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Operator: Greetings, and welcome to the Codexis Report 2026 Q1 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Georgia Erbez, Chief Financial Officer and Chief Business Officer. Please go ahead. Georgia Erbez: Thank you, operator. With me today are Dr. Alison Moore, Codexis' President and Chief Executive Officer; and Britton Jimenez, Senior Vice President, Sales and Marketing. During this call, management will be making a number of forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including our guidance for 2026 revenue, anticipated milestones, including product launches, facility expansions, technical milestones and public announcements related thereto as well as our strategies and prospects for revenue growth and successful execution of current and future programs and partnerships. To the extent that the statements contained in this call are not descriptions of historical facts regarding Codexis, they are forward-looking statements reflecting the beliefs and expectations of management as of the statement date, May 7, 2026. You should not place undue reliance on these forward-looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond Codexis' control and that could materially affect actual results. Additional information about factors that could materially affect actual results can be found in Codexis' filings with the Securities and Exchange Commission. Codexis expressly disclaims any intent or obligation to update these forward-looking statements, except as required by law. Now I'll turn the call over to Alison. Alison Moore: Thank you, Georgia, and thanks, everyone, for joining. While it's been a short 8 weeks since our last call, we've accomplished a lot at Codexis. We are pleased to report another strong quarter and are busy preparing for the TIDES Conference next week, where we will present important new data on our ECO Synthesis technology. Codexis generates manufacturing solutions using biocatalytic enzymes. Over the last 3 years, we have developed the ECO Synthesis manufacturing platform for the production of RNA medicine, specifically siRNA, and we are now focused on bringing this to the market. The standard approach of using solid phase organic synthesis for siRNA manufacturing is complex, solvent-intensive and challenging to scale. Currently, siRNA pipelines are expanding from rare diseases to large population indications, which will create a significant manufacturing bottleneck in the next 3 years. ECO Synthesis has the potential to alleviate production constraints by delivering greater scalability and higher product quality with the added benefit of dramatically improving environmental impact. Last year, we achieved a number of important milestones in platform performance and industry engagement, which generated tangible interest from our customers. In 2026, the potential impact of our platform is well understood. Across the industry, we are seeing increased interest in enzymatic production solutions. Our goal is to position Codexis as the leading manufacturing technology innovator. We are operationalizing our platform through scaling, improving process control and by our platform's unique capability of delivering superior siRNA product. A new feature of our ECO Synthesis platform is the ability to generate siRNA with specific stereochemical control. Stereoisomers exist at both ends of most siRNA molecules and are made of the same atoms but are arranged differently in 3-dimensional space. As a reminder, drug developers have little influence over stereochemistry today as existing chemical manufacturing methods produce random mixtures that can vary in terms of therapeutic potency and purity. Our engineered enzymes used in ECO Synthesis can deliver product with specific stereoisomer configurations. These stereopure molecules confer overall improved product quality and have the potential to deliver improved potency. We continue to explore the biological impact of this control and believe it could be a tremendous asset to those customers who seek ways to improve their products. Our small molecule biocatalysis business remains an important part of Codexis and provides support for the investments we are making in ECO Synthesis. We supply uniquely designed enzymes for 13 branded commercial pharmaceutical products. This portfolio continues to grow with the recent approval of islatravir, a part of an important new combination treatment for HIV. Codexis partnered with Merck, who carried out groundbreaking process chemistry, substituting a 16-step chemical synthesis with a biocatalytic cascade. This achieved a Green Chemistry Award in 2025. We are supplying enzymes for this commercial product and are proud to participate in the supply chain for HIV patients. We are making remarkable progress at Codexis and momentum is increasing in 2026. We are proud of the advances we are making to further enhance the utility of the ECO Synthesis platform. We look forward to showing our customers and investors additional tangible proof of value of the technology. Now to update you on our commercial activities and progress, let me turn it over to Britton. Britton Jimenez: Thanks, Alison. Our ECO Synthesis manufacturing platform continues to mature into a thriving and successful business. Most importantly, it is a platform capable of broadly supporting product development for the most important growing modality in the genomic medicine space. The number of RNA medicines in development is growing at an estimated rate of at least 10% per year with over 100 candidates in clinical trials and more than 400 in preclinical development. Current production technologies will not be able to keep up with future demand. For example, there are 4 drugs in late-stage clinical development for cardiovascular indications. A 2% to 3% market penetration of one of these therapeutics into a 25 million addressable patient population will require more oligonucleotide production than the entire rare disease portfolio combined. The impact of these powerful new therapies may not reach their full potential if they cannot be produced reliably, efficiently and scale and at scale. As innovators and CDMOs search for ways to expand capacity, the importance of new production technologies is rapidly accelerating, and this market is currently estimated to be at $2 billion. For our ECO Synthesis platform, we have over 50 opportunities in our sales pipeline with 40 individual companies demonstrating strong continued interest in our technology. The valuation work with our CDMO partners is progressing and long-term commercial discussions are also moving forward. The industry knows there needs to be a change, and we intend to be the best option for both drug innovators and CDMOs. In connection with what Alison mentioned before, our customers are interested in exploring how stereoisomer control can be incorporated into their products. We believe this new capability can improve product purity and potency for therapeutics. We are excited to add this approach to our ECO Synthesis portfolio. In advance of the TIDES USA meeting, we completed exciting new data on stereochemistry. This groundbreaking presentation will underscore the breadth of our leadership in enzymatic technology. During TIDES, we will host a roundtable discussion with industry experts focused on stereochemistry and the value it can bring to next-generation RNA medicines. We will have additional presentations on environmental sustainability and the performance of highly engineered ligases. Turning to our small molecule biocatalysis business. It remains stable and profitable. We continue to support 13 commercially approved products that are dependent on our enzymes. As we mentioned on a previous update call, we have a number of projects in clinical development. In the last 6 months, we have had data readouts on 3 studies, 2 of which were positive and one of which received FDA approval last month. We are assisting our customers with preparation for commercial launch for both programs. Our pipeline remains robust with 11 programs still in Phase III clinical development and data readouts expected on 4 clinical trials in the next 12 months. We are excited for our prospects in 2026 and beyond. The next 3 years represent a critical window to increase global oligonucleotide production capacity. The industry must confront the challenge of scaling from manufacturing less than 1 metric ton of oligonucleotide therapeutics annually to 10x to 50x that in the next decade. There isn't a more important time for enzymatic production approaches to be deployed in global production infrastructure, and we are driving the ECO Synthesis platform toward this opportunity. With that, I will now turn the call over to Georgia for a discussion of our financial results for the first quarter. Georgia Erbez: Thanks, Britton. Good afternoon, everyone. Today, I will provide a brief overview of our financial results here on the call and invite you to review our 10-Q filed today for a more detailed discussion. Total revenues were $15.2 million for the first quarter of 2026 compared to $7.5 million in the first quarter of 2025. The increase was primarily due to revenue from the Merck technology transfer agreement executed in the fourth quarter of 2025, which has now been fully recognized. Product gross margin was 71% for the first quarter of 2026, which compares to 55% for the first quarter of 2025. For the first quarter of 2026, the increase was primarily driven by product mix and sales declines in several low-margin products that were replaced with more profitable product sales. We continue to expect 2026 annual gross margins to be comparable to the annual levels we reported in 2025. Research and development expenses for the first quarter of 2026 were $11.4 million compared to $12.9 million in the first quarter of 2025, largely driven by lower allocable costs that were partially offset by higher employee-related costs and higher use of outside services. Selling, general and administrative expenses were $9.8 million in the first quarter of 2026 compared to $12.4 million in the prior year period. The decrease was primarily due to lower employee-related costs due to lower headcount, lower stock-based compensation expenses and lower consultant fees and outside services. Net loss for the first quarter of 2026 was $8.7 million compared to the loss of $20.7 million for the first quarter of 2025. We are fully engaged in our project to retrofit our new GMP plant and located in Hayward, California that was leased in 2025. We are currently in the detailed design phase and are preparing to apply for a building permit in the second quarter. Construction is planned to get underway in the second half of the year, and we expect to be fully operational by the end of 2027. Together with our Redwood City headquarters, this marks a continued step forward in how we support development, scale-up and manufacturing our customers' products. We reiterate our revenue guidance and expect 2026 revenue in the range of $72 million to $76 million. Like the quarterly trends we saw last year, we expect 2026 revenue to be more heavily weighted towards the second half of 2026 versus the first half. Codexis ended the first quarter with $65.1 million in cash, cash equivalents and short-term investments, which compares to $78.2 million at the end of 2025. We expect our current cash will be sufficient to fund our planned operations and capital expenditures through the end of 2027. As a reminder, our financial guidance and cash runway include the expenses associated with the build-out of our GMP facility. With that, I will now turn the call back over to Alison. Alison Moore: Thank you, Georgia, and thank you, Britton. Our proprietary ECO Synthesis platform technology has the potential to radically alter the landscape of oligonucleotide manufacturing. The next step for Codexis is to deploy the technology into our customers' pipelines. We are working hard to achieve this goal in 2026. For investors, we want to show proof of success. We can do this by signing broader and higher value types of contracts as well as innovative licensing deals. We will also be focused on financial performance by meeting our revenue targets while being mindful of our expenses. We will continue to innovate in the field of RNA medicines using our skills and experience in biocatalytic enzymes. Our presentations at the TIDES USA meeting next week in Boston will showcase our newest innovation. We are continuing to scale up our ECO Synthesis manufacturing platform, and we are making progress towards achieving 0.5 kilogram scale by the end of this year. I believe 2026 could be the year when ECO Synthesis is no longer viewed as just an alternative production technology, but the technology of choice for our customers' RNA medicines. We are excited by our prospects and proud of the dedication and achievements of our employees who have been instrumental in making the ECO Synthesis technology a reality. Now we'd be happy to take your questions. Operator? Operator: [Operator Instructions]. The first question comes from Allison Bratzel with Piper Sandler. Peter Spanogiannopoulos: This is Peter Spanogiannopoulos on for Allison. I was wondering if you can give us a preview of what to expect from the upcoming stereochemistry data that will be presented at TIDES. Then as a follow-up, I'm wondering when we can expect to see some data demonstrating that this stereo control translates to improved efficacy. Alison Moore: Thanks for the question, Peter. Yes, we're very excited to show our data next week. What we are going to show for the first time demonstrates stereo control at both the 3 prime and the 5 prime end of the siRNA molecule. This has not been shown before, and we will show data describing how we achieve that and the product quality of the product. We are currently working on generating data associated with the potential for improved activity. We have some data already and shortly, we are going to have more. I would also point out that there is some extremely nice published literature that has already demonstrated the opportunity of stereo control in siRNA medicine. That stereo control confers improved stability related to intracellular nuclease activity. Even mechanistically, there's a hypothesis about why there ought to be the opportunity of improved potency. As I said, we have those data in the works, and we will definitely be sharing those when we have them also. Operator: The next question comes from Kristen Kluska with Cantor Fitzgerald. Unknown Analyst: This is Ian on the line for Kristin. Could you speak at a high level about the risks that are involved in scaling the platform from 100-gram scale to like 500 gram by year-end? Now that you're operating at 100 gram, what aspects of the scale-up process do you believe have been derisked versus what remains to be proven? Alison Moore: Thank you for the question. We have a very skilled and experienced process development team here at Codexis that we have built over the last 3 years that have expertise both in traditional oligonucleotide synthesis who -- some of whom are enzymeologists and some of whom are what I would call more classic process development individuals. Together, they're working really well on stepping through the scale changes, which are often 5x to 10x scale changes every time we scale the process. I think you may be aware, we started with a very lab scale process. Now we are at a scale where we can certainly deliver material for preclinical development and very shortly approaching the ability to deliver kilo scale. I mentioned that our goal is to achieve half kilo scale by the end of the year. Twofold from there will be much more straightforward. The kinds of challenges that we're meeting during scale-up are what, I would call, normal process development challenges. Those are often the challenges of control of temperature, flow rates, etc., as we start to use larger and larger equipment. We are learning a lot about how to scale the process. I think that is part of the secret sauce that manufacturing technology companies start to accumulate. We continue to deliver products of higher and higher quality actually, and that's what matters at the end of the day. Operator: The next question comes from Matt Hewitt with Craig-Hallum. Matthew Hewitt: Congratulations on the strong start to the year. Maybe first up, regarding the Merck enzyme, I'm just curious, historically, those have been talked or discussed as being kind of $5 million to $10 million in annual revenues. I'm just curious where this one kind of fits into that and how we should be thinking about the ramp of that specific product this year? Georgia Erbez: It's a brand-new approval for us, and we are very excited by this. We are working with Merck right now as we work through their demand for the product moving forward. We hope to have more information for you in future calls. Right now, we're working with them on their supply chain and their demand on manufacturing moving forward. Stay tuned, and we'll hopefully have some more information for you in future calls. Matthew Hewitt: Then maybe separately, the ongoing engagement that you have with the FDA regarding the ECO Synthesis platform, maybe an update on how those conversations are progressing? What will be the ultimate outcome from those discussions? Does it allow for faster approval with potential partnerships down the line? Or just explain what this will ultimately lead to? Alison Moore: Thanks, Matt. That's a great question. We're actually right now working on a briefing for our next interaction with the agency, which we are planning for in approximately a quarter. Codexis was accepted into the emerging technologies program in 2024. We have been engaged with the agency around the ECO Synthesis manufacturing platform in various conversations since then. The upcoming conversation that we will be having is an ongoing part of that program. In addition to the emerging technologies program, we are working to put together the foundational information that is required to make a submission towards an Advanced Manufacturing Technologies designation. It's called the AMT designation. If and when we achieve that designation, that does enable faster timing on review times and the potential for accelerated approval. Operator: The next question comes from Matt Stanton with Jefferies. Matthew Stanton: Maybe one on the CDMO partnership side. It sounds like the goal is to commence another strategic partnership by the end of '26, which is good to see. Would love to just get an update on the 3 existing CDMO partnerships you have now that it's been a few quarters, any proof points, learnings, next steps? How do you think about some of those original partnerships being able to engage more meaningfully towards contracts, revenue, things like that over time? Britton Jimenez: Yes. Absolutely. The partnerships we have with the CDMOs that we've announced are going fantastic. The engagement with the different CDMOs around our technology, then getting a better understanding of our technology, how it works, how it scales, like I said, have just been fantastic. Everyone's been extremely pleased with the results of that. Because of the great work of the teams on both here within Codexis and within those partnerships, that has allowed for us to advance our commercial discussions. We're in progress of those discussions. Everything is looking very, very positively. We're looking forward to what lies ahead of us because we do believe there's a great path in front of us. As for other potential CDMO partners, absolutely, we're always evaluating the marketplace because we want to ensure that the availability of our technology is out there for our customers, the drug innovators to be able to get access to the technology. It's an exciting time. These partners are critical to our strategy. It opens the doors and allows for bigger and better opportunities for us because it's another pathway for us. Great things going there. Matthew Stanton: Then maybe just on the broader pipeline. It sounds like a lot of progress. You talked about a licensing deal with a major pharma company, hopefully in the back half of '26 year. Just any more flavor you can provide? Is that kind of one that you're working on, you think hits? Do you have a couple of opportunities and you're assuming one of them comes through? Would love just a little more color on that. Then anything you can provide in terms of the scope or shape of what that could look like? Is it early-stage work? Is there any chance that you could be looking at running in parallel on clinical pipeline programs? Just any more flavor in terms of the pipeline there and what that could look like over time? Britton Jimenez: Yes. There's definitely a lot of conversations happening around that. There's multiple opportunities that sit in front of us with bigger and broader partnerships. Those discussions have very different flavors to them because each of those organizations are looking at our technology in different ways. I'd say the discussions are ongoing. They're looking positive. I can't get into a lot of details around this right now just because of the types of conversations we're having. No, we're very optimistic about this. The excitement around this technology and the data that we're presenting just further enhances the value out there in the marketplace. I'd say great conversations, but still more to come here in the future. Operator: [Operator Instructions]. The next question comes from Brendan Smith with Cowen and Company. Brendan Smith: I just wanted to ask in terms of the sales funnel. Obviously, a lot of breadth here, but could you give a little more color on breakdown of out of those 40 companies, what's the mix between like large pharma, larger biotech and emerging biotech? Then maybe in terms of the 55 programs, could you just speak to which are maybe further along than others relative to each other? Britton Jimenez: Yes. No problem. Regarding the organizations, the funnel is very, very healthy. Why I say that is our conversations cover across that entire spectrum that you mentioned. We're talking to some of the largest drug innovators in the RNAi space. We're talking down to some cell companies. The size and shape is very different, which is fantastic because it gives us diversification within the platform, the technologies. We're derisking the conversations. We're not in one just specific market segment, which is great. Now of course, in those conversations, like I mentioned, those organizations have different ideas on how they want to engage with us using our ECO Synthesis platform. Each of those conversations are unique and a little different on what we're trying to accomplish. In regards to the programs, again, there is no one size fit all. People are talking to us about everything from very early-stage assets to clinical assets to commercial assets and everything in between. I can't sit here and say we only talk about one thing because there is a very good diversification within our conversations, which is really exciting. Brendan Smith: I guess a large part of the thesis, obviously, has been the broader demand outstripping existing supply. Maybe with this technical differentiation, are you viewing even some smaller indications and maybe more niche programs as potential opportunities from an asset differentiation standpoint? Are there any other ways that you view are technically feasible beyond just this upcoming TIDES presentation, which we're looking forward to? Alison Moore: Yes. As Britton just stated, at the moment -- so just to be clear, we have existing work and existing contracts with some very large pharmaceutical companies and with innovator and stealth companies for the ECO Synthesis manufacturing platform. We are very open to what folks might like to use the platform for at the moment. Since we're really just starting to show the data and show real evidence of the product quality associated with the opportunity of stereo control, I expect that we probably will get some more inbound interest there. We certainly will be interested to work with a variety of customers there. We don't have unlimited bandwidth. Actually, just right at the moment, we are working on improving productivity and throughput so that we can make sure that we have the right kind of velocity and capacity to meet those customers' demands. I suppose, maybe, Brandon, your question is, at the end of the day, if there would be a high-volume client or a client with high volume potential, we would prioritize that client. Operator: Thank you. At this time, I would like to turn it back to Alison Moore for closing remarks. Alison Moore: Thank you, everyone, for joining us today, and we will certainly be looking forward to seeing some of you at upcoming investor conferences. If at any time you have additional questions, please feel free to contact us. I hope you have a good afternoon and evening. Thank you. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation, and have a great day.
