the trial around midyear. Moving on to kidney cancer, ZANZA's target profile, including the TAM kinases, MET, and VEGF receptors, positions ZANZA for success given the known roles played by these kinases in kidney tumors. STELLAR-304 is our first pivotal trial for ZANZA in kidney cancer, evaluating the combination of ZANZA plus nivolumab versus sunitinib in patients with locally advanced or metastatic non–clear cell renal cell carcinoma. The non–clear cell RCC space is underserved, with no positive readouts from a Phase 3 study specifically focused on these patients, despite them representing approximately a quarter of all RCC cases. If positive, 304 could potentially establish the first standard of care based on a randomized controlled Phase 3 trial for these patients. We completed enrollment last year and, given current event rates, we now expect top-line results from the study in 2026, and, if positive, those results could lead to our second NDA filing for ZANZA. In terms of opportunities in the clear cell RCC space, progress continues with regard to the two pivotal studies that Merck is running in clear cell RCC evaluating ZANZA in combination with belzutafan. LightSpark-033, which compares ZANZA plus belzutafan versus cabo as first-line therapy in patients who received anti–PD-1 or anti–PD-L1 therapy in the adjuvant setting, was initiated last year. In addition, Merck recently initiated LightSpark-034, a global Phase 3 pivotal trial evaluating ZANZA plus belzutafan versus belzutafan plus placebo in second- or third-line patients with advanced RCC who have progressed on or after both anti–PD-1/PD-L1 and VEGFR TKI therapies, in sequence or in combination. We are certainly excited to see these Phase 3 studies in clear cell RCC moving forward, and based on our franchise experience in this indication, we believe there are other important opportunities to explore. As we have mentioned previously, we continue to have discussions with potential collaborators to investigate novel combinations pairing ZANZA with other modalities and orthogonal mechanisms when there is strong scientific rationale for the combination. Given the demonstrated clinical differentiation we have seen with ZANZA and its potential to be the TKI of choice for combinations with immunotherapies and other mechanisms of action, we are looking to advance novel combinations in the future that have significant potential to move the needle for clear cell RCC patients. We hope to give further updates on these activities in the future as we get closer to launching the trial. Moving on now to neuroendocrine tumors, STELLAR-311 is our Phase 3 trial evaluating ZANZA compared to everolimus as an initial oral therapy in patients with pancreatic and extrapancreatic neuroendocrine tumors. That study was initiated last year, and we have been quite pleased by the speed of enrollment in the trial. In fact, we are now far ahead of our initial enrollment projections. The sites and investigators are very enthusiastic about the trial, given their growing experience with cabo in later-line disease and the opportunity presented by STELLAR-311 to improve on the current treatment landscape in earlier lines, which has not seen anything new for over a decade. That enthusiasm appears to be driving the very strong momentum we are seeing in the trial. Another opportunity for ZANZA that we have been discussing since late last year is in meningioma, which is the most common primary central nervous system tumor, accounting for approximately 40% of cases. Most meningiomas are benign, slow-growing neoplasms; however, up to 22% will recur after primary therapy, which consists of surgery and radiation. Importantly, there are no approved systemic therapies for meningioma that is refractory to local therapies, so this represents a very high unmet need in neuro-oncology. Today, we announced that we have now initiated STELLAR-201, our Phase II trial evaluating ZANZA in patients with recurrent meningioma who are no longer responsive to or eligible for local therapies. The primary endpoint of the trial is objective response rate, with secondary efficacy endpoints including duration of response, progression-free survival, and overall survival. The trial will enroll up to 100 patients, and given the extremely high level of interest and enthusiasm for the trial among neuro-oncologists, we anticipate enrollment to be brisk. Pending favorable results and given the absence of any approved systemic therapies in this setting, the STELLAR-201 trial represents an important opportunity for ZANZA to become the first systemic therapy that could improve outcomes for these patients. Today, we also announced two additional studies exploring ZANZA combinations in indications where significant unmet need exists. STELLAR-202 is a planned Phase II trial in squamous non–small cell lung cancer that will explore the addition of ZANZA to pembro in the maintenance phase after induction with pembro plus chemotherapy. Part of the rationale for this trial comes from data we obtained from cabo plus atezo in the CONTACT-01 trial, where the subgroup of non–small cell lung cancer patients with squamous histology appeared to derive substantial benefit from the combination compared to chemotherapy. This is an important opportunity given the relatively short PFS in the maintenance setting and the lack of any new approvals in frontline squamous non–small cell lung cancer since KEYNOTE-407 established the current standard of care with pembro plus chemo. We are also planning an additional expansion cohort in the ongoing STELLAR-2 study to evaluate ZANZA in combination with docetaxel in patients with metastatic castration-resistant prostate cancer who have measurable disease. This is also based on initial observations with cabo, where a small Phase II study showed favorable outcomes when combined with docetaxel in metastatic CRPC patients. This cohort in STELLAR-2 is particularly meaningful because, if ZANZA in combination with chemotherapy is shown to be safe and active, that could open up a number of opportunities across a range of solid tumors where chemo or potentially even ADCs carrying chemo payloads are standard of care. Our teams are super focused on launching these new studies soon, and we expect both to be initiated in the second half of this year. Now shifting to our early clinical pipeline, we have four molecules in this space that are currently in clinical development, namely XL309, XB010, XB628, and XB371, and the Phase 1 studies for these early molecules are progressing well. In terms of earlier-stage development candidates, we are continuing to advance exciting new small molecule and ADC programs, and I look forward to sharing more details as these early pipeline programs advance. Our strategy with the early pipeline is focused on identifying the next potential franchise molecules beyond cabo and ZANZA, so we will continue our approach of getting to go/no-go decisions quickly and efficiently, leveraging our expertise to pick the winners and ultimately maximize impact for patients. With that, I will turn the call back over to Mike. Michael M. Morrissey: All right. Thanks, Dana. I will wrap up here by thanking the entire Exelixis, Inc. team for their outstanding efforts in the first months of 2026. We think 2026 could be a potentially transformational year for the company, and everyone at Exelixis, Inc. is working together to move the needle for cancer patients and continue building value for all our stakeholders. We are focused on growing the cabo business, at the same time advancing ZANZA as our second potential franchise opportunity, all while continuing to investigate our early-stage pipeline. As always, I want to thank everyone at Exelixis, Inc. for their individual and collective efforts, great teamwork, and positive energy as we work every day to exceed expectations on our mission to help cancer patients recover stronger and live longer. We look forward to updating you on our progress in the future. Thank you for your continued support and interest in Exelixis, Inc. We will now open the call for questions. Operator: Thank you. To ask a question, you will need to press 11 on your telephone. To withdraw your question, press 11 again. Due to time restraints, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question will come from the line of Paul Choi with Goldman Sachs. Your line is open. Analyst: Thank you. Good afternoon, and thanks for taking the question. My question is for Dana. In light of the recent miss from the LightSpark-012 study, can you comment on your updated thoughts or learnings from that trial for your belzutafan plus ZANZA combination development program, specifically LightSpark-033 and -034? Any learnings or potential trial considerations that you have had in the wake of that data? Thank you very much. Dana T. Aftab: Sure. Thanks for the question, Paul. First of all, our strategy with ZANZA is to really focus on creating the next franchise molecule in RCC and the top TKI combination therapy in clear cell RCC in the 2030s. The results from LightSpark-012, which evaluated the triplet of pembro + lenva + belzutafan versus pembro + lenva, highlight that triplet therapy in clear cell renal cell carcinoma is not an easy game. Our strategy is focused on trying to establish a standard of care that covers multiple possible outcomes based on trials that are going on now. We have multiple shots on goal with LightSpark-033 and -034, and we have the STELLAR-304 data coming in non–clear cell carcinoma. As I mentioned earlier, we are evaluating a number of other potential novel and innovative combinations to further explore the clear cell RCC space, including molecules from our own early pipeline. If XB628, which is our novel and innovative bispecific with multiple IO arms on it, pans out, that could be a very interesting combination to explore in these patients. We have multiple shots on goal to really establish and drive the ZANZA franchise into clear cell RCC in the future, focused on the 2030s. Operator: One moment for our next question. That will come from the line of Yaron Werber with TD Cowen. Your line is open. Analyst: Hi, team. Congrats on the quarter, and thanks so much for the question. Two quick questions: first, could you please provide some color on the contribution in renal cell carcinoma versus NET for cabo? And second, I recall that cabo failed as a monotherapy in advanced unselected non–small cell lung cancer and also on OS in Phase 3 for pancreatic, even though it showed a response and PFS. You touched on some of the combo regimens that are showing early data, but could you expand on the rationale for testing combo therapies in STELLAR-202 and STELLAR-2? Michael M. Morrissey: I think you were talking about prostate cancer as well. Dana, why do you not take that second question first—going into Phase II in non–small cell and then prostate cancer? Dana T. Aftab: Sure. As I mentioned, data that support our hypothesis for testing zanzalintinib in patients with non–small cell lung cancer come from the CONTACT-01 study, the Phase 3 study evaluating cabozantinib plus atezolizumab versus docetaxel in a broad population of non–small cell lung cancer patients. In that study, the subpopulation of patients with squamous histology actually did quite well and appeared to have a favorable benefit compared to the control arm. For that reason, the STELLAR-202 trial is focused 100% on the squamous patient population. The current standard of care is platinum-based chemotherapy plus pembrolizumab during induction, then pembrolizumab maintenance. We are looking to add zanzalintinib onto the maintenance arm of pembrolizumab. We have already shown that ZANZA can sensitize patients to benefit with IO in the STELLAR-303 trial, a population of colorectal cancer patients historically refractory to IO, so we think this is a very rational exploration. In prostate cancer, there was a small Phase 1 study combining cabozantinib with docetaxel that showed favorable outcomes in metastatic CRPC patients. Based on those results, we believe there is rationale to pursue that combination in the Phase 1 STELLAR-2 trial. Once we get data showing safety and potentially activity, that opens up a lot of avenues of exploration, including in castration-resistant prostate cancer, potentially in lung cancer, and potentially in other indications where chemo or chemo-based therapies, including ADCs, are standard of care. Operator: Thank you. One moment for our next question. That will come from the line of Sudan Loganathan with Stephens. Your line is open. Analyst: Hi, thank you for taking my question. First, could you comment on the quantifiable metrics regarding cabo sales in NETs and how the sales team has grown over this time and how it will continue to? Second, on ZANZA ahead of the CRC launch, what are some quantifiable metrics we can keep in mind ahead of the potential launch toward the end of this year? Thanks. Patrick Joseph Haley: Great, thanks. With regards to NET, we are really pleased with how the business is going. As I mentioned, overall in the first quarter we had our highest new patient starts ever for CABOMETYX in a quarter, which is a really strong sign of the health of the business. As those new patient starts translate to refills going forward, it puts us in a really good position. Our business in NET is broad, across all segments, and is viewed very favorably by physicians. Importantly, we are the market leader in the second line plus oral segment, and our research and feedback indicate that we have opportunity to continue to grow, particularly in the community setting. That is why we expedited the buildout of our GI sales force to have deeper reach into the community and drive further business there. We brought in a very strong team with GI and CRC experience in sales, and we are already seeing impact from that team. Importantly, the team gets to know the customers in the GI segment and gains experience selling cabo and a TKI, which is fantastic as we look forward to the potential approval of ZANZA in CRC. Our launch preparation is in full swing, and the team is focused on optimizing that launch and helping patients with CRC. This is a big and exciting opportunity for us in one of the big four tumors. The third line plus CRC setting is approximately 23,000 patients and, at contemporary pricing, a $1.5 billion opportunity. We are thinking about ZANZA as a franchise: the initial launch will be important, but we are focused on expanding the CRC franchise with an earlier study such as STELLAR-316 and building it out in RCC, and potentially in lung, meningioma, etc., with many exciting opportunities. Operator: One moment for our next question. That will come from the line of Sean Laaman with Morgan Stanley. Your line is open. Analyst: Hi, good afternoon. This is Catherine on for Sean. We just had one on the updated STELLAR-304 data readout timing. Could you provide a bit more color on whether the slower event accrual reflects better-than-expected disease control within a mix of the enrolled histologies, or other trial dynamics? As a quick follow-up, given that the population is highly heterogeneous, how are you defining success across histologies, and are there specific subtypes where you believe the rationale is strongest? Dana T. Aftab: Thanks for the question, Catherine. Regarding 304, this is our Phase 3 study comparing zanzalintinib combined with nivolumab versus sunitinib, and it is the first Phase 3 trial to address this high unmet-need patient population. Currently, there is no level one evidence supporting a standard of care in these patients, so we see a huge opportunity for ZANZA plus nivo. Regarding the slight change in timing for events, I do not want to speculate on what is driving that. We are in the late stages of collecting events and expect results in the second half of the year. Operator: One moment for our next question. That will come from the line of Andy with William Blair. Your line is open. Analyst: Thanks for taking our question. Talking about the 316 a little bit: there was an AdCom recently discussing a progression definition based on non-radiographic progression. For the adjuvant CRC study, what was the back-and-forth with the FDA agreeing on MRD positivity as a way to change therapy? How did you conclude this is a regulatory-approvable approach? Dana T. Aftab: Thanks for the question, Andy. We have discussed the STELLAR-316 trial since December. We are super excited because it addresses a high unmet-need population: patients with resected stage 2 or 3 colorectal cancer who have completed definitive therapy and are now in a watch-and-wait game to see if they develop late-stage disease. The Signatera test has shown in a number of studies to, with a high degree of accuracy, predict rapid progression. Patients who are positive for the test typically have a median disease-free survival of around six months, so it is a very high unmet-need population. The trial has been well designed with a large degree of input from key opinion leaders, other stakeholders, as well as the agency. We are very confident in our design and will release more details as we get closer to launch and when it is posted to clinicaltrials.gov. Please stay tuned for more information. Operator: One moment for our next question. That will come from the line of Michael Schmidt with Guggenheim. Your line is open. Analyst: Hey, thanks for taking my question. On RCC, I want to understand the size of the opportunity for LightSpark-033. What percentage of patients would be qualified? Beyond 033 and 034, are there any other studies you are considering for RCC specifically with ZANZA? Patrick Joseph Haley: Thanks for the question. With regards to LightSpark-033, we are thinking about RCC broadly and establishing ZANZA as a franchise in RCC and beyond. In the first-line setting, approximately a quarter of patients may be coming off adjuvant therapy, and that can evolve as more patients receive adjuvant therapy. More importantly, we are doing multiple studies—LightSpark-033, -034, and STELLAR-304—drawing off our experience with cabo, where we did multiple studies in RCC to establish ourselves as the leading TKI in the 2020s. We are building toward our vision of establishing ZANZA as a leading TKI of the 2030s. As Mike and Dana mentioned, we are looking at combinations with orthogonal MOAs and different approaches to continue to raise the bar in the first-line setting and in RCC generally. Operator: One moment for our next question. That will come from the line of Sylvan Tuerkcan with Citizens. Your line is open. Analyst: Good afternoon, and thanks for taking my question. More broadly on your strategy around allocation: you are running one of the broadest development strategies for an unapproved drug and even expanded it now. How do you balance that broad strategy with buybacks and potential M&A, which has not happened yet? Christopher J. Senner: Thanks for the question. From a capital allocation perspective, we look at how we allocate capital across R&D, BD opportunities, and share repurchases. We are a financially strong company with significant cash flows. We are prioritizing our R&D spend on a constant basis so we understand which projects are sticking their heads up and saying, “fund us,” and we will continue to do that. Andrew and Stefan and the team are continuing to look at BD opportunities. We also have access to capital. All of that allows us to execute on R&D investments, BD investments, and share buybacks. From a share buyback perspective, we believe Exelixis, Inc. is a great opportunity, that our opportunity is not being fully appreciated generally, and we think we are undervalued, so we are going to continue to buy back shares. Operator: One moment for our next question. That will come from the line of Jay Gerberry with Bank of America. Your line is open. Analyst: Hey guys, this is Chi on for Jason. On LightSpark-034, can you contextualize the choice of using belzutafan monotherapy as the control arm as opposed to an alternative TKI monotherapy or perhaps even tivozanib plus lenvatinib given the pending sNDA review there? I also noticed that OS is listed as a dual primary endpoint—would PFS alone be sufficient to support approval, or would you need an OS win, based on the recent LightSpark-011 data? Dana T. Aftab: LightSpark-034 is Merck's study evaluating ZANZA plus belzutafan versus belzutafan plus placebo in the second-line-plus setting in patients who have progressed on both an IO-based regimen and a VEGFR TKI regimen, either in sequence or in combination. The dual primary endpoints are two different efficacy endpoints. In clear cell RCC, OS has really become a gold standard. Having two different efficacy endpoints typically requires both to hit, but it depends on the data and timing. Regarding the population and control, this study, as well as many others ongoing now or planned for the future, anticipates multiple potential treatment landscapes. It focuses on patients who are candidates for belzutafan alone or belzutafan in combination with a TKI after having progressed on both a TKI-containing regimen and an IO-containing regimen. That represents an important unmet need when this trial reads out. Operator: One moment for our next question. That will come from the line of Leona Timischev with RBC. Your line is open. Analyst: Thanks for taking my question. Sticking with the franchise approach by 2030 you have been talking about: you mentioned RCC. I wanted to focus on NETs and how you are thinking about the franchise there in the future. You are running 311, but are there any other combinations you are looking at, especially as the treatment landscape evolves with radiopharmaceuticals and ADCs? How are you envisioning building out ZANZA into the 2030s in that setting? Patrick Joseph Haley: Thanks for the question, Leonid. Regarding how we are thinking about 311 in the marketplace, cabo is off to a really strong start in the second line plus setting, and that study is designed to go head-to-head with everolimus as an active comparator, which is a first in the setting. It positions ZANZA in earlier lines of therapy and a larger patient population, with potential to beat an active comparator head-to-head. There is a lot of excitement around the study design, and we are excited about ZANZA’s opportunity. Dana T. Aftab: Beyond that, we are very committed to this patient population. We have seen how much benefit cabo brings and the excitement around STELLAR-311. We are focused on how else we can address this population. As we discussed at R&D Day, we are looking at other opportunities earlier in the discovery pipeline to address neuroendocrine tumor patients who require treatment with an SSTR2 agonist—mainly patients with functional tumors, but also others who express the receptor. We are developing a small molecule that we hope to file an IND on later this year, which could be a novel approach to offer in combination with ZANZA if STELLAR-311 is successful. We are also broadening to other neuroendocrine carcinomas, namely tumors that express DLL3—primarily small cell lung cancer but also a range of other neuroendocrine carcinomas in the GI tract and prostate. We presented data this year for XB773, a DLL3-targeted ADC with a very small, novel format and a topoisomerase inhibitor payload that we think is differentiated. If it shows interesting activity, we can also explore combinations with ZANZA. We have multiple irons in the fire across histologies and patient populations. Operator: One moment for our next question. Our next question will come from the line of Kalpit Patel with Wolfe Research. Your line is open. Analyst: Good afternoon, and thanks for taking the questions. On the LightSpark-012 trial, there was no benefit of the triplet compared to the doublets in the first-line setting. For your and Merck's strategy, would you ever entertain a triplet in that exact same first-line setting, and what would that future study look like in ccRCC? Dana T. Aftab: Thanks for the question, Kalpit. We are collaborating with Merck on LightSpark-033, which is evaluating ZANZA plus belzutafan in the frontline setting versus cabozantinib. This is a different hypothesis; there is no IO in this combination because it assumes or requires prior adjuvant IO. As for other potential combinations, especially triplets, that requires very specific and focused scientific rationale. We are not opposed to doing it; it just has to be the right molecule in the right setting. As mentioned earlier, we have been looking at orthogonal MOAs to pair with ZANZA and will investigate ZANZA plus our novel bispecific IO (XB628) in its Phase 1 study. We will disclose more details as those trials come to fruition. Operator: One moment for our next question. That will come from the line of Esther DeRoot with Barclays. Your line is open. Analyst: Hi, thanks for taking my question. First, how are you planning to leverage the non–liver metastases data from STELLAR-303 given the December PDUFA date? Are you going to update your NDA to include that data? Also, thoughts around the investigator-sponsored trial coming up at ASCO of cabo + nivo in non–clear cell renal cell carcinoma, and how to think about that dataset relative to ZANZA and 304? Dana T. Aftab: Thanks for the question. Regarding STELLAR-303, as mentioned, we are on track to see the results of the non–liver metastasis subgroup primary endpoint around midyear. Regarding sharing data with the FDA, we certainly plan to share those data as well as any other data the agency might ask for as part of the ongoing review, which from our standpoint is progressing on schedule toward the PDUFA date in early December. On the cabo + nivo IST in non–clear cell RCC, we are aware of those data and look forward to seeing them. STELLAR-304 is a randomized Phase 3 designed to establish level one evidence, and we believe it represents a significant opportunity for ZANZA plus nivolumab in this underserved population. Operator: One moment for our next question. That will come from the line of Ash Verma with UBS. Your line is open. Analyst: Hi. I wanted to get your latest thoughts on combo competitiveness in RCC. Given the earlier LightSpark-022 study had a PFS-positive result, do you think it is unlikely to show OS separation because of enough alpha not being attributed to that analysis? Patrick Joseph Haley: Thanks for the question. We are pleased with where we are competitively in RCC. Generally, we would not want to speculate on how other trials will read out. We have built a franchise in RCC with strength across segments. This quarter we saw the highest frontline market share for CABOMETYX plus nivolumab in the first-line setting, and we continue to see strong momentum there given the breadth and depth of the data and the long-standing prescriber experience with this combination. We see potential to continue growing in RCC, particularly in the first-line setting. Operator: At this time, there are no further questions. I will turn the call over to today's host, Andrew Peters. Mr. Peters? Andrew Peters: Thank you, Sherry, and thank you all for joining us today. We welcome your follow-up calls with any additional questions you may have that we were unable to address during today's call. Thank you all again, and have a great rest of your week. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Marqeta, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Baquema, chief accounting officer and head of investor relations. Please go ahead. Sarah Baquema: Good afternoon, everyone, and welcome to Marqeta, Inc.’s First Quarter 2026 Earnings Call. Hosting today's call are Mike Milotich, Marqeta, Inc.’s CEO, and Patti Kangwankij, Marqeta, Inc.’s CFO. Before we begin, I would like to remind everyone that today's call may contain forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties including those set forth in our filings with the SEC, which are available on our investor relations website, including our Annual Report on Form 10-Ks and our subsequent periodic filings with the SEC. Actual results may differ materially from any forward-looking statements we make today. These forward-looking statements speak only as of the time of this call, and the company does not assume any obligation or intent to update them except as required by law. In addition, today's call includes non-GAAP financial measures. These measures should be considered as a supplement to and not a substitute for GAAP financial measures. Reconciliations to the most directly comparable GAAP measures can be found in today's earnings press release or earnings release supplement materials, which are available on our investor relations website. With that, I would like to turn the call over to Mike. Mike Milotich: Thank you for joining us for Marqeta, Inc.’s first quarter 2026 earnings call. I will begin with a brief summary of our Q1 results, then provide an update on how the breadth of our platform capabilities is being leveraged by our customers across multiple geographies and a continuum of products, which differentiates us from other issuer processors. I will then turn the call over to Patti, who will cover the details of our Q1 results and our expectations for the remainder of 2026. Our first quarter results demonstrate the continued momentum of our business. Gross profit grew 19%, which was fueled by 33% TPV growth. The increasing scale of our platform was on display, as adjusted EBITDA grew to $33 million, achieving a 20% margin, and, importantly, we delivered GAAP profitability this quarter. The $8 million of net income is a testament to our strong growth, operating leverage, and disciplined execution. Marqeta, Inc. has been at the forefront of modern issuing for over a decade, enabling growth and innovation for customers in several diverse use cases and geographies. What makes us unique is how comprehensive and flexible our platform is, spanning debit and credit, consumer and commercial, certified to operate in over 40 countries, combined with the expertise and experience to execute a variety of innovative solutions for our customers. Our continued momentum this quarter highlights three trends that are growing in prominence within card issuing. First, multinational card issuers are becoming more and more common as card growth shifts from local banks to fintechs and enterprises looking to support their customers in many geographies. Second is an integrated continuum of products that span debit and credit that enables our customers to meet the needs of consumers and SMBs across their financial journey. There are many layers to the market including standalone debit, transaction-based lending integrated with debit in a single card credential, secured credit, charge card, and revolving credit. Our customers are often looking to serve several of those needs with a comprehensive offering. Third, there are early efforts underway to modernize the technology in the card issuing market. Utilizing modern platforms like Marqeta, Inc., many fintechs have achieved great success and have become big businesses, which is increasing the need for more established issuers to upgrade their capabilities in order to compete effectively. Let me start with the growing demand for multinational card issuing capabilities on a single platform. Already, 12 of our top 15 customers utilize Marqeta, Inc. in more than one country, and six of those 12 are in at least five countries as they continue to expand their businesses without the friction of multiple platform integrations. One of the latest examples of international expansion is Sezzle, who is now launching its virtual card in Canada. This allows Sezzle's Canadian consumers to enjoy the same BNPL flexibility at participating retailers that accept contactless payments while benefiting from the same seamless checkout experience their U.S. consumers already enjoy. Another example of our support for a global offering is Ramp, who is expanding its corporate expense management solutions across new international markets. By leveraging Marqeta, Inc.’s modern card issuing platform, Ramp is expanding local card issuing into Australia, Japan, Singapore, Brazil, and Mexico, with further geographic expansion planned for later this year. This will allow Ramp to provide its customers with flexible financial solutions in new markets including the ability to issue virtual and physical cards with customized spend limits, helping businesses thrive on a truly global stage. Marqeta, Inc. enables this rapid international scaling through a single integration, once again demonstrating our ability to operate at scale and enabling disruptors as they take share from legacy providers. An emerging use case that will be multinational from the start is stablecoin-backed card programs leveraging stablecoin settlement through our bank and network partners. In addition to extending our support of our crypto-native customers, we are currently forming new partnerships with crypto infrastructure providers to manage on- and off-ramping for fiat-native customers. A stablecoin-backed card issued on the Marqeta, Inc. platform could be linked to a crypto wallet enabling spend in local fiat from a stablecoin balance. We are building the capabilities and establishing the partnerships to support both existing and new customers to meet the growing demand for this multinational use case. Now let me shift to the integrated continuum of products. In the past several quarters, we have spoken about the rise of BNPL as a feature of a debit offering. But there is also increasing demand for another offering that bridges the gap for consumers who are looking for greater financial flexibility beyond debit but do not yet qualify for revolving credit. A secured credit card enables the consumer to build credit through their daily spend, eventually advancing to unsecured credit. Our continuum of products seamlessly enables fintechs and enterprises to serve consumers throughout their entire financial life cycle. A compelling example of this continuum involves one of our existing customers, a large and rapidly growing embedded finance brand with an established debit program on our platform. They have launched a new credit builder card with us to help consumers establish and strengthen their credit profiles. This product is designed to make credit building automatic and accessible. Consumers can use the card for everyday purchases, while funds are automatically set aside to pay off the monthly balance which is then reported to the credit bureaus. Over time, this helps their consumers build credit if they later desire to have an unsecured option, while our customer leverages our platform to grow and retain their user base throughout their evolving needs. Marqeta, Inc.’s strength across this continuum, particularly our experience with flexible credentials, is also attracting new customers with established portfolios. This quarter, we signed a customer that provides consumers with a personal financial assistant to help them better manage their financial lives. They sought a partner that enables innovation and could embed BNPL into a secured credit offering, allowing consumers to toggle between secured credit and installments on a single card for greater flexibility. This customer will migrate their existing portfolio to Marqeta, Inc., and we are one of the early adopters of the issuer-managed Mastercard One credential to support this new customer. The One credential gives consumers a single programmable card spanning debit, credit, installments, and prepaid with spending rules they control in real time. While the existing program migrating is from the U.S., this customer is also looking for a partner who can support rapid geographical expansion and eventually enable them to add revolving credit products to their offering. This win exemplifies the unique value that Marqeta, Inc. delivers to our customers: program migration to our modern platform delivering an innovative, multithreaded, comprehensive solution that is a market first, utilizing our leadership in flexible credentials across multiple geographies. Lastly, I want to highlight the emerging efforts of long-established issuers seeking new capabilities to meet the evolving needs of consumers and businesses with the modern, agile capabilities embraced by the fintech disruptors. In some cases, it could involve platform migrations, but many issuers are also considering more creative solutions to start their modernization efforts for specific use cases or programs before they take on bigger changes in their infrastructure. Leveraging Marqeta, Inc.’s virtual card expertise, a large U.S. financial institution has begun to provision a line of credit directly into a consumer wallet, eliminating lengthy and costly integrations. This enhancement will allow the bank's customers to leverage credit to spend seamlessly in physical retail locations, followed soon by online capabilities, driving engagement and unlocking significant value. This innovative lending use case is a powerful demonstration of Marqeta, Inc.’s modern and flexible platform deploying sophisticated cutting-edge capabilities at scale, which is an early step forward in Marqeta, Inc. establishing, expanding, and deepening our relationships with large banks. To wrap up, this quarter reinforces the momentum behind our business and the increasing value a modern card issuing platform delivers for innovators worldwide. Our financial results in Q1, combined with the business being onboarded and the capabilities being deployed, reflect how the comprehensiveness and flexibility of our platform is enabling our customers to expand and thrive. At the same time, our experience, expertise, and scale position us well to capture the emerging demand for multinational card issuing, an integrated continuum of products, and modern solutions for long-established issuers. Therefore, as we look ahead, we will continue to help fintechs and enterprises grow the pie, but we are also ready to help modernize existing programs with the capabilities that end users are beginning to expect. The current momentum combined with our expanding capabilities and the enormous opportunity ahead makes us confident that we will drive long-term value for our customers and shareholders. I will now turn the call over to Patti to discuss our Q1 financial results and expectations for 2026 in more detail. Patti Kangwankij: Thank you, Mike, and good afternoon, everyone. Our financial results for Q1 reflect a solid quarter. Both net revenue and gross profit grew 19% on a year-over-year basis, driven by TPV growth of 33%, with all three growth rates at the top end of expectations. Adjusted operating expenses were better than expected, which, coupled with strong gross profit growth, resulted in adjusted EBITDA growth of 66%. Most notably, we achieved GAAP profitability in the quarter with net income of $8 million. Q1 TPV was $112 billion, with strong growth on a continuously expanding base of 33% year over year. This is the second quarter in a row with TPV over $100 billion and the third quarter in a row with growth over 30%. Non-Block TPV continues to grow over 2x faster than Block TPV. Growth within our Financial Services use case continues to be a little slower than the overall company; we did not see any discernible changes to Cash App new issuance in the quarter. Excluding Block, Financial Services continues to grow meaningfully faster than the overall company, driven by neobanking customers. Lending, including buy now, pay later, growth remained on par with Q4 growth at nearly 60% on a year-over-year basis. This continues to be driven by the growth in flexible network credential usage and our customers' continued geographic expansion on our platform. Expense management growth remains over 40%. The robust growth is a result of customers continuing to expand their market share by acquiring new end users, made possible by their utilization of our unique configurable capabilities. On-demand delivery growth continues to be in the double digits but below the company's overall growth rate, as this is our most mature use case. Q1 net revenue was $160 million, growing 19% year over year. Block net revenue concentration was 42% in Q1, two percentage points less than last quarter, as our non-Block revenue is growing 2x faster than Block revenue. Q1 gross profit was $118 million. The 19% year-over-year growth was at the top end of expectations. Q1 gross profit growth had a headwind of 1.5 percentage points due to the revision of our accounting policy for estimating and recognizing card network incentives, which started in Q2 2025. As a reminder, this is the last quarter in which we will have any impact on the year-over-year comparison related to the accounting change. Our gross profit take rate was 10.5 basis points, half a basis point lower than last quarter, largely due to business mix. Q1 adjusted operating expenses were $84 million, growing 7% year over year. This is several points better than expectations due to the phased implementation of key investment initiatives. We continue to remain focused on operating efficiency and are realizing the benefits from the increased scale of our platform. Q1 adjusted EBITDA was $33 million, a margin of 20% based on net revenue. Adjusted EBITDA margin based on gross profit was 28% and illustrates the expansion of our business' profitability. Our Q1 GAAP net income was $8 million with an EPS of $0.02 as a result of gross profit growth, platform scale, and lower operating expenses, and benefiting from lower stock-based compensation. This quarter marks a significant milestone as we achieved GAAP net income profitability and remain confident in our ability to generate positive net income on an annual basis going forward. We ended the quarter with $712 million in cash and short-term investments. Our share repurchase activity remains ongoing as we continue to believe the current valuation does not fairly represent the company's value or the market opportunity ahead of us. In Q1, we repurchased 9.4 million shares at an average price of $4.16. As of March 31, we had over $52 million remaining on our latest buyback authorization. Before we transition to our expectations for Q2 and the full year, I wanted to acknowledge that our business continues to grow. EPS will become increasingly important and a better reflection of our business growth. With that, I would like to briefly touch on the proposed reverse stock split that was included in our proxy statement filed with the SEC in April. The reverse stock split would reduce Marqeta, Inc.’s common stock at a ratio of 1-for-4 and will result in higher reported net earnings or loss per share. At approximately 434 million shares, $0.01 of EPS is $4.34 million of net income, while at approximately 108 million shares, $0.01 of EPS is $1.08 million of net income. We believe a lower share count will provide a clearer reflection of changes in our per-share performance as our business performance evolves over time. Now let's transition to the expectations for Q2 2026. Consistent with what we shared last quarter, we expect both Q2 net revenue and gross profit to grow between 14% to 16%. As a reminder, gross profit growth in Q2 is expected to be slower than Q1, primarily due to a tougher comp from last year's remarkable BNPL growth which started in Q2, as well as renewal activity and evolving business mix. We continue to be focused with our investments, which are primarily directed towards platform capabilities and innovation. Q2 adjusted operating expenses are expected to grow in the high teens, consistent with the expectations we shared last quarter. As a reminder, the higher growth rate is due to a tougher comparison versus Q2 2025, when the expenses were uncharacteristically low due to investment delays during the CEO transition last year. Q2 adjusted EBITDA growth is expected to be 10% to 12%, in line with our previous expectations, and we expect to be at breakeven on a GAAP net income basis in Q2. For the full year, while we recognize the increasing levels of macroeconomic uncertainty, we are not currently seeing any notable shift in spend or consumer behavior. As a result, we are assuming consistent spending patterns for the remainder of the year, but noting the risk. Our expectations for net revenue and gross profit for the year remain consistent with what we shared last quarter. We expect net revenue growth of 12% to 14% and gross profit growth of 10% to 12%. While the Q1 results did come in at the higher end of expectations, this is not enough for us to revise our outlook upwards for the entire year, and we expect our net revenue and gross profit projections for the remaining three quarters and the full year to be consistent with what we guided to at the time of our fourth quarter call. We do, however, expect 2026 adjusted EBITDA growth to be several points higher than we shared last quarter, in the mid to high 20s percent, due to the outperformance in Q1. Lastly, we now expect to generate about $15 million in GAAP net income for the year, up $5 million based on our Q1 outperformance. The breadth and flexibility of our platform is translating directly into customer growth and expansion. The programs being onboarded and the capabilities being deployed this quarter reflect demand across both new and existing customers, and demonstrate how the continuum of products we offer enables customers to build and scale on a single modern platform. Our expertise and scale position us to capture an evolving set of opportunities that we believe will continue to drive long-term value for customers and shareholders. In conclusion, we are starting 2026 on a solid foundation, showcasing the momentum of the business, combining gross profit growth and disciplined investment. The ongoing benefits of scale give us confidence that we can sustain this trajectory of profitable growth at scale. I will now turn it back over to the operator for questions. Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, a confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Ladies and gentlemen, we will wait for a moment while we poll for questions. We will take the first question from the line of Darrin Peller from Wolfe Research. Please go ahead. Darrin Peller: Hey, guys. Thanks for taking the question. You called out the non-Block growth being as strong as it is, and you mentioned the verticals. We are getting questions, and I am curious to know what the underlying strength is coming from—let us call it same-store sales. Are your existing customers really outperforming? And talk a little more about your ability to keep gaining market share in those verticals. What has really been driving the differentiation in expense management and BNPL as its core areas for you? Do you see more and more barriers to entry for you guys to continue that? Patti Kangwankij: Thank you for the question, Darrin. We see pretty broad-based growth across our use cases right now. BNPL is maintaining its momentum at nearly 60%, and expense management is growing at over 40% this quarter. We are very pleased with that. A majority of that is driven by existing programs because these programs take time to launch and grow, but a lot of it is with the existing customers that we have. As we have talked about for several quarters, for BNPL we have seen over four quarters of growth over 50% with BFC, geographic expansion, Pay Anywhere cards, and stronger user growth among SMB lending solutions. These continue, and we continue to lead from a product perspective, including the Mastercard One credential program launching later this year, as Mike mentioned. While we will be lapping some tough comps over the next few quarters and expect some decrease in growth rates over time, in expense management our capabilities continue to lead in terms of how uniquely we can configure products. Mike Milotich: The only thing I would add, Darrin, is that some of this is the unique capabilities of our platform—certainly we are in the lead when it comes to flexible credentials and have been a leader for some time in expense management—but it is also a tribute to our customer base. They continue to win, and the adoption of their services is growing faster than the market, and they are taking share. We are an enabler of their success. As they continue to significantly outperform the market, that continues to drive our growth, along with lots of new business and new programs. As Patti mentioned last quarter, our top 15 customers did over 30 new programs with us over the last two years. Our customers are successful and they continue to build on our platform, and that is what is driving our success. Darrin Peller: That is great to hear. One quick follow-up on Block. Any further incremental learnings relative to what you measured in terms of impact on this year's performance—any change between now and the last few months? Patti Kangwankij: I will start with what we are assuming for the forecast and what we have been seeing, then turn it over to Mike to talk about the broader relationship. On our last call, we talked about our new issuance assumption being that we would slowly, gradually decrease new issuance in the first half and then have no new issuances in the second half. We cannot speak to Block's business, but in Q1 we did not see any discernible changes to new issuances. It is still too early to tell for the entire year, but we do still expect to see a decline of new issuances in Q2 and more in the second half—so essentially shifting the curve out to the right a bit. We had mentioned 1.5% to 2% of gross profit growth impact at our last earnings call, and now we are at the lower end of that given the delays, so we are probably closer to the 1.5% growth impact as of right now. Mike Milotich: Consistent with what we have said in the past, our relationship is very strong. We are communicating on a very regular basis. The fact that they want to diversify, we understand and have accepted. Importantly, we continue to engage in new ideas and new things that we can do together. The relationship remains very healthy and strong. Operator: We will take the next question from the line of Connor Allen from JPMorgan. Please go ahead. Connor Allen: Hi, thanks for taking my questions. Curious about the demand more broadly for the secured credit card programs. I caught your comments about the embedded finance brand layering that on. How broad is that interest across your customer set? And as a follow-up, on demand for more flexible card products—you were very early to BFC and Mastercard One—are you seeing competitors step up there? Mike Milotich: Thanks, Connor, for your question. We are seeing more and more demand. There is really a continuum of products. Ten years ago, you were either debit or revolving credit, maybe a charge card. The market is evolving into a continuum where you can start someone on debit, then give them transaction-based lending—which allows you to control risk because it is done on a transaction basis—and with a flexible credential you can do that on the same card. The next step is helping the consumer start to build credit through a credit builder card, better positioning them for revolving credit down the road. If you are a fintech or embedded finance company, you want to serve the entire spectrum of your customer base and not leave anyone behind, matching the right customer with the right product. Decline rates on premium co-brand cards can be quite high, which is not a great experience—especially for customers already using other products. Offering secured plus installment options helps address that and can help customers work toward the product they originally wanted. As I mentioned, we now have a customer launching later this year that will combine a secured card with embedded BNPL—skipping past debit and doing secured credit plus transactional lending on a single card. We think there is a growing market for this capability. On flexible credentials, not yet in a significant way. We know from our network partners that competition is coming. We appreciated the lead but knew we would not be the only provider forever. There may be a couple of others live on a limited basis today, and by the end of the year it could become more substantial. It is safe to say we have a significant lead that will likely continue for at least the next several quarters. Operator: We will take the next question from the line of Bryan Keane from Citi. Please go ahead. Bryan Keane: Yes, thank you. I wanted to ask about the outperformance in EBITDA and the change in GAAP net income. What in the business is driving that? And does any of that upside in margin continue into the second, third, and fourth quarters? And as a follow-up, on business mix you called out a little bit lower take rate due to mix—how should we think about growth rates and take rate going forward as a result? Patti Kangwankij: Thanks, Bryan. In Q1, from a top-line and momentum perspective, TPV, net revenue, and gross profit were all on the high end of the range. EBITDA and net income beat our expectations—our first quarter of true operating GAAP profitability. The EBITDA outperformance was due to lower-than-expected adjusted operating expenses. A couple of key investment initiatives were a little slower to ramp. We ended the quarter where we wanted to be in terms of trajectory, but the uptick started later, which resulted in the EBITDA beat. For net income, we benefited from the EBITDA beat and were slightly lower than expected on stock-based compensation. For the full year, it is still early. We are monitoring a number of key initiatives and the macro environment. At this point, there is not a lot of new information that changes our outlook for the next few quarters, so we are reiterating our guide for net revenue and gross profit, and flowing through what we saw in Q1 for EBITDA and net income—hence the slight increase in our guidance for the year. On business mix and take rate, on an overall portfolio basis we are pretty good at estimating and are reiterating gross profit growth guidance. Sometimes the customer mix changes—last year BNPL outperformed, and program mix varies between program-managed and processing-only. That had a modest headwind, but we were still at the top end this quarter and reiterating for the full year. Mike Milotich: Historically, the mix effect is often driven by some of our largest customers still growing very fast. Approximately five of our top 10 are still growing over 50%. As they take a little more share within our TPV base, that can create a bit of pressure because they have slightly better pricing. We think that is a great outcome and exactly what we want. We structure pricing in a disciplined way to create win-win outcomes—puts a little pressure on take rate, but it is a good outcome. Operator: We will take the next question from the line of Timothy Chiodo from UBS. Please go ahead. Tim, please unmute your line and proceed. Timothy Chiodo: I am here. Thank you. An industry question on Reg II as it relates to card-not-present. Can you talk about what Marqeta, Inc. sees in terms of merchants deciding to route to the alternative network on the back of cards that you issue, and what that means for Marqeta, Inc.’s unit economics? Mike Milotich: Thanks, Tim. On merchant routing, for the most part it is pretty stable. Many have already made routing moves. Occasionally we see certain merchants increase routing to alternative networks after doing some work on their side, but those are fewer and farther between now and do not change the mix significantly from month to month or quarter to quarter. From a unit economics perspective, our exposure is minor. We have shifted our pricing model over the last few years to get paid for the service we provide and to disassociate our economics from interchange. For the most part, that is how our contracts are structured, so the routing mix does not directly impact us. It can come up in negotiations, and there are a few customers where we still have some exposure, but each year the comparable exposure continues to shrink. Operator: We will take the next question from the line of Sanjay Sakhrani from KBW. Please go ahead. Sanjay Sakhrani: Good afternoon. Last year, BNPL, expense management, and Europe were all good drivers of outperformance. As we look at this year, where might there be opportunities to outperform, and where are the risks—especially with geopolitical events, higher fuel prices, etc.? And as a follow-up, on the large FI you are working with, do you feel competitive intensity is picking up versus the past? Mike Milotich: Starting with BNPL, the business continues to grow really fast. As Patti said, it is still growing nearly 60%. Comps will get tougher, so the growth rate will slow, but the dollar growth remains healthy. Expense management is very steady and has accelerated the last couple of quarters, driven by our customers winning share and our experience and scale, which positions us to win additional business. If I had to pick an outperformer for the year, I would choose expense management. Generally, we are pretty good at predicting how the business will go since we have a lot of conversations with customers. In terms of risk, the biggest is macro-related. So far, consumer and SMB seem stable and strong, and we are not seeing impacts to spending trajectory, but we will continue to watch it given the uncertainty. On competitive intensity with large FIs, it is less about intensity and more about momentum behind modernizing. Conversations are becoming more frequent and substantive. We see three approaches: full conversions (least likely starting point), de novo opportunities for new products, and infusing modern capabilities without heavy lifting—the third is what we highlighted. Similar to how BNPL customers inject a virtual card for in-store purchases, we are helping a bank inject a line of credit into an existing wallet experience without disrupting the current program. It saves effort and complexity by leveraging our technology. That gets our foot in the door so they can experience our platform, which we believe will lead to broader adoption. The overall competitive intensity is fairly similar; who we see most often varies by use case, but the level has been constant over the last four years. Operator: We will take the next question from the line of Analyst from KeyBanc Capital Markets. Please go ahead. Analyst: Hi, Mike. Hi, Patti. Thanks for taking the question. On agentic commerce, maybe talk about Marqeta, Inc.’s role. There are use cases where a virtual card can be used successfully. Still early on protocols, but how can Marqeta, Inc. play? And then on digital assets, good to see the stablecoin-linked card development—what are you seeing in terms of demand? Mike Milotich: Thanks for the question. On agentic commerce, doing things in real time and flexibly is native to our platform, which positions us well. Our view is that for agentic to be successful it will need to be issuer-led more than merchant-led. Early attempts at autonomous checkout have seen fraud challenges. Issuers are better positioned—they have KYC, device fingerprints, and behavioral data—so they can authenticate the user before sending an agent to purchase on their behalf. We also believe virtual cards will often be used to minimize risk—provisioning a virtual card with specifications and limitations for the agent rather than exposing the underlying credential. These capabilities position us well, but it is early. We are having conversations, with some engagement but not broad market deployments yet. On stablecoin-linked cards, we see it as additive, not disruptive. In mature markets, customers are looking to target new opportunities, often around remittance or payouts. Blockchain and stablecoins are effective at moving money, but a card credential is the most effective way to spend it. A card fronting the wallet allows quick and cheaper distribution across countries while giving end users a familiar, user-friendly credential to put stablecoins to use. Demand is centered on wallets with broad functionality. This product would live alongside debit, secured credit, or revolving credit to support use cases that are harder or more expensive to do on traditional rails. Operator: We will take the next question from the line of Craig Maurer from FT Partners. Please go ahead. Craig Maurer: Thanks for taking the questions. On Earned Wage Access, it has been about a year since we heard about the product and we have seen substantial growth from some players in the market. Can you talk about growth in that industry? And on share repurchases, I believe you purchased about $39 million worth of stock in the first quarter and should have about $60 million left on the authorization—plans going forward? Mike Milotich: Thanks for your question, Craig. On Earned Wage Access, there continue to be good discussions with customers, particularly as we move more into embedded finance opportunities. Companies are looking to distribute earnings or funds to employees faster, usually for retention—whether gig workers or traditional employees. It is an attractive value proposition. We are working to establish the right partnerships because complexity often comes from payroll and tax calculations. In gig environments, the business model is geared to per-transaction pricing, so it is more seamless. For typical employees, it is more complicated. We are optimizing the solution, and customers with the most success are taking on a lot of the payroll/tax work to get it right. Patti Kangwankij: From a share repurchase standpoint, as of the end of Q1, we had about $52 million remaining of the $100 million authorized by the Board. We repurchased about 9.4 million shares at $4.16, decreasing total shares by roughly 2%. We believe the current valuation does not properly reflect the market opportunity and our differentiation. As long as our market valuation lags, we intend to continue repurchasing shares. We are not yet committing to systematically repurchasing, but we will continue to evaluate as we get closer to depleting the current authorization. Operator: We will take the next question from the line of Tien-Tsin Huang from JPMorgan. Please go ahead. Mike Milotich: Turning to capital allocation. Our balance sheet remains strong while continuing to invest in the business. Operator: Please go ahead with your question. Tien-Tsin, please unmute your line and proceed with your question. Since there is no response, we will move to the next question, which is from the line of Analyst from Deutsche Bank. Please go ahead. Analyst: Hey, thanks for the question. I wanted to walk through some of the back-half growth dynamics. Last quarter, you called out four discrete items: lapping strong BNPL growth, renewals, Block issuance commentary, and the Transact Pay item. Can you reconfirm the expected impact to the back half of the year? For the full year, you are saying it is closer to 1.5 points rather than 2 points—does that mean the back half is a little bit lower on an absolute basis and some shifted to Q1? And on the renewal assumptions, I think one was supposed to start impacting Q2 gross profit—confirm timing and magnitude? Patti Kangwankij: For the Cash App impact, we stated 1.5 to 2 percentage points of gross profit growth impact for the full year. Based on delays and the shift—given we have not seen discernible changes as of Q1—we are shifting the curve to the right, closer to 1.5. It is fair to assume that for the back half, when we say Cash App new issuances is a 2 to 3 percentage point headwind, it is on the lower end of that range as well, though eventually we will get there. Regarding renewals, we mentioned the impact of two renewals: one was completed in Q4 last year, and the second we still expect to land this quarter. Analyst: Helpful. And more color on the large financial institution with provisioning a line of credit directly into a consumer wallet—what specifically are you doing, how did the relationship come about, is the wallet issued by the FI itself, and thoughts on timing and how this helps you win more large FIs? Mike Milotich: This opportunity came from market references—networks and others suggested they speak to Marqeta, Inc. The wallet already exists; they provide this functionality and wanted to inject credit into that product without recarding or replatforming. We had experience with a similar solve for BNPL customers—injecting a virtual credential into an experience—and that is how the conversation started. It has started to roll out and is live in market now. For future business, we want to be doing processing for large banks so they can directly compare functionality. Any opportunity to do programs—even relatively small ones—is a big opportunity, as it demonstrates our platform's capabilities. Conversations with banks are getting more frequent as fintechs and embedded finance companies get bigger, which is pushing banks to evaluate their technology capabilities. The timing of decisions is to be determined, but interest in paths to modernizing card issuing technology is rising. Operator: Ladies and gentlemen, with that, we conclude the question and answer session. Thank you for your participation, and you may now disconnect your line.
Operator: Greetings, and welcome to the Emerson Electric Co. Second Quarter 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Doug Ashby, Director of Investor Relations. Please go ahead. Doug Ashby: Good afternoon, and thank you for joining Emerson Electric Co.’s second quarter 2026 earnings conference call. Today, I am joined by Emerson Electric Co.’s President and Chief Executive Officer, Surendralal Karsanbhai, Chief Financial Officer, Michael J. Baughman, and Chief Operating Officer, Ram R. Krishnan. As always, I encourage everyone to follow along with the slide presentation available on our website. Please turn to Slide 2, which contains a degree of business risk and uncertainty. Please take time to read the Safe Harbor statement and note on the non-GAAP measures. I will now pass the call over to Emerson Electric Co.’s President and CEO, Surendralal Karsanbhai, for his opening remarks. Surendralal Karsanbhai: Thank you, Doug. Good afternoon. I would like to begin by thanking our colleagues around the world. At this moment, it is important to highlight our teams in the Middle East who persevered in a challenging, at times dangerous, environment. All of our employees and families remain safe and we continue to serve our customer needs throughout the region. What defines our company is a high-performance culture based on deep respect for each other and an unwavering commitment to our customers. Led by Liam Hurley, our team in the Middle East brought this to life. Thank you. Please turn to Slide 3. We are committed to ongoing Board refreshment, and today, we announced the newest member elected to our Board of Directors. Jennifer Neustadt is the Senior Vice President and General Counsel of Apple. Prior to joining Apple in January 2026, Jennifer served as Chief Legal Officer at Meta. She previously held multiple senior roles at the U.S. Department of State, White House Office of Management and Budget, and the Department of Justice. Jennifer also spent 12 years in private practice advising technology, media, and financial services firms on litigation and regulatory matters. Her unique expertise in corporate governance, global business, and technology and innovation will be a tremendous addition to the Emerson Electric Co. Board. Jennifer will officially join our Board on 08/03/2026. This will expand Emerson Electric Co.’s Board to 11 members. We are excited to have Jennifer join us. Please turn to Slide 4. End-market demand remains strong. Underlying orders grew 5% in the second quarter, led by Software and Systems, which saw robust investment in growth verticals and sustained momentum in North America and India. Emerson Electric Co.’s second quarter results reflect our ability to deliver in a dynamic environment. Underlying sales growth of 5% was below expectations due to a one-point impact from the Middle East conflict. Test and Measurement continued to exceed expectations, up 12% year over year, and our Ovation business was up mid-teens, driven by the secular demand for power. Adjusted segment EBITDA margin of 27.6% exceeded expectations and we delivered adjusted earnings per share of $1.54, near the top end of our guidance. As expected, annual contract value of our software grew 9% year over year and ended the quarter at $1.64 billion. We are updating our full-year guidance to reflect the impact of the conflict in the Middle East, and we now expect sales growth of 4.5% with underlying growth of 3%. Adjusted segment EBITDA margin is still expected to be approximately 28%, and we are raising the bottom and midpoint of our adjusted EPS guide, now expecting $6.45 to $6.55 per share. We remain confident in our second-half plans for 2026 based on the orders momentum we are seeing and the visibility we have from our backlog, which is up 9% year over year. Throughout the first half, Emerson Electric Co. completed $542 million of share repurchases, and we remain committed to returning approximately $2.2 billion of capital to shareholders this fiscal year. Finally, I want to highlight the strength of our differentiated industrial software portfolio to address concerns in the broader software market regarding AI. We are seeing healthy growth in ACV and expect to finish the year up 10% plus. Our software is based on decades of deep domain expertise and serves mission-critical applications in highly regulated industries. These applications require real-time compute and traceability of data, where being right 99.9% of the time is not good enough. Further, we are well positioned to benefit from embedding AI in our solutions. This represents a great opportunity for Emerson Electric Co. as we advance the journey to autonomous operations. Emerson Electric Co. recently deployed an AI-driven optimization solution for Aramco, one of the world’s leading integrated energy and chemicals companies. Emerson Electric Co.’s Aspen Hybrid Models were integrated into Aramco’s existing refinery planning network to create one of the world’s largest multisite optimization models and give Aramco a scalable, robust tool for global refinery planning. Next week, AspenTech and NI will both host user conferences where Emerson Electric Co. will showcase our latest innovations which will help customers unlock greater levels of optimization and productivity across their operations. As Contech will hold, they are optimizing with over 1,100 customers from 49 countries, including keynotes from ExxonMobil, TotalEnergies, and Exelon. And NI Connect will feature keynote addresses from prominent customers, including NVIDIA and Alstom, with over 1,600 attendees from 38 countries. Please turn to Slide 5. Underlying orders grew 5% in the second quarter, consistent with our expectations and supporting our second-half sales plan. North America and India continued to drive orders performance. Demand in Europe remained stable but soft, while China has started the year slower than expected. Software and Systems orders grew 18% year over year, with Test and Measurement and Control Systems and Software both up 18%. We saw sustained robust investment in power, with orders in our Ovation business up 41% and ACV in AspenTech’s Digital Grid Management Suite up 31%. We expect our growth verticals to be multiyear drivers of growth supported by secular tailwinds, and we are seeing significant capital being deployed in projects. Emerson Electric Co. won approximately $450 million from our project funnel in the quarter, with 85% from our growth verticals led by power, life sciences, and LNG. The funnel grew to $11.2 billion, driven by new opportunities in power. Now I want to highlight a few key recent project wins. First, Emerson Electric Co. was selected by Encore, the largest electric delivery company in Texas, to enable the delivery of reliable power to more than 13 million residents. Encore will use AspenTech’s DGM to modernize and scale its distribution grid, preparing for increased demand driven by the growing population in Texas. Encore will gain operational efficiencies and enhance grid management capabilities by leveraging a purpose-built OT platform for both transmission and distribution systems. Next, Emerson Electric Co. was chosen by NextDecade for the Train 4 and 5 expansion to the 12 million tons per annum in capacity. Emerson Electric Co. will supply instruments, valves, and analytical systems and was selected based upon our strong operational performance in LNG applications and our local presence and support. Third, a major pharmaceutical manufacturer based in Indiana chose Emerson Electric Co. to support the three-site production program for oral GLP-1s. Ramping production quickly to meet substantial demand is critical for this project, and Emerson Electric Co. will provide our leading DeltaV control systems and software as well as our ability to execute complex projects. Lastly, Emerson Electric Co. will provide NI software and modular hardware to a leading aerospace company headquartered in South Texas for the production of the next-generation communications satellite. Emerson Electric Co. was chosen for its ability to provide improved test speed and measurement accuracy within a small footprint. Please turn to Slide 6. We have a $1.2 billion business in the Middle East, representing 7% of sales. Emerson Electric Co. has an $8.5 billion installed base in the region, and over 1,400 employees across manufacturing, field service, and sales administration. The conflict presented a significant disruption in the quarter, causing a one-point impact to underlying sales. First and foremost, the safety of our employees and customers is our ultimate priority, and we took actions such as shutting down manufacturing for a period to protect our people. In March, our field service engineers also operated at less than 50% of pre-conflict levels. Emerson Electric Co. maintains a strong regionalized manufacturing strategy in the Middle East, but components for instruments and valves are imported into the region. Additionally, the closure of the Strait of Hormuz caused significant disruptions to ocean, air, and ground logistics, which restricted our ability to import necessary components, instruments, and valves. Our customers experienced a varying degree of impact, with 47 customer sites identified as having been damaged in some capacity. We saw a slowdown of MRO and project activity in the quarter as some facilities restricted personnel. But we saw an improvement in activity in April. We are encouraged by the efforts of our employees and customers to drive business continuity. The situation remains challenging, and we expect it to impact the full-year 2026 underlying sales by one point. Customer sites were largely operational by mid-April, although running at around 75% capacity due to their inability to move product out of the Strait of Hormuz. Emerson Electric Co.’s manufacturing facilities are both operational, and our field service engineers are now operating at 80% of pre-conflict levels. The dedication and service levels of our employees is deepening customer relationships, and we are working proactively with our customers to ensure we can meet their needs as they begin to work to repair damaged infrastructure. We have already seen rehabilitation activity, and we expect to have additional opportunities as customers continue to assess their facilities. Overall, we estimate a future rebuild and restart opportunity of approximately $100 million, which will play out over several quarters. Although the Strait of Hormuz remains effectively closed, our teams are implementing alternative routes and expect to see logistics continue to improve. While we are seeing increased freight expenses in the region, the cost impact to Emerson Electric Co. is manageable. Importantly, on-site project execution work is now progressing well at several key sites, and the outlook for projects remains strong. I want to reiterate how proud I am of our employees for their resiliency, and we continue to stand with our customers during this challenging situation. With that, I will now turn the call over to Michael J. Baughman to discuss our financial results and guidance in more detail. Michael J. Baughman: Thanks, Surendralal. Please turn to Slide 7 for a more in-depth look at our Q2 financial results. As a reminder, our first-half financial results are adversely affected by a software contract renewal dynamic that impacted Q2 sales growth by approximately two percentage points, adjusted segment EBITDA margin expansion by 90 basis points, and earnings per share growth by $0.09. Our Q2 results were also adversely affected by the Middle East conflict by approximately one point. Excluding these headwinds, Q2 underlying sales growth was approximately 3%. We continue to see strong growth at Test and Measurement, up 12% in the quarter, and Control Systems and Software, which was up 4% excluding the software renewal dynamic. Price contributed 3.5 points to growth, as expected, and MRO was 65% of sales. Backlog ended the quarter at $8.2 billion, up 9% year over year, and our book-to-bill was 1.07. Adjusted segment EBITDA margin of 27% exceeded expectations and benefited from favorable segment and geographic mix. Price/cost and cost reductions more than offset inflation. Excluding the 90-basis-point impact from the software contract renewal dynamic, adjusted segment EBITDA margin was up 50 basis points. Adjusted earnings per share was $1.54, a 4% increase year over year, while Q2 cash flow came in at $694 million with a margin of 15%. We are on track for full-year cash flow growth of approximately 10% at greater than 18% margin. Q2 was a difficult quarter due to the conflict in the Middle East, and I am proud of the operational performance we delivered. One moment, please. It appears we are having some technical difficulty. Thank you. You may now resume. Okay. Sorry about that. We had some technical difficulties. We are going to resume on Slide 9, where we will talk about underlying sales by region. The Americas were up 5%, with the U.S. up 9%. The pace of business in North America remained strong with significant activity across our growth verticals and resilient spend in MRO. As expected, Europe was soft, declining 4%. The Middle East and Africa was down 5%, driven by the conflict in the region as customers were forced to curtail operations. As Surendralal mentioned in his comments, we have modeled the conflict in the Middle East as a one-point headwind to consolidated Emerson Electric Co. sales growth in 2026. During the first half of our fiscal year, we have seen better-than-expected growth in the U.S. We expect the strength in the U.S. to continue, and we now expect the U.S. to grow high single digits for the year. This incremental growth is offset by a slower-than-expected China, which we now expect to be down mid-single digits for the year. Globally, we are seeing significant activity sustained in our growth verticals, which were up 22% in the quarter. Power was up 23%. We saw healthy investment in plant modernizations, lifetime extensions, and behind-the-meter generation for data centers. We also saw robust performance across the other growth verticals, particularly in aerospace and defense, and life sciences. Please turn to Slide 9 for details on the sales and margin performance for our three business groups. Software and Systems faced a 4.5% sales headwind from the software contract renewal dynamic and reported underlying sales growth of 1%. The growth was led by broad-based strength in Test and Measurement, which was up 12%. We saw significant Software and Systems growth in power, life sciences, semiconductor, and aerospace and defense. Software and Systems margin of 29.2% decreased 250 basis points year over year, driven by the software contract renewal dynamic, which was a 300-basis-point drag. Intelligent Devices underlying sales were down 1%. The conflict in the Middle East impacted this growth by two points, offsetting strength in power and LNG. Intelligent Devices margin of 27.9% increased 80 basis points year over year from strong price/cost and cost reductions. Safety and Productivity was up 2% underlying, driven by electrical products and stable project activity in North America, while European markets remain soft. Safety and Productivity’s margin of 21.7% was down 10 basis points year over year, driven by lower volume, offset by benefits from price and cost reduction. Please turn to Slide 10, where I will bridge Q2 adjusted EPS from the prior year. Excluding the $0.09 impact of software renewals, operations delivered $0.08 of incremental EPS in Q2. Of this, Software and Systems contributed $0.05, Intelligent Devices added $0.02, and Safety and Productivity contributed $0.01. Non-operating items added $0.07, primarily from FX benefits. Overall, adjusted EPS grew 4% year on year to $1.54. Please turn to Slide 11 for our 2026 underlying sales guidance by Business Group. We are adjusting our full-year guidance for sales to reflect the Middle East conflict and now expect full-year underlying sales growth of approximately 3%. We expect Software and Systems to be up approximately 8% in Q3 and are increasing our full-year expectations to up 5% based on the strength of our growth verticals in this business and strength in the U.S. Test and Measurement is planned to grow mid-teens in Q3 and low teens for the full year, up from our prior expectations of high single-digit growth in 2026. The Control Systems and Software segment is expected to grow mid-single digits in Q3 and low single digits for the full year. We continue to see robust adoption of our software and still expect ACV growth of 10% plus in 2026. Intelligent Devices is projected to grow 4% in Q3, and we are lowering our full-year expectations to approximately 2% driven by the conflict in the Middle East. Second-half growth in Intelligent Devices is supported by backlog phasing and the timing of product shipments, with strength in the U.S. and growth verticals offsetting a slower-than-expected China. Safety and Productivity is expected to grow 1% in Q3 and 2% for the full year. The North America market continues to recover; we are seeing sustained strength in electric utilities. However, automotive and European markets remain weak. Overall, Emerson Electric Co. expects to grow approximately 5% in Q3 and 3% for the full year. Excluding the impact of software contract renewals, Emerson Electric Co.’s growth rate is expected to be 4% for the full year. Please turn to Slide 12 for details on our Q3 and full-year 2026 guidance. Before going through the details, I would like to highlight a few important assumptions embedded in our guidance. Our guidance considers a gradual resumption of activity in the Middle East and assumes the impact of the conflict remains in the region. Additionally, we expect a net neutral impact from the removal of IEBA tariffs, as this benefit is offset by increases in Section 1 and 232 tariffs as well as freight costs. Finally, our earnings and cash flow guidance excludes any benefit of potential tariff refunds. For the full year, we expect FX to be a tailwind to sales of approximately 1.5% and GAAP sales to increase approximately 4.5%. We still expect adjusted segment EBITDA margin of approximately 28% and free cash flow of $3.5 billion to $3.6 billion. We are raising the bottom and midpoint of our 2026 adjusted EPS guide and now expect $6.45 to $6.55. We still expect to return approximately $2.2 billion to shareholders through $1.2 billion in dividends and $1.0 billion of share repurchase, of which we completed $542 million in the first half. Moving to the third quarter, sales growth is expected to be approximately 5.5% with underlying sales growth of approximately 5%. We expect adjusted segment EBITDA margin of approximately 28% and adjusted EPS of $1.65 to $1.70. With that, I would like