Operator: Greetings. Welcome to Drilling Tools International First Quarter 2026 Earnings Conference Call.[Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ken Dennard. Thank you, Mr. Dennard. You may begin. Ken Dennard: Thank you, operator, and good morning, everyone. We appreciate you joining us for Drilling Tools International's 2026 First Quarter Conference Call and Webcast. With me today are Wayne Prejean, Chairman and Chief Executive Officer; and David Johnson, Chief Financial Officer. Following my remarks, management will provide a review of the first quarter results and 2026 outlook before opening the call for your questions. There will be a replay of today's call. It will be available by webcast on the company's website at drillingtools.com, and there will also be a telephonic recorded replay available until May 15. Please note that information reported on this call speaks only as of today, May 8, 2026, and therefore, you're advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. Also, comments on this call will contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views of DTI's management. However, various risks and uncertainties and contingencies could cause actual results, performance or achievements to differ materially from those expressed in the statements made by management. The listener or reader is encouraged to read the annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K to understand certain of those risks, uncertainties and contingencies. The comments today will also include certain non-GAAP financial measures, including, but not limited to, adjusted EBITDA and adjusted free cash flow. The company provides these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. A discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures and the reconciliation to the most directly comparable GAAP measures can be found in our earnings release and our filings with the SEC. And now with that behind me, I'd like to turn the call over to Wayne Prejean, DTI's Chairman and Chief Executive Officer. Wayne? R. Prejean: Thanks, Ken, and good morning, everyone. I will provide some opening remarks before handing the call over to David to review the financials and touch on our outlook. I'll then come back and provide a few additional thoughts before we open it up for questions. Our first quarter results came in largely as anticipated. As we discussed in our year-end call in March, we expected activity to remain relatively soft through the first half of the year with the possibility for improvement in the back half of 2026, driven by several potential catalysts across multiple geographies. The quarter played out consistently with that framework. Despite a softer start to the year, we generated total consolidated revenue of $38 million and adjusted EBITDA of $7.5 million. Importantly, our outlook for the full year remains intact, and we are reaffirming our 2026 guidance ranges today. There were a few distinct factors that shaped our first quarter. North American land activity continued to be flat to slightly down. The earlier-than-expected spring breakup in Canada pulled some typical second quarter seasonality into the first quarter. While this compressed Q1 results, it also means the post-breakup rebound should begin earlier than usual, and we expect that to be a tailwind as we move into the second quarter. In the Middle East, the ongoing regional conflict has created some operational disruption that has muted what would otherwise have been a stronger first quarter contribution. That said, and this is an important point, our experience in the region is different from public statements expressed by the larger diversified service companies. Due to our more targeted footprint and specialized product focus, we have continued to see rising demand for our tools in the Middle East even through this volatility. Our tide is still rising in that market. The geopolitical backdrop has simply suppressed the slope. Offsetting these headwinds, we saw very encouraging momentum in our international offshore markets. Our ClearPath stabilizer technology continues to gain traction as customers adopt it for high-value offshore and land projects around the world, and the Drill-N-Ream is making steady progress in the Middle East, providing solutions for complex wellbore challenges, including micro doglegs, tortuosity and getting casing to bottom. Our Deep Casing Tools product line, which saw utilization bottom out in 2024, has continued its recovery with a notable rebound in product sale purchase orders, particularly from the Middle East customers who have worked through their owned inventories. Together, these unique and value-based product lines are enhancing our Eastern Hemisphere growth and support our confidence in our full year outlook. Looking ahead, we are confident that the forward price of oil is higher rather than lower for the foreseeable future. And we believe a more constructive commodity backdrop will gradually help relieve the pricing compression that has characterized the last several quarters. In North America, there is a real disconnect today between available rig capacity and the fracturing horsepower capacity needed to convert drill wells into production, which tempers our near-term enthusiasm for a significant NAM recovery. But we are seeing steady traction in the Gulf of America, the North Sea and offshore markets in other parts of the world. Our differentiated portfolio is positioning us well to capture that work. Before I turn it over to David, I want to highlight an important milestone achieved during the first quarter. Our primary private equity sponsor, HHEP, completed the distribution of its remaining DTI shares to its limited partners. This is an event which we have been signaling to the market since going public in 2023, and it materially increases our public float and our trading liquidity. This distribution event, together with the recent refreshment of our Board of Directors, represents a significant transition for DTI into a fully independent public company with broader ownership and strengthened governance aligned with our next phase of growth. Now I'll pass it over to David to take you through the results in greater detail and provide an update on our 2026 outlook. David? David Johnson: Thank you, Wayne. In yesterday's earnings release, we provided detailed first quarter financial tables. I'll use this time to offer further insight into specific financial metrics. Looking at our first quarter results, we generated total consolidated revenue of $38 million. First quarter Tool Rental revenue was $28.9 million and product sales revenue totaled $9 million. Net loss attributable to stockholders for the first quarter was $1.5 million or a loss of $0.04 per share. Adjusted net loss was $1 million or an adjusted loss per share of $0.03. First quarter adjusted EBITDA was $7.5 million and adjusted free cash flow was a loss of approximately $160,000. I'll offer a bit more color on the movement in tool rental revenue and margins. The year-over-year decline reflects a combination of softer North American land activity, the earlier-than-expected Canadian spring breakup that Wayne described and some continued pricing pressure in certain segments of our rental fleet. Even with that compression, our tool rental gross margin remained above 70%, which we view as a strong baseline that validates the underlying quality of our rental business. As activity levels improve through the year and as our value-add product lines continue to gain share, we expect both revenue and margins to benefit. Capital expenditures in the quarter were approximately $7.7 million. Although elevated compared to our typical first quarter run rate, it is not unexpected as we prepare for the year ahead. We expect this to trend downward as the year progresses. However, we could see some opportunities to make strategic investments in the coming months to support early adoption of our ClearPath technology and other growth opportunities in international markets. These are attractive project-based opportunities with sticky revenue characteristics, and we believe the returns justify the incremental investment. Maintenance CapEx for the first quarter was approximately 13% of total revenue, primarily fueled by higher-than-average tool recovery revenue. And as always, we'd like to remind everyone, our maintenance CapEx is primarily funded by tool recovery revenue, which keeps our Rental Tool fleet relevant and sustainable regardless of market trends. Now turning to the balance sheet. As of March 31, 2026, we had $2.8 million of cash and cash equivalents and net debt of $48.9 million. Our net debt increased modestly during the quarter, which is consistent with our typical first quarter seasonal working capital pattern, including the payout of prior year incentive compensation, combined with the elevated first quarter CapEx I just described. We expect to see improved cash flow over the remainder of the year and reduced leverage from here, consistent with how we have managed the business historically. On the capital allocation front, we continued our share buyback activity in the first quarter with approximately $700,000 of repurchases. As Wayne mentioned, the more significant development during the quarter was the completion of the share distribution by our former sponsor, HHEP, to their limited partners. Following that distribution, the vast majority of our outstanding shares, approximately 90% are now held in the public float with the former sponsor and insiders collectively holding a low double-digit minority. This is exactly the outcome we communicated to investors when we went public, and it positions DTI with the trading liquidity and broad ownership profile of a fully independent public company. You can find additional details around our updated shareholder composition in the investor presentation we posted to the Investor Relations section of our website on Slide #28. Turning to our geographic segment mix. Our Eastern Hemisphere segment continued to be an important contributor in the first quarter, and we expect its contribution to grow as the year progresses. The growth is supported by ongoing adoption of our ClearPath technology, deep casing tools momentum and rising Drill-N-Ream utilization across complex Middle East wells. As we disclosed in yesterday's earnings release, we are reaffirming our 2026 full year guidance ranges. 2026 revenue is expected to be in the range of $155 million to $170 million. Adjusted EBITDA is expected to be within the range of $35 million to $45 million. And finally, we continue to expect 2026 adjusted free cash flow in the range of $17 million to $22 million -- these ranges reflect our previously communicated assumption of a relatively soft first half with improvement building in the second half of the year. Despite the ongoing uncertainty surrounding our industry as it relates to supply and demand dynamics, we remain confident in our full year trajectory. Also of note is that our ranges contemplate our current CapEx plan. However, as I mentioned earlier, we are actively evaluating additional targeted investments to support international growth opportunities in our technologically differentiated product lines, such as our ClearPath stabilizers and sleeves. To the extent we choose to accelerate investment in these areas to support customer orders, we may land at the lower end of our adjusted free cash flow range. Importantly, we view these customer-sponsored initiatives as attractive, high-return uses of capital that will support durable revenue growth in 2026 and beyond as we meet our customers' needs in the anticipated up cycle. That concludes my financial review and outlook section. I will now turn the call back over to Wayne for closing comments. R. Prejean: Thank you, David. Having largely completed the integration work over the past year, DTI now operates as a single unified company anchored by our One DTI platform. Common systems, processes and our Compass asset management backbone have been essential in managing our global footprint and the platform we have built is truly a strategic asset. One DTI allows us to deploy capital with greater precision, scale our differentiated technology portfolio across multiple geographies, minimizing fixed cost and integrate future acquisitions on a materially shorter time line that has historically been possible in our industry. We continue to believe the downhole drilling tool industry is fragmented and in need of consolidation. Our platform positions us to be a more effective acquirer as attractive opportunities present themselves. Now before we open up the lines for questions, I would like to highlight a few key takeaways. We are reaffirming our 2026 full year guidance ranges. Our first quarter results are consistent with the seasonally softer first half we had planned for, and we continue to expect a stronger second half supported by technology adoption, and activity increase in major operating areas and rising international utilization. Our ClearPath stabilizer technology is gaining meaningful traction in high-value offshore and complex well markets, domestic and internationally. Our deep casing tools and Drill-N-Ream product lines are contributing to our growing Eastern Hemisphere story. These are exactly the differentiated technology-led offerings we strategically plan to scale. Our focused footprint and specialized product lines allow us to navigate Middle East volatility differently from the larger diversified service companies. Our tools remain in demand in the region, and we are continuing to win new work even in a disrupted environment. The completion of the sponsor share distribution and the addition of new Board members mark a meaningful new chapter for DTI. We are entering this chapter as a fully independent public company with a broader ownership base, enhanced trading liquidity and a Board well suited to guide our next phase of growth. Our past M&A activity, our capital discipline and our differentiated technology portfolio have positioned us to generate resilient results in a choppy market and to capture meaningful upside as conditions improve. We believe a higher forward oil price environment will gradually relieve the pricing compression that has characterized the last several quarters and support a more constructive backdrop for our customers and for DTI. Finally, I want to address the ongoing conflict in the Middle East as it pertains directly to DTI. This is a fluid situation, and it seems that circumstances change daily. We have experienced some operational disruption, but our tools remain in demand and our team on the ground continues to support our customers with remarkable professionalism under difficult conditions. I want to thank every member of the DTI organization for their continued commitment to working in a safe, inspired and productive manner with special thanks to our personnel in the Middle East. Our employees' commitment and dedication have been essential in navigating a constantly evolving environment and are central to the success and future growth we are building together. With that, we will now take your questions. Operator? Operator: [Operator Instructions] Our first question comes from Steve Ferazani with Sidoti & Company. Steve Ferazani: Appreciate all the color on the call. I certainly covered a lot of the topics I wanted to hit on. But Wayne, I guess the surprised negative number to us in the quarter was the rental tools margins. I know the revenue was lower, but I'm trying to get a sense of the factors that impacted the tool rental margins. How much of it was freight utilization versus a mix of price, cost and product mix? R. Prejean: Well, Steve, the soft market conditions in the U.S. and kind of a muted or an early breakup in Canada, which is -- we have a nice chunk of business there as well kind of had a double effect on it. We also sometimes have a -- we push back on pricing in many areas. And there's a bit of a shuffle in our rental tool business from one client to another. If we push back a little hard, we lose and gain in certain areas. So we're trying to be the price maker instead of the price taker. And with -- given the soft and flattened market in North America, that creates its own set of challenges. And then there's the muted effect of the war in the Middle East, we had some momentum gaining there, but it just kind of flattened that out, but we're still holding pretty steady there. Steve Ferazani: I guess the question is this, because to get to your EBITDA guide full year based on your midpoint of your revenue guide, the tool rental margins have to be more like they were last year by our model. Is that fair? And is that achievable based on the margin you reported in Q1? R. Prejean: Yes. We have some momentum in some new products. We feel like there is going to be an uptick in the North America market. I think that's probably more likely than not, and that will relieve some of the compression that's going on. I think we'll have an activity increase, and we have to hold pricing indexes and possibly get some gains in certain areas depending on the product mix. But we have -- I think we have realistic optimism for what we see the rest of the year. And the first quarter does not define exactly the structure and the capability of where we're going and what we're doing, but it is a soft quarter without a doubt. Steve Ferazani: Got it. Can you talk a little bit about -- can you quantify at all the impact of the early spring breakup and then just how much you get back in 2Q? R. Prejean: I don't know if I could really quantify that exactly. It just generally, we usually see most of the softness occur in -- starting in late March or April, and it happened earlier than March, right? So those cycles tend to affect your revenues differently each year. But it's usually the effect is in the second quarter, but we had more of it in the first quarter. And then we're hoping that some of the newer products we're launching, we get higher margins on. So that's helped offset some of the negativity in some of the other products. So one of the good things about having new technologies layered on top of our existing rental tool fleet is it gives you that balance. And we haven't had too much of a margin dilution on the overall rental fleet. Steve Ferazani: Got it. Can you talk about product adoption of some of these and you pointed out some of the technology you've acquired primarily in '24. I know ClearPath came from your last acquisitions that call ED projects, Deep Casing Tools, Drill-N-Ream, those are all acquired technologies in terms of how you've used them on your platform and adoption? R. Prejean: Sure, sure. So we're getting a lot of traction in the high-value offshore markets with our ClearPath stabilization system. We've gone more from a product approach to a system approach, and that's really gaining solid traction for us in the North Sea and high-value operations, some parts of Asia and the Gulf of America. So that's been helpful. And when we acquired SDPI, we acquired back a couple of years ago, we acquired a large fleet of tools and infrastructure in the Middle East. And given the softness in Saudi and some of the other areas for the last year or so, we've been able to rebound that quite nicely, and it's gaining steady traction in those markets, with our commercial team and our focus on high-value selling, we've been able to significantly increase utilization and the revenue in that area from where it started after the acquisition. So that is gaining traction. Also, our Deep Casing product lines, the MechLOK Swivel is one particular product that is part of our portfolio there. It's gaining traction in multiple markets in Africa, in the Middle East, in the North Sea and Asia. And also our turbine tool product, which is the Deep Casing products, TurboCaser TurboRunner is resurging in Saudi and other markets where historically we've done very well. And as a result of those rig count increases and activity increases, we're doing better and better each month-over-month, quarter-over-quarter. And I think we'll see those results throughout the year. The war and any more disruptions notwithstanding. Steve Ferazani: Right. Fair enough. Fair enough. So when I looked at your product sale line, that was -- there was some benefit from the acquisition as opposed to just being a straight higher lost in tool revenue. Am I right about that? R. Prejean: David? David Johnson: Yes, Steve. Yes, we definitely saw -- I think we alluded to earlier, where our Deep Casing Tool product sales had bottomed out much earlier. And we saw some -- we're starting to see a little bit of pickup in that as the customers have depleted their inventories. And with Aramco picking up some rigs, we're seeing some more and more opportunity with that, and that improved a little bit in Q1, and we look to see continued improvement as well throughout the rest of 2026. Steve Ferazani: Yes. Certainly, that line was much higher than we were expecting. So congratulations on getting that back on track. In terms of -- you both commented on CapEx and the plans for the year. Obviously, higher CapEx can be looked at as clearly a positive if there's more traction in getting more of those higher value-add equipment out there. What's the determination at this point? Is that going to be second half activity driven to get to whether you're at the higher end of that guidance range? R. Prejean: Yes, that's another thing is we do front load a lot of our investments and trying to build momentum into each year, which is how we've always run the business. But we see a lot of opportunities at the second half and moving into '27 with putting our recovery income that comes from our loss-in-holes and DBRs into what we call relevant fleet investments and some new technology investments to sustain our entire fleet. So that has been moving a solid direction. So we have some opportunities that present themselves that create a significant increase in revenues. So we have to make strategic decisions that I think David mentioned, we might have to invest in some more tools to get longer-term contracts, and that may lower -- put our free cash flow forecast in the lower end of our guidance, but we're mindful of making sure we stay within the ranges that we expect. Steve Ferazani: Are you seeing your offshore mix growing at this point? R. Prejean: Yes. Operator: Our next question is from Colby Sasso with Daniel Energy Partners. Colby Sasso: Just a quick question for me. You touched on it a bit earlier, but with seemingly higher rig activity in North America in the back half of the year and with the ongoing geopolitical tension in the Middle East, how is DTI evaluating like investment opportunities across its global portfolio with Africa, North America, the Middle East? Just how are you thinking about all the different regions there? R. Prejean: Well, it's a great question. But what we looked at is the highest return opportunity and highest value for -- and having a sustainable and repeatable income stream from each of those markets. It's our belief that if we continue to have a durable higher oil price metric and a durable nat gas price in a forward strip looking forward, our customers in the States and North America will increase activity, but they will do it mindfully, thoughtfully and I think in a manner that's somewhat organized. But our -- we have some really good opportunities in Norway, which is really a growing market for us. And the Middle East, despite the Middle East conflict, Saudi and UAE have still been quite sustainable and growing upward and figuring out ways to continue with their activity, and we are participating in that nicely. There are some opportunities in Africa in the deepwater and offshore operations there. But those are challenging markets to deal with in multiple countries and different rules and regs and type of customers. So we're navigating that carefully. And Asia is, I think, another bright spot for us. We've spent a lot of time and effort laying the foundation for how that is going to play out for us because our high-value products that we just mentioned lend themselves well to solving complex wellbore problems, and there are -- those exist in all those markets. So I think we've aligned ourselves well with the international expansion, continuing to grow. And if the up cycle in North America continues, we'll enjoy that rising tide as well. Operator: There are no further questions at this time. I would like to turn the conference back over to Wayne for closing remarks. R. Prejean: We appreciate everyone's interest in Drilling Tools International, and we'll continue our journey forward, and we look forward to the next call. Thank you for your interest, and thank you for participating. Operator: Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Greetings, and welcome to the Marcus & Millichap First Quarter 2026 Financial Results Conference Call. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Jacques Cornet. Thank you. You may begin. Jacques Cornet: Thank you, operator. Good morning, and welcome to Marcus & Millichap's First Quarter 2026 Earnings Conference Call. With us today are President and Chief Executive Officer, Hessam Nadji; and Chief Financial Officer, Steve DeGennaro. Before I turn the call over to management, please remember that our prepared remarks and the responses to questions may contain forward-looking statements. Words such as may, will, expect, believe, estimate, anticipate, goal and variations of these words and similar expressions are intended to identify forward-looking statements. Actual results can differ materially from those implied by such forward-looking statements due to a variety of factors, including, but not limited to, general economic conditions and commercial real estate market conditions, the company's ability to retain and attract transactional professionals, the company's ability to retain its business philosophy and partnership culture amid competitive pressures, company's ability to integrate new agents and sustain its growth and other factors discussed in the company's filings, including its Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2026. Although the company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can make no assurance that its expectations will be attained. The company undertakes no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release, which was issued this morning and is available on the company's website, represents a reconciliation to the appropriate GAAP measures and explains why the company believes such non-GAAP measures are useful to investors. This conference call is being webcast. The webcast link is available on the Investor Relations section of the company's website at www.marcusmillichap.com, along with the slide presentation you may reference during the prepared remarks. With that, it's my pleasure to turn the call over to CEO, Hessam Nadji. Hessam Nadji: Thank you, Jacques. On behalf of the entire Marcus & Millichap team, good morning, everybody, and welcome to our first quarter 2026 earnings call. We're pleased to report a strong start to the year with revenue growth of 18% over the first quarter of 2025. This reflects improving market conditions, a more robust recovery in our private client business and further momentum in our financing division. Building on last year's fourth quarter, our strong start is also driven by 2-plus years of persistent client outreach, frequent valuation updates and seller consultations that are now translating into transactions. Brokerage revenue grew nearly 12% year-over-year, while our financing business delivered a stellar 48% increase, demonstrating both the scaling of our capital markets platform and an improving lending environment. Adjusted EBITDA improved to nearly $3 million from a loss of nearly $9 million a year ago as we start to benefit from expense leveraging with revenue recovery from the prolonged market disruption. MMI completed nearly 1,400 brokerage transactions in the first quarter, a 15% increase. Transactions per agent increased 11%, which we see as a key measure of productivity gains, particularly given the growth in our headcount over the past year. Improvements were broad with 7 of the 11 property types we service posting brokerage revenue growth for the quarter. Office transactions delivered the largest gains in several years, thanks to significant price resets and an improving space demand driven by a growing return to office mandates. Activity was also strong in multifamily, manufactured housing and single-tenant retail. Our private client brokerage revenue improved 13% year-over-year and contributed the largest share of incremental brokerage revenue gains in the quarter. The strength was driven by a narrowing bid-ask spread, thanks to more realistic price expectations by sellers and more banks and credit unions returning to the market. We're seeing broader acceptance by sellers that current interest rate levels represent the new normal, which is forcing more realism on valuations. Small and mid-cap multifamily and single-tenant properties, which were most affected by the interest rate shock and lender constraints are now seeing more transactions following the unusually sharp and prolonged correction we experienced since 2023. Our larger transaction segment delivered a 25% revenue increase in the quarter, reversing last year's decline. As I shared on our last quarter's call, revenue from our $20 million-plus sales increased by 28% in 2024, clearly leading the recovery. In 2025, this segment faced a very tough comp, while institutions also became more selective and focused primarily on top-tier assets. During the first quarter, our IPA division, which drives the majority of our larger deals, leveraged a widening buyer pool and increasing appetite across the asset quality spectrum. As a general observation, price adjustments over the last 2 years point to a compelling entry point for investors, especially relative to replacement cost. MMI's financing revenue reached $27 million in the quarter, a 48% increase, while total financing volume grew 60% across nearly 400 finance transactions. Average deal size increased 36% as we executed larger and more complex transactions. This is a direct result of our successful recruiting and acquisition strategy over the past few years to attract highly experienced originators and finance boutique firms. Given the success in this strategy, we continue to focus on adding origination teams in key regions around the country. It is also critical to note that MMCC benefits from a deep bench of veteran originators who've been with the firm for many years and continue to thrive as we expand technology, lender relationships and collaboration with our sales brokers. A notable shift this quarter was toward acquisition financing, which accounted for 61% of originations, up from 50% a year ago. This trend is consistent with the rising transaction market, which enables more trades than refinancings and recapitalization. As lenders feel the pressure to become more competitive, we're seeing various metrics improve, particularly in higher loan-to-value ratios. At the same time, underwriting and sponsor qualification remained tight, still requiring more time and diligence from our originators and investment brokers to execute transactions. Lastly, our finance team used 188 unique lenders in the first quarter to provide our clients with a competitive advantage by leveraging our vast and growing network of qualified capital sources. Our auction services and loan sales business continue to gain traction and cross-generate referrals with our brokerage and financing teams. Auction revenue nearly doubled year-over-year in the first quarter, while revenue from loan sales and IPA Capital Markets increased 39%. These value-added services are effectively providing alternative marketing and sales channels to investors and lenders with ample growth opportunity ahead. On headcount, we ended the quarter with 1,621 investment brokers, up 87 from the first quarter of 2025. This includes a larger-than-usual seasonal reduction in sales force during the first quarter due to the proactive termination of 2- to 3-year agents in development who are falling short of key metrics. We are being more selective in recruiting and exercising tighter monitoring of sales performance for newer agents in their first 18 to 24 months with us. Going forward, more of the company's organic growth strategy will shift towards reliance on our expanded internship program and our fellowship channel, both of which are generating higher-performing agents with more reliable production. This shift would likely cause some noise in the net hiring data from quarter-to-quarter, but should be a better approach in the long term. Results from the recent expansion of our corporate recruiting team working hand-in-hand with our local market leaders have been encouraging as measured by the screening improvement and improved placements we've seen so far. We're scaling this further with the recent hiring of an industry veteran recruiter focused entirely on adding experienced talent. The company's technology investments continue to advance across multiple areas of the business, including our Central Support Services. This critical group is referred to as Brokerage Transaction Services or BTS, and provides financial analysis, document generation and marketing tools to support our sales force. The central theme in our technology strategy is the scalable application of AI to drive efficiency gains throughout all aspects of the brokerage service continuum and various internal functions. While the power of AI applied to a particular brokerage team, a particular geographic market or property type is clearly measurable, our focus is on building scalable AI agents and tools that markedly improve sales force productivity across the firm. This is a bigger challenge than simply applying AI to a particular practice. Looking forward, we expect commercial real estate fundamentals to remain healthy with more catalysts emerging to drive the rising tide of transactions. Pricing has generally adjusted and continues to recalibrate by asset quality, while new construction is slowing dramatically. This is especially critical for industrial and multifamily assets, which have seen record new inventory in the last few years. These factors are making the commercial real estate investment case increasingly compelling on a replacement cost basis. More of our clients are accepting that the pricing paradigm has shifted and lenders are facilitating the transition to a new cycle with more competitive terms. Notwithstanding some cooling of activity around the time of the conflict in the Middle East, our focused sales force, granular client-centric business model and local market expertise should drive growth amid ongoing macro political and economic developments. Our balance sheet remains a competitive advantage with approximately $335 million in cash and no debt. MMI has achieved the flexibility to invest in our platform, continue to pursue its strategic acquisitions and return capital to shareholders all at the same time. The ability to maintain a strong balance sheet clearly stands out as a catalyst to accelerate growth as the next real estate cycle takes shape. We see substantial growth opportunity ahead with operating leverage from recent investments and the addition of talented individuals we brought on board over the past several years. With that, I will turn the call over to Steve for more details on our financial results. Steve? Steve Degennaro: Thank you, Hassan. Total revenue for the first quarter was $171.5 million, an increase of 18% compared to $145 million in the prior year quarter. This represents the strongest first quarter revenue growth in 4 years. Breaking down revenue by segment, real estate brokerage commissions for the first quarter were $138 million, an increase of 12% year-over-year and accounted for 81% of total revenue. We completed 1,348 brokerage transactions for total volume of $7.9 billion, representing increases of 15% and 19%, respectively, compared to the first quarter of 2025. Average transaction size was $5.9 million, up 3% from a year ago. Average commission rate was 1.75%, a slight decrease of 11 basis points year-over-year, resulting from a modest mix shift towards larger transactions that carry lower commission rates. Within brokerage, our core private client market accounted for 64% of brokerage revenue or $88 million in the quarter, an increase of 13% year-over-year. Private client transaction count was up 19% and dollar volume grew 22%, reflecting the broad-based improvement in this core segment and more realistic price expectations by sellers. This compares to $78 million or 63% of brokerage revenue in the first quarter of 2025. Revenue from middle market transactions was $20 million, 6% lower than prior year, while the larger transaction segment covering deals above $20 million accounted for 18% of brokerage revenue and $25 million, representing a 25% increase year-over-year. Revenue from our financing business was $27 million in the first quarter, an increase of 48% compared to $18 million in the prior year quarter. This was driven by 60% growth in dollar volume to $3.1 billion across 398 financing transactions, representing an 18% improvement in transaction count. Average transaction size grew 36% to $7.8 million, reflecting our expanding footprint in larger institutional and agency loan originations. The average origination fee rate was modestly lower, consistent with the larger deal mix. Other revenue, which includes leasing, consulting, advisory and ancillary fees, was $6.5 million in the first quarter compared to $3.3 million in the prior year, an increase of 98%. This change primarily reflects growth in our loan sales and advisory services, consistent with the trend of rising distressed and transitional loan sales. Turning to expense. Total operating expense for the first quarter was approximately $177 million, an increase of just 9% on 18% revenue growth, reflecting improved operating expense leverage. Cost of services was $104 million or 60.4% of revenue, a favorable improvement of 50 basis points compared to prior year. Selling, general and administrative expense was $71 million, essentially flat compared to the prior year. In addition to ongoing cost containment, the first quarter's typical expenses were somewhat lower due to the last-minute cancellation of the company's annual sales award trip due to security concerns. As a percentage of revenue, SG&A improved substantially to 42% compared to 49% in the first quarter of 2025, reflecting the operating leverage in our model as revenue scales. For the first quarter, net loss was $3 million or $0.08 loss per share compared to a net loss of $4 million or $0.11 loss per share in the prior year, an improvement of 30%. On a pretax basis, the loss of $2 million this quarter represents a notable operating improvement from the prior year loss of $14 million. Tax expense for the quarter was $900,000. As Hessam mentioned, we are pleased to see adjusted EBITDA for the first quarter improving significantly to $3 million compared to negative $9 million in the prior year quarter. This represents more than $11 million of year-over-year improvement and reflects the combination of strong revenue growth, a controlled cost structure and the operating leverage I mentioned. Moving to the balance sheet. We remain in an exceptionally strong financial position with no debt and $335 million in cash, cash equivalents and marketable securities as of the end of the first quarter. The sequential reduction of approximately $64 million from year-end is typical for a first quarter and primarily reflects current and deferred agent commission payouts, performance-based management compensation and investments in production talent. A key distinction in the first quarter of 2026, however, is our share repurchase activity, where we repurchased approximately $23 million of our common stock in the quarter at a weighted average price of $26.22 per share. This compares to less than $1 million in share repurchases in the first quarter of last year. Excluding the impact of repurchases, the underlying business consumed significantly less cash this quarter than in either of the prior 2 first quarters, reflecting improved operating cash generation as revenue recovers. Since inception of our dividend and share repurchase programs, we have returned approximately $251 million in capital to shareholders. As a continuation of our commitment to the return of capital to shareholders, our Board recently approved an additional authorization of $70 million for the share repurchase program, bringing our total available authorization to $90 million. No time limit has been established for the completion of the program and repurchases will continue to be executed opportunistically through open market purchases and Rule 10b5-1 plans, subject to market conditions and other capital priorities. During the quarter, we declared a semiannual dividend of $0.25 per share or approximately $10 million, which was paid in the first week of April. Looking ahead, we see several constructive catalysts for continued growth balanced against the near-term macro uncertainty that Hessam described. Second quarter revenue is expected to reflect continued year-over-year improvement, building on Q1 momentum. As always, the sequential increase from Q1 to Q2 reflects normal seasonality with transaction volume typically building as the year progresses. While we are encouraged by April results, we remain mindful of the geopolitical and macroeconomic variables, which could moderate the pace of activity. Cost of services in the second quarter is expected to remain in the range of 62% to 63.5% of revenue, consistent with revenue building throughout the year. SG&A in the second quarter should reflect modest year-over-year growth in absolute dollars, driven by continued investment in agent support programs and technology infrastructure, partially offset by our ongoing efficiency initiatives. As for taxes, the effective tax rate remains difficult to predict given the proximity to breakeven profitability. The rate is driven primarily by the mix of deductible and nondeductible expenses relative to projected annual pretax income and to a certain extent, by the distribution of income between our U.S. and Canadian operations. In the near-term, pretax income and adjusted EBITDA are more meaningful measures of operating performance. That said, for the second quarter, tax expense is anticipated to be in the range of $500,000 to $1.5 million. In summary, the first quarter demonstrated that the investments we have made over the past several years in talent, technology and the breadth of our platform are translating into measurable financial results. Strong revenue growth, meaningful improvement in adjusted EBITDA and favorable operating leverage all point to a business model that is scaling effectively as the transaction environment recovers. Our balance sheet provides us the flexibility to simultaneously invest in growth, return capital to shareholders and pursue strategic opportunities. The combination of financial strength and operational momentum is a defining characteristic of this company. With that, operator, we can now open the call for questions and answers. Operator: [Operator Instructions] And the first question comes from the line of Mitch Germain with Citizens Bank. Mitch Germain: So Hessam, are your customers more immune to rate movements given that it seems to be kind of part of everyday life at this point? Hessam Nadji: Mitch, no, they're not immune and they're actually very sensitive to it. They have become used to the volatility that you just spoke of over the past 3 years. And the pent-up demand for transactions that have been delayed for the last couple of years is trumping the interest rate volatility effect in my opinion and observations as I travel around the country in that many of them are now convinced that their hopes for a Fed miracle or interest rates drop, at least somewhat close to where we were is not in the making. And therefore, you can't really count on that to return valuations anywhere close to where we were at peak. Plus there are some operational challenges in some of the markets and product types around the country. There's maturing loans that are still having a hard time being refinanced. And all of that is causing more demand to bring product to market despite the interest rate volatility that we've seen in the last 90 days. Mitch Germain: Got you. That's helpful. I think you mentioned 188 unique lenders, if I'm not mistaken, this quarter. I know you probably don't have the number in front of you, but I'm just curious kind of where did that stand, I don't know, maybe 2, 3 years ago? I mean, how has that environment changed? Hessam Nadji: It certainly has been one of our advantages throughout the cycle and even prior to the Fed rate shock, we were one of the largest providers of access to multiple types of lenders. It did tighten down quite a bit, especially in 2023 and 2024, particularly on the bank and credit union side of the equation, which, of course, is the primary source of private capital financing. If you remember in 2023, regional banks, in particular, were hit very hard. So options were fewer. But once again, that created an opportunity for us to illustrate our advantage to our clients because we would shop for them so aggressively and enabled that process through a lot of new technology that actually interconnects our 100-plus originators so that within the team, the knowledge of which lender is in the market for type of -- what type of deal and what price point was being shared real-time, and that helped us become a lot more efficient. I would say that in the last 2 quarters, we've seen a significant improvement in the return of banks and credit unions back into this, if you will, active network of lenders. And there's no question that in '23 and 2024, that number would have been measurably less. Mitch Germain: And last one for me. Larger transaction activity, clearly, pretty decent amount of growth this quarter. Was that a function of your hiring or do you think that just the price expectations amongst the sellers have become a bit more reasonable or did both basically contribute to that? Hessam Nadji: It was contributions from both factors. Predominantly, though, it was transactions that didn't consummate last year because of a pricing gap that finally cleared the market in Q1 and a number of our clients that had been hesitant to bring product to market because the pricing expectation just wasn't going to be met, capitulating to more realistic price expectations. I would say that the vast majority of what we closed had been in some form of discussion, analysis, valuation between the seller and our IPA teams and the veteran Marcus & Millichap agents who do larger transactions for probably a better part of a year. So that's an indication of the fact that the overall business execution is still taking extra time and our ability to help clients just requires a lot more handholding and nurturing of their internal process for coming up with their strategy and then execution. Operator: That does conclude the question-and-answer session. I would like to turn the floor back over to Hessam Nadji for any closing comments. Hessam Nadji: Thank you, operator, and our thanks to everyone who attended this call. We look forward to seeing some of you on the road and to having you back for our Q2 earnings call. The session is adjourned. Operator: Thank you, ladies and gentlemen. That does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
Operator: Good day, and thank you for standing by. Welcome to the Encore Capital Group's First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Bruce Thomas, Vice President of Global Investor Relations. Please go ahead. Bruce Thomas: Thank you, operator. Good afternoon, and welcome to Encore Capital Group's First Quarter 2026 Earnings Call. Joining me on the call today are Ashish Masih, our President and Chief Executive Officer; Tomas Hernanz, Executive Vice President and Chief Financial Officer; and Ryan Bell, President of Midland Credit Management. Ashish and Thomas will make prepared remarks today, and then we'll be happy to take your questions. Unless otherwise noted, comparisons on this conference call will be made between the first quarter of 2026 and the first quarter of 2025. In addition, today's discussion will include forward-looking statements that are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from our expectations. Please refer to our SEC filings for a detailed discussion of potential risks and uncertainties. We undertake no obligation to update any forward-looking statement. During this call, we will use rounding and abbreviations for the sake of brevity. We will also be discussing non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures are included in our investor presentation, which is available on the Investors section of our website. As a reminder, following the conclusion of this conference call, a replay, along with our prepared remarks, will also be available on the Investors section of our website. With that, let me turn the call over to Ashish Masih, our President and Chief Executive Officer. Ashish Masih: Thanks, Bruce, and good afternoon, everyone. Thank you for joining us. Encore delivered another strong performance in the first quarter as our industry leadership and operational execution are on full display. Our business continues to thrive with solid first-quarter portfolio purchases of $363 million. And record collections of $718 million, which were up 19% compared to a year ago. Average receivable portfolios increased 14% to $4.4 billion. Our record collection performance helped earnings increase sharply, with net income in the first quarter of $86 million and earnings per share of $3.86. Our leverage improved to 2.3x at the end of Q1 compared to 2.6x a year ago, even with continued significant portfolio purchases in the first quarter. Encore's strong operating and financial results are primarily driven by the exceptional performance of our MCM business in the U.S. across all dimensions of purchasing, collections, and efficiency. I will provide more details on MCM's results later in the presentation. Before I continue, I believe it's helpful to remind investors of the critical role we play in the consumer credit ecosystem by assisting in the resolution of unpaid debts. These unpaid debts are an expected outcome of the lending business model. Our mission is to create pathways to economic freedom for the consumers we serve by helping them resolve their past due debts. We achieved this by engaging consumers in honest, empathetic, and respectful conversations. We pursue our business objectives through our 3-pillar strategy of participating in the largest and most valuable markets, developing and sustaining a competitive advantage in these markets, and maintaining a strong balance sheet. We employ our strategy across our 2 main businesses: Midland Credit Management, or MCM, in the U.S., and Cabot Credit Management in select European markets. We believe value is created in the consumer debt buying industry through optimal execution of 3 critical drivers: buying, collecting, and funding. When these drivers are executed well within attractive markets, leveraging the resources we possess and our strong balance sheet, we believe they enable highly consistent returns and profitability. The cycle begins with a commitment to purchase portfolios of charged-off receivables at attractive returns, which is the buy well component of our value engine. Our disciplined portfolio purchasing is underpinned by superior data and analytics capabilities, which, when applied to a very large data set stemming from our scale and history, optimizes portfolio valuation through account-level underwriting. As a result, we win more portfolios at strong returns enabled by our superior collections, as reflected in our industry-leading portfolio yield and collections yield. The cycle continues with our commitment to collect efficiently, maximizing net collections to realize strong yields. Our operational excellence, advanced analytics, and consumer-centric approach produce industry-leading yields while still exhibiting a solid cash efficiency margin. As a result, our very effective personalized engagement with consumers leads to payments with predictable, consistent cash flow. This cash flow helps to complete the cycle as it contributes to our commitment to fund competitively based on low-cost funding and a strong balance sheet. Importantly, our balance sheet strength enables access to capital at competitive costs through the credit cycle. In summary, Encore's value engine is the critical enabler of our competitive advantage that allows us to execute our proven 3-pillar strategy to drive shareholder value. I would now like to highlight Encore's first quarter performance in terms of several key metrics, starting with portfolio purchasing. Encore's global portfolio purchases for the first quarter were $363 million as a result of the attractive market conditions and higher returns available in the United States, 87% of our portfolio purchasing dollars were spent in the U.S. during the first quarter. Global collections in Q1 were up 19% to a record $718 million. This exceptional collection's performance is a result of strong execution and continued significant portfolio purchasing as well as the deployment of new technologies, enhanced digital capabilities, and continued operational innovation, especially in the U.S. Our global collections performance in the first quarter compared to our ERC at the end of 2025, was 106%. We believe that our ability to generate significant cash provides us with an important competitive advantage, which is also a key component of our 3-pillar strategy. Similar to the collection's dynamic I mentioned earlier, strong execution, higher portfolio purchases at strong returns over the past few years, as well as operational improvements, have also led to meaningful growth in cash generation. Our cash generation in the first quarter was up 21% compared to Q1 last year, and we expect it to continue to grow. Let's now take a look at our 2 largest markets, beginning with the U.S. The U.S. Federal Reserve reports that revolving credit in the U.S. remains near record levels. At the same time, since bottoming out in late 2021, the credit card charge-off rate in the U.S. increased to its highest level in more than 10 years in 2024 and still remains at an elevated level. The combination of strong lending and elevated charge-off rates continues to drive robust portfolio supply in the U.S. Let me illustrate this impact by highlighting the annualized amount of net dollar charge-offs, which can be estimated by multiplying the revolving credit outstandings by the net charge-off rate. Using Q4 2025 data, the most recent quarter reported by the Federal Reserve, annualized net charge-off volume was more than $54 billion. Similarly, U.S. consumer credit card delinquencies, which are a leading indicator of future charge-offs, also remain near multiyear highs with revolving consumer credit at an elevated level and a charge-off rate of 4%, purchasing conditions in the U.S. market remain favorable. We are observing continued strong U.S. market supply and favorable pricing as well. First-quarter delinquency data support our expectation that the portfolio purchasing environment in the U.S. is expected to remain robust for the foreseeable future. MCM continues to capture significant portions of this U.S. market supply opportunity. MCM portfolio purchases in the first quarter were $316 million, one of our strongest portfolio purchasing quarters ever. In addition to its solid portfolio purchases in Q1, our MCM business continues to excel operationally. MCM collections increased to a record $556 million, which was an increase of 23% compared to Q1 last year. The collection's overperformance in the U.S. was driven by the deployment of new technologies, enhanced digital capabilities, and continued operational innovation, which enabled us to reach more consumers, leading to more payments as well as a large and growing payer book. These initiatives had a greater impact on the early stages of a portfolio's life cycle, leading to overperformance of our recent vintages. We expect that our collections forecast will gradually adjust to reflect the positive impact of these initiatives. Our outstanding results reflect a substantial portfolio purchasing over the last few years at strong returns, as well as improvements we made in our collections operation. Despite some of the negative news and macro uncertainty in the U.S., our consumers' payment behavior remains stable. This is in line with what many of the banks and credit card issuers are saying in the recent earnings calls. We, of course, continue to monitor for any signs of change. Turning to our business in Europe. Cabot delivered another quarter of solid performance in Q1. Cabot's portfolio purchases of $47 million in the first quarter were consistent with Cabot's recent historical trend. We continue to be selective with Cabot's deployments as the U.K. market remains impacted by subdued consumer lending and low delinquencies, as well as continued robust competition. Cabot collections in the first quarter were $161 million, up 7% compared to Q1 last year, supported by currency tailwinds. We continue to focus on Cabot's operational excellence and cost management, including leveraging relevant best practices from our MCM business. This is particularly relevant in the U.K., where banks are increasingly selling fresh portfolios and forward flows. Our operational focus and initiatives within the Cabot business continue to drive cash efficiency margin improvement. I'd now like to hand the call over to Tomas for a more detailed look at our financial results. Tomas Hernanz: Thank you, Ashish. Moving to the financial results slide. In the first quarter, we delivered strong growth in collections and portfolio revenue of 19% and 13%, respectively. The strong collections performance was supported by the high levels of U.S. portfolio purchases in recent quarters, our focus on execution, operational improvements, and stable consumer behavior. Collection yield was 65.2% in Q1, an improvement of 2.6 percentage points compared to last year. Portfolio revenue increased by 13% to $390 million, supported by 14% growth in average receivable portfolios and a portfolio yield of 35.4%. As a reminder, changes in recoveries are the sum of 2 numbers. First, recoveries above or below the forecast are the amount we collected above or below our ERC expectation for the quarter, and are also known as cash overs or cash unders. Second, changes in expected future recoveries are the net present value of changes in the ERC forecast beyond the current quarter. Changes in recoveries were $62.7 million for the quarter. Of that total, the majority, $46 million, were recoveries above forecast. Changes in expected future recoveries were $16.7 million. Put differently, we collected $46 million more than we forecasted in our