to turn the call back to the operator for Q&A. Operator: We will now open the call for questions. Thank you. Our first question is from Scott Davis with Melius Research. Scott Davis: Hey, good afternoon, guys. Hi, Scott. A couple just points to clarify. I thought that detail you gave in the call was pretty thorough, but so we lost about a point in the Middle East, and it sounds like you expect to get about a half of that point back. Is that correct? Is the rest lost revenues, or is there still optionality or potential to regain the remainder of those revenues? Michael J. Baughman: No. I think, Scott, we have seen the disruption in the Middle East, and as we mentioned on the call, there was about $50 million in the quarter. As we look out, we are expecting about another $100 million of disruption. What we see is encouraging with the supply chain improving, but it is still a very uncertain situation and we have six months left here for the year, and capacity right now is running at about 75%. We mentioned that there is some opportunity out there for rebuild and restart, and that has started, but that is going to take, we think, six quarters to unfold here, and we will see how that goes. But I would say do not think there are revenues that are lost, and in fact, over the longer term, there should be opportunity. In this next six months, based on what we saw in the quarter and based on what we see on the ground today, we felt it was prudent to bake that in and take the full-year guide down by a point at the top line. Scott Davis: Okay. That is helpful. And then I do not think you mentioned why China was weak in the prepared remarks, but down 9% was pretty material. Is that chemical-related, or are there other dynamics? Surendralal Karsanbhai: Yes, Scott. You hit the nail on the head. Our exposure to the chemical industry in China, an industry that continues to be over-capacitized and very weak in terms of spend, has adversely impacted us now for a few quarters, and that continued through the second quarter of the year, which then led us to assess China for the year more in the negative mid-single digits versus the low single digits as we had originally thought three months ago. Operator: Our next question is from Andrew Obin with Bank of America. Andrew Obin: Yes, just to follow up on the rebuild question. Was I correct that the value of the rebuild is $100 million? Surendralal Karsanbhai: That is what we have assessed to date. That is based on pace of quotations and orders that we have received already. Now obviously, that is based on the 47 sites that have been impacted across the region. That number could change over time. And that is also based on what we assess restart procedures will entail for MRO activities. So that is all that we have today, Andrew. Andrew Obin: I guess the question I have, if I am just sort of thinking about damage to Ras Laffan and your content, you know, just that gets me a much higher number. So what is wrong with that kind of analysis? And then, clearly, you guys are on the ground, you know what is happening. It just seems the number should be order of magnitude higher given the amount of damage that we have been reading about. Michael J. Baughman: So, Andrew, I think the way the $100 million we have estimated is on the damage created to the installed base on the 47 sites impacted. Now, if you are talking about the LNG capacity that came online to be rebuilt, that is a much bigger opportunity. We have not really scoped that. What we are scoping for you is the near term disruptions we have seen in customers, and as they try to restart operations, what we call our lifecycle services businesses—we quantified that over the next quarters to be in the tune of $100 million. But to your point, the capacity that was taken offline, as that comes online, that is a much bigger number, but we are not in a position to quantify it at this point. Andrew Obin: Okay. That makes perfect sense. Thank you so much. And then just another question, sort of more fundamental question. Has the dial changed post–Middle East as to where downstream CapEx goes or chemical CapEx goes? I think a lot of capacity was reliant on Middle East feedstocks—huge capital costs, low cost of capital. But as we have learned during COVID that efficiency versus reliability are not necessarily the same things. Has thinking changed about where facilities go going forward and where this capacity will be domiciled going forward? I am just thinking, right, because I do not think chemicals are particularly competitive in North America, but any glimmer of hope of any of that capacity coming to North America? Sorry for a long question. Surendralal Karsanbhai: It is a good question, Andrew, and it is certainly worth thinking about the future balancing of capacity in the chemical industry. As you know, at least on the bulk chemical side, that has been largely dominated by China, with Germany and the United States having smaller components. As you move towards the more specialized chemicals, the Europeans and the Americans have had more of a position. That is going to take some time. Right now, I would say the first step is going to be to find alternatives in the Middle East for the Strait of Hormuz. A lot of pipeline quotation activity is ongoing across Saudi Arabia and a few of the other countries to bypass what likely will be a concerning pinch point from here on forward, and so that activity has started. But certainly, I think as things start to settle, producers will eventually balance capacity needs across the world and regionalize their production. Operator: Our next question is from Andrew Alec Kaplowitz with Citigroup. Andrew Alec Kaplowitz: Good afternoon, everyone. Surendralal Karsanbhai: Hi, Andy. Maybe just a little more color on the near-term demand environment and orders moving forward. I know obviously you have more difficult order comparisons from here, but as you said, you are getting good momentum from the growth verticals, particularly in power and Test and Measurement. Can you sustain that mid-single-digit order growth rate in this environment? Did you see any difference in order cadence between January and April? A couple of your industrial peers called out a weak start to the calendar year outside of the Middle East. Surendralal Karsanbhai: Yes. No, we felt it was a very strong quarter outside of the Middle East. It was driven for us, as we remarked in the written comments, by the United States and by India, which led. And we saw broad growth across all of the growth verticals, with the lowest one being probably semiconductors in the mid-teens, and all of them in terms of orders grew above that. We feel really good in terms of that resiliency. Of course, the Middle East was much softer than expected in the quarter. We expect that to rebound. We have already seen in April that was encouraging in the Middle East, particularly as it relates to MRO activity, and we will see how the projects ultimately pan out. But I think mid-single-digit orders are sustainable for us as we navigate through the remainder of 2026. At this point in time, we feel very confident that with our backlog support, we have the second half well sized, and then with this momentum in orders, we will be setting us up for 2027. Andrew Alec Kaplowitz: Helpful, Surendralal. And as you said, your expectations for margins, really margin incrementals, have been drifting up a bit given the lower sales forecast, and that is despite, I think, you absorbing more inflation with price. Maybe talk about what you are doing to offset the inflation. Are you baking in more, for instance, memory chip inflation, and confidence level that you can continue to offset inflation headwinds even on lower growth? Michael J. Baughman: Pricing has been very, very disciplined. Our cost reductions and, frankly, favorable mix in some of the sales we have executed has helped, but ongoing productivity actions and supply chain mitigation actions to offset inflation are really what is driving the margins. Operator: Our next question is from Julian Mitchell with Barclays. Julian Mitchell: Hi, good afternoon. Just wanted to understand quickly how you thought about the high-level guidance moving parts. You have taken a little bit down on the revenue line; the EPS dollar guide low end, though, has moved up, with an unchanged segment margin guide. So is what is happening really a narrower corporate cost and then perhaps some rounding in the margins? Is that what is helping? And on the mix front—you have mentioned it a couple of times—help us understand how you see that mix impact playing out over the balance of the year, please. Michael J. Baughman: Yes, Julian. From a margin perspective, you are correct when you say it is in the roundings. It has not fundamentally changed. If you think about it, our view—other than the $50 million and the approximate $100 million in the back half of the year in a region that really has lower margins—our full-year view has not changed. The mix will improve a little, but as we have said, a lot of this growth in the second half is in backlog; it is projects. So there will be a volume uptick with some project and some mix going forward, and it all nets out. We feel very comfortable holding the 28% for the year. Julian Mitchell: That is helpful. Thank you. And then as we are looking at the balance of the year, I think you have in Q3 and Q4 a mid-single-digit sequential revenue increase dialed in and kind of high-30s operating leverage. Is that a fair placeholder for both quarters? Anything we should bear in mind in one versus the other? And on the ACV front, I think you are embedding an acceleration in the back half. Anything to call out there? Michael J. Baughman: I think from a leverage perspective, the numbers are affected by that software contract renewal dynamic and the effects there. But if you take that out, we will be over 40% leverage on the full year, which certainly means some acceleration in the back half. From an ACV perspective, yes, we continue to reiterate the 10% plus for the full year. We had a good quarter, and we continue to think that the ACV growth of 10% plus is the right number for us. And I think you said sequential growth mid-single digits. That is correct. And also year-over-year growth is mid-single digits. So I think that is an important addition to your statement. Sequential growth mid-single digit is consistent with year-over-year mid-single digit, and if you do the math, the leverage will be a tad better than the 30s you stated for the second half. Yeah. Operator: Our next question is from Jeffrey Todd Sprague with Vertical Research. Jeffrey Todd Sprague: Hey, thank you. Good morning, everyone. Just wanted to get a broader sense of the total global ramifications of this. The nature of my question, right, is the comment of the war stays contained in the Middle East, but the economic impacts are not contained. We have Europe becoming less competitive from an energy cost standpoint, maybe China not having the cheaper feedstocks it needs for its chemical industry. So when you are kind of framing this—and I know none of us have a crystal ball—how are you thinking about those second-order impacts? Are you trying to dial those in any way? Surendralal Karsanbhai: It is a very good question, and certainly, Jeff, we have to create a framework in which to set expectations for the second half and performance for the second half of our fiscal year, of course within a time frame of just six months. We have to work within to mitigate potential impact. That framework that we built has a very important assumption, as you stated, that this conflict essentially is constrained to the Arabian Peninsula, the Arabian Sea, the Persian Gulf area. There are certainly economic downstream impacts that are already being felt—certainly feedstock pricing and supply. We have electricity curtailments in parts of Southeast Asia. We have accounted for as much of that as we know today. But very honestly, we have not assumed a significant deterioration in economic conditions or growth, for example, in India or any of the countries in Southeast Asia, that, in a much broader, deeper conflict, would significantly be impacted. Jeffrey Todd Sprague: Right. Understood. And then maybe just a little—if we did not have this war going on, there would probably be a lot more Test and Measurement questions. Maybe just come back to Test and Measurement. The raw numbers you shared with us—growth rates—sound quite encouraging. Anything beneath the surface on verticals or distribution channel that you can share that sheds a little light on the demand profile here? Michael J. Baughman: Yes. I mean, I think the momentum in Test and Measurement is clearly led by semis and aerospace and defense. Both end markets are doing very, very well for us, and frankly, we expect continued momentum across both those sectors, whether it is new space, defense spending, and then certainly on the semi side, the RF and mixed-signal investments that are happening, data center investments. I think there is no surprise there. The weakest segment we have within our Test and Measurement business is the transportation segment, the automotive segment. We believe we have kind of hit bottom, and that will start growing low single digits again. Most of that business is in Europe, and our portfolio business has been resilient. We had a nice run as we came through the recovery mode, but that has stabilized in the mid-single-digit type growth rate. So, on a cumulative fashion, the double-digit for Test and Measurement is sustainable for the next couple of quarters, and we expect that to continue into 2027. Operator: Our next question is from Deane Michael Dray with RBC Capital. Deane Michael Dray: Thank you. Good afternoon, everyone. Surendralal Karsanbhai: Hello, Deane. Deane Michael Dray: I would love to do a similar run-through on power—bigger number there. I think you said up 23%. Could you just talk about the visibility? You called out plant modernization but also behind the meter. Does that stand, and what is the outlook for the balance of the year? Michael J. Baughman: From a power perspective, the momentum in terms of the project funnel—which is a pretty big funnel and that is made up of both modernizations as well as greenfield—and we are starting to see greenfield. There was some greenfield in Q2. We expect bigger greenfield activity in the half. And a similar comment on behind the meter. We saw some behind-the-meter opportunities in Q2, but we expect more to happen in the second half and into 2027. So broad spread for the Ovation business. Obviously that flows through to our valves and instruments business, which is doing very well. And also we called out our Digital Grid Management business; on the transmission and distribution side, a lot of investment is happening in the T&D space. So broad-based strength in power, certainly led by North America, which is our strongest market, but we are seeing momentum in Latin America, particularly Mexico, good activity in China, rest of Asia, and some activity in Europe. Deane Michael Dray: Good to hear there. And then if we just spotlight MRO for a moment—you called out it was 65% of your mix. In previous oil spikes—you get $100 oil—you often see the refiners just turn on the cash register, run 24/7, and do as much MRO project activity as possible, right up until regulatory limits. Have you seen any delays there? Do you expect anything like that this time? Surendralal Karsanbhai: No, Deane. As a matter of fact, we tend to see when you run things that hard, the opportunities for MRO actually increase for us, particularly in stringent applications of high pressure, high temperatures. To date, we have not seen any change in trends that would alarm us negatively on MRO anywhere in the globe, other than what we highlighted related to sites in the Middle East. Operator: Our next question is from Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Hi, good afternoon, everyone. Surendralal Karsanbhai: Hi. Andrew Buscaglia: Obviously very topical throughout the quarter and throughout the year this year has been AI and software. It sounds like you have these new products out. It sounds like adoption is going well. Can you give us an update on anything you have learned intra-quarter on that front? And then I am curious on the outlook—how impactful do you see these products contributing to growth going forward, even as soon as this year? Maybe you can comment on that, please. Michael J. Baughman: Yes. A lot of customer interest, not only on the NI side, but certainly the capabilities we have launched on Ovation, DeltaV, as well as AspenTech. It will be a very interesting users group event where you are going to see a lot more customer input as it relates to pace of adoption for both NI and AspenTech, so we will get to learn that in a couple of weeks. We do believe that it is a differentiator for us and we are seeing a lot of activity, particularly in the Ovation business, in terms of customer dialogue and a lot of quotes around AI. I would say it is a little early for it to translate into meaningful revenue opportunities. We have been very thoughtful on pricing and making sure that we can extract value and tiering the product suites where we can capture the value, with tiering on the higher-tier products which will have the AI functionality. Time will tell. There is certainly a lot of customer interest, but we do not have meaningful impact on revenue as we sit here today. As we progress into 2027 and beyond, I think it will be a huge differentiator for us. Andrew Buscaglia: Fair enough. And, sticking with software, I wanted to check on your margin cadence through the back half of the year. There is a little bit of noise starting the first half or second half, but can you comment on what is behind the implied guidance for the back half of the year for that segment and the puts and takes there? Michael J. Baughman: This is Control Systems and Software, or Control Systems and Software, just to clarify? Andrew Buscaglia: Yeah, Software and Systems. Michael J. Baughman: It should be up a little bit in the second half versus where it was in the first half, but pretty consistent through the year. There is some project execution there that plays against some of the mix favorability that we will see in the business mix that comes through. Operator: Our next question is from Joseph John O’Dea with Wells Fargo. Joseph John O’Dea: Hi, good afternoon. You made a comment about seeing significant capital deployed in projects, and I would imagine that some of this is a continuation of what you are seeing in growth verticals—so you talk about power and LNG and life sciences. But I am curious if you are seeing an acceleration as well as a broadening out at all. A lot of what we have heard in terms of industrial end-market activity is companies seeing a continuation of spend on areas like productivity, but not so much a broadening out on the capital project side. Are you seeing some broadening out or acceleration of this? Surendralal Karsanbhai: We continue to see consistency in the funnel. As you know, Joe, we look at that on a two- to three-year basis. It grew to $11.2 billion, and the growth has come entirely from inside of our growth verticals. Power really drove the growth in the funnel, but the win rate and the project deliveries continue to be consistent within the growth verticals that we identified. We have not seen tremendous broadening beyond that. It continues to be those five core verticals that are driving not just the activity, but also feeding of the funnel. Michael J. Baughman: Yes, you said it. The new capital formation in our five growth sectors of power, LNG, life sciences, semiconductors, and aerospace and defense continues to accelerate. Every meeting we have with our businesses points to more opportunities in the funnel being added across these five verticals. The core markets in energy, refining, and petrochemical—it depends on the geography there—show stable or muted activity, but as it relates to the growth verticals, there is no slowing down. In fact, we see accelerating additions of opportunities to the funnel. Joseph John O’Dea: And then just touching on the margin strength in Intelligent Devices in the quarter—we saw it in both Sensors and Final Control. If you can unpack that a little bit more with respect to mix and cost actions during the quarter. You do expect a step-up in the growth rate in the back half. Curious the degree to which volume then helps those margins sequentially and how mix is expected to play out as you move forward in the year. Michael J. Baughman: As we talked about, it was the strong price/cost and cost reductions. I will say we got a little bit of benefit in the quarter from not having the IEPA tariffs, and obviously as we move forward, that benefit will, as we talked about, be offset by other tariffs and some freight cost pressure. As we move into the second half, the margins will have, as you suspected, offsetting factors of volume being beneficial with some mix pressure as projects get delivered. I expect to see that group improve margins year over year, as they have been doing, and continue to perform very well. But there will be some pressures that should offset net-net. Year over year, we will see improvement in the operating margins there. Operator: Our next question is from Analyst. Analyst: Yes, thanks. Good afternoon. I wondered if you could just touch on a couple of things for me. Free cash flow came in a little light of where I thought it might end up being, so I wonder if you could talk a little bit about that and how we might think about the phasing through the back half of the year. And then secondly, just on Intelligent Devices, I think even ex–the Middle East, the business came in a little light of your guide. Is the primary driver of that weakness in China and Europe? If you could unpick that a little bit for us, that would be really helpful. Michael J. Baughman: Sure, Alex. In terms of cash flow, the first half was certainly affected by the interest from the Aspen buy-in that was primarily in the back half of last year, and so we will lap that out as we move forward. We also had some tax payment timing that was a negative in the first half. We also had a buildup of some working capital as we get ready for the second half of the year. If you are looking at the prior year, our cash flow that year was far more ratable than it historically has been. This year will look a little more like we have looked in the two years prior to last year. On Intelligent Devices this period versus expectation, yes, there was some softness in China and Europe as you suspected. Operator: Thank you. This concludes today’s conference. We thank you again for your participation. You may disconnect your lines at this time.
Operator: Good afternoon, and welcome to the Upstart Holdings, Inc. First Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode to prevent any background noise. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Sonya Banerjee, Head of Investor Relations. Sonya, please go ahead. Sonya Banerjee: Thank you. Welcome to the Upstart Holdings, Inc. earnings call for 2026. Joining me today are Paul Gu, our Co-Founder and CEO, and Andrea Blankmeyer, our CFO. During today's call, we will make forward-looking statements, which include statements about our outlook and business strategy. These statements are based on our expectations and beliefs as of today, which are subject to a variety of risks, uncertainties, and assumptions and should not be viewed as a guarantee of future performance. Actual results may differ materially as a result of various risk factors that have been described in our SEC filings. We assume no obligation to update any forward-looking statements as a result of new information or future events except as required by law. Our discussion will include non-GAAP financial measures, which are not a substitute for our GAAP results. Reconciliations of our historical GAAP to non-GAAP results can be found in our earnings materials, which are available on our IR website. With that, Paul, over to you. Paul Gu: Thank you, Sonya, and thank you everyone for joining us today. I want to start my first official earnings call as CEO by stating simply that the Upstart leadership team and I are here to build a high-growth and high-return business. I am the founder at 20 to start something, and now after 14 years, I would not be doing this if I did not believe the upside ahead for Upstart Holdings, Inc. was as good as that of any startup. In recent decades, there has been a growing trend for the fastest-growing companies to stay private, and as a result, public companies are typically past their high-growth years. We believe Upstart Holdings, Inc. is not. As reflected in our three-year outlook of 35% annualized revenue growth, we expect to be one of the fastest multiyear compounders at our scale. Consumer credit is arguably the oldest, most economically foundational business there is, and today is the perfect time to reimagine it. Unlike in some areas, the application of AI to credit is an unambiguous good for the consumer, saving them time and money to use on the parts of life that really matter. For lenders, AI will transform credit from a structurally commodity-like business to one where the player who wins the technology and modeling race wins the market. With a decade-long head start, we believe that race is ours to lose. Capitalizing on this enormous market opportunity will require some investment. Fortunately, we have just the right business to fund it: core personal loans—unsecured installment loans to consumers not conventionally considered super prime. Our significant and growing lead in technology built up over that decade plus gives our product there the best rates and best process in the market, making room for unusually high margins while still delivering the best product to the customer. You are going to hear me talk a lot more about this as CEO. Our core personal loan business makes a lot of money and my first priority is to do a lot more of it. Businesses in today's world, especially in lending, can too easily put up big numbers that depend on even bigger equity bases. At Upstart Holdings, Inc., we have always treated equity as a real cost, and I intend to double down on that rigor. Our operating strategy is to reinvest the profits from core personal loans into building the best product and most trusted brand across every category of consumer credit. This approach allows us to simultaneously maximize earnings over the long run, while running an extremely capital-efficient business. Similarly, our funding strategy for loans will continue to be one that relies primarily on third-party capital. As they say, the market is a weighing machine in the long run, and my bet is that the businesses with the most profits and the least dilution will weigh the most. Now I would like to turn to Q1 and where we stand today. Originations grew 61% year over year and revenue grew 44%, while profit declined marginally. These are strong results and put us comfortably on track to our full-year guidance on both the top and bottom lines. These numbers reflect a mix of four factors: secular improvements to technology and marketing; strong momentum in newer products in the super prime segment; the usual Q1 seasonal headwinds in borrower demand and annual employee-related expenses; and some planned investments. I will focus on our platform and product strategy and then turn it over to Andrea for the numbers. As always, our most important growth lever is improving our underwriting model. In Q1, we increased the accuracy lead of our personal loans model over benchmark by 1.4 percentage points. Our model’s advantage now stands at 173.6%, while 87.4% of the total inaccuracy remains to be solved. This quarter, we extended the scope of our models to predict post-default recoveries, replacing the assumptions we had used historically with the full strength of our AI models. This fuller view of loan economics lets us serve more creditworthy borrowers, which drove approximately 3.5% more originations at equivalent risk levels relative to our prior model. Simply put, our lead over traditional credit scoring continues to grow. We are also moving quickly to maximize use of AI across every part of the business. In servicing and collections, we doubled daily AI-assisted borrower conversation volume, brought that capability to our mobile app, and expanded our AI-powered payment features. We also deployed AI-driven quality assurance tools to review customer service calls, giving us a scalable, consistent way to continuously improve the borrower experience. Across our platform, we originated more than 425 thousand loans in Q1. We believe more Americans are choosing to borrow from us than any pure fintech platform. With well over 20 million unique consumers having created accounts to check their rate with Upstart Holdings, Inc., we are rapidly building towards being the most trusted brand in consumer credit. In auto, originations grew more than 300% year over year, and 30% sequentially. Auto retail was a standout, with originations up roughly 13 times year over year and nearly doubling sequentially, driven by a rapidly expanding active dealer network. Our work to reduce friction for dealers is paying off. About a quarter of retail transactions in Q1 used the remote signature capability we launched late last year. We also rolled out a new feature that lets dealers generate firm AI-powered offers across multiple vehicles from a single customer application, and we deepened integrations with dealers' existing compliance and CRM tools. In home, originations grew 250% year over year and 16% sequentially, driven by better marketing reach and efficiency. In Q1, more than one quarter of these loans were fully automated, and we achieved an average time to close of just six days from application to signing, a new record for us and a fraction of the industry average of roughly 40 days. In early April, we also added richer bank account data to our HELOC income verification process, improving accuracy and the salability of these loans to capital markets partners. This progress in auto and home has set us well on our way to serving the full range of consumer credit needs. With growth strong and technology advancing rapidly, the time is now right for both products to begin shifting some of their focus from pure growth to unit economics. Last month, we also launched Cashline, our first unsecured revolving credit product. This is an important step toward our vision of always-on credit for every borrower, and we are thrilled by the early results. Looking forward, the next area we are focusing our product and growth efforts on is none other than core personal loans. I said earlier that the profits from this business are central to our strategy, and we have already begun taking action to grow it. While we would normally expect originations to decline sequentially in Q1, core personal loans were flat to Q4. That stronger-than-seasonal performance signals the early stages of the reacceleration we expect to continue through the rest of the year. I want to turn to the capital side of the business. Funding supply for loans is strong. Thanks to the pioneering work Sanjay and the capital team have done, well over half of our capital is committed. Year to date, we have expanded and deepened our forward flow relationships, securing over $4 billion in new committed capital. That includes about $2 billion in new commitments from Altura, Centerbridge, and Wafra, alongside renewals from Fortress and Blue Owl. Notably, we closed a 24-month commitment, which is our longest deal term yet, designed to provide durable capital through market cycles. I am also proud to share that this continues our track record of a 100% renewal rate with every partner since our first deal in 2022. Additionally, our recent securitizations totaling approximately $1 billion were multiple times oversubscribed, with the most recent transaction upsized. This reflects strong secondary liquidity for our loans, even amid broader market volatility. We also included auto secured personal loans in a securitization for the first time, an important milestone when it comes to new product funding. These results, happening against the backdrop of market volatility in other areas of credit, are a clear vote of confidence in our platform. We take the trust our capital partners have given us seriously and always treat credit performance as an uncompromising first priority. The average return of our last 12 quarterly vintages of loans exceeds treasuries by 651 basis points, with every individual vintage exceeding treasuries by at least 385 basis points. Finally, the bank charter. In March, we announced our application for a national bank charter. As I said earlier, our strategy for funding loans is to rely primarily on third-party capital, and the bank charter does not change that. We expect banks, credit unions, and institutional investors to continue to purchase the vast majority of loans originated on our platform. A bank charter will, however, bring significant regulatory benefits to Upstart Holdings, Inc., including by expanding our addressable market across all 50 states, reducing the operational and financial cost of originating loans, and accelerating our technology velocity by enabling us to interface with regulators directly. These benefits directly support our growth and profit goals and will show up over the next few years. Now I want to close by welcoming Andrea, who joined us as CFO in March. Andrea is an incredibly talented finance leader, with a background in complex, novel business models. She is learning the ropes here faster than I could have hoped for and is already making an impact on how we plan, prioritize, and execute. It is now my great privilege to turn the call over to her for a discussion of our financial results. Andrea Blankmeyer: Thank you, Paul. I appreciate the warm welcome. And good afternoon, everyone. I look forward to spending more time with many of you in the coming weeks and months. It is a privilege to take my first earnings call as CFO. The Upstart Holdings, Inc. team has built a highly differentiated AI-powered credit platform, and the runway in front of us is enormous. I take seriously my responsibility as the financial steward of this platform, including the discipline Paul described around treating equity as a real cost and running a capital-efficient business. I spent my first weeks here digging into the business and the plan, and Paul and I are fully aligned on our financial priorities. I look forward to updating you on our progress each quarter. Turning to Q1. Before I review the numbers, I will provide some color around some of the factors Paul mentioned that were specific to the quarter and an expected part of our trajectory for the year. Starting with newer products, we continue to make progress growing our auto and home businesses, and saw strong growth in super prime personal loan originations as well. This drove a sequential dip in our overall take rate and our contribution margin. Next is seasonality. At the top of the funnel, we typically see consumer demand for personal loans soften in Q1 as tax refunds reduce borrowing needs. This soft demand typically translates into lower conversion and a modest step down in contribution margin in Q1 versus Q4. Additionally, our business has OpEx seasonality in the first quarter of the year, with a step up in corporate costs associated with our compensation and benefit cycle and the timing of our annual company-wide gathering. Finally, we made deliberate investments in talent in Q1. This sets us up to achieve our objectives for 2026 and beyond. Each of these factors—mix, seasonality, and investment—in addition to the platform and product gains Paul mentioned, was contemplated in the team's planning for the year. We are on track to deliver on our full-year guidance. Now I will walk through our Q1 results. Originations were $3.4 billion, up 61% from the prior year and 8% sequentially. Within this, total personal loan originations grew 6% relative to Q4, reflecting 26% sequential growth in super prime and better-than-typical seasonal performance in our core business, which was roughly flat sequentially relative to the historical Q1 step down. Our newer secured products continue to scale, with auto originations up 32% sequentially and home up 16%. Taken together, these results demonstrate the strength of our core business and the growing contribution of our newer products to overall platform growth. Total revenue came in at approximately $308 million, up 44% year on year and 4% sequentially. This included revenue from fees of roughly $277 million, up 49% year on year and 4% sequentially, driven by growth in platform originations. Within fee revenues, servicing revenue continued to show solid growth, up 52% year over year and 22% sequentially, driven primarily by higher origination volumes along with an increase in fees connected with the sale of loans. Net interest income and fair value adjustments totaled approximately $31 million, up modestly year on year and roughly flat with Q4. Our contribution profits, a non-GAAP metric defined as revenue from fees minus variable costs for borrower acquisition, verification, and servicing, was $137 million, up 34% year over year but down 2% sequentially, primarily as a result of increased marketing investment to optimize digital channels and support new product growth. Contribution margin came in at 50%, down three percentage points from the prior quarter, reflecting the mix, seasonality, and marketing investment dynamics. We expect contribution margin in Q1 will be the low point for the year, barring any changes to the macroeconomic environment. In total, GAAP operating expenses were $516 million in Q1, up 45% year on year and 14% sequentially. Variable expenses—borrower acquisition, verification, and servicing—rose 68% year on year and 12% sequentially, with the step up versus Q4 reflecting marketing investments. Fixed expenses were up 31% year over year and 15% sequentially, reflecting the beginning-of-year investment and seasonal step-up in corporate costs I discussed earlier. I will note that our fixed cost investments for the year were front-loaded into Q1, and we expect more modest sequential growth for the remainder of 2026. This sets us up for the adjusted EBITDA margin acceleration we have guided to as the year progresses. In Q1, we had a net loss of approximately $7 million. GAAP earnings per share was negative $0.07 based on a diluted weighted average share count of 97 million. Adjusted EBITDA was roughly $40 million with a margin of 13%. With this quarter's results, we are on track to deliver on our adjusted EBITDA outlook of $294 million for the year and to be solidly profitable on a GAAP basis. We ended Q1 with just over $1 billion in loans held on our balance sheet, up approximately $30 million from Q4. It continues to be our strategy to primarily rely on third-party capital to fund our growing originations. Notably, our secured products and other R&D loan balance declined modestly quarter over quarter, even as auto and home originations accelerated. More broadly speaking, as Paul mentioned, and supported by consistent credit performance, we have continued to enhance our capital platform. So far this year, we have signed more than $4 billion in committed capital partnerships, completed two securitizations for $1 billion in total collateral, and increased the proportion of home and auto loans funded by a third party. Additionally, in February, we bought back 3.2 million shares of Upstart Holdings, Inc. stock for $100 million, and we have about $122 million remaining under our current authorization. Looking ahead, we are reiterating our full-year guidance. This means that for full-year 2026, we continue to expect total revenues of approximately $1.4 billion, revenue from fees of approximately $1.3 billion, and adjusted EBITDA of approximately $294 million, which equates to approximately 21% of total revenues, consistent with our prior guidance. Our guidance assumes a stable macroeconomic backdrop. Additionally, I will share some color on the drivers and the shape of the year. First, for the full year, we continue to expect growth in absolute contribution profit dollars to be within at least five percentage points of fee revenue growth. We plan to deliver this profit growth using two complementary levers: growing our core personal loan business, where margins are already strong, and continuing to improve unit economics on auto and home as they scale. Second, marketing and OpEx growth should moderate in the remainder of the year relative to what we saw sequentially in Q1. Third, we continue to expect adjusted EBITDA to be weighted toward the second half of the year, driven by originations growth, improved contribution margin, and OpEx leverage as we progress through the year. To close, our performance in Q1 was right on track. We entered Q2 with momentum across our core business and our newer products, with consistent credit performance, and with a reinforced capital base. I also want to thank Paul, Sanjay, and the whole team for their support and partnership as I come up to speed. With that, I would like to turn it over to the operator to begin Q&A. Operator: Thank you. We will now open the call for questions. To ask a question, please press star one on your telephone keypad. Once again, that is star one if you would like to ask a question. We will pause for just a moment. And again, that is star one if you would like to ask a question. Our first question will come from Mihir Bhatia with Bank of America. Mihir Bhatia: Hi. Good afternoon. Thank you for taking my question and congratulations to both of you on the new role. So just, I guess, in Q1, you called this out a little bit. Originations were up 60%, revenues up 40%, but profitability declined. You highlighted some of