ERC, which is incremental cash flow. The collection's overperformance in the U.S. was driven by the deployment of new technologies, enhanced digital capabilities, and continued operational innovation, which enabled us to reach more consumers, leading to more payments as well as a large and growing payer book. These initiatives are having a greater impact on the early stages of our portfolio life cycle, leading to overperformance of our recent vintages. We expect that our collection forecast will continue to gradually adjust to reflect the positive impact of these initiatives. Over the next few quarters, we expect any future cash flows to transition eventually into portfolio revenues. Changes in expected future recoveries in Q1 were $16.7 million, a reflection that this transition is taking place. Debt purchasing revenue increased by 23.5% to $453 million, and the resulting debt purchasing yield was 41.1%. Approximately 5.7% was the impact of changes in recoveries. Servicing and other revenues were $23 million, bringing total revenues to $475 million, reflecting growth of 21%. Operating expenses increased only 11% to $291 million compared to 19% growth in collections, reflecting significant operating leverage in the business. Cash efficiency margin for the quarter improved by 2.6 percentage points to 16.9% compared to 58.3% in Q1 last year. We continue to expect the cash efficiency margin for the full year to exceed 58% in 2026. Interest expense and other income increased by 5% to $72 million, reflecting higher debt balances. Our tax provision of $25 million implies a corporate tax rate of approximately 23%, which is in line with our previous guidance. Finally, net income increased by 84% to $86 million, resulting in earnings per share for the quarter of $3.86, up 100% compared to $1.93 in Q1 last year. We believe our balance sheet provides us with very competitive funding costs and access to capital when compared to our peers. Our funding structure also provides us with financial flexibility and diversified funding sources to compete effectively in this favorable supply environment. Leverage closed at 2.3x or 0.3x improvement versus last year and lower than a quarter ago. In March, we extended the maturity date of our securitization facility by 1 year to January 2031, and we have no material maturities until 2028 and ample liquidity to continue to grow our business well into the future. With that, I would like to turn it back over to Ashish. Ashish Masih: Thanks, Tomas. Now I would like to remind everyone of our key financial objectives and priorities. Maintaining a strong and flexible balance sheet, including a strong BB debt rating as well as operating within our target leverage range of 2 to 3x, remains a critical objective. With regard to our capital allocation priorities, buying portfolios, particularly in today's attractive U.S. market, offers the best opportunity to create long-term shareholder value by deploying capital at attractive returns. This is indeed what we are doing, as highlighted by our track record of purchasing receivable portfolios at strong returns. Next on our capital allocation priority list are share repurchases. We repurchased approximately $20 million of Encore shares in the first quarter. And finally, we remain committed to delivering a strong return on invested capital throughout the credit cycle. Our ROIC improved to 14.6% in the first quarter on a trailing 12-month basis, up from 8.3% in Q1 last year. In summary, Encore's first quarter results are an indication that we are off to a very strong start in 2026. I'm truly excited about how Encore is performing and about our future prospects. To begin, through our MCM business in the U.S., we are the largest debt buyer in the largest and most valuable consumer credit market in the world. The U.S. market continues to be very favorable, driven by growth in consumer lending and charge-off rates that are at the highest level in 10 years. Within this environment, we are leveraging our scale and extremely effective collections operation to purchase record amounts of portfolio in the U.S. at strong returns. In Europe, Cabot is delivering stable collection performance and remains focused on operational excellence and cost management. We continue to selectively purchase portfolios amid modestly growing market supply conditions. Finally, we have adequate liquidity to continue to grow the business, as a strong, flexible balance sheet provides us the capacity to capitalize on any opportunities that come up in the market. This competitive advantage only grows as we continue to reduce our leverage. As a result of this continuing strong performance and the business momentum we carried into the second quarter, we are providing the following guidance on key metrics. We continue to anticipate global portfolio purchases in 2026 to be within a range of from $1.4 billion to $1.5 billion. We are raising our collections guidance and now expect global collections in 2026 to increase by 8% to $2.8 billion. In addition, after a strong start to 2026 in the first quarter, in which productivity enhancements and strong execution across the business contributed to significant earnings power, we expect our EPS in 2026 to increase by 19% to $13 per share. We continue to expect the combination of interest expense and other income to be approximately $300 million for the year. And we also continue to expect our effective tax rate for the year to be in the mid-20s on a percentage basis. Now we'd be happy to answer any questions that you may have. Operator, please open up the line for questions. Operator: [Operator Instructions] Our first question comes from David Scharf with Citizens Capital Markets. David Scharf: I guess to start off with, Ashish, I've been asking the same boring question of you for the last few quarters, but I'll ask it again. And that is, as we digest your prepared remarks about the purchasing and collection environments, both here and abroad. Is there anything that you would call out as being notably new versus the calls from 3 and 6 months ago, recognizing that an answer of no is actually very positive, given the group the company is in? But whether it's externally in the purchasing or collection environments here or abroad, or internally in terms of initiatives or investments, is there anything that we should take away as being incremental? Or we're just in the early stages of a long runway of an attractive macro backdrop? Ashish Masih: David, it may be a boring question, but it is a very pertinent one. And the short answer is no. Things are very similar in our U.S. market in terms of total outstandings and charge-off rate, which leads to supply and competition level, and pricing is stable, and returns are strong. And particularly given our strong collections, we are able to deliver even stronger returns than our competition, if you would. And in Europe, pretty stable as well. Supply is not growing, and the competition level is a little bit higher than in the U.S. So, we are staying disciplined there and allocating our capital. In terms of the other macro question, perhaps you had in mind, the consumer behavior as well remains very stable in terms of new payer generation, for example, converting newly purchased accounts to payers. Or the payment plan behavior, it is very consistent with the prior quarters and what we are also hearing from banks and credit card issuers' earnings calls in this quarter, that the consumer remains very resilient despite some of the pressures they may be feeling, for example, on gas prices and whatnot. David Scharf: That's helpful and consistent with what every lender has been saying this reporting season. Maybe just my follow-up question. I haven't really talked a lot about AI, and it's a topic that's been coming up more frequently on these earnings calls. My question is, are there unique regulatory issues we ought to be paying attention to as it relates to maybe the pace of investments in AI by a collection company? Obviously, call center-centric businesses have been front and center, talking about the advantages of enhanced automation and potential returns. But obviously, the collection industry is much more heavily regulated than a lot of other customer service businesses, call center-centric businesses. Can you just maybe talk a little broadly about how you're viewing AI from the standpoint of where to invest, where to just maybe wait and see what regulators are thinking about, and how we ought to think about whether this is a business that could become potentially less labor-intensive somewhere down the road? Ashish Masih: Great question, David. So let me touch on a couple of things on this. So, as a bigger question, we've been leveraging technology for years and increasing its use in our digital and omnichannel, for example, over 50% of our new payments take place digitally. So, we've been using technology, and now AI is another level of that technology that's coming in. In some cases, vendors are incorporating AI or AI-like approaches into their tools, which we are using. In other cases, we are actively piloting some of the new technologies to see what business results we get, and so forth. So we are actively thinking about and doing things. Over time, given our scale and focus on technology, we are very confident we will leverage AI as it becomes more meaningful. Now that said, I think you also raised another question early on, a point. Our calls are very complex. It requires empathy and dealing with consumers. So, tools there, while there are a lot of voice-oriented tools, they are not quite ready to deal with that as well as we can with our account managers. There are some regulatory nuances being able to using this artificial voice, for example, in collection calls and all that one has to be mindful of. Obviously, there's a broader backdrop of AI and financial services, which we are very mindful of as we work with our bank partners as well, and what they are subject to. So we want to be fully aware of that. I would say the last thing is that you mentioned voice is important in the collection industry. It is important, but it is not the only thing; at least from a debt buyer perspective, voice is one element of it. There's a complicated legal process, for example, that you need large data sets and other things, where some AI can be used, some cannot be. So while voice can seem the most intriguing part of technology that can impact collections, it is not the only thing. There are a lot of elements that go into our success and to win in this industry. And we do have a higher regulatory bar in this industry. We are just very mindful of that fact as well. So we're treading in a careful way, but we will be fully leveraging the capabilities when they become mature and available for that. Operator: Our next question comes from Mark Hughes with Truist. Mark Hughes: Did I hear you say you think the overall supply is increasing? You definitely gave the big numbers for the outstanding balances and the elevated charge-off rates. But from your perspective, supply is continuing to go up? Ashish Masih: I would say it's pretty stable. So now there are 2 drivers. Spending is pretty strong from consumers. So lending, there might be seasonal things here and there. But in general, if you look at the trend, it's up, and the charge-off rate is at a 10-year high. It is still at a pretty normal level, a little over 4%. So I would say total supply is stable, although some fintech sellers have come to market over the last 2 to 3 years. So there are some new sellers in there that are pretty regular sellers. So maybe marginally higher, but a very stable, good market in terms of our ability to purchase at strong returns. Mark Hughes: I think it's probably in the queue. I have not had the opportunity to look at it, the collection's multiple for the U.S. 2026 paper. How does that look compared to last year? Ashish Masih: That's a good question, Mark. So collections multiple for the Q1 2026 vintage have started at 2.4. I would highlight, given you mentioned that, how we have been performing better in the early stages of our collections life cycle, which, as I've said before, has led to '24 and '25 vintages doing really well compared to forecast. '24 multiple started at 2.3 is 2.4 now. '24 multiple started a couple of years ago at 2.3, became 2.4, and is now at 2.5. Mark Hughes: Then, your outlook for purchasing, it seems like, under the circumstances, perhaps you could do better. Is that just a prudential judgment that the share buybacks are maybe a better use of capital, or equivalent use of capital? Ashish Masih: I want to make sure I understood your question. In terms of portfolio purchasing, we are staying with our guidance of $1.4 billion to $1.5 billion. Now, as you get better multiples, you're actually getting more ERC for that. So keep in mind, dollars deployed is one element of earnings power or collections power. And the #1 priority is portfolio purchases, as I've been very clear in our priorities. But given our leverage is in the lower half of our range, we have been repurchasing shares, and it's always subject to other conditions of balance sheet strength, ability to generate cash, and the market conditions, as I've said many times. So if we took all of that into consideration, we are repurchasing our shares, and we bought $20 million of that in Q1. Mark Hughes: Is that still like a good run rate of $20 million per quarter? Ashish Masih: That's what we did in Q1. We are in the midpoint of that lower half of the leverage range. So we have not guided on that number. Again, it's subject to multiple other conditions. Number one priority, again, is portfolio purchasing, but we feel good about how we're generating cash and the share repurchases we were able to do in Q1. So I would leave it at that. Mark Hughes: And the guidance for the cash efficiency margin, did I hear correctly? I think last quarter, you talked about to exceed 58%. Was that the same guidance as of this quarter? Ashish Masih: Yes, I'll jump in, but Tomas here is probably going to chime in on that. Yes, we are staying with that general guidance, although we did better in Q1. Now, Q1 can be because of seasonality and all at times higher, but we do expect to keep improving compared to the 58% historical one. Tomas, any other color? Tomas Hernanz: I think what we said was we're going to do better than 25%. So we did just shy of 58%. So we delivered in Q1, 60.9%, which was a very good print. The costs behaved very well in the quarter. So we feel pretty comfortable with margins and cost in '26. Operator: Our next question comes from Mike Grondahl with Northland Capital Markets. Unknown Analyst: This is Logan on for Mike. First, can you give some additional color on what drove the collection strength in the quarter, and also an update on how the 2024 and 2025 vintages are performing? Ashish Masih: So overall collections growth in the quarter is driven by strong purchasing that's been going on for multiple quarters at strong multiples as well as, as I've highlighted many times, the improvements we are making, particularly in our MCM line of business, are driving a lot of that growth because it's impacting the early stages of our portfolio life cycle. As we said a couple of quarters ago, that impacts the vintages of '24 and '25, and they're very large vintages in terms of deployments. So that's why you see very meaningful increases. All of that MCM performance is also complemented by very stable Cabot collection performance. So when you add the whole picture up, purchasing and good collections execution, as well as improvement in the early stage, are driving the growth in collections. Now to your other question on the vintages, those vintages are the ones that I just said. Early-stage improvements have been greater. So '24 vintage moved from 2.3 multiple to 2.5, '25 vintage moved from 2.3 multiple to 2.4. And we're starting out the 2026 vintage at 2.4. So feeling really good about the '24 and '25 vintages and how they've been performing and starting out strong in 2026. Unknown Analyst: One more. Is there anything to call out on the U.S. purchasing environment so far in 2Q, or just some additional insight there? Ashish Masih: No additional insight, Logan. I would say, as the other question asked, it's been very stable, but strong supply, stable supply, good returns. And returns are partially driven by not just good, stable pricing, but also our collection ability. So I just want to highlight that. So we are able to buy the portfolios we want and perform well with those as well. So no change in Q2 compared to Q1 numbers that we just put out there. Operator: [Operator Instructions] Our next question comes from Robert Dodd with Raymond James. Robert Dodd: Congrats on another really excellent quarter. Digging in a little bit, as you said, the '24s and the '25s have continued to outperform. Overall, cash collections are $46 million above curves and 106% collections versus ERC just from the end of the year. Can you give us any more color on, like, what's the driver, I mean, the '24 was outperforming last year, and that was factoring into the expectations for the '25s. I mean, is the outperformance now being the '25s taking over for the '24s? I mean, the '24 is maybe still continuing to outperform, but they're smaller now. Relatively speaking, any additional color on this, or is it still that $46 million, for example, is that predominantly coming from the '24s, and that's just a spectacular vintage? Any color on how that's shaping? Ashish Masih: So it's still coming from those vintages in terms of the overperformance. '24 is still doing very strong. It continues to perform well. So the '24 vintage had the changes in recoveries of about $15 million and $24 million for the '25 vintage. So as you can see, they both continue to perform well. They're still in the early stages. As we have said in the past, it takes some time for our actual performance of history to get into the forecast, and it will. And by the way, this quarter, in addition to this performance above forecast, we also had changes in expected future recoveries of about $16.7 million. So the mix was not 95-5, but 70-30, if you would. That is one proof of how that transition will happen over time. And over time, when that happens, it's going to increase the basis as well on those vintages, and they'll see higher portfolio revenue as those things add up. So still similar good performance from those 2 vintages. By the way, dollar amounts seem large because those were very large purchases. Robert Dodd: To flip back to David's question on the AI issue. I mean, to your point, maybe it's not quite ready versus a human account manager for some of the voice calls, for some other things. How has it been incorporated in any meaningful manner in pricing models in terms of maybe curve modifications or initial pricing? Obviously, there is a very good supply. You are buying a ton, and the multiples look pretty good. I mean, is that just the same old processes or new technologies being incorporated into that component of the business as well? Ashish Masih: It's been over time and AI-like. So I mean, machine learning models and AI modeling techniques, we've been incorporating over time. Machine learning algorithms have been around for a while, and now they're in the AI family. And as new tools are available that leverage more of that, we are testing some of those. Some are doing fine, some not so, but it's part of our test and learn continuous improvement culture that we have. So they keep incorporating new techniques into our modeling. Years ago, it was the cloud and how data got into it, and how you could get more efficient and get better modeling, and then machine learning, and now a bit more self-learning tools that we test and look at. But nothing that's going to suddenly change how we get the modeling and valuation done for our pricing. It's been a constant evolution, and we expect to continue to improve on that. Robert Dodd: One more, if I can. On all these things, I mean, the new technologies in the U.S., these are all paying off. Clearly, I think the efficiencies are up, et cetera, et cetera. I think qualitatively rather than quantitatively, I mean, at some point, I would presume you're going to hit the flatter part of the diminishing return curve on all the technological processes you can introduce rather than modify. I mean, how close is that in terms of you've done a lot of work, is it all predominantly done, and it's now fine-tuning? Or are there still significant steps that you can take? Ashish Masih: This is a constant improvement journey. So I'm not going to predict or bet on how and when technology starts providing diminishing returns broadly in financial services. But over time, we've leveraged things like automation from a cost point of view or cycle times and accuracy point of view, to now what we're seeing is, as I answered last quarter, technology is driving collections improvements much more, especially in the early stage. So we start these things with a multiyear road map, if you would, and phases of implementing these. But every year, the road map keeps getting enhanced and refined with new tools and techniques coming. So as I said last quarter, I think our headcount from '23, '24 to '25 was flat around 7,300, 7,400. And collections went up in those 3 years by 39%, I think. I'm going by memory. So there's a lot of improvement possible still from efficiency. But as I also said, it's the collection side that we are also starting to see big gains. So I think there's a lot of runway left on both sides of the P&L in this journey. Operator: Our next question comes from Mark Hughes with Truist. Mark Hughes: The collection multiple on the Cabot paper in Q1, what was that? Ashish Masih: In Q1, the collections multiple was 2.2. Mark Hughes: 2.2. And then any comments on tax season? Did the tax season bring a meaningful benefit? Ashish Masih: It's been a typical tax season, as I would say, always there's a benefit in Q1 and maybe the early part of Q2 from tax season, depending on timing. But it's been similar. There are some reports of a little bit higher refunds, but depending on which part of this population they go to, it's generally been as expected. Operator: I'm showing no further questions at this time. I'd now like to turn it back to Mr. Masih for closing remarks. Ashish Masih: Thanks for taking the time to join us today, and we look forward to providing our second-quarter 2026 results in August. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Good afternoon. My name is John, and I will be your conference call operator today. [Operator Instructions] As a reminder, this call is being recorded. And I would now like to turn the conference call over to Mariann Ohanesian, Senior Director of IR for Puma Biotechnology. Thank you. You may begin your conference. Mariann Ohanesian: Thank you, John. Good afternoon, and welcome to Puma's conference call to discuss our results for the first quarter of 2026. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma Biotechnology; Maximo Nougues, Chief Financial Officer; Heather Blaber, Senior Vice President of Marketing; and Roger Storms, Senior Vice President of Sales. After the close today, Puma issued a news release detailing results for the first quarter of 2026. That news release, the slides that Alan and Roger will refer to and a webcast of this call are accessible via the homepage and Investors sections of our website at pumabiotechnology.com. The webcast and presentation slides will be archived on our website and available for replay for the next 90 days. Today's conference call will include statements about Puma's future expectations, plans and prospects that constitute forward-looking statements for purposes of federal securities laws. Such statements are subject to risks and uncertainties, and actual events and results may differ from those expressed in these forward-looking statements. For a full discussion of these risks and uncertainties, please review our periodic and current reports filed with the SEC from time to time, including our annual report on Form 10-K for the year ended December 31, 2025. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this live conference call, May 7, 2026. Puma undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today's call, we may refer to certain non-GAAP financial measures that involve adjustments to our GAAP figures. We believe these non-GAAP metrics may be useful to investors as a supplement to, but not a substitute for, our GAAP financial measures. Please refer to our first quarter 2026 release for a reconciliation of our GAAP to non-GAAP results. I will now turn the call over to Alan. Alan Auerbach: Thank you, Mariann, and thank you all for joining our call today. Today, Puma reported total revenue for the first quarter of 2026 of $44.8 million. Total revenue includes product revenue net, which consists entirely of NERLYNX sales as well as royalties from our sublicensees. Product revenue net was $42 million in the first quarter of 2026, a decline from $59.9 million reported in Q4 2025 and $43.1 million reported in Q1 2025. As a reminder to investors, Puma's reported NERLYNX sales includes both U.S. net sales and product supply revenues of NERLYNX to Puma's ex-U.S. partners. Product revenue for the first quarter of 2026 was impacted by approximately $7.9 million of inventory drawdown at our specialty pharmacies and specialty distributors. Royalty revenue was $2.8 million in the first quarter of 2026 compared to $15.6 million in Q4 2025 and $2.9 million in Q1 of 2025. As noted in our last call, royalty revenue in 2025 -- in Q4 2025 was driven by the shipment of -- to our partner in China. We reported 2,328 bottles of NERLYNX sold in the first quarter of 2026 compared to 3,298 bottles sold in Q4 2025. In Q1 2026, we estimate that inventory decreased by 439 bottles. In Q1 2026, new prescriptions were up approximately 25% compared to Q4 2025 and total prescriptions were down approximately 4% compared to Q4 2025. Roger will provide further details in his comments and slides. I will now present the interim data from Puma's ongoing Phase II trials of alisertib in small cell lung cancer and HER2-negative ER-positive breast cancer, also referred to as the ALISCA-Lung1 and ALISCA-Breast1 trials. Heather Blaber and Roger Storms will add additional color on NERLYNX commercial activity. Maximo Nougues will follow with highlights of the key components of our financial statements for the fourth quarter of 2025. We now move to the ALISCA-Lung1 interim presentation. As a reminder, in clinical trials to date, alisertib has shown single-agent activity and activity in combination with other cancer drugs in the treatment of many different types of cancers, including hormone receptor-positive breast cancer, triple-negative breast cancer, small cell lung cancer and head and neck cancer. The drug has also shown activity in previous clinical trials in peripheral T-cell lymphoma and non-Hodgkin's lymphoma. Takeda's previous clinical development program with alisertib was extensive. And due to this, there is a large well-characterized clinical safety database with over 1,300 patients who were treated across 22 company-sponsored trials. From a preclinical perspective, it has been shown that aurora kinase A and c-Myc upregulate each other, which suggests the existence of a positive feedback loop. c-Myc upregulates the cyclin complex, which leads to cell proliferation. So by inhibiting aurora kinase A with alisertib, it also inhibits c-Myc, which decreases cell proliferation. Additionally, preclinical data has shown that alisertib inhibited growth of cells with c-Myc overexpression and in xenograft models that expressed high levels of c-Myc, tumor growth was inhibited. Puma's Phase II trial, ALISCA-Lung1, which is also referred to as study PUMA-ALI-4201, was designed to enroll up to 60 patients with small cell lung cancer who had received prior treatment with a platinum-based chemotherapy and immunotherapy. The trial enrolls both second-line and third-line patients. Patients must provide tissue-based biopsies so that biomarkers can be analyzed. Alisertib was initially dosed at 50 milligrams BID on days 1 to 7 of a 21-day cycle. As investors are aware, the trial was then amended to increase the dose to 60-milligram BID, and the company is now in the process of increasing the dose to 70 milligrams BID. The primary endpoint of the trial is to determine whether any biomarker correlates with alisertib response with endpoints of overall response rate, duration of response, disease control rate, progression-free survival and overall survival. The secondary endpoints include investigator-assessed efficacy and survival. Mandatory G-CSF prophylaxis is also given in the trial in an effort to reduce the neutropenia that was shown to be dose-limiting in the previous clinical trials with alisertib. Slide 6 shows the baseline characteristics for the 52 patients treated at 50 milligrams BID and the 27 patients treated at 60-milligram BID that are included in this interim analysis. Slide 7 shows the summary of the prior treatments the patients received prior to entering the study. Of note, all of these patients were treated in either the second line or third line in this trial. To first discuss the safety in the trial. In previous clinical trials of alisertib, the treatment-emergent adverse events seen were those characteristic of a cell cycle inhibitor with neutropenia being the main AE seen in the highest percentage. In this trial, the all-grade neutropenia was 19.2% in the 50-milligram arm and 22% in the 60-milligram arm. Slide 10 shows the rates of grade 3 and 4 AEs seen in the trial. Of note, the grade 3 or higher neutropenia rate was 13.5% in the 50-milligram arm and 11.1% in the 60-milligram arm. Slide 11 compares the Grade 3 and Grade 4 AE rates seen in the ALISCA-Lung1 trial to those that were seen in the previous Phase II trial of alisertib monotherapy in small cell lung cancer referred to as study C14007. C14007 was previously published in Lancet Oncology in 2010. As a reminder, in C14007, G-CSF prophylaxis was not mandated, while ALISCA-Lung1 requires mandatory prophylactic G-CSF. As can be seen on the slide, the use of prophylactic G-CSF appeared to reduce the rates of Grade 3 or higher neutropenia compared to what was seen in the previous trial. We next move to the efficacy seen in the trial. As you can see in Slide 13, in the 52 patients in ALISCA-Lung1 that were treated at 50 milligrams, we have seen 4 ((sic) [ 6 ]) patients or 11.5% with a best response of a partial response and 18 patients or 34.6% with stable disease. The median PFS for the 50-milligram arm was 1.7 months. In the first 15 patients in the 60-milligram arm, we have seen 1 patient or 6.7% with the best response of a partial response and 7 patients or 46.7% with stable disease. The median PFS for the 60-milligram arm is currently 4.2 months. Slide 14 shows the Kaplan-Meier curve for PFS between the 50-milligram and 60-milligram arm of the trial. As previously stated, the median PFS for the 60-milligram arm is currently 4.2 months. However, we caution it is still early, and we await additional patient numbers and additional follow-up. We will now move to the biomarkers in the trial. Slide 16 presents the Kaplan-Meier curve for the patients according to c-Myc H-score. c-Myc H-score is a semi-quantitative immunohistochemical assessment that measures the intensity and percentage of tumor cells staining for the c-Myc protein, typically ranging from 0 to 300. High c-Myc H-scores are believed to be associated with poor prognosis and lower overall survival in various cancers. As you can see on Slide 16, for the combined doses of 50 milligrams and 60 milligrams, patients with c-Myc H-score of between 0 and 100 had a median PFS of 1.68 versus a PFS of 4.17 for the patients with a c-Myc H-score of between 101 and 300. This would suggest that alisertib has better activity in cancers with a higher amount of c-Myc activity. Slide 17 presents the c-Myc -- presents the KM curve for the 50-milligram and 60-milligram dose separately for the patients according to c-Myc H-score. As you can see on the slide, for the 50-milligram dose, patients with H-score of between 0 and 100 had a median PFS of 1.68 months versus a PFS of 2.83 months for the patients with a c-myc H-score of between 101 and 300. While for the 60-milligram dose, patients with H-score of between 0 and 100 had a median PFS of 1.41 months, while the median PFS has not yet been reached for the patients with c-Myc H-score of 101 to 300. We believe that these slides are suggesting that alisertib has greater activity in tumors with higher c-Myc H-score and hence more c-Myc activity, which we believe is due to the inhibition of the aurora kinase pathway by alisertib. Slide 18 presents the KM curve for the patients according to percent of tumor cells that are c-Myc positive. As you can see on Slide 18, for the combined doses of 50-milligram and 60-milligram, for tumors having between 0 and 10% of the cells c-Myc positive, there's a median PFS of 1.68 months versus a PFS of 2.83 months for the patients with tumors having between 11% and 100% of the cells c-Myc positive. Slide 19 presents the KM curve for the 50-milligram and 60-milligram doses separately for the patients according to the percent of tumor cells that are c-Myc positive. As you can see on the slide, for the 50-milligram dose, patients with tumors having between 0% and 10% of the cells c-Myc positive had a median PFS of 1.68 months versus a PFS of 2.73 months for patients with tumors having between 11% and 100% of the tumor cells c-Myc positive. While for the 60-milligram dose, between 0% and 10% of c-Myc positive had a median PFS that has not been reached versus a PFS of 4.17 months for the patients with between 11% to 100% of the tumor cells c-Myc positive. We believe that these slides are suggesting that alisertib has greater activity in the tumors where a higher percentage of the cells are c-Myc positive, which we again believe is due to the inhibition of the aurora kinase pathway by alisertib. We believe that the initial clinical data with alisertib in small cell lung cancer are demonstrating that alisertib is showing better activity in patients where c-Myc is playing a role in driving the tumor, which is indicative of tumors where aurora kinase A is activated. There are currently 32 patients enrolled in the 60-milligram arm of the trial. Based on this preliminary safety seen at this dose, we are continuing to dose escalate to 70 milligrams, and we hope to begin enrollment of the 70-milligram cohort in the second half of 2026. We believe that the data generated thus far in ALISCA-Lung1 is showing that alisertib monotherapy is showing a PFS at higher doses and in certain biomarker-directed populations that is as good or slightly better than the PFS for currently approved drugs in this space. As discussed previously, we are hopeful that with increasing doses of alisertib monotherapy ALISCA-Lung1, we can achieve higher concentrations of alisertib in these biomarker-defined populations and potentially open up the opportunity for a Phase III design that tests alisertib monotherapy in a randomized trial. As investors are aware, alisertib was previously tested in a randomized Phase II trial of paclitaxel plus alisertib versus paclitaxel plus placebo where PFS and OS benefit was seen in patients with tumors with biomarkers that appear to indicate that the aurora kinase A pathway was activated. Based on this data and the data from ALISCA-Lung1, Puma will be looking to a dual approach for the development of alisertib in small cell lung cancer. Therefore, in addition to the monotherapy dose escalation approach in ALISCA-Lung1, Puma will also be looking to initiate ALISCA-Lung2, which will investigate the efficacy of alisertib given in combination with paclitaxel using mandatory G-CSF prophylaxis. We are hoping to initiate this trial in the second half of 2026. We are pleased with the interim data from ALISCA-Lung1, and we believe it is showing an improved tolerability profile for alisertib monotherapy and improved efficacy with dose escalation as well as improved efficacy in a biomarker-directed population that is indicative of the aurora kinase pathway activation. We anticipate additional interim efficacy data from ALISCA-Lung1 in the second half of 2026 or the first half of 2027. I will now move to the ALISCA-Breast1 interim presentation. As a reminder, and as previously stated, in clinical trials to date, alisertib has shown single-agent activity and activity in combination with other cancer drugs in the treatment of many different types of cancer, including hormone receptor-positive breast cancer, triple-negative breast cancer, small cell lung cancer and head and neck cancer. There's also a large well-characterized clinical safety database with over 1,300 patients who were treated across 22 company-sponsored trials. As previously stated, from a preclinical perspective, it has been shown that aurora kinase A and c-Myc upregulate each other, which suggests the existence of a positive feedback loop. Preclinical data has shown that alisertib inhibited growth of cells with c-Myc overexpression and in xenograft models that expressed higher levels of c-Myc, tumor growth was inhibited. Puma's Phase II ALISCA-Breast1, also referred to as study, PUMA-ALI-1201, investigates alisertib in combination with endocrine treatment consisting of either anastrozole, exemestane, letrozole, fulvestrant or tamoxifen in patients with HER2-negative hormone receptor positive recurrent or metastatic breast cancer. Patients must be chemotherapy naive in the recurrent or metastatic setting and have had previous treatment with a CDK4/6 inhibitor and have received at least 2 prior lines of endocrine therapy in the recurrent or metastatic setting to be eligible for the trial. Patients were dosed with alisertib given at either 30 milligrams, 40 milligrams or 50 milligrams BID on days 1 to 3, 8 to 10 and 15 to 17 on a 28-day cycle in combination with the endocrine therapy of investigator's choice. Patients must not have been previously treated with the endocrine treatment in the metastatic setting that will be given in combination with alisertib in the trial. The primary endpoints include objective response rates, duration of response, disease control and progression-free survival. As a secondary objective, the company is evaluating each of these efficacy endpoints within biomarker subgroups in order to determine whether any biomarker subgroup correlates with better efficacy, which might give the company the potential to focus the future clinical development of alisertib in combination with endocrine therapy for patients with HER2-negative hormone receptor-positive breast cancer in these biomarker-specific populations. Slide 25 shows the baseline characteristics for the 164 patients included in this interim analysis. As the slide shows, the majority of these patients were treated in the third line or later setting. First, discuss the safety in the trial. As previously mentioned, in previous clinical trials of alisertib, the treatment-emergent adverse events seen were those characteristic of a cell cycle inhibitor with neutropenia being the AE seen in the highest percentage. Slide 27 shows the rates of Grade 3 or 4 AEs seen in the trial. Of note, the grade 3 or higher neutropenia rate was 8% in the 30-milligram arm, 10.2% in the 40-milligram arm and 26.9% in the 50-milligram arm. It is important for investors to note that prophylactic G-CSF was not given in the study. Slide 27 also compares the Grade 3 or 4 AE rates seen in the ALISCA-Breast1 trial to those that were seen in the previously published Phase II of alisertib in HER2-negative ER-positive breast cancer that was published in JAMA Oncology in 2020, referred to as study TBCRC041. As can be seen in the slide, the rates of Grade 3 or higher neutropenia appear to be lower in the ALISCA-Breast1 trials compared to what was seen in TBCRC041. To next move to the efficacy seen in the trial. Slide 29 shows the summary of clinical benefit for the patients with at least 1 post-baseline scan or who ended treatment or died before they got a scan. As you can see in the slide, the best response was 5% in the 30-milligram arm, 20% in the 40-milligram arm and 18.4% in the 50-milligram arm. Slide 30 shows the Kaplan-Meier curve for PFS in the trial. As is seen in the slide, the median PFS of the 30-milligram arm is currently 2.04 months. The median PFS of the 40-milligram arm is 5.45 months and the median PFS of the 50-milligram arm is currently 5.59 months. We will now move to the biomarkers in the trial. Slide 32 presents the KM curve for all the patients in the trial according to c-Myc copy number, also referred to as c-Myc copy number gain. As you can see on the slide, for all of the patients in the trial for which there are tissue results, patients with c-Myc copy number of greater than 2 had a median PFS of 7.29 months versus a median PFS of 2.0 months for the patients with a c-Myc copy number equal to 2. Slide 33 presents the KM curve for all of the patients for which there are tissue results according to percent of tumor cells that are c-Myc positive. As you can see on the slide, for the patients with between 0 and 10% of the cells c-Myc positive. The median PFS was 3.06 months versus a PFS of 5.62 months for the patients with between 11% and 100% of the cells c-Myc positive. Slide 34 presents the KM curve for the 50-milligram and 40-milligram doses separately for the patients according to percent of tumor cells that are c-Myc positive. As you can see on the slide, for the 40-milligram dose, patients with between 0% and 10% of the cells c-Myc positive had a median PFS of 3.9 months versus a PFS of 5.75 months for the patients with between 11% and 100% of the tumor cells c-Myc positive. For the 50-milligram dose for patients with between 0% and 10% of the cells c-Myc positive, there was a median PFS of 3.58 months versus a PFS of 9.3 months for the patients with between 11% and 100% of the tumor cells c-Myc positive. Similar to the data from ALISCA-Lung1, we believe that these slides are suggesting that in patients with alisertib has greater efficacy in ALISCA-Breast1 in tumors where a higher percent of the tumor cells are c-Myc positive, and hence, a greater degree of c-Myc activation. Preclinically, it's been shown that alisertib inhibits c-Myc positive cells. So we believe that this increased efficacy is due to the mechanism of action of alisertib and the inhibition of the aurora kinase pathway. Slide 35 presents the KM curve for all the patients according to ESR1 mutation status. As is seen on the slide, for patients at all 3 dose groups who are ESR1 mutated as measured by ctDNA, a median PFS of 5.62 months was seen versus a PFS of 3.58 months for the people who are ESR1 wild type as measured by ctDNA. For patients at all 3 dose groups who are ESR1 mutated as measured by tissue, a median PFS of 7.23 months was seen versus a PFS of 3.71 months for patients who are ESR1 wild-type as measured by tissue. It is important for investors to remember that these patients are being treated in the third-line setting. So these patients have already received treatment with a selective endocrine receptor degrader or SERD. Since enrollment of this trial was done, while the newer oral SERDs have either been FDA approved or in later stages of clinical development, many of the patients in the ALISCA-Breast1 trial have been previously treated with the new oral SERDs. More specifically, approximately 58% of the ESR1 mutated patients in the trial were previously treated with oral SERDs, including camizestrant, elacestrant, giredestrant, imlunestrant or palazestrant. Slide 36 presents the KM curve for the 50-milligram and 40-milligram dose groups separately for patients according to ESR1 mutation status as measured by ctDNA. For patients in the 40-milligram group who were ESR1 mutated as measured by ctDNA, a median PFS of 3.7 months was seen versus a PFS of 5.75 months for the patients who are ESR1 wild type as measured by ctDNA. For patients at the 50-milligram group who were ESR1 mutated as measured by ctDNA, a median PFS of 9.3 months was seen versus a PFS of 2.76 months for the patients who were ESR1 wild-type as measured by ctDNA. Slide 37 presents the KM curve for the 50-milligram and 60-milligram ((sic) [ 40-milligram ]) dose separately for patients who are ESR1 -- according to ESR1 mutation status as measured by tissue. For the patients at the 40-milligram group who were ESR1 mutated as measured by tissue, a median PFS of 4.86 months was seen versus a PFS of 4.04 months for the patients who were ESR1 wild type as measured by tissue. For the patients at the 50-milligram group who were ESR1 mutated and measured by tissue, a median PFS has not yet been reached versus a PFS of 3.58 months for patients who were ESR1 wild-type as measured by tissue. Slide 38 presents the KM curve for all the patients according to PIK3CA mutation status. As is seen on the slide, for patients at all 3 dose groups who are PIK3CA mutated as measured by ctDNA, a median PFS of 2.1 months was seen versus a PFS of 5.45 months for patients who are PIK3CA wild-type as measured by ctDNA. For the patients at all 3 dose groups who are PIK3CA mutated as measured by tissue, a median PFS of 3.71 months was seen versus a PFS of 4.86 months for patients who are PIK3CA wild-type as measured by tissue. Slide 39 shows the KM curve for the 50-milligram and 40-milligram dose separately for patients according to PIK3CA mutation status as measured by ctDNA. For patients at the 40-milligram group who were PIK3CA mutated as measured by ctDNA, a median PFS of 3.71 months was seen versus PFS of 5.65 for patients who are PIK3CA wild-type as measured by ctDNA. For patients at the 50-milligram group who were PIK3CA mutated as measured by ctDNA, a median PFS of 3.58 months was seen versus a PFS that has not yet been reached for patients who are PIK3CA wild-type as measured by ctDNA. Based on the efficacy seen in the patients who were ESR1 mutated and PIK3CA wild type, the company conducted a subset analysis to specifically focus on these 2 subgroups. Slide 40 presents the KM curve for patients who are PIK3CA wild-type according to ESR1 mutation status. As is seen on the slide, for patients at all 3 dose groups who are PIK3CA wild-type and who had an ESR1 mutation as measured by ctDNA, a median PFS has not yet been reached versus a PFS of 3.48 months for patients who are PIK3CA wild-type and ESR1 wild-type as measured by ctDNA. For patients at all 3 dose groups who are PIK3CA wild-type and who had an ESR1 mutation as measured by tissue, a median PFS has not been reached versus a PFS of 2.79 months for patients who are PIK3CA wild-type and ESR1 wild type as measured by tissue. Slide 41 presents the KM curve according to 50-milligram and 40-milligram doses separately for the patients who are PIK3CA wild-type according to ESR1 mutation status as measured by ctDNA. For PIK3CA wild-type patients at the 40-milligram group who were ESR1 mutated as measured by ctDNA, a median PFS of 4.86 months was seen versus a PFS of 5.75 months for the patients who were ESR1 wild-type as measured by ctDNA. For PIK3CA wild-type patients at the 50-milligram group who were ESR1 mutated, the median PFS has not been reached versus a median PFS of 2.14 months in the patients who were ESR1 wild-type as measured by ctDNA. We are very pleased to see that at the 50-milligram dose group for the patients who were PIK3CA wild-type and ESR1 mutant, no patient has yet progressed, although we caution these numbers here are small and further patient follow-up is needed. Slide 42 presents the KM curve for the 50-milligram and 40-milligram dose separately for patients who are PIK3CA wild-type according to ESR1 mutation status as measured by tissue. For PIK3CA wild-type patients at the 40-milligram group who were ESR1 mutated as measured by tissue, a median PFS of 7.23 months was seen versus a PFS of 3.98 months for the patients who were ESR1 wild type as measured by tissue. For PIK3CA wild-type patients at 50 milligrams who were ESR1 mutated, the median PFS has not been reached versus a median PFS of 2.14 months in the patients who were ESR1 wild-type as measured by tissue. Again, we are very pleased to see that the 50-milligram dose group for the patients who are PIK3CA wild-type and ESR1 mutant, no patient has yet progressed, although we caution these numbers here are small and further patient follow-up is needed. As we've shown in the earlier slides, c-Myc appeared to play a role in the activity of alisertib in HER2-negative ER-positive breast cancer. And more specifically, the analysis on Slides 33 and 34 showed that alisertib had better activity in patients with a higher percent of their cells being c-Myc positive. This analysis also showed that patients with between 11% to 100% of their cells being c-Myc positive showed the best activity with alisertib. We, therefore, conducted an analysis to see whether or not c-Myc had any correlation with the activity of alisertib that we are seeing in the PIK3CA wild-type patients, the ESR1 mutated patients or the patients who are both PIK3CA wild-type and ESR1 mutated. On Slide 43, we present the data that shows the percent of c-Myc positive cells for PIK3CA wild-type ESR1 mutated and patients who are both PIK3CA wild-type and ESR1 mutated. The left-hand side of the slide presents the patients whose mutation status was determined by tissue. The right-hand side of the slide shows the patients whose mutation status was by ctDNA. As you can see on the slide, patients who are PIK3CA wild-type patients who are ESR1 mutated and patients who are both PIK3CA wild-type and ESR1 mutated appear to show an increase in the median percent of c-Myc positive cells. This is seen in both the patients where the mutation status is determined by ctDNA and in tissue. It is also seen in this analysis that a high percent of the patients who are PIK3CA wild-type who are ESR1 mutant and who are both PIK3CA wild-type and ESR1 mutant have between 11% to 100% of their cells being c-Myc positive, which is again where the best activity of alisertib has been shown to occur. We believe this analysis is suggesting that better activity being seen with alisertib in the patients who are PIK3CA wild-type, ESR1 mutated or both PIK3CA wild-type and ESR1 mutated may be due to this increased c-Myc activity as it appears to be showing that c-Myc is playing a role in driving the tumor in these subgroups of patients, which is suggestive of tumors with the aurora kinase A is activated and hence, where alisertib's mechanism of action may be playing a role. When Puma licensed alisertib, it had stated that the goal was to enroll ALISCA-Breast1 in order to perform a biomarker analysis to better understand which biomarker subgroups had the best activity and then amend the trial to focus on a more biomarker-focused population. Based on the interim data from ALISCA-Breast1, the company is going to be expanding the enrollment in the trial to obtain more data on the biomarker-focused cohorts with a focus in the patients who are PIK3CA wild-type, ESR1 mutant or both. The company anticipates that this will occur in the second half of 2026. The company also plans to present updated data on the ALISCA-Breast1 trial in the second half of 2026. Similar to the data from ALISCA-Lung1, we believe that the data generated thus far in ALISCA-Breast1 is showing that alisertib in combination with endocrine therapy appears to be active in the third-line setting and more specifically in patients who are PIK3CA wild-type, ESR1 mutant or both PIK3CA wild-type and ESR1 mutant. Similar to ALISCA-Lung1, the activity of alisertib in the trial appears to be driven by c-Myc. To our knowledge, we are not aware of any drugs that have shown this level of activity in these subgroups of patients in the third line, which we believe differentiates the drug from others in development. We believe that this activity is attributable to biomarkers that are indicative of aurora kinase pathway activation, which we believe is in line with the mechanism of action of alisertib. As we've mentioned on prior earnings calls and in response to investor questions, Puma continues to evaluate several commercial stage and development-stage drugs to potentially in-license and acquire that would allow the company to diversify itself and leverage Puma's existing R&D, regulatory or commercial infrastructure. The company will keep investors updated on this as it progresses. I will now turn the call over to Heather Blaber for an update on our marketing initiatives. Roger Storms will follow with a review of our commercial performance during the quarter. Heather Blaber: Thanks, Alan. I appreciate the opportunity to share some additional insights into our marketing strategy. The marketing team is focused on continued awareness of both clinical data for NERLYNX as well as reinforcing the continued unmet need in HER2-positive early-stage breast cancer after adjuvant therapy. We continue to invest in market research to help us understand and validate the most effective ways to communicate our data with health care professionals through both personal and nonpersonal promotion. Our strategy is focused on increasing awareness of our dual indication in HER2-positive breast cancer. We believe NERLYNX plays an important role in the early stage by reducing the risk of recurrence and in the metastatic setting by helping protect against progression. Not only do physicians who have experience with NERLYNX continue to identify appropriate patients that could benefit from additional therapy post adjuvant treatment, but we continue to adopt new prescribers year-over-year who recognize the unmet need in HER2-positive early-stage breast cancer and how NERLYNX can help their patients. In summary, we are excited and committed about the potential to engage with more oncologists and support their patients diagnosed with HER2-positive breast cancer in both the early and metastatic setting. I will now turn the call over to Roger Storms to provide an overview on the commercial performance for the first quarter. Roger Storms: Thank you, Heather, and thanks to everyone for joining our first quarter earnings call. But before I move into the commercial review, just a reminder that I'll be making forward-looking statements. The sales team remains focused on expanding overall HCP reach and frequency with a strong emphasis on driving engagement when treatment decisions are being made. Q1 2026 call activity increased 44% year-over-year and 14% quarter-over-quarter. The year-over-year and quarter-over-quarter increases are a direct result of continued emphasis put on executional excellence and increased field accountability. The commercial team continues to prioritize increasing use of NERLYNX with a main focus on patients at higher risk of recurrence. They are also dedicated to enhancing clinical education and engagement through nonpersonal promotional efforts as well as utilizing patient resources to support persistence and compliance during NERLYNX therapy. Let me now transition to some of the commercial slides where I'll provide some additional specifics around performance. Slide 3 is an illustration of our distribution model, which is broken out into the specialty pharmacy channel and the specialty distributor or in-office dispensing channel. Regarding the overall distribution of our business, in Q1 2026, about 58% of our business was purchased through the SP channel and the remaining 42% was purchased through the SD channel. We continue to see stronger growth in the SD channel, driven mainly by increased sales in the group purchasing organizations or GPO segment. Turning to Slide 4. NERLYNX net product revenue in Q1 '26 was $42 million, which represents a decrease of $17.9 million from the $59.9 million we reported in Q4 2025 and a decrease of $1.1 million from the $43.1 million we reported in Q1 of 2025. As a reminder to investors, Puma's reported NERLYNX sales include both U.S. net sales of NERLYNX and product supply revenues of NERLYNX to Puma's ex-U.S. partners. Please note that in Q1 of 2025, we reported product supply revenue to our international partners of approximately $400,000 versus the $150,000 in Q1 of 2026. Therefore, U.S. net sales of NERLYNX in Q1 2026 were $41.8 million versus the $42.7 million in Q1 of 2025. I'll provide some more details around inventory changes, and Maximo will provide some additional specifics around gross to net expenses during his update. In Q1 2026, we estimate that inventory decreased by about $7.9 million. As a comparator, we estimate that inventory increased by about $5.7 million in Q4 of 2025. Slide 5 shows Q1 2026 ex-factory bottle sales and also provides both a year-over-year and quarter-over-quarter comparison. In Q1 2026, NERLYNX ex-factory bottle sales were 2,328, which represents an approximate 29% decrease quarter-over-quarter while remaining essentially flat at 0.4% year-over-year. Let me specifically call out the inventory changes from a bottle perspective. In Q1 2026, we estimate that inventory decreased by about 439 bottles. As a comparator, we estimate that inventory increased by 343 bottles in Q4 of 2025 and decreased by 251 bottles in Q1 of 2025. Let me take a moment to provide some additional metrics regarding our first quarter performance. In Q1 2026, we saw enrollments increase by about 10% quarter-over-quarter and about 1% year-over-year. Commercial new patient starts or NRxs were even stronger, increasing by about 25% quarter-over-quarter and about 11% year-over-year. Turning to total prescriptions or TRx, we saw TRx decline about 4% quarter-over-quarter and about 1% year-over-year. Finally, let me share some specifics around commercial demand overall. In Q1 2026, we saw demand decrease by about 6% quarter-over-quarter, but increased by about 7% year-over-year. As mentioned, these dynamics are strongly influenced by SD patterns. In Q1 2026, we saw SD demand decrease by about 9% quarter-over-quarter due to Q4 buy-ins while continuing to show strong growth year-over-year at about 28%. Slide 6 highlights the quarterly adoption of dose escalation since the launch of NERLYNX. In Q1 2026, approximately 78% of patients started NERLYNX at a reduced dose. This is higher compared to the 75% we reported in Q4 of 2025. Continued messaging and -- continued messaging and adoption of dose escalation remains an important commercial priority. We believe dose escalation, coupled with patient education resources will give patients better support throughout their NERLYNX therapy and ultimately help to reduce the risk of recurrence. Slide 7 highlights the strategic collaborations we formed across the globe. Most recently, in Q1 2026, NERLYNX was launched in Thailand, also in the extended adjuvant setting. We really appreciate the excellent work being done by our partners around the world and look forward to supporting their continued success moving forward. I'll close by sharing my sincere appreciation for the entire Puma team and their steadfast commitment to supporting patients and families affected by breast cancer. This disease is truly devastating. And while meaningful progress has been made, we know there's still important work ahead and even more we can accomplish together. I will now turn the call over to Maximo for a review of our financial results. Maximo F. Nougues: Thanks, Roger. I will begin with a brief summary of our financial results for the first quarter of 2026. Please note that I will make comparisons to Q4 2025, which we believe is a better indication of our progress as a commercial company than year-over-year comparisons. For more information, I recommend that you refer to our first quarter 2026 10-Q, which will be filed today and includes our consolidated financial statements. For the first quarter of 2026, we reported a net loss based on GAAP of $3.8 million or $0.07 per share. This compares to net income in Q4 2025 of $13.4 million or $0.27 per basic share and $0.26 per diluted share. the fourth quarter of 2025 included a net change in valuation allowance that unfavorably impacted net income by $3.2 million. On a non-GAAP basis, which is adjusted to remove the impact of stock-based compensation expense, we reported a net loss of $1.9 million or $0.04 per share for the first quarter of 2026. Gross revenue from NERLYNX sales was $57.5 million in Q1 2026 and $82.9 million in Q4 2025. As Alan mentioned it, net product revenue from NERLYNX sales was $42 million, a decrease from the $59.9 million reported in Q4 2025 and the $43.1 million reported in Q1 2025. A reminder to investors, Puma reported NERLYNX sales include both U.S. net sales of NERLYNX and product supply revenues of NERLYNX to Puma ex-U.S. partners. Please note that in Q1 2026, we reported product supply revenue to our international partners of about $0.1 million. Therefore, U.S. net sales of NERLYNX in Q1 2026 were $41.9 million versus $55.2 million in Q4 2025. The decrease in Q1 2026 versus Q4 2025 was driven by lower demand, inventory reduction in Q1 of about $7.9 million versus inventory increase of $5.7 million in Q4 2025. Royalty revenue totaled $2.8 million in the first quarter of 2026 compared to $15.6 million in Q4 2025. The decline in royalty revenue reflects a large Q4 2025 shipment to our partner in China. Our gross to net adjustment in Q1 2026 was about 27% and 27.8% in Q4 2025. The lower gross to net adjustment was driven mostly by lower government chargebacks. Cost of sales for Q1 2026 was $10.4 million and includes $2.4 million for the amortization of intangible assets related to our neratinib license. Cost of sales for Q4 2025 was $23.2 million. Going forward, we will continue to recognize amortization of milestones to the licensor of about $2.4 million per quarter as cost of sales. For fiscal year 2026, Puma anticipates that net NERLYNX product revenue will be in the range of $202 million to $206 million, higher than our prior guidance of $194 million to $198 million. We also anticipate that our gross to net adjustment for the full year 2026 will be between 26.5% and 27.5%, significantly higher than 2025 as we expect higher government chargebacks and Medicare and Medicaid share to maintain the levels we saw in the last 2 quarters of 2025. In addition, for fiscal year 2025 (sic) [ 2026 ]), we anticipate receiving royalties from our partners around the world in the range of $20 million to $23 million. We don't expect any license revenue in 2025 ((sic) [ 2026 ]). We also expect that net income for the full year will be in the range of $16 million to $19 million, also higher than our prior guidance of $10 million to $13 million. Current guidance does not include any potential release of any additional tax asset valuation allowance in our net income estimate. The company is reviewing its deferred tax assets as part of its ongoing tax valuation analysis has not yet determined whether any adjustments would be required, if so, the potential timing or size of such an adjustment. We will continue to keep investors updated on this as it progresses. This time, we do not believe that tariffs imposed or proposed to be imposed by the United States, particularly with other countries, will have a material impact on our product cost or cost or results of operations. However, shifts in the trade policies in the United States and other countries have been rapidly evolving and are difficult to predict. As a point of reference, our manufacturing product cost accounts for a mid- to high single-digit percentage of our total cost of goods sold. We anticipate that for Q2 2026, NERLYNX product revenue will be in the range of $50 million to $52 million. We expect Q2 royalties revenues will be in the range of $2 million to $3 million and no license revenue. We further estimate that the gross to net adjustment in Q2 2026 will be approximately 27% to 28%. Puma anticipates a Q2 net income between $2 million and $4 million. SG&A expenses were $18.4 million in the first quarter of 2026, unchanged from the fourth quarter of 2025. SG&A expenses include noncash charges for stock-based compensation of $1.1 million for Q1 2026 and $1 million in Q4 2025. Research and development expenses were $19.8 million in the first quarter of 2026 and $16.8 million in Q4 2025. R&D expenses included noncash charges for stock-based compensation of $0.8 million in Q1 2026 and $0.7 million in Q4 2025. On the expense side, Puma anticipates higher total operating expenses in 2026 compared to 2025. More specifically, we anticipate SG&A expenses to increase by 1% to 2% and R&D expenses to increase by 34% to 37% year-over-year. The higher R&D expense -- the higher increase in R&D expense is driven by the progress of our clinical trials. In the first quarter of 2026, Puma reported cash burn of approximately $4 million. This compares to cash burn of approximately $3.1 million in Q4. Please note that during Q1 2026, we made our eighth quarterly principal loan payment of $11.1 million related to our obligation with Ethereum. Furthermore, after quarter end, we made our final payment to Ethereum and as a result, Puma is now debt-free. On March 31, 2026, we had approximately $101.5 million in cash, cash equivalents and marketable securities versus about $97.5 million at year-end 2025. Our accounts receivable balance was $26.3 million. Our accounts receivables terms range between 10 and 68 days, while our days sales outstandings are about 46 days. We estimate that as of March 31, 2026, our distribution network maintained approximately 3 weeks of inventory. Overall, we continue to deploy our financial resources to focus on the commercial NERLYNX [indiscernible] controlling our expenses. Alan Auerbach: Thanks, Maximo. On past earnings calls, we have stressed that Puma's senior management in cooperation with the Board of Directors continues to remain focused on NERLYNX sales trends and recognizes its fiscal responsibility to shareholders to continue to maintain positive net income. We believe that this focus has contributed to our commercial execution in a positive way as according to our current projections, 2026 will mark the second year-over-year demand increase for NERLYNX in the United States and the first time in the history of the launch of NERLYNX in the U.S. that we have seen 2 positive consecutive year-over-year increases in demand. We are pleased to report this demand-driven growth in NERLYNX sales in the first quarter of 2026 which has been driven by better-than-expected enrollments and better-than-expected new patient starts as well as strong increases in sales to our specialty distributors. In addition, we believe that the positive net income that the company is guiding to for full year 2026 has resulted from the continued financial discipline across the company over the last few years. The company remains committed to continuing to achieve this positive net income, and we'll continue to reduce expenses if needed in order to achieve this. We look forward to updating investors on this in the future. There continues to remain a significant unmet need for patients battling breast cancer, lung cancer and other solid tumors. We at Puma are committed and passionate about finding more effective ways and helping these patients during their journey, and we will continue to strive to achieve that goal. This concludes today's presentation. We will now turn the floor back to the operator for Q&A. Operator? Operator: [Operator Instructions] And the first question comes from the line of Salvatore Caruso with TD Cowen. Salvatore Caruso: Congrats on the data. I'm looking forward to more mature data sets. This is on behalf of Marc Frahm at TD Cowen. Two quick questions. The first one, given the emerging signal in c-Myc positive patients in both lung and breast that you presented today, how are you thinking about incorporating c-Myc biology going forward into future trial designs? Do you see, like, for example, in your registrational strategy, it evolving to some sort of biomarker enriched program with maybe a more narrow patient selection? And then I'll ask my second one after. Alan Auerbach: Yes, this is Alan. So you're absolutely right. We are seeing a much better signal in the patients where there's a signal of c-Myc positivity, if you will, using that in a broad sense. In small cell lung, you don't have the benefit of a lot of the kind of predetermined disease-driven categories like you do in ER-positive breast. So that likely may require some form of a c-Myc positive. Now is that going to be like a c-Myc positive, which includes copy number or percent of cells. I think we need a little more data to say that. I think we're hopeful that as we increase dose, we may get in the overall population, we may continue to see that signal in c-Myc. But in the overall population, we may see it as well. So we may be able to go for something a little more general. But I think likely that would -- if we went for a biomarker focused in small cell lung, it would be something that's probably going to be inclusive of a number of different categories of c-Myc positivity, if you will. Now in ER-positive breast, HER2-negative ER-positive breast, we've got a very interesting situation because you're absolutely right, it is a c-Myc driven signal. But for whatever reason, we're seeing an enrichment of that signal in the patients who are ESR1 mutated and PIK3CA or PIK3CA wild-type or both, right? So if I remember this correctly, ESR1 wild type is probably 50% to 60% of the patients. I'm sorry, PIK3CA wild-type is probably 50% to 60% of the patients. ESR1 mutated is about 40% to 50%. So that's quite a big number. Now if we look at the patients that are in the both category, which is where we're seeing, especially at the 50-milligram dose, really compelling activity with no patients having progressed, then that's about 20% of the patients there. So it's a 40,000 patient population. If that 8,000 patient population is the one that we focus on, I'm totally okay with that. It could be a fantastic benefit. So I think for right now, it looks like in ER-positive breast, we have the benefit of just having enrichment of c-Myc in categories where the disease is -- it's already being -- the biomarker, if you will, is already being determined. They already know post-CDK4/6 standard of care is to do either tissue-based or ctDNA or both to see are you PIK3CA wild-type, PIK3CA mutated, are you ESR1 wild type or ESR1 mutated. So we kind of have the benefit of that already being done for us. So I think in ER-positive breast, that's probably the path we're going down. Obviously, we got to get more data, but I think that's kind of the initial thoughts on that. Salvatore Caruso: Awesome. That helps a lot. And just, like, a quick second question. Looking ahead to the next updates in both programs, can you maybe help ballpark for us what specific outcomes would give you guys confidence to advance or keep progressing these programs or advance to the next stage of development? Alan Auerbach: Yes. So in terms of investing in the next stage of development, we're all systems go on both. At this juncture, I don't see any data that would tell us we're not continuing this into Phase III. I think the question is just what's the design? And as you referenced in your earlier question, what's the exact patient population to focus on. So I think what we're looking for is going to be more patient numbers and then more duration. Operator: This concludes our question-and-answer session. And I would like to turn the conference back over to Mariann for any closing remarks. Mariann Ohanesian: Thank you all for joining us today. As a reminder, this call may be accessed via replay of the webcast at pumabiotechnology.com beginning later today. Have a good evening. Operator: Thank you, ladies and gentlemen. Thank you for participating in today's conference call. This concludes our program. Everyone, have a great day, and you may now disconnect.
Operator: Good afternoon, and welcome to Research Frontiers investor conference call to discuss the first quarter of 2026 results of operations and recent developments. The company will be answering many of the questions that were e-mailed to it prior to this conference call in their presentation. In some cases, the company has responded directly to e-mail questions prior to this call or will do so afterwards. Some statements today may contain forward-looking information identified by words such as expect, anticipate and forecast. These reflect current beliefs and actual results may differ materially from those expressed due to various risk factors, including those detailed in our SEC filings. Research Frontiers assumes no obligation to update or revise these statements. The call is being recorded and will be available for replay on Research Frontiers website at smartglass.com for the next 90 days. I would now like to turn the conference over to Joe Herary, President and Chief Executive Officer of Research Frontiers. Please go ahead, sir. Joseph Harary: Thank you, Paul, and good afternoon, everyone, and thank you for joining us on our first quarter 2026 investor conference call. I was informed a little after 4:00 p.m. that the SEC website was down. I'm not sure if it's up yet or not, but our 10-K should be filed once everything gets straightened out and whatever backlog they have is cleared. As always, I appreciate the time and interest of our shareholders, customers, licensees and industry partners joining us today. Today, I want to talk about Research Frontiers, our business, our markets and also address the question I've been asked most frequently over the past 6 months, what's happening with our licensee, Gauzy. I'm going to give you an honest, informed and candid assessment of the situation and explain why I remain optimistic about their future and ours. Before discussing our operations and recent developments, I want to briefly address our first quarter financial results and some of the factors affecting the quarter. First, first quarter reported revenues compared to the same period last year were affected by the timing of revenue recognition under our license agreements as well as the nonrecurrence of upfront revenue recognized from a new license agreement entered into during the first quarter of 2025. Typically, royalties in the first quarter are almost always lower than the underlying economic activity taking place in our business because GAAP accounting requires that additional royalty revenue is not recognized until a licensee exceeds their minimum annual royalty obligation for the year. And until it exceeds that level, minimum annual royalties are basically spread out roughly evenly over each of the 4 quarters of the year. Another factor affecting the comparison was ASC 606 accounting treatment associated with the new license agreement entered into during the first quarter of 2025. Under generally accepted accounting principles, or GAAP, much of that revenue was front-loaded into the first quarter of last year. As a result, from an accounting perspective, the quarter looked weaker than the underlying economic activity taking place across several areas of our business. Sequentially, royalties from the automotive and aircraft markets increased from the fourth quarter of 2025 to the first quarter of 2026. The quarter was also affected by what we believe to be temporary operational and liquidity impacts relating to the ongoing French rehabilitation proceedings involving French subsidiaries of our licensee, Gauzy. The processing of payments to us and revenue recognition slowed because of the French proceedings and the liquidity constraints that resulted from them. Since both Gauzy and Vision Systems are strategic licensees with meaningful businesses in multiple industries relevant to us, those issues also temporarily affected our own liquidity and financial strength. Not knowing exactly how long the situation in France would take to resolve, we took steps during the quarter to strengthen our balance sheet through a focused financing with long-term accredited investors. As of March 31, 2026, cash and cash equivalents increased to approximately $1.28 million compared to approximately $664,000 at year-end 2025, and the company remains debt-free. Our operating expenses and R&D expenses also declined compared to the same period last year. We run a tight ship. Now let me turn in more detail to the subject many of you have asked about, Gauzy. There's been a tremendous amount of hard and focused work taking place there. Things have been improving, and they have been actively working through the situation. The liquidity issues affecting Gauzy have certainly impacted us temporarily. Funds sitting in France were subject to oversight as part of the rehabilitation proceedings and both Gauzy and Vision Systems needed approval from the French administrator for many financial transactions during the process. That naturally slowed payments to Research Frontiers as well as other companies. But importantly, the flow of funds has already begun loosening up. A few weeks ago, we received a meaningful payment from Vision Systems that was authorized by the French monitor. So while things have not yet fully normalized, they are beginning to normalize, and we remain optimistic that they will continue to do so. This Tuesday, May 12, there is a court hearing in France to determine the next steps. The range of possible outcomes include liquidation of the French subsidiaries, a sale process, approval of Gauzy's plan of continuance or potentially an extension of the monitoring period, although we currently believe that the most likely outcome, fortunately, is approval of Gauzy Vision Systems continuation plan. As a lawyer, I know you can never predict the outcome of a court proceeding with certainty. But based on what has been shared with me, I believe the best outcome, not only for Research Frontiers, but also for Gauzy, Vision Systems, their employees, suppliers, lenders, customers and the SPD industry overall is approval of Gauzy's continuation plan. The details underlying the continuation plan have been described to me. The plan eliminates unprofitable non-SPD business lines and provides enough capital for Gauzy to emerge from the process substantially healthier, leaner and better capitalized. Importantly, based on the information shared with me, the reorganized company could emerge with stronger working capital, lower overhead and without the drag of unprofitable legacy operations outside of the SPD business. Gauzy would have substantial working capital and suppliers, lenders and employees would be paid in full, not only in France but worldwide. In other words, if the continuation plan is approved, Gauzy could emerge from this process as a much healthier and stronger strategic partner for us and for the SPD industry overall. We have also worked on contingency plans in case the court approval does not approve Gauzy's continuation plan or decides to delay decision. Amid the mostly public silence from Gauzy, many of the things I've discussed today have been referred to in their SEC filings. Hopefully, I've helped connect some of the dots for you with additional color, context and details. Throughout this period, Gauzy has kept me informed and we have had many in-person meetings and many late night and early morning conversations. At times during the height of the war involving Iran and its proxies, conversations literally started with, I just got out of the bomb shelter or ended with, I have to call you back because sirens are going off. Travel became extraordinarily difficult at times with executives operating from multiple countries and dealing with severe transportation disruptions throughout the region. I mentioned this because it illustrates both the operational challenges they were facing outside of France and also the determination of the people there to keep their business moving forward. These circumstances also temporarily slowed some of the R&D work involving next-generation SPD products, including black SPD and certain specialized SPD film being developed primarily for automotive and architectural applications and for specific customers. Some of these projects are now getting very close to completion. If you step back and look at the last 12 months objectively, we have seen 2 licensees liquidate, another licensee -- key licensee go through restructuring proceedings in France and a highly volatile military environment in the Middle East. Despite all of that, SPD production has continued, development work has continued. Customer programs and customer engagement remain active and plans are now in place that could allow Gauzy to emerge stronger, healthier and better capitalized. That resilience says a great deal about the determination of the people involved and their belief in our SPD technology.A number of shareholders e-mailed questions primarily relating to Gauzy. I'll answer them now. John Nelson asked whether Gauzy continues to produce and deliver SPD film on schedule and whether the current situation is limiting new business opportunities. John, while there have certainly been delays and distractions associated with the French proceedings and broader operational challenges, SPD production activity has continued and multiple automotive, aerospace and architectural programs remain active. Turning now to questions mailed to me about some of the other markets, starting with automotive. Automotive projects in North America, Europe and Asia continue moving forward during the first quarter and into the second quarter of 2026. When Ferrari business transitioned from AGP to another European licensee, this transition required the successor licensee to purchase and install new specialized advanced equipment. That equipment has now been installed. So activity and investment in the SPD ecosystem continues at multiple levels from the licensees to OEMs to end customers. We continue to see strong interest in SPD because of its ability to instantly and uniformly control light, glare and heat while improving comfort, energy efficiency and the user experience. Several shareholders have submitted questions regarding the previously discussed Asian vehicle program and black SPD technology. Jared asked whether the mid-market Asian vehicle program may involve black SPD technology, while Rick Carrell has asked whether the Asian program remains active since it was not discussed in our last call. Last call was kind of long, so I didn't have a chance to catch everything, but the Asian program remains active, and it does involve black SPD. I point out that is often the case with large automotive programs, time lines and launch schedules can shift because of platform timing, integration testing, design changes, supply chain coordination and other factors. We're pretty good at dealing with that. We've been in 4 different OEMs with products put in series production. So I don't think anybody else in the world can say that. We're actively working with multiple parties on these programs, including projects involving black SPD technology currently under development. And regarding black SPD specifically, we're making encouraging progress. Black SPD has the potential to significantly expand the design flexibility and addressable market for SPD technology, particularly in automotive and architectural applications where darker neutral aesthetics are important. Several shareholders also asked about the large volume quotations we discussed on previous conference calls and whether any have been awarded. At this stage -- well, first of all, the awards go to our licensees. We just collect the royalties from those licensees. At this stage, we remain limited in what we could publicly disclose regarding customer programs and quotations, but discussions and evaluations remain active in multiple areas, including ultimate supply licensee selection. As I have noted in the past, the 2 biggest challenges to wider adoption in the automotive industry were color, especially in vertical glass applications and cost. As I said on previous conference calls, we were given aggressive price targets to match competitive technologies, and we and our licensees were able to meet those targets. So cost and color are