the OpEx headwinds during the quarter. You are reinforcing the full-year guide. So maybe just take a step back since you are both newer to the role, and just elaborate on how you are thinking about balancing near-term profit versus reinvestment and growth? Specifically, is there a framework guiding that trade-off, or are you just comfortable prioritizing reinvestment at the expense of margins given the opportunity that you are pursuing? Paul Gu: I think the first thing I would say is that we are very much on track for our full-year guidance. We are reiterating the guidance on the year, and so a lot of what you are seeing in Q1 is very specific to Q1, which are some seasonal effects and some front-loaded investment. But I would not say necessarily that as a matter of strategy, we have decided to make any changes to how profitable the business is going to be. We are very much on track for the annual guide, which does have $294 million of adjusted EBITDA there and net income positive, so we feel really good about that. I would say taking a step back and thinking about the business on a go-forward basis, we do think there is an enormous amount of growth ahead of us. We think we can keep compounding revenue at a high rate for a long time here, and we certainly intend to do that. I think the math is just really clear that in the long run, this business is going to throw off the most profits and be worth the most if we capture that growth and that market share, and so we definitely want to be reinvesting. But as you heard me say, we want to reinvest in a way that is capital efficient. A big part of the way we intend to do that is by growing in segments where we have high contribution margins and take those margins and reinvest those into growing the business. Some of that is, from an accounting perspective, going to show up as cost, and some of that is going to show up in ways that will decrease the near-term profitability, but they are investment choices that we think we can make in a capital-efficient way to grow the total long-term profits of the business. Mihir Bhatia: Thanks. And then if I could start to follow up on the revolving product some more. Talk about the availability of that. Is it broadly available? And discuss the economics, funding partners, how you are thinking about that product. It seems like a little bit of a credit card replacement. Is that the right way to think about it? Anything more on the revolving product. Thank you. Paul Gu: We do not have too much to share on that product yet other than, yes, it is out broadly. It is called Cashline. We are really excited about it. It had probably the best first day we have ever had for a new product launch. I think there is an enormous opportunity, an enormous need in the market. It is a revolving-like product, and as it grows and reaches scale, we will naturally, just like with our other products, figure out the right third-party partners to work with on the capital side. But for now, it is early days. We are getting the product right, and we are very optimistic about it. Operator: We will now take our next question from Kyle David Peterson with Needham. Kyle David Peterson: Great. Good afternoon. Thank you. I wanted to follow up on the prior questions on expenses. I guess both in sales and marketing and G&A were a little higher than we expected. I know you called out some of the seasonality. So I just wanted to see geographically where did some of the seasonal expenses fall and were there any costs related to the announcement you are pursuing the bank application? And how should we think about that expense load moving forward as you go through the process? Andrea Blankmeyer: Great, thanks for the question, Kyle. The expenses from a seasonality perspective are largely showing up in two places. One is on the payroll expense with respect to our people. That is really related to the annual reset of our compensation and our benefit cycle. Additionally, I would say primarily in G&A is where we see costs associated with our annual company-wide gathering, which happens here in Q1 and represents a seasonal uptick. As we mentioned on the call, as we look out over the remainder of the year, our expectation is both on the marketing and the more fixed OpEx side for the business that we will see more moderated sequential quarter-on-quarter OpEx growth relative to what we saw here in Q1. Kyle David Peterson: Okay. I guess, were there any material expenses from the bank application this quarter or nothing worth calling out? Andrea Blankmeyer: Great point. There is nothing material this quarter. We have contemplated the expenses with implementing and launching the bank and that application throughout the remainder of the year in the guide. Kyle David Peterson: Thank you. And then a follow-up on funding. It has been great to see the volume hold up. I know there have been a lot of concerns about private credit. Could you give at least at a high level an update on where your funding comes from in terms of stickier institutional money with more permanent forms of capital versus some of these either interval funds or BDCs that probably are suffering a little more with redemptions and such? If you could size up the relative nature of those and how you feel about and feedback you are getting from your partners, that would be really helpful. Paul Gu: Great question, and one I am excited to talk about. Funding has been a real area of strength for us. It has been an area of strength because I think fundamentally in the markets, capital is going to flow to the places with the best performance. The performance that we have had on the credit side and that our partners have been able to see over the last couple of years has been exceedingly strong. Earlier in the prepared remarks, I shared about the performance over the last 12 quarters and the spread to treasuries being very consistently high. Our partners have been able to see that. As a result, year to date, we have been able to add over $4 billion of additional capacity, and most of that capacity is coming in the form of committed capital deals. These are deals that have commitments over an extended period of time. I mentioned that we now have our first 24-month deal—that is a new high for us in terms of how long these deals are committed. That is so important to us because, fundamentally, we can have a lot of confidence in how our credit is going to perform, but we do not have a lot of control over what happens in the outside world with market volatility, market perception, what is going on in other categories of credit. From our perspective, it is a huge de-risking to be able to do deals with partners that believe in the credit and want to sign up for a commitment over an extended period of time that can get us through any potential market cycle that arises. We think of that as a real win, and we have been able to get a lot of partnerships going that have that extended commitment in place. We feel very good about where we are on loan funding. Operator: We will take our next question from Simon Alistair Clinch with Rothschild and Company Redburn. Simon Alistair Clinch: Hi. Thanks for taking my question. I was wondering, on the point about funding and the long-term capital commitments, when we think about the signings you have had recently, could you perhaps describe whether the economics of the sharing of risk have changed in any way or how that is evolving as these newer deals are being renewed? Paul Gu: Sure. We do have risk sharing as a component in many of these deals, and investors can see some of the details about that in our earnings presentation. I would say those deal terms have largely stayed consistent to improving over time. Certainly, like anything, as we do more of these and we do them at greater scale and we prove how they work, we expect over the long run that the terms will get better and better for us. They have been consistent and improving. There is a risk-sharing piece of these deals that is capital we think is well spent. It is a very small percentage of all the capital that funds these loans, and increasingly, that is capital that, from our perspective, is expected to earn a quite healthy, strong return. So capital well spent and certainly fits within the framework of running a capital-efficient business that we talked about. Simon Alistair Clinch: Great. And just as a follow-up, going back to the balance sheet loans, they were up marginally sequentially. Usually when we see a lot of new funding commitments coming through, sometimes they come with upfront purchases of loans off the balance sheet. It does not look like we have seen that. Could you talk about the dynamics of that, please, and is $1 billion really the level that we should be expecting on a go-forward basis? Andrea Blankmeyer: Sure, Simon. I am happy to take that one. We expect to see some degree of normal-course fluctuation on the balance sheet size on a quarter-on-quarter basis, driven by the timing of sales, and that is largely what we saw here in Q1. It is our expectation, as we look out over the remainder of the year, to see some step down in that overall balance in the rest of the year relative to Q1. With respect to the dynamic of back-book sales versus forward flow, we saw a mix of both on the balance sheet in the quarter. What was very good to see, when it comes to the strength of the capital platform, is in Q1 we did see a higher proportion of our originations on auto and home sold directly through to third parties versus what we saw in Q4 and in 2025. We are making very good progress on that front on the secured products. Otherwise, there is just this timing dynamic on the balance sheet that we do expect to see from time to time. Operator: We will now take a question from Dan Dolev from Mizuho. Dan Dolev: Oh, hey, guys. Congrats on the quarter. Got two quick questions. I am looking at, I think, slide 22, and that is the expected cash flow versus the upside/downside. It looks like the trend is widening there. Maybe can you explain some of the dynamics? And then I have a quick follow-up. Thank you. Andrea Blankmeyer: Sure. I am happy to speak to that, and then Sanjay can chime in as helpful. We see it widening out really reflective of just the increased capital co-investment amount. You see the max upside and max downside widen; it is really reflective of the total dollars that are at stake and co-invested here. Does that answer your question? Dan Dolev: Yes, it does. I do have a quick follow-up. Can you give some comments about the overall health of the consumer that you are seeing? I think it will be helpful for investors, and congrats again. Paul Gu: Certainly. We see the American consumer as largely stable over the period. In fact, we have seen the consumer largely stable since late last year, and we have been in a pretty tight range of what we call the Upstart macro index. From our perspective, stability is a really good thing. That is all we ever ask. Certainly, an improving consumer could be a tailwind, but a stable consumer is a good one from our perspective, and that is what we have seen. We, like everybody else, watch developments, but where we are unique is that we are very committed to being a model-first, model-led company. We let our models detect what is going on in terms of consumer repayment patterns, both in the aggregate and at the segment level. We have not seen any of the factors in the news come into play in a significant way yet, and so consumer stable. Operator: Our next question will come from Peter Corwin Christiansen with Citi. Peter Corwin Christiansen: Good evening. Thanks for the question. Congrats on the committed levels. That is great to hear. I would love to hear your take on demand on the at-will side from some of your bank partners. Then I have a follow-up. Paul Gu: Feel free to follow up if this is not what you are asking about. We have been announcing and signing deals with partners both at our traditional financial institutions—banks and credit unions—as well as with institutional investors that are private credit or another form of institutional capital. On both sides, the demand for loans has been very healthy and growing. That is against the market backdrop where there have been concerns in other categories of credit, in particular in software and some other areas. But for us, because of the strong performance, the demand from both types of institutions has been very strong, and we have been doing deals in both places. Peter Corwin Christiansen: That is helpful. I want to dig into conversion rate seasonality a little bit. You did have a little bit of a step down last year in Q1 as well, maybe a little bit more profound this year. Generally, as we look at the conversion rate and how it progressed last year, it peaked in Q2 and then leveled off and stayed fairly flat in 2025. Should we think about that progression being the same or at least expectations right now for the remainder of 2026? And on the Q1 sequential step down, which is seasonal, it seems like it was a bit more than in previous years. Any additional comments on that? Paul Gu: It is a good observation. You are right about that. There are two different effects going on with conversion rate. The first is a seasonal effect, and that happens every Q1. Every Q1, there is a noticeable reduction in borrower demand for loans related to tax season and tax refunds. That happened this year just like it happens every year and is an important part of the story. With respect to the conversion rate metric specifically, this particular metric has a lot going on in it. It used to be a much simpler metric when we really just had one product, one segment—what we now call core personal loans. Now, because we have a mix of products that serve consumers up and down the spectrum, there are significant mix effects going on. This metric in recent quarters has become increasingly affected by our small-dollar product, which is still a relatively new, not totally mature product. Small-dollar products, because they are very small loans, do not have a big impact on the origination dollars or the financials of the business, but they have an outsized impact on the unit-count conversion rate—just how many loans in the numerator converted. We did have a decline in the small-dollar product in Q1, and that had an outsized impact on the conversion rate metric that we cite. This is something we will think about how to improve from a metric perspective. From a core personal loan perspective, that business actually had very stable conversion rates, unseasonably strong conversion rates, and unseasonably strong volumes as we talked about earlier. Peter Corwin Christiansen: That is super helpful, Paul. I appreciate it. Sorry, just one follow-up. Considering the Upstart market macro index is doing marginally better at least on a trailing basis, should we expect some of that small-dollar mix shift impact perhaps bleeding a little bit into Q2? Paul Gu: We do not have any specific guidance on the small-dollar product volumes at this time. The seasonal effects, of course, will run off as we get further into Q2 and past tax season, so that will no longer be a factor. You are right that there is an effect where small-dollar can sometimes move inversely with core personal loans, because it fits after core personal loans in most of the approval funnel. That can be a dynamic, but we do not have any specific guidance on the small-dollar numbers. They are not a very large part of the overall financials right now. Operator: Our next question will come from James Eugene Faucette with Morgan Stanley. James Eugene Faucette: Good afternoon. Thank you very much. A follow-up on forward flow agreements and then a more strategic question. On the forward flow details, you have been really active there, but are you seeing any change from those partners with respect to target gross yields or return on equity—any internal metrics that are changing at all, especially given the environment that people have pointed to? Paul Gu: As I said earlier, we have been able to do these deals against a challenging macro backdrop, and we have been able to do them largely consistent to improving deal terms. That includes the kinds of spreads that people are looking for above benchmark rates. Ultimately, it is all downstream of credit performance. If credit performance was not good, that would not be true—we might not even be doing some of these deals. But because credit performance is strong, everything else is downstream of that. The amount of spread you need is a function of how much risk you perceive there to be and underperformance and all of that. We have been really happy with the way we have been able to do these deals, and we expect to continue doing them. James Eugene Faucette: Got it. And then on the HELOC product—really good growth, the highlight of a six-day process versus up to 40 days as being the industry norm. Where are you seeing, at least in these early days, that speed advantage show up? Higher conversion, lower CAC, loss selection, partner appetite, take rates, anything like that? And where is that mix coming from or what is driving that you like? Is it cross-sell from personal loans or direct to consumer? Paul Gu: You are absolutely right that being able to run a six-day process is huge in HELOC. It manifests in all of those places you listed. You get better conversion, which necessarily means lower CAC. Another place that is really impactful for HELOC is the operational cost of originating one of these products. Every time you can move a loan from one that has a heavy dose of manual work to one that can either be fully automated or just require a tiny bit of manual work, there are very significant ops savings. I talked earlier about how we are now turning our attention towards optimizing the margin profile on these new products, and a big part of that is getting the process right and getting the cost down. Technology and getting that six-day process are a huge part of making that happen. From a customer acquisition perspective, we do a wide range of things, but compared to our personal loans product, we have a heavier dosage of cross-sell from the existing customer base, and that will be an increasingly important part of our strategy. Over 20 million people have created accounts at some point to check their rate. That means we have a lot of information and a relationship with them. As we get more offerings across credit needs, that is going to be powerful, and it is already showing up in HELOC and our ability to cross-sell. Operator: We will now take a question from Analyst with Goldman Sachs. Analyst: I appreciate you taking the question. I wanted to follow up on the commentary around the 5% spread between contribution profit and revenue from fees. Can you talk about the framework for thinking about that, particularly in light of the ramp of new products, which I understand put some pressure on that spread but maybe is not something you want to artificially throttle? What would cause you to come in above or below that level? Andrea Blankmeyer: Thanks. You are hitting the nail on the head. We are looking to grow contribution profit within five points of fee revenue growth this year. The lag on contribution profit dollar growth relative to revenue is primarily driven by mix and the strong growth in our newer secured products, as well as in prime personal loans. It still represents very substantial contribution profit dollar growth against the platform throughout the year. The things that are going to drive that contribution dollar growth are twofold. First is continuing to lean into the strength of our core personal loan product and drive growth of originations there, which are quite accretive from a margin perspective. Second is driving the continued growth of these secured products alongside continued improvement in the unit economic performance of those products. As those products grow in scale, that will contribute to improved contribution margin as we continue to drive more automation and reduce friction in the process. That will help improve unit economics. As we continue to increase the sell-through of the product off the balance sheet, that will also help drive unit economic performance, representing a tailwind to contribution profit dollar expansion throughout the course of this year. We are looking to hit that number on a contribution profit dollar basis, and those two levers are going to drive it. Analyst: Got it. Appreciate that. You mentioned early signs of acceleration—unseasonally stronger contribution margins and better than seasonality performance in the core personal products. What are you seeing that is allowing you to outperform seasonality, and why do you expect to accelerate that over the course of the year? Paul Gu: These comments were in reference to the core personal loan business. Core personal loans are our historic personal loan product offered to consumers that are not conventionally defined as super prime. These borrowers have long been the place that our business has had the largest competitive advantage. We have a very large amount of differentiation in our ability to underwrite these borrowers compared to what the market offers, and as a result, we have had very strong pricing power historically in this segment. Over the last year, we have been very focused on growing and establishing our foothold in new products, especially in home and auto, and also balancing out the platform by getting very competitive and having a set of great rates to offer on very prime customers. With the success we have had in home and auto, we have been able to redirect more focus back to the core. Growth is driven by investment in technology, improvements in that funnel, and improvements in marketing directed towards that customer. We have been doing those things. Those are durable improvements that compound. We are starting to see some of those benefits in the Q1 results. That is why it was able to beat its seasonal expectation. We expect that to continue through the year as we keep reinvesting back into this product, widen the technology lead, and improve marketing to reach more people. By doing those things, we will see this product grow more, which in turn will generate more contribution profits for the rest of the business to use and reinvest. Andrea Blankmeyer: And just to put some numbers on what we are seeing here in Q1 versus previous years: in Q1 2025 and Q1 2024, core personal loans saw about a 10% quarter-on-quarter decline. This year, we are seeing flat originations, and that speaks to the better-than-seasonal performance. Operator: Next question will come from John Douglas Hecht with Jefferies. John Douglas Hecht: Afternoon, guys. Thanks very much. You talked about some of the seasonal factors and product shift changes with customer acquisition costs, but is there anything going on at the unit level? Have you seen any changes to origination fee structures in various products, and are you exploring different channels of customer acquisition? Anything going on there to talk about that piece of the business? Paul Gu: No large fundamental changes there. We still use the full range of marketing channels that we used before. We made improvements across many of those, leading to some of the wins and better-than-seasonal numbers. We talked last quarter about our intentional strategy not to max out on take rates from borrowers, and we have stuck to our strategy. We are very intentionally not maximizing short-term profitability. If that was our north star, we could have a lot more of it by squeezing more out of take rates and fees, especially in certain segments. That is not our strategy because we do not think that is the best way to maximize long-term value. There is incredible value in winning over customers and building relationships with them, and leaving a little bit extra on the other side of the table. We have stuck to that strategy with respect to how we think about origination fees. When we go out and do marketing, we keep in mind that it is valuable to win over a customer, and it is not all about maximizing the profit on day one. John Douglas Hecht: With that in mind, any comments on whether it is recurring customer activity or direct-to-customer activity or cross-sell—any signals you are seeing there? Paul Gu: We certainly do both. We think it is really important to have a lot of repeat customer activity. We are increasingly focused on what we think of as returning user activity. These are not necessarily people that got loans with us before, but those 20 million-plus who have checked their rate with Upstart Holdings, Inc. at some point. Maybe they could not get approved the first time, or maybe they did not get the type or size of loan they were looking for, so they did not accept. These are perfect candidates as we have more and better products to go back to. We are doing more and more of that, and that is something we want to maximize. We are also still early in our growth journey. 20 million is just a fraction of the U.S. population. As the player in the market that we think can serve the entire spectrum—from great rates for very prime to great offers for the other end—we can be a full-spectrum offering. We think our addressable market is a lot more than 20 million Americans, so we want to keep adding new people into the database and keep marketing to do that. Put those together, and in the long run, you are going to have a very valuable business. Operator: Our next question will be from Patrick Moley with Piper Sandler. Patrick Moley: Yes, good afternoon. Thanks for taking the question. I wanted to go back to the bank charter. Could you walk us through some of the key regulatory milestones ahead and the expected timeline before you start realizing some of the operational and financial benefits you talked about? Thanks. Paul Gu: We are excited about the bank charter. As you mentioned, the benefits are primarily regulatory. To clarify, we expect nice improvements that are both operational and financial out of doing the bank, but it is not a balance sheet strategy. It is not something we are doing to change how we fund loans or how much capital the business needs to operate. In terms of process, we have submitted our application with the OCC for a national bank charter, and we are working with the OCC on pieces of that application. We do not have specific guidance on exact timing. That is going to come in our work with the regulator, but we are very motivated, and the regulators have been really constructive in how they have worked with us and other companies. Patrick Moley: Great. Then a quick one. You bought back $100 million of stock in the first quarter. I think you have a little over $100 million left on the authorization. How are you thinking about the pace of buybacks throughout the rest of the year, and how do you balance that with some of the balance sheet co-investment and new product funding needs? Paul Gu: I will go back to saying that we think capital efficiency is really important. We want to think of equity capital as a real cost. We want to think about metrics in per-share terms as often as we can. In the long run, we are going to be thinking about how to maximize earnings and minimize dilution. Whenever there are opportunities afforded by a combination of available cash and liquidity, financial outlook, and the price is right, we will be looking at opportunities to use stock buyback dollars. Having said that, the reason we are not always buying back all the time is that we have so much growth ahead of us that the threshold for doing that is really high. We know there are many growth opportunities we can invest in operationally, so our threshold for using cash for any other purpose is going to be really high. But once in a while, we will have that opportunity in the market, and whenever that is, we will certainly consider doing it. Operator: We will now move to Analyst with BTIG. Analyst: Hey, good afternoon. Thanks for taking my questions. I wanted to follow up on the bank question and focus on the economic implications of becoming a bank. On Upstart’s blog post you highlighted about $200 million of annual frictional costs and also the lack of being able to be in certain geographies or serve certain customers. Could you elaborate on that? How difficult is it, and could you really remove $200 million of annual frictional costs? That would be big versus your EBITDA guidance of $294 million. Do we see that in EBITDA, or does it come from higher transaction volumes, or some combination? Paul Gu: A lot of that $200 million number is really in missed opportunity on the revenue line. It might show up in a different place than if you were just thinking about these as true friction costs. The way it manifests is a few things. First, we have a number of states and segments of the market where we cannot operate or are limited in how much we can operate because of state-level regulatory issues, and having a national bank charter to operate through resolves most of those and gives us access to the full market up to the 36% rate limit. That is a big deal—that is TAM we are missing out on today that directly gets solved by having access to the national bank charter. Second are direct operational and financial costs associated with the way we operate today. We originate loans through a large network of many financial institutions, and that comes with both direct financial costs—paid or earned by the financial institutions instead of us—and the cost and friction in managing that complex system of many players originating. Those are the really concrete costs that go into that $200 million number. Then there is a separate, more intangible benefit that does not go in that number but is as important. We are in a decade where there will be substantial advances in AI that will transform consumer credit. Every regulator will naturally be asking questions about that, wanting to understand it, and wanting to work with the leading frontier companies. From our position as the company that has been doing this longest, we should have a direct relationship with the regulators in helping them understand what it means to apply AI in lending, and do that directly as opposed to through a large number of intermediary financial institutions. Analyst: Great. That is super helpful. Thank you. Switching topics, going back to take rate. Transaction volumes grew 61% year over year and overall revenues grew 44% year over year. How should we expect that dynamic going forward? When you talk about improving the unit economics of auto and home, I know you said you did not want to maximize profit, but does part of improving the unit economics involve the revenue side, or is that primarily on the cost side? Andrea Blankmeyer: Great question. The take rates we are seeing in Q1 are largely a reflection of the dynamics we have spoken about previously: growth of our newer secured products as well as mix shift to prime in personal loans. All of those have been growing very well and have manifested in take rate that has come down year on year, as expected. In addition, seasonality typically brings some softness in take rate in Q1 relative to Q4 associated with the softness in demand—all of which is expected. Stepping back for the remainder of the year, take rate is an output metric for us, not an input metric. As take rate moves in the business, it will be reflective of changing product mix. That said, a key driver of the platform’s ability to deliver contribution profit dollar growth this year is improving unit economics on our auto and home products throughout the course of the year. We have already seen meaningful progress over the last year, and we expect that progress to continue. To your question, that should show up up and down the P&L. It will come from improvement and efficiency on the cost side—driven by increasing automation—as well as the benefits of scale. We also expect it to show up in improving take rates on average across the secured product set as we look through the remainder of the year, driven primarily by increased sell-through of loans off the balance sheet to third parties. Operator: Our next question will be from Giuliano Bologna with Compass Point. Giuliano Bologna: Good afternoon and congrats on the results. As a first question, last quarter you mapped out an expectation of around $100 million of revenue from HELOC and auto between a ballpark 4% upfront take rate and 2% servicing. Is that still the rough expectation? And then I noticed within the servicing line item there was a step up in other fees historically driven by this. It is closer to $3.9 million. Is that anything related to servicing some of those HELOC or auto loans? And how should we think about that going forward? Andrea Blankmeyer: Thanks for the questions, Giuliano. On the first point, the roughly $100 million of fee revenue from auto and secured continues to be in the right ballpark in terms of what we expect. The take plus servicing that Sanjay spoke to last quarter represents more of the medium-term take rate for that product set in aggregate. We may or may not fully achieve that inside of 2026, but over a one- to two-year time horizon as those products grow and scale, that is the target. On your second question on the other fees in servicing, I might need to follow up with you on that one, but I can certainly do that. Giuliano Bologna: That is very helpful. From an execution perspective, as you sell more of those loans through, should we expect servicing fee revenue to be an incremental driver, especially on the margin side, because you are probably spending disproportionately on marketing and other expenses on the front end, but then a lot of the revenue from the growth of those new products is really deferred and realized over time? Andrea Blankmeyer: I think I understand your question, and yes, that would be the case. As we sell these loans through, in terms of how it impacts revenue, we will recognize take rate upfront upon the sale of those loans. Especially on our auto products, where we expect to have a higher proportion of the compensation come from servicing, we will also be generating servicing revenue that we will recognize over time and that will offset the servicing costs that we bear. Operator: We will now take a question from Robert Henry Wildhack with Autonomous Research. Robert Henry Wildhack: Hi, everyone. I wanted to follow up on the comment around medium-term take rate and servicing rate for HELOC and auto. In your experience, or do you have any sense for how long a new product takes to reach mature unit economics? Andrea, you mentioned maybe not 12 months, but 12 to 24 months. Will they be mature by then, or is there scope to improve beyond that time frame? Paul Gu: Great question. The beauty of our business is that there is not really any moment where we deem a product mature, because the margins are driven by the level of differentiation created by our technology. It was a lot of years before our core personal loans product reached current levels of take rates and contribution margins—probably seven or eight years—because year after year the models kept getting better and the level of automation kept getting better. That is what allows pricing power when the next best offer is far away and you can increase take rates and still have the best product. We are very much in a position today where these products have found a great fit in the market. We are ready to start optimizing their margin profiles. It is not like they will be done optimizing this year or next year or probably even the year after. They are going to keep getting better as we create more space for differentiation and therefore more space for pricing power. We view that as a fundamentally very good dynamic where we can keep improving the technology, which keeps creating more differentiation, which then allows more pricing power. We do expect these products to get meaningfully better in their margin profiles in the near term. Robert Henry Wildhack: Thanks. And on the Cashline product, can you talk a little bit more about who the target user is? Is it a complement to personal loans or a substitute for someone who does not need or want $15,000 to $20,000? And what about the economics—origination fees—and do you expect those balances and loans will sit on your own balance sheet? Paul Gu: Cashline is designed for someone who has a need for a smaller amount of credit but on a more regular basis. If you think of personal loans as a one-shot $10,000 loan, a cash line is hundreds of dollars but something you might access multiple times a month or quarter. The design of the product needs to be very different, but it is a really valuable customer because it is accessed so frequently over time. In terms of funding, as that product grows, it is going to have its own dedicated funding partners that are the right home for it. Because the product is so short term and the loans are so small, it is not a major factor in the balance sheet today, and it is not something we are particularly worried about. Operator: We will now take our next question from David Scharf with Citizens Capital Markets. David Scharf: Yes, good afternoon. Thanks. Paul, I had a couple of questions related to how we ought to be thinking about the impact of the shifting origination mix—specifically more prime personal loans and HELOC, which by definition is going to be a more prime borrower. First, focusing on capital. It looks like a third of your retained risk on the balance sheet is the beneficial interest—the co-investing. Should that relationship or percentage drop over time as a bigger part of your business becomes prime focused? It seems like the investor part of the marketplace is going to require risk retention to a greater extent the lower-rated the credit. Can you walk us through if the balance sheet is going to change as the mix of your originations changes? Paul Gu: It is a good question. I want to start by correcting a misconception about the required level of risk sharing. When we looked at our business over the last few years, one of our fundamental convictions was that we had confidence in our credit, but we did not have control over what happens in the outside market. There would be market environments where funding was less available and others where it was more available, much of it outside our control even if our credit was performing well. We thought it was strategically critical, in our desire to build the largest provider of consumer credit, to have capital arrangements and partnerships that could endure through market cycles. Our putting in a small portion of risk sharing into some of these deals was fundamentally in exchange for having committed capital over multiyear windows. We do not view that as a requirement. It is not a bad thing—we view it as something pretty innovative that allows us to solve one of the most important challenges in a fast-scaling business like ours. Coming back to your question on newer products and prime mix and how that will affect it, you are right that the primer products will tend to have a lower level of capital required from a risk-sharing perspective. I would not leap to the conclusion that the ultimate mix will be any particular mix of primeness, because we have so much growth in multiple product categories right now. We are putting a lot of focus on growing that core personal loan segment, which is an extremely strong and very profitable segment for us. We have a lot of growth in the auto product, which is a product that every American across the economic spectrum needs. HELOC tends to be a more prime product. Depending on the exact rate at which each of these products grows, you could end up with any particular mix of primeness. David Scharf: Got it. Understood. That is helpful. Applying the same rubric to the medium term—the three-year guidance—the 35% revenue CAGR is significant, and margins going from 21% to 25% is material as well. But the margin increase is possibly not as much of a pickup as we would expect with revenue increasing two and a half times. Is that related to product mix, or should we interpret that as three years from now you still anticipate being in growth mode and in an above-trend period of investment spending? Paul Gu: More the latter. We are expecting the business to grow a significant amount for a long time. We gave three-year guidance of 35% CAGR, and interestingly, 35% was approximately the same amount of growth we guided to in the first year as the later years. You might infer from that that it is not heavily front-loaded like it might be for a business that you expect to grow a lot and then taper off. The market opportunity here is so large across so many categories of credit that we hope to be doing this for a very long time. It is our working expectation that there will be great opportunities to reinvest profit into continuing to grow the business over time. I could not tell you today what will happen in year four, five, or six, but if I had to guess, I would guess there will be great opportunities to reinvest for some time. That is what is in our plan today. Operator: And it appears there are no further telephone questions. I would like to turn the conference back to Paul Gu for closing comments. Paul Gu: Great. Thank you everyone for your questions and for your time today. I want to leave you with a few things I hope you can take away from our conversation. First, Q1 was strong and puts us comfortably on track to deliver our full-year outlook on both revenue and profit. Second, core personal loans is our superpower. It has great margins, and we are going to do a lot more of it. Third, home and auto have found their places in the market, and it is time to make them profitable. Finally, the opportunity ahead for AI to remake consumer credit is enormous, and we intend to go after it while making every dollar of capital count. Thank you to our team, our capital partners, and our shareholders. We look forward to seeing you next quarter. Operator: Once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Mercury Systems, Inc. Third Quarter Fiscal 2026 conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the company's Vice President of Investor Relations, Tyler Hojo. Please go ahead, Mr. Hojo. Tyler Hojo: Good afternoon, and thank you for joining us. With me today is our Chairman and Chief Executive Officer, William L. Ballhaus, and our Executive Vice President and CFO, David E. Farnsworth. If you have not received a copy of the earnings press release we issued earlier this afternoon, you can find it on our website at mrcy.com. The slide presentation that we will be referencing is posted on the Relations section of the website under Events and Presentations. Turning to slide two in the presentation, I would like to remind you that today's presentation includes forward-looking statements, including information regarding Mercury Systems, Inc.'s financial outlook, future plans, objectives, business prospects, and anticipated financial performance. These forward-looking statements are subject to future risks and uncertainties that could cause our actual results or performance to differ materially. All forward-looking statements should be considered in conjunction with the cautionary statements on slide two in the earnings press release, and the risk factors included in Mercury Systems, Inc.'s SEC filings. I would also like to mention that, in addition to reporting financial results in accordance with generally accepted accounting principles, or GAAP, during our call we will also discuss several non-GAAP financial measures, specifically adjusted income, adjusted earnings per share, adjusted EBITDA, and free cash flow. A reconciliation of these non-GAAP metrics is included as an appendix to today's slide presentation and in the earnings press release. I will now turn the call over to Mercury Systems, Inc.'s Chairman and CEO, William L. Ballhaus. Please turn to slide three. William L. Ballhaus: Thanks, Tyler. Good afternoon. Thank you for joining our Q3 FY '26 earnings call. We delivered Q3 results that were ahead of our expectations, with significant year-over-year growth in backlog, revenue, and adjusted EBITDA. Strong demand signals and solid execution contributed to better-than-expected organic growth and margin expansion this quarter. Today, I will cover three topics. First, some introductory comments on our business and results. Second, an update on our four priorities: performance excellence, building a thriving growth engine, expanding margins, and driving free cash flow. And third, performance expectations for the balance of FY '26 and longer term. Then I will turn it over to Dave, who will walk through our financial results in more detail. Before jumping in, I would like to thank our customers for their collaborative partnership and the trust they put in Mercury Systems, Inc. to support their most critical programs. I would also like to thank our Mercury team for their dedication and commitment to delivering mission-critical processing at the edge. Please turn to slide four. Our Q3 results reflected robust organic growth and margin expansion. Record bookings of $348.3 million and a 1.48 book-to-bill resulted in a record backlog approaching $1.6 billion; revenue of $235.8 million, up 11.5% organically year over year; adjusted EBITDA of $36.1 million and adjusted EBITDA margin of 15.3%, up 46% and 360 basis points, respectively, year over year; and free cash outflow of $1.8 million, meaningfully outperforming our expectations. We ended Q3 with $332 million of cash on hand. These results reflect ongoing focus on our four priority areas, with highlights that include solid execution across our broad portfolio of production and development programs; backlog growth of 18% year over year and a sequential increase of twelve-month backlog of 10.3%; a streamlined operating structure enabling increased positive operating leverage and significant margin expansion; and continued progress on free cash flow drivers with net working capital down 4.1% year over year. Please turn to slide five. Starting with our four priorities and priority one, performance excellence, where we are focused on sound execution on development programs, accelerating deliveries for our customers broadly across our portfolio, and ramping the rate on numerous programs transitioning to higher-volume production. We accelerated progress across a number of programs and generated approximately $25 million of revenue, $15 million of adjusted EBITDA, and $25 million of cash all primarily planned for the fourth quarter. This acceleration, enabled by our efforts to align our supply base to yield faster backlog conversion, contributed to top-line growth, adjusted EBITDA margin, and free cash flow that exceeded our expectations for Q3 and will also factor into our outlook for Q4, which I will speak to shortly. Our strong bookings and record backlog combined with our ability to more rapidly convert backlog is translating into organic growth exceeding our expectations coming into FY '26. Notably, our domestic revenue, representing 88% of our Q3 revenue, generated 17% year-over-year growth. Beyond this solid performance, we progressed on a number of actions in the quarter to increase capacity, add automation, and consolidate subscale sites in our ongoing efforts to drive scalability and efficiency. Notably, we added capacity to our highly automated manufacturing footprint in Phoenix, Arizona, and initiated operations within our additional 50,000 square feet of factory space to support ramped production for our common processing architecture programs and to allow for efficient scaling. In the quarter, we also completed the acquisition of critical manufacturing process technology provider integral to a number of our key ramping programs. These are among a number of actions we have taken, along with prior investments across a number of critical technology developments that are driving our ability to accelerate delivery of vital capabilities to our warfighters and our allies. Please turn to slide six. Moving on to priority two, driving organic growth. We believe that our near-term organic growth will be driven by increased volume on existing production programs and the ongoing transition of a number of development programs to production. Additionally, we expect possible upside tied to potential tailwind from customer-driven acceleration and increased quantities across a broad set of production programs in our portfolio. Lastly, we are excited about new development programs and the potential of the production volume associated with those wins. In Q3, we delivered a record quarter with $348.3 million of bookings resulting in a book-to-bill of 1.48 and a record backlog approaching $1.6 billion. Our trailing twelve-month bookings are a record $1.23 billion. Q3 bookings were driven largely by follow-on production orders reflecting strong customer demand across core franchise programs. This bookings mix reflects the transitioning of our business toward higher-rate production and we believe does not meaningfully capture the potential incremental tailwinds we see in the market. The largest bookings in the quarter were across several missiles, C4I, and space programs. In addition, the quarter featured the strongest bookings of the fiscal year for solutions that leverage our common processing architecture. Finally, we secured a follow-on development award on a strategic program that has the potential to proliferate across multiple platforms. Beyond our backlog growth, we continue to see the potential for higher demand on multiple programs across our portfolio, driven by increased defense budgets globally and domestic priorities like Golden Dome. I remain optimistic that these potential market tailwinds may have a positive impact on our demand environment if funding is allocated across certain program priorities to our customers over the next several quarters and beyond. Please turn to slide seven. Now turning to priority three, expanding margins. In our efforts to progress toward our targeted adjusted EBITDA margins in the low- to mid-20% range, we are focused on the following drivers: backlog margin expansion as we convert lower-margin backlog and add new bookings aligned with our target margin profile; ongoing initiatives to further simplify, automate, and optimize our operations; and driving organic growth to increase positive operating leverage. Q3 adjusted EBITDA margin of 15.3% was ahead of our expectations and up 360 basis points year over year. Gross margin of 29.3% was up 230 basis points year over year, consistent with our expectation that average backlog margin will continue to increase as we convert legacy lower-margin backlog and bring in new bookings that we believe will be in line with our targeted margin profile. Operating expenses are down year over year, both on an absolute basis and as a percent of sales, reflecting our focus on continuously driving cost structure efficiencies to enable significant positive operating leverage as we accelerate organic growth. Please forward to slide eight. Finally, turning to priority four, improved free cash flow. We continue to make progress on the drivers of free cash flow, and in particular, reducing net working capital, which, at approximately $4.344 billion, is down $18.7 million year over year. Net debt was $259.7 million at the end of Q3. We believe our continuous improvement related to program execution, accelerating deliveries for our customers, demand planning, and supply chain management will continue to yield a strong balance sheet that provides sufficient flexibility for us to pursue and capture potential market tailwinds. Please turn to slide nine. Looking ahead, I am very optimistic about our team's performance, strategic positioning, the market backdrop, and our expectation to deliver results in line with our target profile of above-market top-line growth, adjusted EBITDA margins in the low- to mid-20% range, and free cash flow conversion of 50%. We believe our strong year-to-date results show meaningful progress toward this target profile, with an aggregate 1.3 book-to-bill, 9% top-line growth, 15% adjusted EBITDA margins, 400 basis points of EBITDA margin expansion year over year, and free cash flow of $39.5 million. Coming out of Q3, we are raising our expectations for FY '26. We believe our efforts to stage material earlier have improved revenue linearity and increased forecast visibility, and that progress is now reflected in our updated expectations for FY '26. As a result, our outlook incorporates backlog conversion that historically may have materialized in accelerations and results above forecast. Our Q4 bookings have the potential to be the strongest of the year, based on a pipeline of opportunities that is more robust than our Q3 pipeline, which we believe could be an indicator of increased top-line growth and further margin expansion beyond FY 2026. We now expect annual revenue growth for FY '26 approaching mid single digits, up from low single digits. We expect full-year adjusted EBITDA margin of mid teens, up from approaching mid teens. Finally, with respect to free cash flow, we expect free cash flow to be positive for Q4. In summary, with our positive momentum year to date, and coming out of a very solid Q3, I expect FY '26 performance to deliver a significant step toward our target profile. Additionally, I am gaining optimism regarding the potential tailwinds associated with increased global defense budgets and domestic priorities like Golden Dome to materialize and drive upside bookings to our plan over time. With that, I will turn it over to Dave to walk through the financial results for the quarter, and I look forward to your questions. Dave? David E. Farnsworth: Thank you, Bill. Our third quarter results reflect continued solid progress toward our goal of delivering organic growth and expanding margins. We still have work to do to reach our targeted profile, but we are encouraged by the progress we have made and expect to continue this momentum going forward. With that, please turn to slide 10, which details our third quarter results. Our bookings for the quarter were approximately $348 million, with a book-to-bill of 1.48. A record backlog of nearly $1.6 billion is up $240 million, or 17.9%, year over year. Revenues for the third quarter were nearly $236 million, up approximately $24 million, or 11.5% organically, compared to the prior year. During the third quarter, we were again able to accelerate progress on a number of customers' high-priority programs worth approximately $25 million of revenue primarily planned for FY '26. Gross margin for the third quarter increased approximately 230 basis points to 29.3% as compared to the same quarter last year. The gross margin increase during the third quarter was primarily driven by lower net EAC change impacts of nearly $2 million and lower net manufacturing adjustments of approximately $4 million. These increases were partially offset by higher inventory reserves of approximately $3 million. As Bill previously noted, we expect to see an improvement in our gross margin performance over time as the average margin in our backlog improves and through our continued focus to simplify, automate, and optimize our operations. We expect average backlog margin to continue to increase as we convert lower-margin backlog and bring in new bookings that we believe will be in line with our targeted margin profile. Operating expenses decreased approximately $11 million, or 14.3%, year over year. The decrease in operating expenses was driven primarily by lower restructuring and other charges, selling, general and administrative expenses, and research and development costs of approximately $5 million, $4 million, and $1 million, respectively. These decreases reflect the efficiency improvements and headcount actions we have previously discussed to align our team composition with our increased production mix, driving improved operating leverage. GAAP net loss and loss per share in the third quarter were approximately $3 million and $0.04, respectively, as compared to GAAP net loss and loss per share of approximately $19 million and $0.33, respectively, in the same quarter last year. Adjusted EBITDA for the third quarter was approximately $36 million, up $11 million, or 46.2%, as compared to the same quarter last year. The increase was partially driven by enhanced execution and improved operating leverage. Adjusted earnings per share was $0.27 as compared to $0.06 in the prior year. The year-over-year increase was primarily related to our improved execution and increased operating leverage in the current period as compared to the prior year. Free cash flow for the third quarter was an outflow of approximately $2 million as compared to an inflow of $24 million in the prior year. As we noted last quarter, we did expect to see a free cash outflow in the third quarter; however, we were able to successfully mitigate a large portion of that outflow through improved collections on billed receivables. Slide 11 presents Mercury Systems, Inc.'s balance sheet for the last five quarters. We ended the third quarter with cash and cash equivalents of $332 million, which represents an increase of approximately $62 million, or 23%, from the same period in the prior year. This increase was primarily driven by the last twelve months' free cash flow of approximately $73 million, which was partially offset by $15 million of shares repurchased and retired from our share repurchase program earlier this fiscal year. Billed and unbilled receivables decreased sequentially by approximately $10 million and $4 million, respectively. We continue to expect to allocate factory in the fourth quarter to programs with unbilled receivable balances, which will help drive free cash flow with minimal impact to revenue. Inventory increased sequentially by approximately $12 million. The increase was driven primarily by work in process as we bring product to its final state in support of our increased proportion of point-in-time revenue on many of the company's production programs. Prepaid expenses and other current assets decreased sequentially by approximately $10 million primarily due to insurance proceeds and normal operating expenses. Accounts payable decreased sequentially by approximately $2 million, driven primarily by the timing of payments to our suppliers. Accrued expenses decreased approximately $3 million sequentially, primarily due to the payments of a legal settlement and restructuring activities we announced earlier this fiscal year. Accrued compensation increased approximately $2 million sequentially, primarily due to our incentive compensation plans. The amount due to our factoring facility decreased sequentially by approximately $18 million, primarily due to the timing of payments from our customers due back to our counterparty. Deferred revenues decreased sequentially by approximately $11 million, primarily driven by execution across a number of programs during the period. Working capital decreased approximately $19 million year over year, or 4.1%. Our continued working capital improvement year over year, which is evidenced by our strong balance sheet position, has enabled us to make a $150 million payment against our revolver during the fourth quarter. This continues to demonstrate the progress we have made in reversing the multiyear trend of growth in working capital, resulting in a reduction of approximately $225 million, or 34%, from the peak net working capital in Q1 fiscal 2024. Our balance sheet provides sufficient flexibility for us to pursue and capture potential market tailwinds. Turning to cash flow on slide 12. Free cash flow for the third quarter was a slight outflow of approximately $2 million as compared to an inflow of $24 million in the prior year. We continue to expect free cash flow to be positive for the year, with positive cash flow expected in the fourth quarter, as Bill previously noted. We believe our continuous improvement in program execution, hardware deliveries, just-in-time material, and appropriately timed payment terms will lead to continued reduction in working capital. In closing, we are pleased with the performance in the third quarter and the higher level of predictability in the business. With that, I will now turn the call back over to Bill. William L. Ballhaus: Thanks, Dave. With that, operator, please proceed with the Q&A. 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 1 to raise your hand. To withdraw your question, please press 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 Kenneth George Herbert. Your line is now open. Kenneth George Herbert: Good afternoon, Bill and Dave. Really nice results. Bill, maybe just to start on implied margins in the fourth quarter. Seasonally, you typically have a nice step up into the fourth quarter. The revised outlook for the full year implies more modest margin expansion into the fourth quarter. Maybe you can just talk about some of the puts and takes into the fourth quarter and then, I guess more importantly, not to get too far ahead, but how much of the move towards the longer-term target up into the low 20s could we expect to see in fiscal '27? David E. Farnsworth: Hey, Ken. If it is okay, I will start, and then Bill can jump in. As far as the sequential growth in margin, we have seen that in the past, and it is accompanying a real significant change in the linearity of our business. As you recall, in the fourth quarter, we have typically seen a higher level of revenue, and the mix has been a bit different. One of the things we have been able to do this year is start to flatten out that linearity a little bit. So a stronger Q3 and with stronger margins accompanying Q3 as well. Where in the past we have seen a step up of potentially a couple hundred basis points, it was from a much lower starting point normally. We do not expect to see that rate of a jump up in the fourth quarter—more of a gradual trend—but we feel good about the total year. And as Bill said, mid teens around the margin for the year. We do feel we are headed in absolutely the right direction and in keeping with our expectation of getting towards our target margins. William L. Ballhaus: What I will add is what Dave highlighted just reflects this smooth transition of the business from this high mix and concentration of development programs a couple of years ago, to completion of those programs, transition into low-rate production, and then increased levels of production. What we have been expecting to see as we have evolved was a combination of increasing top-line growth and then further acceleration of the bottom line. If you adjust for some of what we pulled forward from last year into Q4, what that has translated into is a relatively smooth progression to mid single-digit top-line growth last year and now to high single-digit top-line growth, with nice margin expansion on the bottom line, and some recent indicators of that continuing as we move forward. A couple of things that I would point to would be the growth in our domestic business in Q3, which was up 17% year over year, and then in the quarter, a really nice step up in our next-twelve-months backlog, up 10% from Q2 to Q3. So more than anything, Ken, I think Dave's point around linearity is that we are just seeing a nice smooth progression of the business. Kenneth George Herbert: That is great. Appreciate that, Bill. Maybe for either Dave or Bill, as we think about the strong bookings in the quarter—you called out missiles, C4I, and some space programs—are there any particular programs within those broader buckets you are comfortable calling out or you would specifically highlight as significant sources of bookings? William L. Ballhaus: One of the real strengths of our business is the diversification across our portfolio—no real concentration. No one program makes up more than 10%. The strong bookings really just reflect strong demand across our portfolio in areas like space, C4I, and missile defense, and we think that is a real strong attribute of our business. No single program, no real lumpiness in the bookings—just a strong indication of demand across our broad portfolio. It really is, as we have been talking about— David E. Farnsworth: As we look, there is not one area that we would say is an area you would not focus too much energy on because it is either declining or flat. All the areas from a bookings standpoint are seeing solid activity, and it is in keeping with what the market is doing. To a large degree, these are the production efforts we have been talking about, and this is gearing up more production on those same programs that we have been working. William L. Ballhaus: It really reflects, again, that transition from a heavy concentration of development to the follow-on production, with a nice progression in the quarter. Operator: Thank you for your question. Your next question comes from the line of Peter John Skibitski. Your line is now open. Peter John Skibitski: The book-to-bill, which is really strong this quarter, and it seemed like just the tone of your commentary was more positive in terms of the sales outlook. You have raised the guide here to the mid single-digit range. Even looking at that guide, the fourth quarter revenue looks like it would imply to be down year over year. I just wanted to know if there is continued conservatism there in the guide or if there is just a large percentage of unbilled receivable-type work in the fourth quarter relative to the third quarter. Or maybe something else? William L. Ballhaus: One way that you could think about it is, aside from the $30 million that we accelerated from FY '26 into Q4 of last year, the year-over-year growth comparison in top-line growth looks pretty consistent with what Q1, Q2, and Q3 look like. Again, it more reflects a steady progression of our business to mid single digits last year and then high single digits this year, with some real positive indicators again based on the book-to-bill, the continuing growth of our backlog—which we expect to continue to grow—and then, in particular, the portion of our backlog that we expect to convert over the next twelve months. Peter John Skibitski: And then just on the unbilled receivables, they were down only modestly this quarter. What is the right way to think about that? Does that mean some of these cycles are just going to take a lot longer? I am a little confused as to why we did not see a bigger step down in the receivables. David E. Farnsworth: Some of what is reflected in there and in our inventories is a bit of the up cycle we are seeing in terms of production coming in. There is always a bit of a timing phenomenon. There was a much more significant decline, but there were things added in as we were ramping up on new activities. Nothing more than the timing of things; I would not read anything else into it. We are still focused on burning down some of our older unbilled balances. But as we ramp up revenue, there will be new unbilled balances—certainly better than the terms were in the past—but there will be some from a timing standpoint. Nothing different than what we have been saying. We are still focused on working through the older balances and getting them cleared from our books, so we have the capacity to do all the new work that we see. William L. Ballhaus: There are definitely more dynamics under the hood than you would see if you just looked at the quarter-to-quarter number. And then, Pete, the other thing that I would point out is close to 12% growth year over year and the net working capital coming down year over year despite that growth, which reflects the progress that we are continuing to make and the increased efficiency of our net working capital. Operator: Thank you for your question. Your next question comes from the line of Austin Moeller from Canaccord Genuity. Austin, your line is now open. Austin Moeller: Hi. Good afternoon. Are you looking at the IBAS defense industrial base investments within the fiscal year 2027 budget? And do you see any opportunities to get incremental investments from that program to expand your capacity? William L. Ballhaus: Hey, Austin. Thanks very much for the question. We have had interactions with IBAS. We have programs that are funded by IBAS, and that continues to be an area where we look for opportunities to go after things that they are interested in investing in and that we think can increase our capacity, our efficiency, and our innovation. So, yes, definitely something that is in front of us. Austin Moeller: Great. And just my next question, do you see more contract opportunities within Golden Dome or within the Defense Autonomous Working Group within the fiscal year '27 budget request? William L. Ballhaus: We definitely see opportunities across the board. That is not only in our existing portfolio of programs but also tied to administration priorities like Golden Dome, missile defense, and armaments—across the board right now we are seeing opportunities. We feel like our capabilities are really well aligned with the administration's priorities broadly. One of the things that we have said before and think is unique about our positioning is we have exposure to a broad set of tailwinds across the market. That is what we are focused on capturing right now. Austin Moeller: Excellent. I will pass it back there. Thank you. William L. Ballhaus: Thanks, Austin. Operator: Thank you for your question. Your next question comes from the line of Sheila Kahyaoglu from Jefferies. Sheila, your line is now open. Analyst: Hi, guys. This is Egan McDermott on for Sheila. Maybe just building off of the missile questions that have been asked. Curious, one, if you could sort of size how big Mercury's missile exposure is as a percent of sales, even roughly, and two, with a few large LTAMDS contracts out there of late—you know, thinking like the $8 billion FMS to Kuwait—how would you think about what an order of that magnitude means for your business? William L. Ballhaus: Thanks very much for the question. We do not size up the missile portfolio publicly, but we do have a number of programs with exposure to missiles for sure. Relative to LTAMDS, we typically do not comment on any one program or go into much detail. I will say that it is publicly available that there are conversations around increased demand and increased quantities on LTAMDS, and that really has not factored into any of our bookings to date, but certainly would be a positive if there were increased quantities and accelerations of deliveries. It is one of the potential tailwinds that we are keeping our eye on as we are looking forward. Analyst: Thank you. And maybe just a follow-up on that. Is it fair to think that margins on an order like that out of Kuwait or other FMS would differ from U.S. orders at all or be at all higher? David E. Farnsworth: For us, it is typically something that we work with the prime on, and so we would work with them as to what pricing makes sense and how it makes sense. Typically, the higher margin rates are on foreign direct versus FMS contracts at the prime level. I think that is something you would have to have that conversation broadly with the prime. Operator: Thank you. Analyst: Thank you. Operator: Thank you for your question. Your next question comes from the line of Jonathan Frank Ho from William Blair. Jonathan, your line is now open. Analyst: Hi. This is Garrett Berkham on for Jonathan, and thanks for taking the question. It is nice to see the strong results, and it sounds like demand is strong and relatively broad-based across the board. Are there any areas where you see the most opportunity for reordering and restocking over the near term, just given the ongoing geopolitical conflicts? Thanks. William L. Ballhaus: Thanks for the question. To break down our growth vectors, first and foremost, the primary driver of our near-term organic growth is the transition of our business from a really high concentration of development programs—and it is dozens of programs, not one or two—to the low-rate production phase and then the higher-rate production phase. We are seeing that start to manifest in '25 to '26 and expect our organic growth to continue to accelerate based on those programs ramping up. That really does not have anything to do with tailwinds that we see in the market. Beyond the existing portfolio, we are continuing to win new development programs that are really exciting, where we are bringing together technology and innovation across our portfolio, doing things that nobody else can do and winning new development programs that, over time, are going to add to that production content. Beyond those two items, we do see a number of potential tailwinds tied to a number of different factors: the size of the domestic budgets, the size of the global budgets, and other tailwinds like Golden Dome and rearmament of munitions. We are starting to see those tailwinds manifest in the form of multiyear strategic agreements at increased quantities and increased deliveries with the primes. Right now, none of those tailwinds are reflected in any of our bookings, and we view them as all additive to the target profile that we have talked about and are converging on. We have said for a couple of quarters now that we think that some of those tailwinds could start to manifest likely by the end of calendar 2026 but potentially as early as our fourth quarter, which is our current quarter. We are watching those items as they progress in our pipeline with a lot of excitement. Beyond that, there is a broad set of demand and a lot of tailwinds that we have exposure to, and we are looking forward to seeing how that all plays out over the next quarter and beyond. David E. Farnsworth: On the current business—what we are executing on today—when you look at the queue, you will see the areas that have significant growth in the revenue. Space is up significantly for us. Radar is up, as you would expect. Other sensors and effectors—if you think effectors—that is up significantly in our revenue so far this year. Those are things that the customer needs delivered as fast as possible. You will see that across our entire portfolio of roughly 300 programs. William L. Ballhaus: One of the best indicators of that is, again, if you look at our domestic business, how it is up 17% year over year. A couple of years ago, this is where a lot of our development programs existed in the portfolio, and you can really see now the phenomenon of us having completed the development programs, transitioning into low-rate production, and now starting to ramp up. There are a lot of things that we are seeing in the portfolio and the business that we are excited about. Analyst: That is great. Thank you. Operator: Thank you for your question. At this time, we would like to remind you, if you would like to ask a question or an additional follow-up, please press star 1 to raise your hand. To withdraw your question, please press star 1 again. There are no further questions at this time. Oh, pardon me. Next question comes from the line of Peter J. Arment from Baird. Peter, your line is now open. Peter J. Arment: Hey. Thanks. Good afternoon, Bill, Dave, Tyler. Nice results. Tyler Hojo: Hey. Peter J. Arment: Bill, it has been a common theme the last few quarters that you have talked about the ability to stage material earlier and better align your supply base that is leading to better performance on the top line. Could you give a little more insight into that staging or a little more color around it? William L. Ballhaus: I think it has been one of the big improvements in the business, and we are not done—we still have work to do on this front—but you can see the impact of our efforts in this quarter, the linearity, and our outlook for the year. If we go back close to three years ago, we really swung the pendulum hard on our material focus to a just-in-time delivery model. This was largely because of the buildup in our net working capital and our need to address that. We swung the pendulum hard, and the upside is we have been able to reduce our net working capital by about $250 million over the last couple of years. But it introduced some constraints in being able to accelerate our backlog conversion. It was not so much that availability of material or items in our supply chain were hard to get; it was that we staged the delivery to the right because of the net working capital buildup in the business. Over time, we have worked to accelerate the delivery of material, which has led to accelerations that we cited into past quarters. But that led to a bathtub in the future quarters that made it hard for us to forecast what those quarters would look like because we had a lot of unknowns associated with filling the bathtub and trying to accelerate more material. Over the last several quarters, we have focused on pulling our supply chain to the left—bringing the due dates for material ahead of our need date—so that we have more flexibility and more degrees of freedom in how we convert our backlog. That has translated into a higher organic growth rate and our ability to convert backlog faster than we thought we would be able to coming into the year. It is a great shift in the business. We are really excited about it. We have more work to do, but for future quarters it gives us much better visibility into our deliveries, and we can incorporate that into our forecast. That is a pivot and a transition that we have made this quarter. Hopefully, that is helpful in explaining the dynamics. Peter J. Arment: Very helpful. And you mentioned you had the strongest bookings quarter for the CPA—the Common Processing Architecture—so it sounds like momentum is really building there. What other color can you give us around the CPA that you are seeing with customers? William L. Ballhaus: We have a number of different degrees of freedom to drive there. We have always said that as we increase production, the follow-on bookings would come, and we certainly are seeing that—this quarter was evidence of that. We are seeing strong demand for our current products, and this is an area where we have differentiation in the market. There are certain security standards that we are the only ones that can meet, so we have a nice moat around this business. As we have made progress on the development programs, it has given us the opportunity to focus on the next set of innovations we want to bring to the market. That is showing up as higher performance for our current form factors—getting the latest processing and memory capabilities into the hands of our customers with our common processing architecture wrapped around it. Maybe even more exciting, we are driving into smaller form factors and secure chiplets, which we think opens up a big TAM for that capability. There has been a lot of progress over the last couple of years on our development programs and our technology. The production follow-on orders are coming as a result of that, and we see a lot of room to run into different form factors to open up the market. Eventually, over time, as we take our mission-critical processing to the edge and increase performance while driving to smaller form factors, we see ourselves providing the compute infrastructure needed to have AI distributed across the battlespace. That is where we see being able to take this capability in the future. Operator: There are no further questions at this time. I will now turn the call back to William L. Ballhaus, CEO, for closing remarks. William L. Ballhaus: With that, we will conclude our call. We really appreciate everybody's participation and interest and look forward to getting together next quarter. Thank you.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Talen Energy Corporation First Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. 