being addressed nicely between that and the black particle. Turning to aerospace. Deliveries of SPD-Smart electronically dimmable windows for aircraft applications continued during the first and second quarter of 2026. Just today, I saw an announcement of another ACJ TwoTwenty being delivered by Airbus to one of its customers. As you may know, Vision Systems handles this business. Aerospace remains an important long-term market for SPD technology because of the operational, passenger comfort, weight maintenance and performance advantages that SPD offers compared to traditional mechanical shading systems and also compared to competing technologies. We are also advancing development efforts in specialty transportation and other applications where dynamic light control and energy management are becoming increasingly important. On the architectural side, we continue advancing our retrofit initiatives with our licensee AIT LTI. Judy McKay asked whether AIT's SPD RetroWAL system may qualify under certain low-carbon building standards. Thanks, Judy, and I apologize for the delay in responding. Retrofit applications like these are becoming increasingly attractive because they improve energy efficiency and occupant comfort without requiring full window replacement. They also can meaningfully reduce the carbon footprint of a building and allow the SPD Smart Glass to work symbiotically with the other systems in the building such as HVAC and lighting systems. That is particularly important in government buildings, transportation hubs, historic structures, commercial retrofits and other projects where replacing exterior glazing is expensive, disruptive or impractical. We believe architectural retrofit applications represent an important and near-term growth area for SPD Technology. Another shareholder asked whether there have been renewed discussions with General Motors regarding SPD following the previously reported issues with the Corvette Targa roof involving another company's electrochromic glass technology. That's a well-known competitor of ours. As you may know, like other automotive industry suppliers, we don't comment on specific OEM discussions unless programs become public. But SPD remains one of the most capable technologies available for large area automotive glazing applications because of its switching speed, uniformity, heat management and overall user experience. It is also the only switchable shading technology that has been reliably commercialized in serial production. And frankly, our public profile in automotive smart glass is second to none, and I mean to none. I recently served as keynote speaker at North America's premier automotive glass conference with many OEMs, licensees and prospective new licensees in attendance. We're also the only company that has successfully worked with 4 different OEMs to incorporate switchable glass into multiple production vehicle platforms. That's multiple models and multiple spec standards and procurement systems, and we were able to succeed in all of them. No one else has been able to do that as recently exhibited by one of our competitors. But to answer your specific question, I think that the recent negative experience that GM had with the Corvette and another supplier's technology and execution has helped us tremendously. It has shown them the strength and resiliency of our supply chain and the dominant and superior performance of SPD Smart Glass technology. We also received questions regarding sun visor development. SPD remains very well suited for dynamic visor applications because of its ability to instantly manage glare and light transmission while maintaining visibility and user comfort, and we have been approached specifically about that. Development discussions and evaluation in this area remain active. Because sun visors have relatively small surface areas, this market, similar to aircraft, also has several technologies that try to compete against us. However, none of them have the combination of switching speed, range of light transmission and logistical and performance benefits that we have with SPD technology. Now before concluding, I want to briefly address today's format. As many of you know, our conference calls are normally very open and often include extensive live Q&A. They also tend to run much longer than most typical quarterly conference calls at other companies. However, because of Gauzy's ongoing legal rehabilitation proceedings as well as ongoing discussions involving strategic opportunities and alternative paths forward, we decided not to conduct a live Q&A session today. I'm glad that we received so many mailing questions because it allowed me to cover them earlier. Given the circumstances and the sensitivity surrounding Tuesday's court proceedings in France regarding Gauzy Vision Systems, I wanted to avoid saying anything that could potentially interfere with a successful outcome there. At the same time, I also wanted to share as much meaningful information and context with our shareholders as I responsibly could. As you heard today, we incorporated many shareholder questions directly into this presentation, and I want to stress, we remain available following the call by e-mail and telephone. And in closing, as we look forward, we believe the long-term opportunities for SPD Technology remain significant. Despite the disruptions of the past year at some of our licensees, the overall platform supporting SPD technology today is broader, more diversified and more mature than any previous point in our company's history. We see opportunities across automotive, aerospace, architecture, specialty transportation and other emerging applications. Our focus remains straightforward, supporting our licensees and customers, advancing next-generation SPD technologies, executing carefully and positioning Research Frontiers for long-term and sustained growth. Thank you again for joining us today and for your continued support of Research Frontiers. Operator: The meeting has now concluded. Thank you for joining, and have a pleasant day.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the El Pollo Loco First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded today, May 7, 2026. And now I would like to turn the conference over to Ira Fils, the company's Chief Financial Officer. Please go ahead. Ira Fils: Thank you, operator, and good afternoon, everyone. By now, everyone should have access to our first quarter 2026 earnings release, which can be found at www.elpolloloco.com in the Investor Relations section. Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements, including statements related to our new products and growth opportunities, strategic and operational initiatives, expectations regarding sales and margins, potential changes to our product platforms, capital expenditure plans, the ability of our franchisees to drive growth, expectations regarding commodity and wage inflation, remodel plans and our 2026 guidance, among others. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we currently expect. For a more detailed discussion of the risks that could impact our future operating results and financial condition, we refer you to our recent SEC filings, including our Form 10-K for the year ended December 31, 2025, as well as our Form 10-Q for the first quarter of 2026, which we expect to file tomorrow and encourage you to review at your earliest convenience. During today's call, we will discuss non-GAAP measures, which we use for financial and operational decision-making as a means to evaluate period-to-period comparisons and which we believe can be useful to investors in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to comparable GAAP measures are available in our earnings release, which is available in the Investor Relations section of our website. With respect to the adjusted EBITDA outlook we will be providing on today's call, please note that we have not provided a reconciliation to the most directly comparable forward-looking GAAP financial measure because without unreasonable efforts, we are unable to predict with reasonable certainty the amount of or timing of non-GAAP adjustments that are used to calculate income from operations and company-operated restaurant revenue on a forward-looking basis. Now, I would like to turn it over to our CEO, Liz Williams. Elizabeth Williams: Thank you, Ira and good afternoon, everyone. We are proud of our first quarter results, including system-wide same-store sales growth of 5.8% and restaurant-level margin expansion of 320 basis points year-over-year. As we enter the third year of our brand transformation, El Pollo Loco is building momentum on the strong foundation we've built over the past 2 years. What's particularly encouraging is that this performance reflects strength across multiple fronts. Our innovation pipeline, highlighted by the success of our Baja Double Tostadas, continues to resonate with guests. But equally important is the operational progress we are seeing across every key metric from customer service and accuracy to speed of service. We are also seeing balanced daypart performance with lunch traffic returning, dinner continuing to grow and evening into late night gaining traction. These results demonstrate that our strategy is working. Our momentum is sustainable and we are well-positioned to deliver on our priorities for 2026. As we look at the remainder of the year, our main goal remains clear: to drive sustainable traffic growth across our system while maintaining the margin discipline and unit economic improvements that we've accomplished over the past 2 years and to thoughtfully grow El Pollo Loco across the country. We recognize that the operating environment for the remainder of the year presents challenges, particularly related to consumer spending pressures from elevated energy and gas prices. While we are monitoring these dynamics closely, we remain focused on what we can control, delivering exceptional value, great customer service and delicious new menu items that resonate with our guests. As we look to continue this momentum throughout 2026 and beyond, I would like to walk you through our progress and future plans across our strategic pillars. Let's start with the Brand that Wins pillar, which continues to be critical in driving our business. Our culinary innovations during the first quarter delivered exactly what we intended, driving traffic with quality and value proposition that defines El Pollo Loco. We kicked off the year with new Double Pollo Salads in 3 craveable flavors: Street Corn, Mexican Caesar and Bacon Ranch. This lineup added growth to the salad category and delivered value to our customers through a premium salad at an affordable price compared to other fast casual salads. We continued the momentum with the introduction of our Baja Double Tostadas in mid-February, which feature double portion of fire-grilled chicken or seasoned shrimp, both drizzled with a tangy lime crema sauce. The Baja Tostada lineup exceeded expectations, delivering a record-breaking 8.3% sales mix for our brand with our tostada and salad category peaking at over 20% of our total sales mix. Our guests love the Baja Tostadas so much that we have made a strategic decision to keep the chicken Baja Tostada on the menu in the summer, providing us with some strong check-building opportunities. Shifting to more affordable options, we launched our Loco Tenders in late April. These all-white meat, boldly seasoned tenders represent our take on America's favorite finger food with a distinctive El Pollo Loco twist through the seasoning and our 3 signature dipping sauces: Baja Lime, House Ranch and Pollo Loco Sauce. We expect tenders to be an important traffic driver, particularly with new consumers who may not yet be familiar with our quality chicken. To build excitement and generate buzz, we strategically seeded our Loco Tenders into several cultural moments before the Loco Tenders launch. In early April, we brought tenders to the Revolve Festival at Coachella, giving celebrities, VIPs and influencers a sneak peek into our newest innovation. We also hosted a tender reveal party for media and influencers, offering a firsthand look at our tenders and a chance to meet our executive chefs. Social momentum continued with user-generated content and we generated over 2 billion impressions across social channels leading up to the launch day. We're only 2 weeks into the launch and the tenders are already meeting our expectations. We believe that the combination of bold flavors and bold activations is a winning equation for us. And you can expect to see additional infusion of buzz-building moments into our product launches as we move forward. As we look at the balance of 2026, we remain confident in our innovation pipeline. From testing loaded quesadillas to grilled chicken sandwiches to cheesy enchilada bowls and our newest beverage offering, our pipeline is the most robust we have delivered in years. Beyond menu innovation, our marketing efforts continued to amplify the El Pollo Loco brand through our Let's Get Loco campaign. Our first quarter results have demonstrated that our social media and activation strategy is a powerful driver of brand engagement and cultural relevance. And we will continue to leverage these channels to amplify our menu innovation and to reinforce our fire-grilled chicken differentiation to create the kind of memorable brand moments that turn customers into true fans. From our Leg and Thigh Day promotion in January to our Loco Moments during the March basketball tournament to our recent festival merch drop, we have shown the power that social presence can have in expanding our audience and brand relevance. In short, the combination of thoughtful innovation, targeted marketing and our growing social platforms positions us well to continue driving sustainable traffic growth throughout 2026 while maintaining the margin discipline we've established. Moving to hospitality mindset. I'm pleased with the continued progress we've made in the first quarter to improve guest experience and overall customer satisfaction. Our team's relentless focus on executing the fundamentals is paying dividends and our service consistency is improving. Our overall satisfaction scores continue to outpace the QSR industry as measured by SMG with meaningful sequential improvement across every key metric from accuracy to quality to friendliness, cleanliness and speed. What's particularly encouraging is that we're not just maintaining the gains we achieved in 2025, we're building momentum that positions us well for continued progress. We are using data to identify our biggest daypart opportunities to drive even greater guest satisfaction and operational throughput. We have deployed new tools and standards to drive speed of service while also focusing on order accuracy. These 2 metrics work hand-in-hand as we believe improving speed and accuracy represents a significant step in enhancing customer satisfaction and overall performance. As we continue to address this opportunity, we have many initiatives underway to assist our team members. From redesigning how orders are displayed on the kitchen display screens to reconfiguring our point-of-sale keys to streamlining the ordering process, all of these reduce potential errors at the point of entry. Our goal is to make it easier and faster for team members to deliver customer orders accurately and efficiently. In addition to these initiatives, we are also reinforcing our commitment to speed and accuracy through enhanced training protocols, such as triple checking every order. We're also testing enhanced product labels and testing consumer-facing order confirmation boards. As we work to make speed and accuracy an even more disciplined part of our culture, our teams continue to take tremendous pride in getting orders right every single time. We are confident that the investments we're making in both tools, systems and training will create meaningful improvements to guest experience over time. Before we move on, I would like to take a moment and recognize our team members and franchise partners who are raising the bar and elevating our service. Their dedication to operational excellence is what will drive our success and I am grateful for their commitment to delivering an outstanding experience for every guest. Also aiding our operations and customer satisfaction is the continued shift of our business to digital platforms as this part of our business continues to gain momentum. For the first quarter, our total digital business, including kiosks, represented approximately 28% of sales in our corporate restaurants. More importantly, we saw a year-over-year improvement in sales and transactions from our loyalty members, which we believe were a direct result of our more aggressive approach to our app-based promotions and targeted value through our Loco Rewards program as well as the recent enhancements made to the app that improve ordering and give more benefits to our highest frequency members. Our strategy for loyalty is focused on 3 key areas: providing everyday value, delivering personalized offers and creating exclusive experiences for our members. We deliver on everyday value through our all-member perks, including our Loco Friday Drops, our member boosts and our national food holiday deals. We launched our Loco Friday Drops in 2025 as a tribute to our 50th year. And given its performance, we've decided to keep our Loco Friday Drop perks alive for the remainder of 2026. Each Friday, we drop an offer that ranges from new innovations to fan favorites. These are typically available only for 1 day. This sense of urgency creates FOMO, or fear of missing out, for our members to drive incremental frequency. To level up our value even more, we introduced boosts recently, which are seasonal, limited-time offers based on membership tiers. The higher the tier, the better the boost. And lastly, we leverage relevant national food holidays to deliver value. Case in point, our National Burrito Day activation at the beginning of April delivered our single highest loyalty sales day in our company's history. The results speak to both the strength of our menu and the growing engagement with our Loco Rewards program. We achieved a 30% increase in redemptions over last year and generated loyalty sales that significantly exceeded both our prior-year performance and our internal goals. Our participation rate reached 21%, up from 19% last year and we saw a healthy 7% increase in average check compared to last year. Again, these proof points demonstrate that our loyalty platform is not just driving transactions, but also creating meaningful engagement with our most valuable guests. During the quarter, we also implemented improved program segmentation, giving our members personalized messaging and offers based upon purchase history as well as launching our member exclusive experiences, which is a platform of exciting perks, including early access to new menu items and access to curated experiences, including tickets to concerts and sporting events. For example, in March, we launched the Coca-Cola x El Pollo Loco Soccer Challenge, a sweepstakes that exemplifies our evolved approach to loyalty. Through our partnership with Coca-Cola, an official partner of Major League Soccer, we gave Loco Rewards members the chance to win a VIP trip to the MLS All-Star Game in Charlotte this July, along with other offers from El Pollo Loco. In totality, our approach to loyalty has returned healthy increases in member frequency, up 13% for the trailing 12-period and member spend is up over 17% year-over-year. Turning to our Winning Unit Economics pillar. I'm pleased to report that we are now solidly within our 18% to 20% long-term restaurant-level margin target that we set out 2 years ago, including achieving a 19.2% restaurant-level margin in the first quarter. But more importantly, we've built a sustainable margin structure that improves both team member productivity and our guest experience through disciplined cost management, strategic menu pricing and investments in technology. As we look ahead, our focus starts to shift from driving significant year-over-year margin expansion to maintaining our healthy margin range while we invest strategically in other initiatives I've alluded to earlier. We expect restaurant-level margins to remain within the 18% to 20% range as we balance our commitment to operational excellence with continued investments in menu innovation, guest experience and unit expansion. This disciplined approach ensures we can deliver sustainable, profitable growth while maintaining the quality and value proposition that differentiates El Pollo Loco. For our last pillar, Driving Unit Growth, we remain on track to open 18 to 20 new restaurants this year system-wide. Our pipeline is building momentum with existing franchise partners and new partners while also leveraging our company capital. As a reminder, the vast majority of our openings this year are expected to be outside of California as we continue nationwide expansion. And roughly 75% will benefit from the lower cost of having been a second-generation site. On the restaurant refresh front, we continue to see strong returns from our remodel program. As we continue to focus on new unit development and ensure flawless execution across all growth initiatives, we will continue to balance our remodel pace in 2026 to ensure we do not disrupt our operations. In summary, our performance to date and the progress we've made across our strategic pillars gives us confidence that El Pollo Loco is on the right path. As we look ahead, we believe the investments we've made in innovation, operations and technology, coupled with the momentum in our development pipeline, have positioned us well to deliver on our commitments for 2026 and beyond. With that, let me turn the call over to Ira for a more detailed discussion of our first quarter financial results. Ira Fils: Thank you, Liz and good afternoon, everyone. For the first quarter ended April 1, 2026, total revenue was $126.2 million, compared to $119.2 million in the first quarter of 2025. Company-operated restaurant revenue increased 7.6% to $105.9 million from $98.4 million in the same period last year. The $7.5 million increase in company-operated restaurant sales was driven by 5.4% growth in company-operated comparable restaurant sales, as well as sales from 2 company restaurants opened since the first quarter of 2025. The growth in comparable restaurant sales included a 5.7% increase in average check size, partially offset by a 0.3% decrease in transactions. During the first quarter, our effective price increase versus 2025 was 4.6%. Franchise revenue decreased 8.8% to $12 million during the first quarter, driven by $1.9 million of franchise IT pass-through revenue in the prior year quarter related to the new point-of-sale franchise rollout completed in 2025. This decrease was partially offset by a 6.1% increase in comparable restaurant sales and revenue associated with 9 franchise-operated restaurant openings subsequent to the first quarter of 2025. The 6.1% increase in comparable franchise store sales consisted of a 4.9% increase in average check size and a 1.1% increase in transactions. For the first quarter, system-wide same-store sales were up 5.8% as system-wide traffic turned positive to up 0.6%. We are very pleased to report that the sales momentum we experienced in Q1 has continued into the second quarter. System-wide comparable store sales for the second quarter to date through April 29, 2026, increased 4.8%, consisting of a 3.9% increase in company-operated restaurants and a 5.3% increase in franchise restaurants. Looking ahead, we believe same-store sales for the second quarter will be in the 3% to 4% range. Turning to expenses. Food and paper costs as a percentage of company restaurant sales decreased 30 basis points year-over-year to 24.9% due to higher menu pricing and cost management initiatives, partially offset by approximately 70 basis points of commodity inflation and higher discounts. We expect commodity inflation to be in the 1.5% to 2.5% range for the full year 2026. Labor and related expenses as a percentage of company restaurant sales decreased about 260 basis points year-over-year to 30.1% as we continued to benefit from improvements in operating efficiencies, along with lower health insurance and workers' compensation costs. In addition, labor as a percentage of sales benefited from leverage on the 5.4% company-owned comparable store sales increase. Wage inflation during the first quarter was a manageable 0.4% for all our company-owned locations. For the full year 2026, we expect wage inflation of between 1.5% and 2.5%. Occupancy and other operating expenses as a percentage of company restaurant sales decreased 30 basis points year-over-year to 25.8%, primarily due to leverage on the same-store sales increase was able to offset increases from higher delivery fees, higher utilities, higher occupancy costs and higher liability insurance costs. Our restaurant contribution margin for the first quarter improved to 19.2% compared to 16% in the year-ago period. As we continue our path of margin improvement, we expect our restaurant level margin for the full year 2026 to be between 18.25% and 18.75%, an increase of 25 basis points from our prior guidance. In addition, we expect our margins in the second quarter of 2026 to be between 19% and 19.5%. General and administrative expenses increased to $12.8 million compared to $11.3 million in the prior year. The increase was primarily due to $0.6 million received from a legal settlement in the prior year, as well as increased legal fees, outside services, software maintenance and other general administrative expenses. These increases were partially offset by lower shareholder activism-related expenses. As a percentage of sales, G&A increased 10.1% or 60 basis points. To enable our continued growth in 2026 and beyond, we continue to strategically invest in resources to drive new store development, operations excellence and technology. During the first quarter, we recorded a provision for income taxes of $3.3 million for an effective tax rate of 29%. This compares to a provision for income taxes of $2.3 million and an effective tax rate of 29.7% in the prior year period. We reported GAAP net income of $8.2 million or $0.27 per diluted share in the first quarter, compared to GAAP net income of $5.5 million or $0.19 per diluted share in the prior year period. Adjusted EBITDA for the first quarter of 2026 was $18.2 million compared to $13.9 million in the first quarter of 2025. Adjusted net income for the first quarter was $8.3 million or $0.28 per diluted share compared to adjusted net income of $5.5 million or $0.19 per diluted share in the first quarter of last year. Please refer to our earnings release for a reconciliation of non-GAAP measures. In regard to our remodeling efforts, during the first quarter, we completed 6 franchised restaurant remodels and 7 company remodels. In terms of liquidity, as of April 1, 2026, we had $44 million of debt outstanding and $3.9 million in cash and cash equivalents. Subsequent to the end of the first quarter, we borrowed a net additional $2 million on our revolver, resulting in our debt outstanding of $46 million as of May 7, 2026. With that, we would like to provide you with the following updated guidance for 2026. We are increasing our system-wide comparable store growth guidance to now be between 2% and 4% for the full year. We are increasing our adjusted EBITDA guidance to be between $67.5 million to $69.5 million. We are maintaining the following guidance: the opening of at least 3 to 4 company-operated restaurants and 15 to 16 franchise-operated restaurants; capital spending between $37 million and $40 million; G&A expenses between $52 million to $54 million, excluding onetime charges and including approximately $6.5 million in stock compensation expense; and an estimated effective income tax rate of approximately 29% to 29.5% before discrete items. Finally, given our step-up in capital spending this year, we anticipate