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 Sergio Castro, Vice President and Treasurer. Please go ahead. Sergio Castro: Thank you, Kathy. And welcome to Talen Energy Corporation’s first quarter 2026 conference call. Speaking today are Chief Executive Officer, Mac McFarland, President, Terry L. Nutt, and Chief Financial Officer, Cole Muller. They are joined by other senior executives to address questions during the second part of today’s call as necessary. We issued our earnings release this afternoon, all of which can be found in the Investor Relations section of Talen Energy Corporation’s website, talenenergy.com. Today, we are making some forward-looking statements based on current expectations and assumptions. Actual results could differ due to risk factors and other considerations described in our financial disclosures and other SEC filings. Today’s discussion also includes references to certain non-GAAP financial measures. We have provided information reconciling our non-GAAP measures to the most directly comparable GAAP measures in our earnings release and the appendix of our presentation. With that, I will now turn the call over to Mac. Mac McFarland: Great. Thank you, Sergio, and good afternoon, everyone. We appreciate your interest in Talen Energy Corporation, and we look forward to the discussion during our Q&A. I will start with our first quarter results. In the first quarter, we delivered strong operational and financial results, including strong plant performance during the winter cold events, and we are off to a good start to the outage season. In fact, we are in start-up at Susquehanna, slightly exceeding our planned outage duration. Terry and Cole will discuss all of this in more detail later. Also in the first quarter, we signed a Cornerstone transaction advancing our Talen Energy Corporation flywheel strategy and adding meaningful free cash flow per share growth through acquisitions. Today, we are reaffirming our 2026 guidance and providing a preliminary view of our 2027 and 2028 outlooks. Our 2026 guidance does not include the Cornerstone assets; however, we expect to close as soon as this summer and we will update 2026 guidance once we close. We recently closed on the financing for the Cornerstone acquisition, which positions us to close as quickly as possible once we obtain all regulatory approvals. Cole will explain why we acted now in more detail. In short, the carry cost of funding now should be more than offset by closing as soon as possible. We have also reduced market volatility risk and replaced some higher-cost debt. Our preliminary 2027 and 2028 outlooks do include the Cornerstone assets as well as other updates, including higher current forward mark-to-market values from March 31 of this year, improved financing costs, and several other changes. These outlooks show significant year-over-year growth in free cash flow per share and meaningful upside versus the outlook we shared this past January. This demonstrates the strength of our business and our continued ability to return cash to shareholders through meaningful share repurchases. These outlooks also imply we are trading at double-digit free cash flow yields, which we do not believe reflect our increasingly contracted portfolio, and that does not include the other levers that we have for further upside, and Cole will walk you through those later. Looking ahead, nothing has changed in our Talen Energy Corporation flywheel strategy. Our direction of travel remains the same. We continue to believe in data center demand for megawatts. We are building a pipeline of both powered land and new-build options. Terry will walk you through these development activities and how we see the market evolving towards what we call a hybrid model, which uses existing generation for speed to market and is supplemented by new build in later years. Some of you may remember me saying that 2025 was a year of options and 2026 will be a year of market rationalization. While not going into specific project details, we will provide a high-level view of our development portfolio today. We still do expect rationalization across projects in 2026. All that said, we are building a pipeline of real opportunities that can win. With that, I will turn the call over to Terry. Terry L. Nutt: Thank you, Mac, and good afternoon, everyone. For the first three months of 2026, we are reporting $473 million of adjusted EBITDA and $350 million of adjusted free cash flow. A comparison of these amounts to the same quarter last year provides clear evidence of the accretion Talen Energy Corporation has achieved through acquisitions and fundamental growth in the business. Our fleet achieved strong levels of safety and reliability during the quarter. This is even more noteworthy given the frigid temperatures and icy conditions that were present in late January and early February. We are currently in the middle of our spring outage season across the fleet. Our refueling outage at Susquehanna Unit 1 has progressed well, including executing work similar to what we had on Unit 2 last spring. The current outage has been more efficient due to the learnings that we had from last year, and it has resulted in the unit being synced back to the grid yesterday. I would like to thank the men and women of Talen Energy Corporation who continue to demonstrate strong operational and safety performance. Without their efforts, none of this is possible. I would also like to welcome the employees from Freedom and Guernsey who were onboarded to Talen Energy Corporation in April and congratulate them on their strong safety records since start-up. Safety remains our top priority across the fleet. Our team worked safely during a busy quarter. Our recordable incident rate was 0.37, which continues to be below industry average. Our fleet ran well and we generated approximately 16 terawatt-hours of electricity, achieving a 55% fleet-wide capacity factor as our intermediate and peaking assets continue the trend of higher run times to support the grid. We continue to see tightening markets driven by increased demand. In Q1, we saw approximately 3% of incremental deliveries on a weather-adjusted basis in PJM compared to the same period in 2025. This is a clear sign of demand growth that supports our view that energy demand will increase the dispatch of our flexible fleet. Our first quarter generation from 2023 through 2026 increases every year. During this time, our intermediate and peaking assets, in particular Montour and Martins Creek, had significantly higher run times than the same quarter in the prior year, continuing the trend that we have seen the past several years. In relation to spark spreads, we have seen a continued appreciation in the forward curves for the remainder of 2026 through 2028, with the growth in spark spreads across PJM inclusive of the zones where our generation is located. PPL zone spark spreads have seen appreciation since July, but not as pronounced as the moves in PJM West Hub. We believe that some of this price action that is resulting in widening term basis between West Hub and PPL zone is based on recency bias due to transmission work impacting the zone and not fundamental factors. Our expectation is that this basis will tighten as the transmission network and load evolve. Summer spark spreads continue to move higher driven by fundamentally tight market conditions in PJM. This is even more evident as we have seen increased instances of demand-driven volatility widening cash market spark spreads, which in turn is helping to drive the term sparks higher. This is beginning to validate our earlier views that the market response would come as fundamental drivers are seen in the cash market. As I mentioned earlier, demand continues to increase with no meaningful increase in supply. This demonstrates the value of steel in the ground. We are working diligently to close the Cornerstone acquisition that we announced earlier this year. It will further diversify Talen Energy Corporation’s generation portfolio and enhance our large load contracting opportunities. As an update on the regulatory approvals, we filed our 203 application with FERC in January and anticipate approval by this summer. The HSR waiting period expired in March, meaning that we have completed the DOJ approval process. And lastly, there was a hearing with the Indiana Utility Regulatory Commission in April and the unopposed final order was submitted. We anticipate approval in Indiana by this summer. I would like to give you some color on the land development and contracting growth options Mac mentioned earlier. In the near term, we have several 1+ gigawatt opportunities for long-term PPAs at our existing sites as well as other sites in Pennsylvania, and we are advancing potential opportunities across the remainder of our footprint. In relation to specific site development opportunities for land we are currently working on, we are progressing on several different fronts. Those opportunities include land of up to 3 thousand acres in total that can support 3 to 4 gigawatts of data center capacity using current compute density. The zoning of the property ranges from fully zoned acreage to zoning activity that is still in process, such as our Montour site. Additionally, we have the ability at several of these sites to install new generation of 500 megawatts to 1 gigawatt. As part of our strategy, we are advancing a mix of gas and storage generation projects totaling over 2 gigawatts at our sites to support data center contracting and reliability needs. Last week, we submitted several new projects into PJM’s Cycle 1 interconnection study cluster. These projects are a mix of generation solutions including CTs, batteries, and CCGTs. These new generation sources, in combination with our existing assets, provide us the ability to offer a solution to customers that is a hybrid approach of receiving power from existing generation now and new generation down the road. As we have stated before and will reiterate today, development of new generation will need to be done either through long-term offtake agreements or through the PJM RVP, with a focus on financial discipline related to investment return. This initial generation development is capital-light with no material capital required during the initial stage. As development advances, spending will be tied to customer contracts and underwriting, and we will likely utilize project financing structures related to these projects. With that, let me turn it over to Cole to cover our financial results. Cole Muller: Thanks, Terry, and good afternoon, everyone. Looking at our financial results for the first quarter, we reported $473 million of adjusted EBITDA and $350 million of adjusted free cash flow. Adjusted EBITDA more than doubled and adjusted free cash flow quadrupled year-over-year, showing the impact of the Freedom and Guernsey acquisitions that we closed in Q4 last year. These results were also driven by higher prices and spark spreads, higher capacity and ROR revenues that started in June 2025, and the ongoing AWS PPA ramp. Our adjusted free cash flow also benefited from reduced cash tax payments largely related to the impacts from our Freedom and Guernsey acquisitions. We are reaffirming the previously announced 2026 guidance ranges. We had a strong first quarter, though it is not our practice to make adjustments this early in the year. Our adjusted EBITDA range is $1.75 billion to $2.05 billion and our adjusted free cash flow range is $980 million to $1.18 billion. These ranges do not include any contribution from the pending Cornerstone acquisition. We expect to provide an update to 2026 guidance after closing the transaction. We remain committed to maintaining sufficient liquidity and keeping our long-term net leverage ratio below our stated target of 3.5x. As of March 31, our forecasted 2026 net leverage ratio was 3.1x. I will note this excludes any impacts from the Cornerstone acquisition and the associated debt that we raised back in April. Upon closing the Cornerstone transaction, we expect to maintain the ability to achieve below 3.5x net leverage by year-end 2026. We recently secured attractive acquisition financing for the Cornerstone assets, which also provided us an opportunity to optimize the balance sheet. We raised $4 billion of senior unsecured notes in a private placement across five- and seven-year tranches at a blended rate just above 6.25%, de-risking the Cornerstone acquisition financing at attractive pricing and allowing us to be ready to close upon regulatory approvals. We also took out our $1.2 billion senior secured notes that had an 8.625% coupon, delivering more than $40 million per year in interest expense reduction, which adds nearly $1 to our free cash flow per share. I will spend a moment to give more color on why we made the decision to raise the financing ahead of regulatory approvals. First, doing this now, we avoided potential risks to market availability, such as impacts from geopolitical events and upcoming midterm elections, as well as locked in attractive long-term rates in the process. We also removed any complications if we needed to raise funds while potentially in possession of MNPI in future months. Second, having the financing already in place ahead of regulatory approvals speeds up time to close, meaning we can own the asset sooner and benefit more from the peak summer period. We estimate the value of one additional month at approximately $30 million in additional cash flow, which far outweighs the net negative carry of only a few million dollars a month. Note that a portion of the proceeds allowed us to take out the more expensive senior secured notes last week and immediately realize interest savings. Considering where things stand with the regulatory approval processes, we feel that this was the right time to lock down the financing. In eliminating the senior secured notes, we have materially reduced our secured debt composition from approximately 60% of total debt down to 30%, leading to improved credit ratings across multiple agencies. Concurrent with this financing, we are enhancing our liquidity through commitments to upsize our existing revolving credit facility to $1.35 billion and our standalone letter of credit facility to $1.5 billion. We are also extending the LCF maturity through December 2029. These credit facility changes go into effect upon closing the Cornerstone transaction. We show a preliminary update to our 2027 and 2028 outlook that includes the Cornerstone assets along with impacts across the business since last September’s Investor Day, including spark spread expansion through March 31 and impacts from the recent financing that I walked through a moment ago. We also separately include the expected impacts of executing on our share repurchase program, assuming we utilize 70% of available free cash flow. In our base case, we hold share count flat, projecting free cash flow at approximately $34 per share in 2027 and approximately $36 per share in 2028, a 15% improvement from our January estimates, which included the Cornerstone acquisition. When factoring in our share repurchase program, we project approximately $41 per share in 2028, a 30% increase to what we showed back in January. At these projected levels, our free cash flow yield is about 11%. Note that this assumes we use 70% of free cash flow, leaving approximately $1 billion of additional cash available across 2027 and 2028 as more upside for shareholders. In addition, we continue to see upside through the flywheel with accretive M&A—which we demonstrated with the Freedom and Guernsey and now Cornerstone acquisitions—and also through acceleration of the Amazon ramp established in our existing PPA, new data center contracting opportunities, and further spark spread expansion as markets continue to tighten. In fact, we have already seen significant improvements in spark spreads since the March 31 pricing date of approximately $5 per megawatt-hour beyond what is shown in these numbers, which translates to several more dollars per share if marked today. We also expect the recent widening of the West Hub to PPL zonal basis to revert to more recent average levels. Note that in our outlook here, we include the most visible mark that reflects this elevated zonal basis, though as Terry mentioned earlier, we do not see this recent shift being fundamentally driven. A $5 per megawatt-hour impact across 30+ terawatt-hours in PPL zone presents a compelling upside opportunity, particularly as load growth occurs within the zone. Each of these opportunities could provide 10%+ in additional free cash flow per share growth beyond what is shown here, offering a compelling set of further growth opportunities. I should note that there may also be additional upside in 2026 that is not reflected here based on closing the Cornerstone acquisition this summer and/or executing on our share repurchase program throughout the remainder of the year. I want to emphasize that we will continue to maintain capital discipline with a clear focus on accretive levers that meaningfully increase free cash flow per share available to investors through the Talen Energy Corporation flywheel. We show the overall contracted profile of our business when our existing nearly 2 gigawatt PPA reaches full ramp inclusive of the megawatts and cash flows from the Cornerstone assets. With 35% of our gross margin contracted in the long term, contracted cash flows with the AA credit counterparty will be our largest revenue stream, de-risking long-term exposure to PJM capacity and energy markets. In addition, for every incremental 1 gigawatt PPA that we secure, our long-term contracted gross margin increases by 15%, meaning that our next 1 gigawatt PPA may increase our long-term contracted gross margin to 50%. We believe this is a differentiated position with growing cash flows that are becoming more durable. I will now turn it back to Mac. Mac McFarland: All right. Thanks for joining us. That is our prepared remarks. I will now turn it back to the operator and open the line for questions. Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please limit yourself to one question and one follow-up. Please stand by while we compile our Q&A roster. Your first question comes from the line of Shahriar Pourreza with Wells Fargo. Your line is now open. Shahriar Pourreza: Hi, good afternoon team. It is actually Constantine here for Shar. Congrats on a great quarter and the development updates. Maybe just starting off on the PJM backdrop with the site development for data centers. Is there tentative framework on things like new capacity versus existing capacity matching, like a one-to-one ratio? Or how flexible would you anticipate that to be going forward, especially as the reserve auction is trying to kind of back-solve this capacity issue? Cole Muller: Yes. Thanks, Constantine. As we have talked about previously, we continue to believe there is opportunity to contract off of our existing generation. Obviously, generation is an important component in how to incentivize a lot of new resources. It is a topic for a lot of discussion right now. As Terry mentioned in the remarks, we do see bringing new generation on the back of PPAs with existing generation. The hybrid model that we have been talking about and working on will help incentivize both contracting near term as load grows over the next three to five years but also bring new generation in the 2030 and beyond timeframe. Certainly not in a one-for-one manner, but we do think a percentage—as you have seen in some other deals over the last number of months—of new build will be part of the solution. Mac McFarland: And to follow up on what Cole said, we have a reserve adequacy issue that has been identified. As we have said for a number of years now, that is really a fifty-hour problem. We are looking at opportunities to solve that. It does not necessarily need to be one-to-one for baseload generation because there are plenty of hours where there is ample energy available. What solves those fifty hours? That is why we have a mix of both batteries—which are the next quickest to market—CTs as the most cost-effective thereafter, and CCGTs for the long run. We are looking at it all in the construct, but we do not think a 1 thousand megawatt PPA requires 1 thousand megawatts of additionality. You can solve that with a number of things to increase the reserve margin for that load. Shahriar Pourreza: Okay. So just to ask a little bit differently, it does not have to be a CCGT-based solution for some of the site development that you are looking for, right? Mac McFarland: No. We actually think that if you look at what is likely to happen in the RVP, you are going to see upgrades. You are going to see CTs converted to CCGTs, which is effectively an upgrade of an existing machine. You are going to see batteries and peakers be the least-cost solution. In our broad-based coalition that we put forth for the RVP, we support a pay-as-bid construct to drive home the affordability issue that is out there. We think that is the least-cost way to do that. CCGTs happen to be at the steeper end of that cost curve, and we think there are more effective ways to solve the reserve margin need. Terry L. Nutt: And to add to Mac’s comments, when you take a look at our existing fleet-wide capacity factor, outside of those fifty hours a year where you have real capacity needs, you can see that there is excess generation on the grid that can support more megawatts outside of those peak periods. If you go back to the slide that we presented, you see this slow, steady creep up in demand, yet there is still excess capacity. That is the reason why you do not need a one-for-one construct in the grand scheme of things. We are solving for the peak hours of the day in very tight periods of time, which, as Mac said, is a capacity issue, not an overall energy issue. Shahriar Pourreza: Maybe quickly following up on the regulatory issue here: with the PJM colocation rules progressing at FERC, how comfortable are your customers in terms of progressing with some of the data center development and the site development while rules are still being finalized? Is there any threshold to look out for? Cole Muller: I would not say there are thresholds. There is a lot of dialogue about where things are going. You mentioned the colocation docket, there is obviously the RVP, and there are other related matters that PJM and others are talking through. We still see significant interest in connecting to the grid and taking power as soon as possible, and that is going to be done off of existing generation. We think that hyperscalers and others will understand that they need to incentivize and bring new generation in five-plus years, but there is no specific threshold they are working towards. Terry L. Nutt: To add a bit more color, the existing development and construction that we see at data center sites across Pennsylvania, using the site near our Susquehanna facility as a great example, is continuing at a steady pace. They are moving forward, getting data halls filled, getting things electrified. We do not see a slowdown in that at all. The hyperscalers’ earnings calls last week showed the continued trend in their businesses. The revenue streams are there, they are moving forward fast, and the capital is hitting the ground in tangible infrastructure. Operator: Your next question comes from the line of Rinny Raveena Singh with Bank of America. Your line is now open. Rinny Raveena Singh: Hi, guys. I just had a question first on the power prices. I know you said that PPL is trading a little bit different than PJM West just because of recency bias. When do you think we might see a correction in that? And is there a specific catalyst to watch for? Terry L. Nutt: Let me start on this one, and then I will hand it over to Chris, who is with us here today. There has been a lot of transmission work in and around PPL zone and other parts of PJM that has been worked on over the last several months. There is a lot of temporal, short-term congestion that we are seeing across the board. Our view, as mentioned in the prepared remarks, is that as load evolves and pops up in PPL zone and other load pockets, we think that basis would trend back and come in line. Chris, do you want to add anything? Christopher E. Morice: Yes. The auction process itself has some illiquidity and timing issues, and reflected in those marks is how those auctions clear. Those disconnect from some of the projections that we are making. Near-term acuteness in basis as a result of this ongoing transmission work is bleeding into that term price. Picking a time in which that reverts or comes back to something more normal will happen through time as that load appears, not as a binary instantaneous moment in time. Cole Muller: We use the most visible marks out there, and we use the PPL zone mark. In the appendix, we show the West Hub–PPL basis over time. For multiple years it traded very narrowly in a range. That has broken out over the last couple of months for the reasons Terry and Chris noted. From a market perspective, we stay true to what is visible, which is why we are calling it an upside opportunity. Mac McFarland: And just one further follow-on: while the basis has widened, the entire market is up. The term market is starting to rationalize supply-demand. While the basis widened, marks were up versus March 31, and even further if you went to yesterday. We think the basis issue is temporal. Rinny Raveena Singh: On the load growth and new build, how are you thinking about new prices for CT or CCGT? And how do you manage the risk of the RVP to fill in capacity price, and the energy risk—focus on long-term data center contracts at higher prices? Terry L. Nutt: You have seen a significant amount of appreciation in the turnkey cost for a CCGT and similarly for combustion turbines. In our proposal for the RVP—and consistent with what PJM has discussed—we think it should be a capacity product. If you build a CT on the back of a reliability backstop award, the capacity revenue stream should underwrite or incentivize that. Energy and ancillaries are second tier. The ability to get that award for multiple years—PJM has talked about up to 15 years—is key. The biggest challenge is not getting additional resources, it is financing those resources and the underpinnings to underwrite and finance them. We think PJM’s proposal largely hits the mark, with some modifications we would like to see. Operator: Your next question comes from the line of Analyst with BNP Paribas. Your line is now open. Analyst: Thanks for taking my question. On the change in free cash flow per share to 2028—last quarter you showed $31–$40 including Cornerstone, now it moves to $41+. You are not leaning on upside drivers like M&A and PPAs in there. How much of that roughly $10 increase is driven by spark spread expansion versus balance sheet and other factors? And any assumption embedded of higher capacity factors on the fleet? Cole Muller: We are not going to get too specific on all the different drivers line by line, but it is all in there. We showed the impact of the share repurchase program separately. The other levers—Cornerstone numbers and spark spreads, among others—get you to a directional answer, but we are not breaking it down further. Analyst: On the backstop option broadly, is there a view of if they will even clear 15 gigawatts—batteries, CTs, some CCGTs—by 2031 with queue reform? Do you think some goes into the second stage of the clearing process, or would the bilateral process do most of the heavy lifting? Terry L. Nutt: When you take a look at cost and affordability, there are some obvious choices on technology. PJM’s cost of new entry benchmark is a CT, which is the most affordable. Certain CTs and batteries can be built more quickly, which matters for reliability backstop timing. CCGTs have longer turbine lead times. The interconnection queue needs clearing and prioritization—that is one area where we are actively engaged in the stakeholder process. Ultimately, the queue matters quite a bit to get new resources online. It is good progress—we will see it push forward. Operator: Your next question comes from the line of Michael P. Sullivan with Wolfe. Your line is now open. Michael P. Sullivan: Why not lean into the development sites that are already fully zoned versus ones getting more public pushback? On the fully zoned ones, what is the hang-up? Terry L. Nutt: On that slide we wanted to give a flavor of the team’s work across the board for well over a year. The ones you hear about publicly—like Montour—we continue to progress, but we have others not in the press that we are pushing forward as well. We wanted investors to understand the broader context. As we think about the hybrid approach—finding some new generation to add—we think that solution checks a lot of boxes for hyperscalers. It is not just zoning; it is also whether you have some new gen to go with it and what existing gen you have on the back of it. Mac McFarland: I do not think there is a hang-up. We are developing a set of options and they all have different statuses as they move through the process. Sometimes one site that has not reached zoning might advance faster because it is preferred by a counterparty at that stage. Others are more zoned and come in. We are bringing along all of these options; Montour is not the only thing in our development pipeline. Michael P. Sullivan: On pricing action, things have moved a lot in the last couple weeks in a shoulder season. What is driving that? And on basis, it seems like it is still going the wrong direction. Terry L. Nutt: One of the things you are seeing is when cash market activity in real-time gets constrained and tight, the term market responds. In late January and early February, there was a significant pricing event for eight or nine days. The market reacted. More recently, during spring outages—when you have a traditional large set of outages—even modest weather can drive price volatility and cash pickup, and the term market feeds off that. Christopher E. Morice: The price appreciation is something we have been tracking and identifying for several quarters. We would highlight our current hedge percentages in the outer years—below our historical ranges—reflecting our conviction in those periods. Fundamental drivers in the cash market are manifesting through the curve over time. Operator: Your next question comes from the line of Agnieszka Storozynski with Seaport. Your line is now open. Agnieszka Storozynski: I wanted to talk about Ohio. You have owned Guernsey for quite some time, and there has been chatter around data centers in Ohio. We heard comments from AEP about dissatisfaction with load interconnection pace in PJM. We also saw behind-the-meter deals. You showed opportunities in Pennsylvania. Could you comment about Ohio, especially vis-à-vis Guernsey? Terry L. Nutt: We noted specific activity in Pennsylvania, but we have also been active in Ohio. We have talked to customers in and around the Guernsey site and across the broader state. We restructured the leadership team at the end of last year and put more focus on different parts of the market—Ohio is definitely one of them. It is a very established market in and around Columbus with several hubs, and we are pushing there as we are in Pennsylvania. Mac McFarland: We like Ohio. We have amassed over 4 gigawatts of gas fleet across there, including a plant in Indiana that serves Ohio. We did that for a reason. The fundamentals and price appreciation are attractive, and it does not have a negative West Hub basis. We are developing options in Ohio, as we are in Pennsylvania, but we are not going to get into specifics. Agnieszka Storozynski: On slide 12 and the Talen Energy Corporation flywheel, it was my understanding that after M&A the next step is monetization of assets. You show M&A as the first upside driver. Is it fair to assume we would first see monetization before another M&A transaction? Mac McFarland: There is nothing to the order of the items on the right-hand side; we kept consistency with prior presentations. In a perfect world, you would add assets, contract them, recycle capital, then add assets again. In reality, we make strategic actions consistent with the flywheel that can be lumpy. We are diligently working to increase our contracted energy margin—toward 50%—and looking at different opportunities. These things take time, and we feel like we have a good pipeline to get things done. Operator: Your next question comes from the line of William Appicelli with UBS. Your line is now open. William Appicelli: On the levelized cost of energy for new build, how wide is that spread—even for a CT—relative to current market conditions? Cole Muller: The gap is wide on a merchant basis for any new build. That is why we—and many others—will do new build supported by some kind of commitment, whether a bilateral contract with a hyperscaler or through the RVP and PJM. That gap has to be bridged for us to make a large commitment in an accretive manner. Current capacity clears are not sufficient to stimulate new build. Different technologies have different LCOE; combined cycles are most expensive but have more energy margin—tradeoffs. The gap is not a couple of bucks; it is pretty large. William Appicelli: Any concerns about a bifurcated market where new incremental megawatts are getting sufficient payment but existing generation is not? Mac McFarland: It is a concern raised broadly, but we do not share the same level of concern because we supported the RVP as a one-time action. The capacity cap was extended for 2029/2030 and 2030/2031—we supported that. It gives time to create and exercise the RVP. It is a valid topic, but we are comfortable with the path. William Appicelli: Lastly, on new gen options, would that include any repowerings or uprates of your existing assets? Terry L. Nutt: It does not. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Your line is now open. Julien Dumoulin-Smith: Coming back to the ratepayer protection pledge from March—does that change anything about your approach to the RVP or strategy? Mac McFarland: The hyperscalers’ pledge to pay their fair share is noted, but there is still an open debate about what “fair share” is and how it is determined within PJM’s market constructs and jurisdictions across PJM, the states, and FERC. Implementation is working its way through. We still see the ability—because of speed to market—to contract through existing assets and to utilize the hybrid model to bring incremental generation for additionality and ratepayer protection. It will take time to evolve. Hyperscalers have not signed up to pay for everything—that is not how restructured markets work. Julien Dumoulin-Smith: As you talk about 500 megawatts to 1 gigawatt of new gen per site, are you thinking about tethering that new gen back to the one-plus gigawatt site opportunities? Mac McFarland: Yes, that is the concept in the hybrid model. We have multiple sites with 500 megawatts to 1 gigawatt potential each, and we recently submitted just over 2 gigawatts into PJM’s cluster. Tethered means pairing existing PPA-supported generation with new resources—batteries or CTs to solve the fifty-hour adequacy problem now, and CCGTs later when you need more energy coverage. You can put those on the back of existing PPAs and solve resource adequacy at a lower cost than immediately building CCGTs, which today can be $3 thousand to $4 thousand per kilowatt to build—far more than $500 per megawatt-day capacity revenues would cover. Julien Dumoulin-Smith: To bring it to conclusion, would an RVP award be the moment that could unlock contracting? Or a bilateral could come first? Terry L. Nutt: There are two paths: a direct offtake agreement with a hyperscaler or an RVP award. It will depend on which path comes first; both can support bringing new megawatts online. Operator: Your next question comes from the line of Nicholas Amicucci with Evercore. Your line is now open. Nicholas Amicucci: Happy Cinco de Mayo. A quick follow-up on Julian’s question: is it fair to say the new generation could be supported either by a long-term DC offtake agreement or the RVP? How do you frame capital deployment—Is RVP more of a fallback, or are economics competitive with a hyperscaler PPA? Mac McFarland: It is not a discrete choice between the two. We will participate in the RVP and in bilateral markets via the hybrid model. The RVP is a centralized, one-time backstop to address resource adequacy, while there is a parallel bilateral market to bring additionality. Bidders will have to decide their capacity and energy bids. CCGTs require a bigger capacity component and energy margin expectation, but we think there are least-cost solutions—batteries and CTs—that can come in under those costs. Nicholas Amicucci: On buybacks, you referenced a double-digit free cash flow yield. You did $100 million in Q1, with $1.9 billion remaining through 2028. Should we expect any acceleration to the Q1 pace, particularly as Cornerstone closes and leverage trends below target? Mac McFarland: When we have the opportunity and can exercise, we like to get in and buy the shares back. $100 million is part of the $2 billion allocation, and we plan to continue at scale over time. Cole Muller: Slide 12 breaks out the share repurchase impacts. To get there, we will be doing things at scale over time. We are committed. Operator: Our final question comes from the line of David Keith Arcaro with Morgan Stanley. Your line is now open. David Keith Arcaro: Could you give any color on what you are hearing from potential counterparties? Are they waiting for more clarity on the backstop procurement? Are there milestones—final PJM rules or running the procurement—that would accelerate contracting? Terry L. Nutt: It is a balance. There is pretty good consensus now on the reliability backstop; we are talking about details. Stakeholders, including customers, have gotten comfortable with that. Some discussions have moved more to the hybrid approach—bringing new generation and adding that to the solution mix. We do not think anything is hindering folks from transacting. Would they prefer 100% clarity? Yes. But they also have demand they need to meet for their customer base, so it is a little of both. Mac McFarland: We have been providing comments on the RVP, including not making it such an extended program. In stakeholder sessions over the last couple of days, PJM started to reformulate timing to be this fall, which we think is good. Anything that brings clarity helps. But capital plans at the hyperscalers are not slowing down. Clarity helps, but it is not necessary. Unfortunately, we are going to have to end it there. I do see that there are a couple more questions in the queue. Apologies to everybody we did not get to—we have run out of time. We appreciate you joining us today and your continued support of Talen Energy Corporation. In summary, we have a strong 2027–2028 outlook with multiple levers we can pull and further upside from spark spread expansion. We are also hopefully pulling back the curtain a bit to show that we are set up to execute on growth through our development pipeline and the opportunities we have been working on for some time. We are excited about that. We look forward to powering the future. Have a great day. Operator: Thank you for your participation in today’s conference. This does conclude the program. You may disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Lucid Group First Quarter 2026 Earnings Conference Call. Please be advised that today's conference call is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker for today, Nick Twork, Vice President of Communications. Please go ahead. Nick Twork: Thank you, and welcome to Lucid Group's First Quarter 2026 Earnings Call. Joining me today are Silvio Napoli, incoming CEO; Marc Winterhoff, our Interim CEO; and Taoufiq Boussaid, our CFO. Before handing the call over to Silvio, let me remind you that some of the statements on this call include forward-looking statements under the federal securities laws. These include, without limitation, statements regarding the future financial performance of the company, production and delivery volumes, vehicles and products, studios and service networks, financial and operating outlook and guidance, macroeconomic, geopolitical, policy and industry trends, tariffs and trade policy, company initiatives, leadership changes and other future events. These statements are based on various assumptions, whether or not identified in this communication and on the predictions and expectations of our management as of today. Actual events or results are difficult or impossible to predict and may differ due to a number of risks and uncertainties. We refer you to the cautionary language and the risk factors in our annual report on Form 10-K for the year ended December 31, 2025, subsequent quarterly reports on Form 10-Q, current reports on our Form 8-K and other SEC filings and the forward-looking statements on Page 2 of our quarterly earnings presentation available on the Investor Relations section of our website at ir.lucidmotors.com. We undertake no obligation to revise or update publicly any forward-looking statement for any reason, except as required by law. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results is available in our earnings press release issued earlier this afternoon as well as in the earnings presentation. With that, I'd like to turn the call over to Lucid's incoming CEO, Silvio Napoli. Silvio, please go ahead. Silvio Napoli: Thank you, Nick. Good morning, everyone, and thank you for joining. This is my first earnings call with Lucid and as already had the opportunity to share with many of you, I'm extremely pleased to be here and part of the Lucid team. With not even a month with the company, I'm still at a very early stage, so I'll keep my remarks brief. Let me start by reiterating why I'm here. Lucid brings together state-of-the-art technology, a premium product platform and a unique opportunity to build a strong, enduring position in a transforming industry. And that combination is compelling. That is the reason that brought me here. Today, 3 weeks into the journey, I'm even more convinced that this is the case. In my first days, I've had the opportunity to meet with our teams in Newark, our headquarters and in some of our key markets. In fact, on the very first day, I traveled to visit a factory in Arizona, the heart of Lucid. Last week, I traveled to Saudi Arabia to witness a strong brand recognition in this fast-growing market and to see firsthand the progress of our new factory under construction. As you know, this manufacturing center is an essential part of our commitment to drive scale, profitability and to position Lucid on the world stage. While there, I've also been meeting with employees, shareholders and with local stakeholders. And everywhere I go, I'm focused on listening and beginning to understand where we are strongest and where we need to improve. And what stands out immediately is the incredible domain competence and outstanding motivation of the Lucid team and the strength of our product. At the same time, it's clear that realizing Lucid's full potential will require sharper focus and consistent execution, particularly around simplification, prioritization and speed. My near-term priorities are straightforward: recenter all our activities around our customers, ensure the organization operates with clarity and accountability, focus resources on the highest impact areas and embed a stronger culture of cost and capital discipline across the business. A central objective over time is to build a more self-sufficient company, one that progresses towards funding its own growth. And that means being rigorous in delivering on our commitments and how we allocate capital to few vital priorities. In simple words, this means making clear choices on where to invest and just as important, where not to. At the risk of stating the obvious, I'm not in the position to comment on results reached prior to my joining. Accordingly, I trust you will understand that today I will not comment on any specifics, including the outlook. My goal over the coming weeks is to deepen my understanding of the business so I can engage more fully with you in the future discussions. With that, I'll turn the call over to the team to walk you through the Q1 results. Thank you. Marc Winterhoff: Thank you, Silvio, and good afternoon, everyone. Let me start with the key takeaways. We expanded our Uber partnership to at least 35,000 vehicles, raised over $1 billion in new capital and ended the quarter with a clear cost reduction program underway. The foundation is solid, and we are building on it. We have made meaningful progress on each of these fronts. Among the highlights. First, we expanded our partnership with Uber to provide a minimum of 35,000 robotaxis, up from 20,000 previously announced and increased their investment to $500 million, up from $300 million, improving our visibility into long-term demand and revenue in a new and growing market. Further reflecting the strengthening relationship between our companies, Sachin Kansal, Chief Product Officer at Uber, has been nominated for election to Lucid's Board of Directors. Second, we significantly strengthened our financial position, raising approximately $1.05 billion, including $550 million investment from the Public Investment Fund through a private placement, reaffirming their continued support and long-term commitment to Lucid. We maintained approximately $2 billion of undrawn commitment under the DDTL after drawing $500 million of cash in April, further enhancing our financial flexibility. Pro forma for the capital raise and the DDTL increase, liquidity at quarter end would have been $4.7 billion, providing ample flexibility to continue to support development of our Midsize platform and the continued build-out of M2. Third, we continue to execute to deliver scale and profitability, delivering $282 million in revenue. Despite the unforeseen geopolitical tensions and logistical obstacles in the region during Q1, our M2 construction never stopped, and we continue to install capital equipment and work towards start of production. The plan remains to ramp up Midsize vehicle production in 2027, and we launched an aggressive cost reduction program targeting cost savings across all areas of the organization in all geographies. Let me walk you through the key updates of the execution of our strategy in detail. Following the framework we laid out at our recent Investor Day, the Lucid Air and Gravity continue to anchor our near-term growth. And our focus here remains execution, quality, delivery and customer experience. Operationally, we produced 5,500 vehicles in Q1, up 149% year-over-year. Despite a temporary disruption, which elevated costs, we exited the quarter trending back toward our cost targets. We delivered 3,093 vehicles, which was flat compared to Q1 2025. When Gravity deliveries were temporarily impacted by a supplier issue, we acted quickly, resolved it and resumed deliveries with additional quality controls. As deliveries resumed, we saw improving momentum through the quarter, including the highest March deliveries in Lucid history, up 14% year-over-year. We also experienced a strong rebound in order intake, up 144% in North America in March from February, with Gravity driving the majority of demand. In March, we regained our position among the best-selling EVs in our segments. We also continue to make progress on our partnerships for our international distribution, including the official launch of our first retail partnership in Europe, which allows us to scale more quickly in a capital-efficient way. We expect the delivery trajectory to improve through the year. Near-term demand signals are mixed, but we see tailwinds building into the second half. Apart from seasonality, which historically drives greater deliveries in second half, there are numerous other factors which may deliver a lift, including high gas prices, which tilt demand towards vehicles with more attractive operating costs, competitive dynamics, including exits from the Air and Gravity segments, lease cycles, Lucid software updates, potential tariffs on European imports and potential improvements in macroeconomic and geopolitical conditions. As a result, we continue to expect a back-end weighted delivery profile for 2026, but are confident in the long-term trajectory of demand. Our priority now is consistent and predictable conversion of production into deliveries. Central to our framework to scale and drive profitable growth is the Midsize platform. The Midsize platform brings Lucid's signature range, efficiency and driving experience to a much larger TAM and broader set of customers and is key to unlocking scale, affordability and improved unit economics. At our recent Investor Day, we provided a clearer view of the future product portfolio with the expected pricing starting below $50,000, reinforcing Lucid's entry into a more accessible segment of the market. I'm pleased to be able to share that our BOM cost position remains favorable, still tracking below our initial cost estimates. During the quarter, construction on M2 and installation of capital equipment continued, and we remain on track for production ramp-up of the Midsize in 2027. Turning to our third priority, autonomy. In mid-April, we announced the expansion of our partnerships with Uber, increasing their total investment to $500 million and expanding the planned deployment to at least 35,000 robotaxi vehicles. This represents a meaningful increase in both scale and long-term visibility for the program, which generates a new revenue stream through a partnership approach that enables rapid speed to market in a new and rapidly growing market with minimal CapEx. I'm excited to share that we have met all milestones so far in our joint project with Nuro to provide autonomous Lucid Gravities to Uber for commercial launch by the end of the year, and remaining milestones are on track. We delivered 75 engineering vehicles and testing and mileage accumulation is ongoing in several cities throughout the U.S. Starting in mid-April, Uber and Nuro employees are now able to test the end-to-end customer experience, including ordering a robotaxi within the Uber app and choosing from select destinations for drop-off. Our partners at Nuro have also received approval from the California DMV for driverless testing of the Lucid Gravity in the state, making it one of the only a handful of vehicles that have received such approval. This is a key step in paving the way for launching commercial autonomous operations later this year. Looking forward, we are targeting the following milestones as we track toward commercial robotaxi operations in late 2026. This quarter, Lucid will start our production validation builds, which are intended to reflect our production intent design and some of the key robotaxi features like exterior beaconing for customers, interior cameras and consumer interfaces. This build is expected to be completed in Q3 and allows us to begin more comprehensive end-to-end testing with our partners as well as homologation testing and validation. And following the completion of testing in Q3, we anticipate starting regular production of robotaxi vehicles for commercial sale in early Q4 at M1. As you can see, we are well on our way to achieving our goals with our robotaxi program and commercial launch is on track for late 2026. In parallel, we continue to expand advanced driver assistance features across our consumer vehicles. Over time, we expect these features to become an increasingly important source of recurring revenue with subscription-based offerings being launched starting in 2027. In closing, Q1 highlighted areas where we still need to improve execution, and we are taking clear actions to address them. I'd like to close with a few personal words. It has been a privilege to serve as Interim CEO. We delivered 2 years of consecutive record quarters when it comes to deliveries until the end of 2025. We ramped the Gravity throughout 2025, resulting in a production increase of about 100% last year. We've navigated real headwinds and the team's ability to keep moving through them is something I'm proud of. We sharpened and expanded our strategy with a clear and capital-efficient approach to provide leading autonomy solutions, both for robotaxis and personally owned vehicles. We made meaningful progress across our partnerships, including expanded commitments from both PIF and Uber. I'm confident in this team and Silvio's leadership and in where Lucid is headed. And I'm looking forward to continue to contribute as Chief Operating Officer. With that, let me hand over to Taoufiq. Taoufiq Boussaid: Thank you, Marc. I will walk you through the financial results for the quarter, the structural drivers behind them and how recent actions position us to execute against the framework we laid out at the Investor Day. Q1 was disrupted by a temporary stop sale, but the underlying business held and in March, orders and deliveries rebounded. With roughly similar units delivered and lower regulatory credit sales, revenue grew by approximately 20% year-over-year to $282 million in Q1, driven primarily by mix and pricing effects from Gravity. Let me give you the context that makes this number more useful for thinking about Q2 and the rest of the year. We produced 5,500 vehicles in the quarter but delivered 3,093. This gap reflects a combination of the impact of the temporary Gravity stop sale during which finished vehicles sat in inventory pending validation rather than converting to revenue and segment contraction. A key highlight of the quarter was Uber's expanded vehicle commitment and increased investment in Lucid. It matters for 3 reasons. It improves long-term revenue visibility. It derisks the volume ramp into the Midsize era, and it validates our vehicle platform as the reference point for commercial autonomy deployment. This is a durable addition to the capital structure and to the revenue outlook, not a onetime transaction. Gross margin for the quarter was negative 110.4% versus negative 80.7% in Q4 and negative 97.2% in Q1 a year ago. I want to be precise about the walk because the composition matters more than the headline. Three factors drove the sequential decline, lower delivery volume against a largely fixed manufacturing cost base, underabsorption of fixed cost and large regulatory credit revenue in Q4 that didn't repeat in Q1. Partially offsetting these were IEEPA tariff refunds and the lower inventory write-down versus the prior quarter. These costs were tied directly to the stop sale. With that resolved, they don't carry forward. What remains and what we are focused on is the structural trajectory, which includes, as shared at Investor Day, an average of 50% to 60% reduction in unit cost over the coming years. While we saw unit cost spike during the quarter driven by temporary disruption, it trended back towards the targeted trajectory in March. As volume scale into the second half and with the launch of the Midsize vehicle platform, we expect continued structural improvement in unit economics. I want to be clear, the underlying midterm trajectory of unit cost improvement that we described at Investor Day remains intact, and Q1 does not alter it. Turning to operating expenses. This totaled approximately $678 million for the quarter. R&D was $336 million, down sequentially from $361 million, reflecting program level sequencing even as we continue to fund the Midsize platform and our autonomy stack. SG&A increased $22 million sequentially to $304 million, primarily driven by discrete items, including a prior quarter provision reversal. Excluding these items, underlying SG&A was broadly stable. Year-over-year, SG&A increased $92 million with the comparison impacted by a $35 million noncash benefit in the prior year related to the reversal of stock-based compensation. These numbers also don't yet capture the $500 million in savings expected from our recently announced headcount actions over the next 3 years with the near-term impact most significant. Taken together, our posture on operating expenses is straightforward: protect the investments that build long-term competitive advantage, Midsize, autonomy, software and drive discipline everywhere else. Net loss for the quarter was approximately $1 billion compared to $366 million in the first quarter of 2025. The increase reflects the gross margin dynamics we discussed, continued investment in the business, particularly the Midsize platform and higher SG&A with the year-over-year comparison impacted by a discrete benefit in the prior year. Importantly, a significant portion of the year-over-year change is driven by noncash and nonoperating items, including a $274 million unfavorable change in the fair value of derivative liabilities related to movements in our stock price as well as lower interest income and higher interest expense. And as mentioned, it does not reflect the benefits of our recent headcount actions no more recently launched cost takeout initiatives. Net loss in any quarter reflects noncash and nonoperating items that move significantly with our stock price. The operating loss and cash consumption metrics give a cleaner read on trajectory. Our focus remains on improving operating leverage as we scale volumes and continue to drive cost discipline across the business. Turning to liquidity and capital structure. We ended the quarter with approximately $700 million in cash and cash equivalents and total liquidity of approximately $3.2 billion. Subsequent to quarter end, we executed a series of transactions that strengthened our balance sheet, $200 million of equity investment of common stock from Uber, $300 million from a registered common stock offering and $550 million in convertible preferred stock from PIF. In addition, PIF and Lucid announced an amendment to our delayed draw term loan, providing greater flexibility and approximately $2 billion of available liquidity following a $500 million draw on April 1. Giving effect to the capital raise and DDTL increase, total liquidity would have been approximately $4.7 billion at quarter end. This extends our operating runway into the second half of 2027 and gives us the flexibility to fund Gravity ramp, M2 construction and launch preparation and continued investment in the Midsize program and autonomy stack. On the question of dilution, which I know is on investor minds, the recent financing was structured deliberately to balance liquidity needs against dilution considerations. The convertible preferred structure with PIF reflects that balance as does the sizing of the common equity component. We will continue to evaluate all financing options, including the public markets when the appropriate conditions materialize. And our bias is toward disciplined capital deployment and with opportunistic raises. The strategic stockholder base around this company, anchored by PIF and now meaningfully reinforced by Uber gives us a structural advantage in how we think about capital over the medium term. Now on working capital and inventory. We also expect to see benefits to cash flow driven by improvements to working capital. Inventory stood at approximately $1.47 billion at quarter end, up from approximately $1.1 billion at the prior quarter and elevated by the stop sale buildup. As deliveries normalize through the year and we draw down that inventory, you should expect a higher conversion into cash. Beyond the stop sell normalization, we are tightening production to delivery alignment as an ongoing operating discipline. The new production reporting methodology, which I will cover in a moment, supports that by improving transparency on the conversion step. We took over $200 million in inventory impairments in Q1. Going forward, we expect those to decline. And as inventory reduces through the year, we expect to benefit from impairment releases. Now I mentioned our new production reporting methodology. I want to take a moment on this change to how we report production. Starting this quarter, we are moving our production metric to a process complete definition, meaning we count a vehicle once it has completed the factory gating process, regardless of whether it ships as a complete unit or in a semi-knockdown form. This change better reflects true quarterly production and reduces the volatility that the prior methodology introduced due to shipment logistics. It has no impact on inventory or days on hand reporting, both of which remain based on finished deliverable vehicles. The effect for investors is greater comparability with peers and a cleaner signal on underlying operational cadence. Under the new methodology, the normal auto industry seasonality, Q2 strongest based on working days, Q1 and Q4 softer due to holidays and planned shutdowns will appear more visibly in our reported numbers. Now let me address our outlook and guidance. With Silvio now on board and conducting his review of the business, we are suspending our prior guidance and we provide a full updated outlook at our Q2 earnings call. I want to be clear, this is a governance decision. Near-term demand conditions remain uneven, and we are managing our production cadence accordingly. Our 2026 objective is unchanged. We continue to work to closely align production with demand to avoid excess inventory. We are not constrained on capacity. We are constrained by our own discipline not to build inventory ahead of demand. As market conditions develop, we will scale production accordingly. We have launched a company-wide program to sharpen operational efficiency, reduce costs and concentrate capital on the highest-return opportunities. Q1 cash performance was affected by the stop sell action and the associated inventory reset, which we expect to normalize as we move forward. We are focused on restoring consistent cash generation and building a more durable operating foundation. Production of our first Midsize vehicle is expected to ramp throughout 2027. And our Lucid Gravity robotaxi program in partnership with Uber and Nuro remains on schedule for launch in late 2026. In closing, to put the quarter in perspective, we strengthened our balance sheet, expanded the strategic partnership that improves long-term visibility and are implementing reporting changes that improve transparency. A temporary stop sale in February was resolved, and we have taken action to address the root cause. The Investor Day framework holds. The path to profitability runs through scale from Midsize cost reduction through M2 and improved mix and operating leverage. Q1 does not change that trajectory. It reinforces the importance of disciplined execution, and that is where our focus is. The fundamentals of this business, the technology, the product and the strategic position we have built are intact. We are managing this period with discipline, and we intend to emerge from it in a stronger competitive position. With that, let me turn it over to the operator for your questions. Operator: We will now begin the question-and-answer session by taking questions submitted through the Say Technologies platform. Nick Twork: Our first question comes from [indiscernible]. How does management plan to restore shareholder confidence and address concerns about bankruptcy or potential take-private scenario? Marc Winterhoff: First, I want you to know that we hear your frustration and restoring your confidence is of our utmost importance to us. We are focused on rebuilding your confidence through disciplined execution, transparency and measurable progress against key operational and financial milestones. The business is moving from a period of heavy investment toward a phase where we can begin to leverage those assets at greater scale. We ended 2025 having scaled production, improved unit economics and maintained liquidity. And yes, we've been hit with an unforeseen operational disruption in Q1, which we solved and deliveries and orders have rebounded towards the end of the quarter. We are focused on translating operational progress into more predictable financial profile. To your specific concerns, we do not speculate on market rumors or hypothetical strategic alternatives. Our focus is on executing the plan we laid out, strengthening the company and creating long-term value for our shareholders. Nick Twork: All right. Our next question comes from Robbie S. When is Lucid going to turn a profit? What is the plan? Taoufiq Boussaid: At our Investor Day, we laid out a clear path to profitability. The target is gross margin breakeven in the midterm, building towards the mid-teens by late decade. And on cash flow, we expect to reach positive free cash flow on a similar horizon. The levers to get there are straightforward. It starts with improving fixed cost absorption as volume grow, continuing to bring down bill of material and manufacturing costs, scaling Gravity, launching the Midsize platform and developing higher-margin recurring revenue from software, ADAS and autonomy. On the Midsize platform specifically, this is a meaningful expansion of our addressable market. And importantly, it has been designed from day 1 with cost, scale and manufacturability at its core. Nick Twork: All right. The next question comes from Crystal M. Based on your current cash burn rate, how many quarters of runway does Lucid have without raising additional capital? And what specific milestones must be met before then to avoid dilution? Taoufiq Boussaid: Based on our current cash burn and the recent financing activities we have taken, including the capital raise and the extension of the DDTL, we have funding runway into the second half of 2027. That gives us adequate flexibility to support the Gravity ramp, progress M2 construction and continued targeted investments in both the Midsize platform and our autonomy software. During this period, our focus is on executing the operational milestones that moves us towards breakeven and reduce our reliance on dilutive capital. That means disciplined execution of the Gravity launch, continued manufacturing efficiency gains, measured advancement of M2 aligned with demand and sustained momentum on the Midsize program. At the same time, we are actively pursuing top line diversification through higher-margin software and services particularly around ADAS. On dilution, we are deliberate in how we approach capital raising. We have consistently favored structures that limit near-term dilution and preserve optionality. The use of preferred convertibles being a good example of managing both timing and impact. But ultimately, the strongest answer to dilution is accelerating our path to breakeven because this is what opens up a much broader range of financing alternatives. Nick Twork: That concludes the questions from the Say Technologies platform. Now I'll turn it over to the operator for live questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Ward with Citigroup. Michael Ward: Can you share any volume targets for M2 for 2027? It sounds like it's going to be a gradual type launch throughout the year. And I'm just wondering if the launch is better than expected, does that liquidity take you into 2028? Marc Winterhoff: The targets on the volume, we actually revealed at the Investor Day, and they have not changed. They have not changed. No, no. We are really laser-focused on that ramp. Michael Ward: Okay. And then the second thing I would ask is, as it relates to the robotaxis, are the volume deliveries to Uber depending on them getting certified? Or is there some sort of a schedule for those volume numbers to start to accelerate? Marc Winterhoff: Well, it's basically actually Nuro getting the certification. As we just mentioned, we make very good... Michael Ward: Nuro? Marc Winterhoff: Yes, very good progress on that. So we are on track with this. I mean still we have to have final certification to be able to do this, for instance, when we start in the Bay Area here in California. But so far, even all the development and the certifications are moving as we expected. Operator: Our next question comes from the line of Andrew Percoco with Morgan Stanley. Andrew Percoco: Maybe if I can start out on the free cash flow expectations and just your general commentary around having sufficient liquidity through or at least until the second half of 2027. Can you just maybe help provide a little bit more context around what some of the underlying assumptions are within that? I understand that you guys are pulling the delivery guidance for the year for some governance reasons, but there's anything you can kind of provide in terms of what your underlying assumptions are around demand, that would be super helpful. Taoufiq Boussaid: Andrew, I think that the first answer to your question is that you need to recall that there is a typical seasonality in the company and that we see a significantly improved cash flows during or on the back end of the year. So we shouldn't do any read-through of the cash performance as of Q1 because of 2 specific events. The first one is the stop sales, so which has led to higher cash burn, and we are saying that we will be recovering that. And the second element that you need to take into account is the typical seasonality with a step-up in the sales towards Q3 and Q4, which is helping us to manage the cash burn. So we haven't guided specifically for the cash burn. We have guided for the runway. The statement still remains unchanged. So we will be providing more visibility on that when we reaffirm the guidance in Q2. Andrew Percoco: Okay. Understood. And maybe just my follow-up is just around the commodity cost environment. A lot of your OEM peers are continuing to highlight some pressures there this year and into next year. Can you just maybe provide an update in terms of what you're seeing? I think you guys in the past have said that you've at least hedged or contracted out some of that commodity exposure. But to what extent are you seeing any kind of incremental pressure there? And might that impact that path to profitability? Marc Winterhoff: Actually, right now, that is very limited. I mean yes, there have been increases over the last couple of months on certain raw materials like aluminum. But very recently, for instance, we haven't actually seen an increase. And the other topic is the DRAM, which hits the whole industry. But even that, I mean, is compared to the rest of the BOM cost of the vehicle, a small amount. So we don't see a major impact compared to where we ended end of last year right now. Operator: Our next question comes from the line of Ben Kallo with Baird. Ben Kallo: Just maybe the first one, could you maybe talk more about the sales partnerships, which I guess will be very important, especially as you introduce the Midsize vehicle. You mentioned one in Europe. Marc Winterhoff: Yes. I mean what we're doing there is we're basically extending our approach there from a pure direct-to-consumer model into also partnering either with dealerships in an agency model, for instance, within Germany, so in areas where we already have a D2C network or with importers in new markets that we are entering right now. And we are in the midst of all this process and recently launched the first agent in addition to our D2C outlets in Germany, which gives one day to the other 2 additional cities to cover. And we have numerous LOIs. I think the recent number is like 12 LOIs that are -- we're pushing forward and hopefully get to a contract situation and launch very soon. But it allows us to much faster grow within the areas and the countries we are already in, for instance, in Germany or in the Netherlands or expand into new countries through an importership where you then use existing infrastructure and existing business relationships of those importers to scale much faster. Ben Kallo: Great. And then just on the review, Silvio's review, could you maybe talk, if possible, just about the timing or when we should expect another update? Or is there not a lot of certainty in that for now? Silvio Napoli: Thank you, Ben. I think at the moment, I'm getting to the position. I would say, as of Q2, we should start somehow getting a sense of where we are. Now in terms of by when I'll be ready to give a plan, et cetera, this, I think, is something I'll discuss with the Board at the earliest opportunity. Operator: Our next question comes from the line of Andres Sheppard with Cantor Fitzgerald. Andres Sheppard-Slinger: Congratulations on the quarter and just wanted to maybe take a brief moment to thank Marc and congratulate him on all his great efforts over the past 2 years. First question, I just wanted to clarify on the guidance. So just to be clear, you'll give us an update in Q2 regarding the production guidance as well as the CapEx guidance. But just to be clear as well, the Midsize timing, robotaxi timing and also the medium-term goals, those are all on track and unchanged. Just wanted to clarify. Marc Winterhoff: On the Midsize, this is also what we guided before. So that is also subject to the suspension right now. But I think what is important to understand is that what really counts is the ramp-up in 2027, and that's what remains unchanged. As I said in the beginning, the volumes that we're looking at is unchanged. On the start of production, that's something that we will guide after review with Silvio and the team then by the end of Q2. I also want to point out that when we talk about the start of production, that is less impactful actually than the ramp. I mean we've seen this, you probably remember with the Gravity where we had an SOP, but then we weren't able to ramp as we intended to. And that is something that we definitely absolutely want to avoid, and that's why we want to review everything and make the right decision for the business. Andres Sheppard-Slinger: Wonderful. Okay. That's super helpful. And maybe just as a quick follow-up. I wanted to touch again on the second production facility, the one in Saudi. Just given the geopolitical conflict still going on, do you foresee any bottlenecks or any issues to the time line for the construction there? Or is that on track? Just any update there would be helpful. Marc Winterhoff: Well, so far, I mean, it is going and we have never stopped doing it. I mean we had a few delays when it comes to arrival of equipment to be installed, but our team was able to mitigate that. And so yes, on that as well, we will update at the end of Q2. But so far, we haven't seen any impact. Operator: [Operator Instructions] Our next question comes from the line of James Picariello with BNP Paribas. Thomas Scholl: This is Jake on for James. First, could you give us some idea of the split between the Gravity and Air deliveries in the first quarter? And approximately how many units were pushed from the first quarter into the second by the stop sale? Marc Winterhoff: I mean as we said in the past, so the majority of our deliveries are now the Gravity. We don't give a direct projection on that. I mean on the average selling price, you maybe can reverse engineer the math somehow. When it comes to how many sales are being pushed into the second quarter, that's actually a number that I don't have handy right now. I mean the numbers of deliveries and orders rebounded in March significantly. But that exact number, I don't have handy. Thomas Scholl: All right. And then thinking a little bit longer term, you guys are targeting breakeven free cash by the end of the decade. Right now, your $4.7 billion in liquidity gets you into the second half of 2027. Is there any way to think about your total liquidity need to get from the second half of 2027 until 2029 or 2030? Taoufiq Boussaid: James, you asked us the same question during the Investor Day. I understand that it's a very important point for you. So again, the key data points that we have. So we have a trajectory of how we will be rebuilding the gross margin and how we'll be progressing over the years. So it's a very important data point for you to assess. We have also communicated the details around the different levers for us to reach the breakeven and the rough timing to get there. I think that our historical and future delivery of the key milestones will allow you to do a calibration of what it would mean, and it will help you estimate the additional capital requirement, which is required. Having said that, I would like to reemphasize 2 very important points. So what we have said is that the important component of the cash burn is related to the CapEx in M2. So we have also shared our trajectory in terms of CapEx reduction. We will have a steep decline after 2027. And as a consequence of that, we will see a significant reduction of the cash requirements that will be needed for the plan. So over time, the cash burn profile in itself will have to change and evolve. So again, I'm sharing some of the important data points. We have not historically been in a position to provide the exact quantification. We obviously have a plan. What is really important is the milestones and how we're executing against some of these important targets, milestones, be it in gross margin, be it in terms of reducing the CapEx and accelerating the trajectory to the breakeven. Operator: Ladies and gentlemen, I'm showing no further questions in the queue. That concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the AMD First Quarter 2026 Conference Call. [Operator Instructions] And please note that this conference is being recorded. I will now turn the conference over to Matt Ramsay, Vice President of Financial Strategy and IR. Thank you, Matt. You may begin. Matthew Ramsay: Thank you, and welcome to AMD's First Quarter 2026 Financial Results Conference Call. By now, you should have had the opportunity to review a copy of our earnings press release and the accompanying slides. If you have not had a chance to review these materials, they can be found on the Investor Relations page of amd.com. We will refer primarily to non-GAAP financial measures during today's call. The full non-GAAP to GAAP reconciliations are available in today's press release and slides posted on our website. Participants on today's conference call are Dr. Lisa Su, our Chair and CEO; and Jean Hu, Executive Vice President, CFO and Treasurer. This is a live call and will be replayed via webcast on our website. Before we begin the call, I would like to note that Jean Hu will present at the Bank of America Global TMT Conference on Tuesday, June 2 in San Francisco. Today's discussion contains forward-looking statements based on current beliefs, assumptions and expectations, speak only as of today and as such, involve risks and uncertainties that could cause actual results to differ materially from our current expectations. Please refer to our cautionary statement in our press release for more information on factors that could cause actual results to differ materially. With that, I will hand the call over to Lisa. Lisa Su: Thank you, Matt, and good afternoon to all those listening in today. We delivered an outstanding start to the year driven by accelerating demand for AI infrastructure across our portfolio. Growth was broad-based with every segment increasing year-over-year, led by 57% data center revenue growth. First quarter revenue increased 38% year-over-year to $10.3 billion, earnings grew more than 40%, and free cash flow more than tripled to a record $2.6 billion, driven by significantly higher sales of EPYC CPUs, Instinct GPUs and Ryzen processors. These results mark a clear inflection in our growth trajectory and a structural shift in our business. Data center is now the primary driver of our revenue and earnings growth. And as AI adoption scales, demand is increasing, not only for accelerators, but also for the high-performance CPUs that power and orchestrate those workloads. Turning to our segments. Data Center revenue increased 57% year-over-year to a record $5.8 billion, led by strong demand for our EPYC CPUs and Instinct GPUs. In Server, we delivered our fourth consecutive quarter of record server CPU revenue. Revenue increased more than 50% year-over-year with sales to both Cloud and Enterprise customers each growing more than 50%. Share gains accelerated year-over-year, reflecting the ramp of fifth-gen EPYC Turin CPUs and continued strength of fourth-gen EPYC processors across a wide range of workloads. In Cloud, AI was the primary driver of growth in the quarter as every major cloud provider expanded their EPYC footprint to support a broad range of AI workloads from general purpose compute and data processing to head nodes for accelerators and emerging Agentic applications. EPYC-powered cloud instances increased nearly 50% year-over-year to more than 1,600 with instances optimized for virtually every enterprise workload and expanded availability across the largest global cloud providers. In Enterprise, demand accelerated with record revenue and record sell-through in the quarter. We expanded our customer base with new wins across financial services, health care, industrial and digital infrastructure companies, while also building momentum with mid-market and SMB customers. We are well positioned to continue gaining share as more enterprises standardize on EPYC across on-prem and hybrid environments based on our leadership performance and TCO. Looking ahead, our sixth-gen EPYC Venice processor built on our Zen 6 architecture and 2-nanometer process technology is designed to extend our leadership across cloud, enterprise and AI workloads. The Venice family spans a broad set of CPUs optimized for throughput, performance per watt and performance per dollar, including Verano, our first EPYC CPU purpose built for AI infrastructure. Across the portfolio, Venice widens our competitive advantage, delivering substantially higher performance per socket and per watt versus competitive x86 offerings and more than 2x throughput per socket versus leading ARM-based AI solutions. Customer demand is very strong with more customers validating and ramping platforms at this stage than with any prior EPYC generation, and we remain on track to launch Venice later this year. Looking more broadly, we are seeing a meaningful acceleration in customer demand driven by the rapid scaling of AI workloads across both Cloud and Enterprise. Inferencing and Agentic AI are increasing the need for server CPU compute as these workloads require additional CPU processing for orchestration, data movement and parallel execution in addition to serving as the head nodes for GPUs and accelerators. As a result, we are seeing both stronger near-term demand and deeper engagement with customers on long-term capacity planning. At our Financial Analyst Day in November, we outlined the server CPU market growing at approximately 18% annually over the next 3 to 5 years. Based on the demand signals we are seeing today and the structural increase in CPU compute requirements driven by Agentic AI, we now expect the server CPU TAM to grow at greater than 35% annually, reaching over $120 billion by 2030. In response to this demand, we are working closely with our supply chain partners to meaningfully increase our wafer and back-end capacities to support this growth. As a result, we now expect server CPU revenue to grow by more than 70% year-over-year in the second quarter, with robust growth continuing through the second half of 2026 and into 2027 as we ramp our next-generation EPYC processors. Now turning to our Data Center AI business. Revenue grew by a significant double-digit percentage year-over-year as adoption of Instinct accelerates across cloud, enterprise, sovereign and supercomputing customers. We're seeing strong momentum as customers move from pilots to large-scale production deployments, particularly in inference where our leadership memory capacity and bandwidth are key advantages. This momentum is driving deeper, long-term customer engagements, including large-scale multi-generation deployments. A key example is our expanded strategic partnership with Meta to deploy up to 6 gigawatts of AMD Instinct GPUs spanning several product generations. Our agreement includes a custom GPU accelerator based on our MI450 architecture, co-designed to support Meta's next-generation AI workloads. Shipments are on track to begin in the second half of the year, leveraging our Helios rack-scale architecture, which integrates Instinct GPUs with EPYC Venice CPUs to deliver fully optimized high-performance AI infrastructure. Together with our previously announced OpenAI partnership, these engagements position AMD as a core partner to the world's largest AI infrastructure builders with deep co-engineering relationships and multiyear visibility into large-scale deployments. More broadly, Instinct adoption continues to expand across AI native and enterprise customers for both training and inference workloads. Existing partners are expanding Instinct across a broader set of workloads, while a growing number of new partners are deploying production AI workloads on Instinct, highlighting the maturity of our hardware and software stack. On the software front, we continue to make strong progress with ROCm, improving performance, scalability and enabling customers to reach production faster. In our latest MLPerf results, MI355X delivered strong competitive performance across the full suite with leadership results in multiple categories. We also expanded day 0 support for the leading open models, including the latest Google Gemma 4 family, Qwen, Kimi and others, enabling customers to deploy new models quickly with optimized performance. To build on this momentum, we have significantly accelerated our ROCm development cadence through increased software investments and agent-based coding workflows, enabling faster performance improvements and more rapid deployment of new capabilities. Looking ahead, customer pull for Helios is very strong, driven by our leadership performance, memory bandwidth and scale out capacity. Helios development is progressing well with strong execution across silicon software and systems as we advance through key milestones. We have begun sampling MI450 series GPUs to lead customers and remain on track to ramp Helios production shipments in the second half of the year. As we approach production, demand for MI450 series GPUs continues to strengthen, with lead customer forecasts now exceeding our initial plans and a growing number of new customers engaging on large-scale deployments, including additional multi-gigawatt opportunities. With this expanded visibility, we have strong and increasing confidence in our ability to deliver tens of billions of dollars in annual Data Center AI revenue in 2027 and to exceed our long-term growth target of greater than 80% in the coming years. I look forward to sharing more on our next-generation Instinct GPUs, EPYC processors, Helios rack-scale platform and our growing customer engagements at our Advancing AI event in July. Turning to Client and Gaming. Segment revenue increased 23% year-over-year to $3.6 billion. In client, revenue grew 26% year-over-year to $2.9 billion, led by strong sales of our latest Ryzen processors and continued share gains across consumer and commercial markets. In desktop, we strengthened our Ryzen lineup, including our latest X3D processors that deliver leadership performance across gaming, content creation and professional workloads. We also introduced the Ryzen AI 400 series and Ryzen AI Pro 400 series desktop CPUs, expanding our AI PC offerings across both consumer and commercial systems. In Mobile, we delivered strong growth driven by a richer product mix as Ryzen 400 mobile PC shipments ramped and commercial adoption increased. Commercial was a key highlight in the quarter with sell-through of Ryzen Pro PCs increasing more than 50% year-over-year as Dell, HP and Lenovo broadened their AMD offerings. We also closed new enterprise wins across large technology, financial services, health care and aerospace customers. Looking ahead, we expect demand for our Ryzen CPUs to remain solid in the second quarter. However, we are planning for second half PC shipments to be lower due to higher memory and component costs. Against this backdrop, we still expect our client revenue to grow year-over-year and outperform the market, driven by the strength of our Ryzen portfolio and expanding commercial adoption. In Gaming, revenue increased 11% year-over-year to $720 million. Semi-custom revenue declined year-over-year as expected at this stage of the console cycle, while engagements with customers on next-generation platforms remain strong. In graphics, revenue increased year-over-year led by demand for our latest generation Radeon 9000 series GPUs. We also strengthened our Radeon portfolio with updates to our FSR software that improved performance and digital quality across a broad set of gaming workloads. Similar to the PC market, we believe that second half demand in gaming will be impacted by higher memory and component costs, and we are planning the business accordingly. Turning to our Embedded segment. Revenue increased 6% year-over-year to $873 million, driven by strength in test, measurement and emulation, aerospace and defense and communications as well as increased adoption of our embedded x86 products. Design win momentum grew by a double-digit percentage year-over-year with billions of dollars in new wins across markets, reflecting the continued expansion of our Embedded business from a primarily FPGA-focused portfolio to a broader set of adaptive embedded x86 and semi-custom solutions significantly expanding our TAM. Our semi-custom engagements also expanded in the quarter as data center, communications and other embedded customers leverage our broad IP portfolio and high-performance expertise to build differentiated solutions. In summary, our first quarter results mark a clear step-up in our growth trajectory with accelerating momentum across the business. Our client business continues to outperform the market, driven by Ryzen adoption and share gains, while in Embedded design win momentum and demand are strengthening across our expanded adaptive and x86 portfolio. At the same time, our Data Center business is inflecting with strong demand for both EPYC and Instinct products significant growth. While we are still in the early stages of the AI infrastructure cycle, the pace and scale of deployments we are seeing today reinforce both the magnitude and durability of the opportunity ahead. As inferencing and Agentic AI deployment scale, they are fundamentally increasing compute requirements, driving both larger scale accelerator deployments and significantly more CPU compute. AMD is uniquely positioned to lead in this next phase of AI with leadership products across high-performance service CPUs and AI accelerators and the ability to optimize them together as fully-integrated rack-scale solution. We have a world-class supply chain and are making significant investments to expand capacity and execute at scale. With the momentum we are seeing across the business and the expanding market opportunity, we see a clear path to exceed our long-term financial targets, including delivering more than $20 in EPS over the strategic time frame. Now I will turn the call over to Jean to provide additional color on our first quarter results. Jean? Jean Hu: Thank you, Lisa, and good afternoon, everyone. I'll start with a review of our first quarter financial results and then provide our current outlook for the second quarter of fiscal 2026. We are pleased with our outstanding first quarter results delivering accelerated revenue growth and earnings expansion driven by strong execution and operating leverage. First quarter revenue was $10.3 billion, exceeding the high end of our guidance, growing 38% year-over-year, driven by strong growth in the Data Center and Client and Gaming segments and the return to growth in the Embedded segment. Revenue was flat sequentially with continued growth in the Data Center segment, offset by seasonality in the Client and the Gaming segment and the Embedded segment. Gross margin was 55%, up 170 basis points versus a year ago, driven by a favorable product mix, including a higher data center revenue contribution. Operating expenses were $3.1 billion, an increase of 42% year-over-year as we continue to invest in R&D to support our AI roadmap and the long-term growth opportunities and go-to-market activities. As the business scales, operating income grew faster than topline revenue. Operating income was $2.5 billion, representing a 25% operating margin. Taxes, interest and other result in a net expense of approximately $275 million. For the quarter, diluted earnings per share was $1.37, up 43% year-over-year, underscoring the significant operating leverage in our model as we scale. Now turning to our reportable segment starting with the data center segment. Revenue was a record $5.8 billion, up 57% year-over-year and 7% sequentially, driven by strong demand for EPYC processors and the continued ramp of Instinct GPUs. Data Center segment operating income was $1.6 billion or 28% of revenue compared to $932 million or 25% a year ago. Client and Gaming segment revenue was $3.6 billion, up 23% year-over-year. On a sequential basis, revenue was down 9%, consistent with seasonality. The client business revenue was $2.9 billion, up 26% year-over-year, driven by strong demand for our latest Ryzen processors, favorable product mix and continued share gains across consumer and commercial markets. Sequentially, client revenue was down 7% due to seasonality. The Gaming business revenue was $720 million, up 11% year-over-year, primarily driven by higher demand for Radeon GPUs, partially offset by lower semi customer (sic) [ custom ] revenue. Sequentially, gaming revenue was down 15%, consistent with our expectations. In addition, as Lisa mentioned earlier, we expect second half demand in gaming to be impacted by higher memory and component costs. We now expect second half gaming revenue to decline more than 20% compared to the first half. Client and Gaming segment operating income was $575 million or 16% of revenue compared to $496 million or 17% a year ago. Embedded segment revenue was $873 million, up 6% year-over-year as demand strengthened across several end markets. Sequentially, Embedded revenue was seasonally down 8%. Embedded segment operating income was $338 million or 39% of revenue compared to $328 million or 40% a year ago. Turning to the balance sheet and the cash flow. During the quarter, we generated $3 billion in cash from continuing operations and a record $2.6 billion in free cash flow or 25% of revenue, demonstrating the cash-generating power of our business model. Inventory was roughly flat at $8 billion. At the end of the quarter, cash, cash equivalents and short-term investment was $12.3 billion. In the quarter, we repurchased 1.1 million shares and returned $221 million to shareholders. We ended the quarter with $9.2 billion authorization remaining under our share repurchase program. Now turning to our second quarter 2026 outlook. We expect revenue to be approximately $11.2 billion, plus or minus $300 million. At the middle of our guidance, revenue is expected to be up 46% year-over-year driven by a very strong growth in our Data Center segment, growth in our Client and Gaming segment and a double-digit growth in our Embedded segment. Sequentially, we expect revenue to be up approximately 9% driven by double-digit growth in both our Data Center and the Embedded segments and modest growth in our Client and Gaming segment. In addition, we expect second quarter non-GAAP gross margin to be approximately 56%, non-GAAP operating expenses to be approximately $3.3 billion, non-GAAP other income and expense to be a gain of approximately $60 million. Non-GAAP effective tax rate to be 13%, and the diluted share count is expected to be approximately 1.66 billion shares. In closing, the first quarter of 2026 was an outstanding quarter for AMD, reflecting strong momentum across the business with accelerated revenue and earnings expansion. We are very well positioned to build on the momentum as we scale our Data Center business, expand margins, drive continued earnings growth and the long-term shareholder value creation. With that, I'll turn it back to Matt for the Q&A session. Matthew Ramsay: Thank you, Jean. Operator, we're ready to start the Q&A session now. [Operator Instructions] Operator: [Operator Instructions] The first question comes from the line of Joshua Buchalter with TD Cowen. Joshua Buchalter: Congrats on the results. Actually, I'm going to start with CPUs, which hasn't happened in a bit. It hasn't been that long since you announced the $60 billion server CPU TAM for 2030 at the Analyst Day, and it's very quickly doubled. Agentic AI has obviously gotten a lot of attention in recent months, but it would be helpful to hear your thoughts on how this TAM is inflecting and changing so meaningfully in such a short amount of time. And maybe you could also speak to your confidence in hitting that greater than 50% share target from the Analyst Day as your x86 competitor seems to be improving its supply and also there seems to be more momentum on the merchant and custom ARM CPU side. Lisa Su: Yes. Sure, Josh. Thanks for the question. So first of all, back to the -- when we think about CPU TAM, I mean we've always said that CPUs are very critical part of data center infrastructure, and that's been where we've invested. And we saw the first signs of, let's call it, AI demand really pulling CPU demand last year, and that was the reason we updated the TAM to, let's call it, the 18% CAGR or approximately $60 billion. And what we've seen is all of the things that we believed in terms of Agentic AI and inferencing and all the CPU compute that is required, is just happening, and it's happening at a much faster pace. So over the last, let's call it, the last few months, as we've talked to our customers and we've seen how AI adoption is really unfolding, we're seeing significant more CPU demand from really every major cloud provider as well as enterprise customers. And the way that comes across is as AI adoption scales, you need more inferencing. As inferencing scales and you do more -- you have more agents and Agentic AI, they all require CPUs for all of the orchestration and the data processing and these other tasks. So with that, we've looked at it both bottoms up in terms of talking to customers and having them give us longer-term forecasts as well as just doing some clear workload analysis. And yes, I mean, it's a very exciting TAM. I think it's exciting to see CPUs growing greater than 35% to over $120 billion. And then when you think about AMD in the context of that, I mean, CPUs are critical for so many tasks that you are seeing a lot more discussion about CPUs in the market. But we actually view it in 3 categories, right? There's general purpose compute. There's the head nodes that really support the AI accelerators. And then there are CPUs just for all of the Agentic AI work. And to do all of this, our belief is you need a broad portfolio of CPUs, and that's really what we have been focused on is building not just one type, but really broader in terms of throughput optimized, power optimized, cost optimized, AI infrastructure optimized as we've done in the Venice family. So when you put all that together, we're very excited about the larger TAM, and we're also very happy with the traction that we're getting. We're clearly feeling like we're seeing significant share gain as we're going into our Turin portfolio that has ramped very nicely. Venice is extremely well positioned, and we're working with customers right now on -- beyond Venice and what we're doing in those architectures. So we feel really good about the market as well as our opportunity to grow to greater than 50% share of that market. Joshua Buchalter: I wanted to ask about the Instinct side. So in the press release, you mentioned that MI450 and Helios engagements are strengthening with customer forecast exceeding the expectations and the pipeline growing. You certainly have the big public OpenAI and Meta deals. Was this comment referring to those engagements upsizing versus the announced initial deployments? Or was it other customers and maybe the increase on the MI450 timeline? Or is it MI500 and beyond? Lisa Su: Sure, Josh. So we are very excited about MI450 and Helios. We're seeing significant customer interest in those products as well. So we have certainly talked about our large partnerships with OpenAI and Meta, and those are going really well. We appreciate the deep co-engineering that is going on there. When we look at the totality of, let's call it, based on our current visibility, how those forecasts are coming in with all of our customers, we're actually seeing it above our initial plans that we had planned for 2027. And I think the encouraging thing is we're seeing a breadth of customers who are now very interested in deploying at significant scale MI450 series. And those are for both training and inference workloads, although the largest deployments are for inference. And based on all of that and the scale of new customer interest, we see a path to really get to exceed our original targets of greater than 80% CAGR. And these are really 2027 time frame. Obviously, when we talk to customers, we're talking to them about MI355. There's a lot of good traction we're seeing there. MI450 and Helios, I think for significant large-scale deployments, and then many customers are also very engaged with us on the MI500 series and all of the opportunities there. So we feel like very, very good progress. And the key is that we're continuing to broaden and widen the scope of both customers as well as workloads. Operator: And the next question comes from the line of Thomas O'Malley with Barclays. Thomas O'Malley: Lisa, if I get your numbers correct here in the March quarter, it sounds like the server processor side of the CPU side grew over 50%. If you take it just at the word, it looks like maybe the data center GPU side actually grew in Q1. So I was curious around the cadence of this year kind of previously, you had talked about really a back half weighted and then kind of more so Q4 weighted year. Could you talk about if that's changed at all? And then the second part of the question is, as you go into 2027, clearly, you're pointing out a lot of upside from the larger customers and then kind of the ecosystem around them with new customers as well. But when you look at supply, that's a major issue in the ecosystem today, could you talk about where you're concerned on supply, if you are? And then any gating factors as you look into next year, whether that be power, data center build-outs, et cetera? Or do you feel really good about the ability to grow? Lisa Su: Yes. Okay. A lot of pieces of that question, Tom. So let me try to get through it. So first of all, on the Data Center segment in Q1, the Server business was greater than 50% year-over-year as we said in the prepared remarks. The Data Center AI was actually down modestly because of the China transition. We had more China revenue -- I'm sorry, sequentially more China revenue in Q4, and it was less in Q1. But as we go forward, I think we see strong growth in both segments. So we guided data center Q2, up sequentially double digits, and that's double digits in both Server as well as Data Center AI. And progression as we go forward. So first, on the server CPU side, we talked about growing to over 70% year-over-year in Q2, and that continuing into the second half of the year. And on the Data Center AI side, we will be ramping Helios in the second half of the year, so let's call it, starting with initial volume in Q3 with a significant ramp in Q4 and then continuing to ramp in Q1. So that's kind of a little bit of progression. And then to your questions about customers and supply, I think I answered, Josh, the customer question. I think we have very good visibility now into the deployments that are on track for 2027. And when I say good visibility, it's visibility down to which data centers are the GPU is going to be installed in. And so that's necessary just given all of the constraints out there. We feel that there is tightness in the supply chain, there's certainly tightness in sort of data center build-outs, but we are confident in our ability to supply to the levels of growth that we're talking about and to exceed the levels of growth that we're talking about. And we're also working very closely with our customers and our partners to ensure that we have good visibility to Data Center power. And there is much more power that's coming online in 2027. And so with all those things in mind, I think, again, lots of things to manage. It's a complex ramp, but we're very pleased with the progress on the ramp. Matthew Ramsay: All right, Tom, I think you shotgun approached the multiple questions there. So operator, maybe we can go on to the next caller, please. Thank you. Operator: The next question comes from the line of Ross Seymore with Deutsche Bank. Ross Seymore: The first one is just on the EPYC competition. Lisa, you went through some of the statistics of you versus x86 and you versus ARM, but I wanted to dive a little bit deeper into that. How do you see AMD truly differentiating, especially when you're signing -- well, you see some of your competition signing up the same customers from the ARM side and the x86 competition having more supply. So I just wanted to see if you could dig a little bit deeper into how you think the market share is going to trend over time? Lisa Su: Ross, look, we're very engaged with every major hyperscaler and in terms of understanding their needs on the CPU side. I think we have very much wanted to, let's call it, optimize our CPU roadmap for the various workloads. I think we were early to call this AI component of CPUs. And so we've been actually optimizing very closely with those customers. The way to think about this, Ross, is that you're going to need a broad portfolio of CPUs, like not all CPUs are the same. Frankly, you're going to need different CPUs for whether you're talking about general purpose operations or you're talking about head nodes or you're talking about Agentic AI tasks, they're going to be optimized differently. And we thought through that, and we are absolutely optimizing across the various workloads. So from a competitive standpoint, we feel very good about where things are. And from a deep relationship with the customer set, I think we feel very good about that. So from our current standpoint, I think the depth of our roadmap just expands as we go forward. And you shouldn't think about it as people are going to do one or the other. I think you're going to see people actually use x86 and ARM for many of the large hyperscalers. And even for those who are developing their own, they're still buying lots of CPUs in the merchant market for the reason that I just stated, which is unique different CPUs for the different types of workloads, and there's very high demand at the moment. Ross Seymore: I guess for my follow-up, maybe more for Jean on the gross margin side of things. It's nice to see the gross margin popping up in the second quarter guide. But I just wanted to get some trends longer term, maybe not specific numbers, but how should we think about when Helios and the Instinct side really ramps in the fourth quarter and more so next year. I could see some offsets with that carrying a below corporate average gross margin, but then everything that Lisa talked about with the EPYC side of things being significantly stronger might be more of an offset than it was in the past. So just walk us through the puts and takes of that and maybe directionally where you think gross margin goes over the next year or 2? Jean Hu: Yes, Ross, thanks for the question. We are very pleased with how our gross margin is trending. It came in really strong in Q1. And also, as you mentioned, we guided Q2 higher at 56%. I think as we think about the second half quarter-over-quarter, as you know, there are some puts and takes, right? I would just say, from a tailwind perspective, we actually have multiple tailwinds really are going to help our gross margin. First is the server CPU. Lisa talked about the server CPU expected to grow more than 70% in Q2 and continue to be really strong in second half. That really helps our gross margin. Secondly, in the second half for Gaming actually is going to come down, and our Client business actually continued to go up the stack. So from a Client and Gaming segment, the gross margin actually is going to be also very helpful. Embedded actually is very accretive to our gross margin. Its momentum actually is continuing in the second half. So we are really pleased with all the tailwinds we have. On the other side, MI450 will start to ramp in Q3 and then ramp significantly in Q4. That is below corporate average. So that will have different puts and takes in Q4 in the gross margin side. But when we sit here, when we look at all the positive trends we have to really offset some of the gross margin dilution from MI450 side, we actually feel really good about the setup of the gross margin for 2026. And into next year, I think some of the tailwinds I talked about that will actually continue. That's why we feel confident about continue to drive the gross margin. We actually, during our financial Analyst Day, we outlined the long-term gross margin in the range of 55% to 58%. We think for the first year, we are making good progress there. Operator: And the next question comes from the line of Timothy Arcuri with UBS. Timothy Arcuri: I wanted to ask about units versus ASP for server CPU. If I look at the June guidance, it sort of implies up 25% to 30% for server CPU. And Lisa, you had mentioned second half of the year. It sort of implies that server CPU could grow like 70%, maybe a little more this year. And so I guess my question is, how much of that growth either in June or for the year, is like units versus pricing? Is the -- are these price increases sort of mostly captured in June? Or is that also helping in the back half of the year? Lisa Su: Yes. Tim, the way I would say it is, maybe let me bring you back to Q1 for a moment. So if you look at our significant growth in the server business, it was actually -- although we were up on a year-over-year basis for both ASPs and units, it was actually much more unit driven. So we are shipping more CPUs across not just the high-end Turin family, but we're actually shipping a lot of Genoa sort of the Zen 4 family as well. As we go forward for Q2 and into the second half, we are guiding for a significant amount of growth. I think there's a little bit of ASP in there, but the way we're thinking about pricing, to be fair, is we are in a range where the supply chain is tight. And so there are some inflationary pressures. Costs have gone up a bit, and we are sharing some of that with our customers. But we are also being very thoughtful in -- look, this is -- we're playing out for the long term, and that means that we are -- our goal is to ship more units and a lot more units. And so from that standpoint, you should imagine that the majority of the growth is unit driven, and the ASPs are just really to help cover some of the inflationary pressures. Jean Hu: And just to add to what Lisa said, our ASP is increasing because of the mix where actually each new generation, the core counts, those are increasing, that actually drives the ASP up. Timothy Arcuri: And then I guess, Lisa also, so there's a lot of new architectures that are being used from multi-tenancy all the way to low latency. And your competitor has talked about the low latency part of the market being 20% plus and they, of course, added to their portfolio there. Can you talk about how you see that part of the market? I mean, obviously, you have enough business now you don't need to worry about that probably for now. But can you talk about that? Lisa Su: Yes, sure. So look, I think what we're seeing is what we expected in the sense that as you go -- as the AI adoption continues and the volumes continue to go up and the overall market goes up, you are going to see, let's call it, different compute architecture is being used because you want to get more cost optimization from that. So we expect that even in that situation, obviously, the vast majority of the TAM is still going to be, let's call it, data center GPUs as the primary accelerator. But you may choose to do optimization around inference, around low latency, around certain parts of the stack, whether it's decode versus prefill, I think that's very natural. The way we look at it is we're developing a full compute portfolio. So that's CPUs, that's GPUs, that's the ability to connect to all accelerators as well as the ability to do customization for certain customers, and we've also talked about our semi-custom capabilities. And with all of those sort of compute capabilities in our tool chest, I think we will be able to address, very effectively, a large portion of this market, including the low latency portion of the market. So from our standpoint, this is kind of a natural evolution. Now how fast it goes depends a bit on the technology in terms of what share of the TAM these things become, but we should expect that there will be different variants, and we're well prepared to address those different variants. Operator: And the next question comes from the line of Vivek Arya with Bank of America. Vivek Arya: Lisa, do you think Agentic CPU growth is incremental? Or is it coming at the expense of GPUs conceptually? So if you're raising server CPU TAM, are you also implicitly kind of raising AI TAM? So just I'm interested in your perspective on what did you think server CPU was as a percentage of AI TAM before? And what is it now with this $120 billion number? Lisa Su: Sure, Vivek. So the way we're thinking about is it's largely additive to the TAM. So you should think about we need all of the accelerators to run these foundational models, and then as these agents do work, they spawn more CPU tasks. So I would say largely incremental. The key is to make sure -- what we're seeing is in these deployments, the key is to make sure the ratio of CPUs to GPUs are the right ratio. So if you're installing a gigawatt of compute, the ratio -- there's a percentage of CPU as part of that gigawatt will increase. Some of the conversation in the industry has been about CPU to GPU ratios. And it's very hard to call exactly, but we certainly see the movement towards where in the past, the CPU to GPU ratio was primarily just as a host node in like a 1:4 or 1:8 configuration node, now changing and getting closer to a 1:1 configuration or even -- you can even imagine if you get lots and lots of agents that you could have more CPUs and GPUs. So -- but all in all, to answer your question, I think it's largely additive to the TAM. And the key is that everyone is now planning and thinking about CPUs at the same time that they're thinking about their accelerator deployments, which is a good thing. Vivek Arya: All right. And from my follow-up, Lisa, we continue to see memory prices go up. I imagine that is both kind of a cost inflation for you but perhaps an opportunity to take price as well. I'm curious, how is that dynamic playing out for AMD? And especially for your customers because a greater part of their CapEx increase is really kind of this memory inflation tax, right, that they have to pay. So how is this dynamic playing out for you and for your customers? And the part that I'm really interested in is that have you secured enough supply versus your other larger competitor who has disclosed a lot of prepayments and other things? So just how is this memory inflation dynamic playing out? And are you kind of adequately supplied from that perspective? Lisa Su: Sure. So Vivek, let me answer the second one first. I think from a supply standpoint, we are very happy with our partnerships with the memory vendors, and we have secured enough supply to certainly meet and exceed our targets. So it is a tight memory environment. Let me be clear. But I think we are very deep partnerships with the memory providers. And then back to your comments on the inflationary pressures. I mean, look, this is something that everyone in the industry is working with in the time of tight supply, we are seeing some cost increases on the memory side. I think we are all working through that. The way we're seeing it unfold in the market is actually on the Data Center side, because of the, let's call it, the demand for AI compute, I mean people are largely focused on supply and ensuring that the supply assurance is there. The corollary of that, the larger impact that we're watching is the impact on the consumer markets. And as we said in the prepared remarks, we are expecting that there could be some demand -- sort of the demand impact as a result of the memory price increases on things like the PC business in the second half of the year as well as the Gaming business. So we're taking that into account in our overall model. And we continue to work closely with the memory providers as well as our customers to ensure that every time we ship a CPU or GPU, then it's paired with the memory on the other side so that we don't have compute that is not being deployed. Operator: And the next question comes from the line of Aaron Rakers with Wells Fargo. Aaron Rakers: Congrats on the results. I want to stick on the topic of CPU to GPU. And as we think about the chart that you had outlined at the Analyst Day, there was obviously broken out between traditional CPUs and then the AI bucket on top of that. Obviously, I think the new forecast has a lot to do with the AI CPU expansion. I'm just curious, when you're doing a CPU in an AI workload, is there structurally a different level of ASP tied to that kind of CPU optimized for AI relative to a general purpose server CPU? Any kind of color or help on that would be useful. Lisa Su: Sure, Aaron. So let me start with the broader question. The broader question regarding -- the way we think about the CPU TAM is, again, think about it as 3 categories. So there is a traditional CPUs, let's call it, general purpose CPU TAM that is increasing, but let's call it, increasing at low rate, maybe, let's call it, low double digits, then you have your AI head node, which is connecting to accelerators, which is also growing, but it's smaller. And then the largest piece of the growth is this Agentic AI piece, which we think is really stemming from all of the Agentic processes. I don't have a number that I can tell you in terms of relative ASPs because it really depends on the workload that is being run. And what we see going forward is as core counts increase, obviously, we will see ASP increase. And that's the direction that we're going in as we go forward. But the main point is -- the largest portion of this is the Agentic AI, the CPUs that are serving these Agentic AI workloads in terms of the TAM increase. Aaron Rakers: And as a quick follow up, I'm curious, how do you characterize the competitive landscape as we see some of the ARM introductions in the market. Just curious of your views on the competitive landscape and server CPU. Lisa Su: Yes. Aaron, the best way to think about the server CPU landscape is, again, number one, everyone is talking about CPUs. So that tells you how critical they are for the AI infrastructure. And I think that's a good thing. We feel like we're very well positioned. No question, ARM is good architecture. It has a place in the Data Center market. We view it as more point products relative to a portfolio, where, from an AMD standpoint, we've built this broad portfolio of CPUs, going forward, what you're going to need for all of these different workloads. And we have, in the Venice time frame, added an AI-optimized CPU with the Verano in addition to our throughput optimized and sort of cost optimized point. So from that standpoint, I think we're very competitive. We're continuing to innovate on architecture. We're continuing to innovate on both advanced packaging as well as all of the architectural pieces. So we feel very well positioned going forward. And the key is the TAM is much, much larger than anybody thought. And so there's a lot of opportunity for different products to be successful in this area. Operator: And the next question comes from the line of C.J. Muse with Cantor Fitzgerald. Christopher Muse: I guess first question, I was hoping to speak a bit more about client for all of calendar '26. You talked about growth -- expected growth, but would love to hear your thoughts around seasonality in the second half. And I'm assuming that you are repurposing certain logic tiles from clients over to the Data Center and would love to kind of better understand what the implications are for ASPs on the client side looking into the second half. Lisa Su: Sure. So C.J. I think the client business has performed really well for us. I think if we look at Q1, it actually was a little bit stronger than what we expected. We are seeing some mix shift in the client business. The mix that we're seeing is the M&C or the Notebook business is actually growing, especially the premium portion. We're making very good progress in the commercial PC arena with our AI PCs. We did see desktops a little bit softer just given desktop is a more consumer-focused market. And so in that market, it's more impacted by some of the memory pricing and the component price increases. When we look at the full year, our commentary is we are planning for some demand impact in the second half due to the memory pricing. But even in that environment, what we're focused on is ensuring that we continue to make good progress on the Commercial business and continuing to focus on the premium segments of the market. So we believe that we will continue to grow on a year-over-year basis for the Client business compared to last year. And as it relates to ASPs, again, it's a little bit of puts and takes between Notebook and Desktop. But overall, I think we're feeling good about our opportunity to outperform the market and clients going forward. Does that answer? Christopher Muse: That was perfect. And then I guess a question on Instinct gross margins. With compute essentially sold out and obviously, you're building a business, so one has to be, I guess, conservative on that front. But I would think outside of kind of passing through HBM that given the very tight wafer environment that this would be a place where you could look to drive your Instinct margins closer to your corporate average? How are you thinking about that either today or in the coming 1, 2, 3 years? Jean Hu: C.J. at this stage, we really focus on driving the topline revenue growth on our Instinct family of product. I think on the gross margin side, you're absolutely right, it's really -- the demand for compute is tremendous. We actually are very strategic in how we think about the -- how we work with the customers. And of course, the different customers also have a different gross margin. I think, over time, once we start to ramp our revenue, we'll have a lot of opportunities to improve gross margin, both on the ASP side, but also, more importantly, on the cost side when we scale our business. Operator: And the next question comes from the line of Stacy Rasgon with Bernstein Research. Stacy Rasgon: For the first one, I just wanted to make sure I have the near-term AI GPU trajectory correct. So I know you said it was down sequentially in Q1 because of China. You had like $390 million of China revenue in Q4. So the AI business in Q1 actually grow sequentially ex China because it doesn't feel like it, given the server outlook? And then I look at what's maybe suggested for Q2, are you thinking GPUs and servers kind of grow similar rate sequentially because it would probably put GPUs in Q2 below the overall revenue in Q4, which seems low to me. I'm just trying to tie all that out. Could you help me with that, please? Jean Hu: Yes. So I think, Stacy, I appreciate the question. I think if you look at Q1, we did mention Data Center AI was down modest pace sequentially, primarily due to lower China revenue in the quarter. I think on your second question regarding Q2, you're right, both Data Center AI and the server will grow double digit in Q2. Stacy Rasgon: Yes. But you didn't answer my question. In Q1, did it grow sequentially ex the China step down, I guess, is what I'm asking. Jean Hu: The China, for our business, in Q1, it's not material. So I think I will repeat what I just said. Yes, the revenue -- the China revenue in Q1 is not material. Stacy Rasgon: Okay. Okay. So you don't want to -- okay. Second question, OpEx [indiscernible] for spending -- but it sort of continues to blow past the targets. You kind of give an OpEx guide and then it blows through it and then you guide higher. So again, I'm not bothered by this. I'm just wondering why is the OpEx been so hard to forecast? And how should we be thinking about OpEx through the rest of the year given the revenue growth? Jean Hu: Yes. Thanks, Stacy, for that question. I think the most important thing is given the tremendous market opportunities we have, we actually are investing aggressively. If you look at the past several quarters, we're really leaning in, in investing, but all the AI investments are driving the revenue momentum. So if you look at the Q1, revenue was 38% up, then Q2, we guided 46% up. The investments are driving the revenue momentum. Some of the OpEx increase, of course, is tied to the revenue. When you look at our beat on the revenue side versus our guidance, we did beat on the revenue side, right? So that impacted a little bit. But also, at the same time, we have a lot of customer engagement with our Data Center AI business, we do continue to make sure we have the resource to support our different customers. Matthew Ramsay: Thank you very much. Operator, I think we have time for one more caller on the call. Thank you. Operator: Our final question comes from the line of Blayne Curtis with Jefferies. Blayne Curtis: Lisa, I just want to go back to the supply side. There was a lot of story about your competitor restarting 7-nanometer. I'm just kind of curious as you look at that landscape which is quite robust through the end of the decade, do you think that the older products will stay around longer? And is there a way to think about the implications for gross margin in such a strong market. Is that actually a negative? Lisa Su: Actually, Blayne, I don't think we see the older products hanging around longer. In our case, I think it might be company-specific stuff. In our case, we actually see -- first of all, Turin is very strong. We actually crossed over 50% of our revenue being Turin this quarter. Genoa is very strong. We're still shipping some Milan, but I would say that's come down over time. So in general, people want to use the newer products because they're just more efficient in every aspect from performance, from cost structure, from a power standpoint. So that's what we're seeing. By the way, I should also mention, in addition to what we're seeing in the cloud segment of server, we're seeing really nice strong pickup in enterprise. And there as well, we're seeing our newer products do very well. So from our standpoint, it is all about ensuring that we ship what the customer needs. And in this case, it typically is our newer products, and we expect that to continue. As we transition into Venice later this year, we will expect Turin and Genoa to continue shipping, but there's a lot of goodness in going to the new products. And on the supply chain side, I know there's been a lot of discussion about how tight the supply chain is. The supply chain is tight. I would definitely say that. But I also think this is an area where we excel. We have very deep relationships across the supply chain on the wafer side, on the back end capacity side. And we are seeing meaningful improvements in that. And as our customers come to us with more demand, we are getting more supply. And the good thing about this is we're now talking about '27 CPU demand, we're talking about '28 CPU demand. And so that allows us to just plan much better as we go forward. Blayne Curtis: And then just a quick one for Jean. I'm just curious to follow up on Stacy's question on OpEx. I guess I was a little surprised that SG&A is kind of outpacing R&D. I was just kind of curious, is that start-up costs, because in a strong market, you wouldn't think you would have to discount or have a big sales effort. So I'm just kind of curious for the year, how you think about R&D growth versus SG&A? Jean Hu: I think for the year, you should expect us to grow R&D much faster than SG&A. I think in the past few quarters, we have been really building our go-to-market machine, and we have been investing more in sales and marketing side. But going forward, you should expect the year-over-year growth R&D will grow faster than SG&A growth. Lisa Su: Yes. And if I just add to that, Blayne, the places that we invest -- Jean is absolutely right. We're investing in R&D ahead of sales and marketing. But the places that we're investing in sales and marketing are paying off. So the investments are going into enterprise servers. They're going into commercial PCs. They're going into mid-market, small and medium business. These are places where AMD traditionally didn't invest, but now that we have a much broader portfolio, both on the server CPU and on the commercial PC side, it makes sense for us to invest because that's sort of the very best part of those markets. Matthew Ramsay: All right. Thank you very much, everybody, for joining and your interest in AMD. John, you can go ahead and close the call now. Thanks. Operator: Thank you. And ladies and gentlemen, that does conclude the question-and-answer session, and that also concludes today's teleconference. We thank you for your participation. Please disconnect your lines, and have a wonderful day.