depreciation and amortization will also marginally step up to be between $18.5 million and $19 million for the full year. This concludes our prepared remarks. We'd like to thank you again for joining us on the call today and we are happy to answer any questions you may have. Operator, please open the line for questions. Operator: [Operator Instructions] We take the first question from the line of Jeremy Hamblin from Craig-Hallum. Jeremy Hamblin: Congratulations on the really strong results. So I wanted to dig in a little bit. Menu innovation clearly has been a key driver for you. You had the Loco Tenders launch just towards the end of April. And wanted to just get a sense for how customers were responding to that. And in terms of pricing, the price point is a little bit higher than some peers, like Raising Cane's, for example. But certainly, the reviews that we've seen have been very positive on product taste and the sauces in particular, the Baja Lime and the Loco Sauce. So just a little more color you might be able to share on that launch. Elizabeth Williams: Yes. Thanks for the question. Yes. So innovation, as you heard, really proud of everything we're doing with culinary innovation and the response we're getting from our consumers. In this environment, people want to try new things and there's so much love for our brand. So when we can do that, we're seeing a lot of success. As you mentioned, Loco Tenders launched in April. We put a lot of social and just traditional marketing, all kinds of marketing behind making it a really prominent and successful launch. And as a result, we're driving a nice amount of trial. And you're right, the sauces really are part of the story. There's 3 sauces. Personally, I love the Pollo Loco Sauce. But they're all really great. Also, our tenders have a unique spin on them in that they have kind of a kick, a little bit of a spice. You can get them as an original without that. But that really is what's differentiating us from -- there's such a big -- a large amount of tenders out there. So we feel like we're differentiated there. In terms of pricing, we did a lot of work to make sure we were competitively priced. So I'm curious which Raising Cane's you're going to. But in terms of just looking out across the competitive landscape, we are seeing that we're in the middle of the pack. And we're also seeing nice add-on. So sometimes you wonder if it's just going to be a meal onto itself or if you'll see consumers add them on to -- onto a bigger order and we're seeing that as well, which is exciting for us. So all in all, I'm proud of -- it's only a few weeks in there, but proud of what we've accomplished. Jeremy Hamblin: Fair enough. Fair enough. I'm in the East Coast market, as you know. So maybe a little bit -- usually not lower price, but maybe than Southern California market. So -- and then, Ira, I wanted to ask about menu pricing. So I think you said 4.6% in Q1. Can you give us a sense for how that might play out the remainder of the year? Ira Fils: Yes, sure. Thanks for the question, Jeremy. So we will see a step down in the pricing that we're carrying as we think about the balance of the year. It'll step down to about 3%, 3.5% in Q2 and then just a little above 3% as we go into Q3 and Q4. And implicit in that is we do have another menu -- a small menu price increase scheduled for midyear of about 1.5%. Jeremy Hamblin: Perfect. And then last one for me. So a big year with the acceleration here in unit growth. And in terms of a lot of those stores, as you said, the majority are going to be outside of some of your core markets and outside of California. But I wanted to get a sense for -- you already have some of those markets where you're building out great franchise partners. Can you give us a sense for the performance of those new stores versus kind of your new unit algo and what you might be expecting? Elizabeth Williams: Yes. So I'll start and then I can have Ira wrap it up there. Proud of what we're seeing with new restaurant development. Really a wide variety of all positive results, but some extreme high sales volumes, particularly when it's the first store in a state, a lot of pent-up demand. But then you're seeing many other openings that are opening at average, a few below our system average, but with the full confidence that over time, they will grow to system average. So seeing just across the board there. Ira Fils: Yes. I completely agree. We're excited about what we're seeing. We are seeing a range. But I think really in totality, what we are seeing are volumes that give us confidence that they make sense for us to continue to deploy capital. It makes sense for franchisees to deploy capital and we expect to continue to grow in these markets. Operator: We take the next question from the line of Todd Brooks from The Benchmark Company. Todd Brooks: Congrats on the eye-opener of a good quarter. So well done. A few quick questions here. One, you talked about tenders and you talked about it meeting expectations. But what I'd love to drill down in, what is the expectation at the launch? Was there a mix target you were hoping to hit? Or any color you could give us around the performance from a quantified standpoint? Elizabeth Williams: When we look at mix targets, we've got a range in terms of what we see when we devote a promo panel and we put a lot of marketing effort behind a new product. And we'd say that this product is right in line with what we traditionally see. Because we're just in the first couple of weeks, that's building. And so as an example, media just turned on in the last week. And so that we'll continue to see it build. So not really releasing exact numbers at this point, but proud of how they're doing. And a couple more weeks, we'll get a lot more information on the mix between how much is being eaten as an entree versus being added on to an existing meal. Todd Brooks: Okay. Great. I was wondering and -- I mean, it sounds like with the April commentary, the question may be redundant, but things obviously changed a bit for the consumer come March, April. And with your concentration in California, obviously, gas prices are even more of a headline issue there. If you look at progression across the quarter and into April, did you see a downshift at all from the consumer? Or did you guys power through it with the momentum you have in the business? Elizabeth Williams: No, the consumer has remained steady. We're pleased with that. And we think that's a function of we're continuing to perform. We're continuing to improve with the operations and the value. And our consumer is remaining steady. In terms of the progression as we went through the quarter and Ira, you might comment on this. Ira Fils: Yes. We -- as you can -- we announced our quarter-to-date -- quarter on the last call and we were in the low 2% range, 2.4% and obviously, putting up a 5.8% for the quarter. We had a big step-up in March, which was driven -- honestly, we had some weather benefits, which helped us. But we did feel the strength in the consumer as well and the business. And I think as you move into April and we see the 4.8% that we put up in April, speaks to how we feel a little -- a lot of momentum in the business and we really have not seen that impact from the consumer of what you're talking about in regards to the increased inflationary pressures as well as driven by gas prices. Todd Brooks: Okay. Perfect. And then one more from me. Liz, as you're thinking about franchising as a growth engine, I'm not going to ask the pipeline question. For once this quarter I'm going to ask a different question. How aggressive are you being as far as exploring territories that you're looking for partners? And what are you willing to do as far as proving out Loco East Coast or even working your way a little bit more aggressively towards the East Coast to start to put that patina of Loco truly being a national brand versus a super-regional brand? Elizabeth Williams: So simply put, very aggressive. And I just actually had the Board in this week and we had a robust conversation around what's the right combination of company and franchise development. Company will continue to develop. But the good news is there's a lot of franchise partners that also want to develop alongside us. Some are in our system today and then some are those that we're getting to know or we haven't met yet. So with the addition of a new recruiter on our franchise development side, she's having some great conversations with franchise partners in new markets, some very far away from California. And I think there's going to be good demand to be able to grow in those markets without even having to go deploy company capital in some of those further afield markets. But then there's plenty of places where company is operating. So take Dallas, for example, where we just opened our first company restaurant in Dallas at the beginning of the year. And we did that alongside -- we have a franchise partner in that market. So we're developing there. The franchise partner is developing in Texas. So that's an example of moving several states away and putting company capital to work in a way that we're all going to grow that Texas market. So long story short, it's a combination of both. And the magic will really be in unlocking even more franchise partners across the country. Operator: We take the next question from the line of Matthew Curtis from D.A. Davidson. Matthew Curtis: I got a question on throughput. It seems like you're driving improvement in speed of service, order accuracy. Liz, I heard your comments about part of this being reconfiguring display screens, et cetera, to help with that. But I'm just wondering what you have planned going forward to continue driving the improvement there. And how much actual improvement on speed of service have you seen so far, either in store or via the drive-thru? Elizabeth Williams: Thanks for the question. I'm very pleased with the improvements we're making operationally. Before we even got to speed, we all aligned that the first thing we needed to do was make sure we were improving our performance with things like accuracy and service and standards because I think we all can agree and we've seen a lot of data, if you're fast, but the order is wrong and you get home and you don't have what you want, that's a terrible experience and you would have preferred to have waited that extra -- make it up a couple of seconds for your order to be right. And so the primary focus the last couple of months has been on the standards, the service and really the accuracy. And so that's where we've made the most meaningful improvements when you look both at the SMG data, when you look at just more broadly talking to consumers. So that's where we're really proud. Speed, on the other hand, in different pockets of the organization, especially where we're testing different things, we're seeing some improvements in speed. I think that's still an area where we have opportunity. And over the next couple of months, all of those items I mentioned on the call, these operational enhancements are exactly what is going to underpin us improving speed. So the simple things like making it easier to make our food because the team member can read the description on the kitchen display system in just a faster format, that's going to help, as one example. So lots of progress we're proud of, but still, I think, a lot of upside as we continue to focus on it. Matthew Curtis: Okay. Great to hear. Then I guess another question, a different question on the traffic improvements you've seen relative to the fourth quarter. I was wondering if you could talk about how broad-based this improvement has been demographically and if any particular groups in terms of age, income, or other factors are really leading the improvement. And I ask because I think on the last call, you mentioned early data suggesting improved momentum with younger consumers in particular. Elizabeth Williams: Yes. So we're seeing the improvement broadly across all, which is nice to see. So whether it's incomes or ages, seeing improvements across the board. That younger set is a little bit higher in terms of the growth, which is a great indicator, we think and also just signals that the work we're doing on some of these new menu items that are just more relevant for that crowd, along with how we're communicating with our brand voice is resonating. So we're excited about that. It's also nice. I've seen data that shows we're seeing frequency increase with our existing consumers. So the consumers that are heavier users, they're coming more frequently, which is also great. And then also with new consumers, we see when we put new innovation out there, as you would expect, it brings in new consumers. So it's kind of -- it's across the board that we're seeing the improvements. Operator: Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn the call back over to Liz Williams for her closing comments. Elizabeth Williams: Thanks again, everyone, for your interest in El Pollo Loco today. We look forward to talking to you again next quarter. Have a wonderful evening. Operator: Thank you. Ladies and gentlemen, the conference of El Pollo Loco has now concluded. Thank you for your participation. You may now disconnect your line.
Operator: Good day, and welcome to the Nephros, Inc. First Quarter 2026 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Kirin Smith, Investor Relations. Please go ahead. Kirin Smith: Good afternoon, everyone. This is Kirin Smith with PCG Advisory. Thank you all for participating in Nephros' First Quarter 2026 Conference Call. Before we begin, I would like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of Nephros. I encourage you to review Nephros' filings with the Securities and Exchange Commission, including, without limitation, the company's Forms 10-K and 10-Q, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Factors that may affect the company's results include, but are not limited to, Nephros' ability to successfully, timely and cost effectively market and sell its products and service offerings; the rate of adoption of its products and services by hospitals and other healthcare providers; the success of its commercialization efforts; and the effect of existing and new regulatory requirements on Nephros' business and other economic and competitive factors. The content of this conference call contains time-sensitive information that is accurate only as of the date of the live call, today, May 7, 2026. The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call, except as required by law. I would now like to turn the call over to Nephros' President and Chief Executive Officer, Robert Banks. Robert, please go ahead. Robert Banks: Thank you, Kirin, and good afternoon, everyone. I'm very pleased to welcome you to the call. Q1 2026 was a milestone quarter for Nephros. We delivered $5.2 million in revenue, representing a new all-time high for the company and marking the first time we've crossed the $5 million threshold in a single quarter. This performance reflects continued execution across our core business, expanding adoption of our products in new applications and increasing contribution from our service and installation capabilities. Importantly, this growth was driven by strong programmatic performance, which increased approximately 23% year-over-year. That is the clearest signal that our model is working. Customers are installing, reordering and expanding usage over time. At the same time, we saw a decline in emergency response revenue compared to last year's first quarter, which included an unusually high exit opportunity that did not repeat. Despite the normal fluctuation, we still achieved record revenue, which speaks to the strength and durability of the underlying business. Now let me address margins directly. Gross margin for the first quarter came in at 57% compared to 65% in the prior year, and that decline was driven by 3 very clear factors. First, tariffs created a meaningful headwind, contributing over $200,000 in incremental costs during the quarter. Without the tariffs, our gross margins would have been in the low 60s. We are actively pursuing refund opportunities with respect to tariffs that we paid prior to February 2026 U.S. Supreme Court decision and implementing mitigation strategies to reduce exposure going forward. Just a reminder, our tariff rate declined from 15% to 10% as of the end of February. That improvement will start to help us later this year as our newer inventory gets sold. Second, currency pressure, specifically the strengthening euro increased our product costs year-over-year. And third, product mix. We are intentionally expanding into commercial applications, which carry lower margins than our core infection control business. Let me be very clear. None of these factors reflect deterioration in the business. They reflect external cost pressures and deliberate strategic expansion into larger markets. The shift towards commercial applications is intentional and important. We are expanding into areas such as ice machines, drinking fountains, bottle fillers and other high-use water applications. These represent a much larger addressable market than our traditional segments. While this impacts margin in the near term, it positions us for scale, diversification and long-term growth. Beyond products, we are seeing strong traction across our broader strategy. Number one, our installation and replacement programs are driving recurring revenue and strengthening customer relationships. Two, our service capabilities are expanding our role from product provider to full solution partner. Third, and our education initiatives, including the Nephros Water Institute, are positioning us earlier in the customers' decision cycle. These are not short-term drivers. They are structural advantages that will continue to build over time. Looking forward, we remain highly confident in the trajectory of the business. We expect continued growth driven by expansion in key markets such as New York and Puerto Rico, increasing contribution from programmatic installations and replacements and continued adoption of our broader products, services and education platform. We are building a larger, more durable and scalable business. Near-term margin variability driven by tariffs, currency, product mix does not change that trajectory. I want to thank our employees for their clear execution, our customers for their continued trust and our investors for their ongoing support. With that, I'll turn the call over to our CFO, Judy Krandel, for a closer look at the financials. Judy Krandel: Thank you, Robert. I will now provide a closer look at Nephros' financial performance in the first quarter of 2026. We reported first quarter net revenue of $5.2 million compared to $4.9 million in the first quarter of 2025, an increase of 7%. Product revenue related to our programmatic business grew strongly, while emergency response revenue declined compared to an elevated prior year quarter. Cost of goods sold increased to approximately $2.2 million, reflecting growth in sales as well as higher product costs driven by tariffs, currency impacts and product mix. Consequently, gross margin for the quarter was 57% compared to 65% in the prior year period. As Robert mentioned, we expect to see some improvement with our new tariff rate that started at the end of February. Research and development expenses increased to approximately $346,000 or 17%, primarily due to higher headcount. Selling, general and administrative expenses were approximately $2.5 million, an increase of 12%, reflecting increased headcount and professional fees. As a result of the above changes, net income declined 75% for the quarter to approximately $140,000 compared to $558,000 in the prior year period. And adjusted EBITDA declined 69% to approximately $206,000 compared to $667,000 in the prior year. As of March 31, 2026, we had approximately $4 million in cash and remained debt-free. Our cash balance has declined from December 31, 2025, due to the timing of receiving inventory as well as collections on accounts receivable. Since then, we have received customer payments, which translate right to cash. I will now turn the call back to Robert for closing remarks. Robert? Robert Banks: Thank you, Judy. This quarter demonstrates the strength of what we are building at Nephros. We are growing revenue, expanding into larger markets and strengthening our recurring revenue model, all while navigating external pressures that we believe are temporary and manageable. The fundamentals of the business remain strong, and our strategy is working. We are confident in our ability to continue driving both growth and long-term value. Thank you again for your time and support. Operator, please open the line for questions. Operator: [Operator Instructions] The first question comes from Nick Sherwood with Maxim Group. Nicholas Sherwood: My first question is about the certification for the water management program development as a service. Is that -- how are you charging, by the hour, by the person that holds the certification? Is it based on the whole team? And are you expecting more employees to receive that certification or to hire people that may already have that certification? Robert Banks: So the certification or -- falls under the Nephros Education arm of our pillar. We're not currently charging for services yet. It's something that we're training and getting our partners up to speed on, and we do have an employee or 2 that are capable of creating these water safety management plans. This is new service that we offer, but by and large, our partners offer this service as well. It's in instances where we don't have the coverage from our partner that we can come in and help create those plans. We do see this evolving as we move forward into a service that we're offering more to smaller entities or hospital groups, those who just don't understand the new regulations as they come out. And that's been an area for us to at least have that conversation where we can start the decision-making process and engaging those who are deciding to use Nephros earlier in that process. So the capability of the certifications is just getting started. We are still kind of rolling that out and getting -- formalizing the offering as a product that we offer going forward, and we're pretty excited about it and lots of interest and so far, so good. We hope to report more wins in the future as we get that further developed. Nicholas Sherwood: Understood. And then my next question is about hiring of the sales leader and focus in the New York market. Part of that increased focus was due to sort of increased regulatory focus from the New York itself. Can you kind of explain what that opportunity is in the New York City area or New York region? Robert Banks: Yes. Absolutely. Yes. If you look at New York City, the greater region, 5 boroughs there are a very high density of hospitals and others with infection control needs in that area. In the past, we've broken out our sales force into kind of these 4 or 5 large regions. And the person covering all of New York, [indiscernible], was not able to really focus on the New York City region when it's a completely different, I guess, sales cycle, sales process and value proposition. In addition, there's been a number of outbreaks from Legionella and other in that region that have kind of really got a lot of questions coming to us. So we took the step to look for someone who knows the 5 boroughs extremely well and has been doing business in the healthcare space for quite some time and decided to augment their capabilities by bringing that person on board to be able to focus on that unique and specific direct need in the area. And so far, we're quite pleased. It does take some time to seed and educate and build and sell. So we're still early in the game, early innings. And I look forward to showing that revenue growth. There's no reason that New York City, by itself, can't be as large as any of our other regions combined. So that's the reason we've decided to really put a focused effort in that area. Nicholas Sherwood: Understood. And my last question is, what was the number of active customer sites at the end of the quarter? Robert Banks: Active customer sites is 1,676. It's been growing very steadily, very healthy, not as fast as our revenue, which, in my mind, tells me that we're earning more per customer, which makes sense considering that we're offering services and even expanding commercial filter sales into some of those customers as well. So continued steady active customer site growth, and there's no reason that shouldn't continue past 1,700. So lots of adoption, and we're quite pleased with the results there. Operator: [Operator Instructions] The next question is from [ Ankur Sagar ], who's a private investor. Unknown Attendee: Congratulations to you on this milestone for the company achieving north of $5 million revenue in 1 quarter for the first time. Judy Krandel: Thank you. Robert Banks: That was -- we're quite proud of that. It's been very exciting for us. Unknown Attendee: Yes, it is indeed. Robert, 23% growth, programmatic growth, I mean, is great. I think it [ masculates ] the sort of like the overall growth. Could you -- I know you don't break it out, but could you provide some number on what portion of the revenue came from programmatic and what was emergency response? Because 23% is just really great on year-over-year from what the company did even in '25, in prior year. Robert Banks: Yes. And you're right, we don't typically break that out. In the past, we've been seeing emergency response can average anywhere between 10% and 15% of our sales. In Q1, it was significantly less than that. So it's really a good thing to see. The team really stepped up. But the big difference is, from prior year, emergency response was a big part of that. Now although we don't go out and create the emergency response, we don't create the outbreak, it does take a presence. You have to have your name known, that Nephros is someone that you can call in these situations. That comes from our presence in trade shows and networking and word of mouth, with many of our new customers coming from referrals and even our partners who run into problems, and they call Nephros, "They can solve this." So what we're seeing is that recognition bringing us these emergency response opportunities more and more frequently when it's a really tough situation. So although there's not as many of these opportunities, when they do come, they tend to be a bit larger. And that's -- this particular quarter, there was none of that happening. So it doesn't mean that it's something that we can count on and repeat. But really, if I'm trying to measure how healthy the business is, I really want to know what the core is doing, the things that we are actively going out and selling and closing, and that's when I -- while we turn to that programmatic number. So that's a long-winded answer, not exactly giving you the answer, but at least giving you a flavor that we were one of the few that are able to get that. Unknown Attendee: No, I appreciate that. And just to clarify, I mean, this is great. I mean like -- so normally, the emergency response is up to like 10% to 15%, but you're saying this, over $5 million quarterly number, is entirely or mostly programmatic revenue? Robert Banks: I can't characterize how much of it, just that it was significantly less than what we've been seeing in the past. Unknown Attendee: Okay. Okay. And one part of your strategy has been to really grow beyond the health care vertical over -- since you joined as CEO. Anything you could share in terms of -- I mean, what sort of like subverticals have you been able to penetrate, get some early success within that commercial segment? Robert Banks: Sure. I can characterize that a little bit. Nephros being originally in dialysis, we -- our healthcare is our sweet spot. That's really where we shine, mainly because that's a regulated environment. FDA regulated, in many cases, our medical devices, being Class II, give us an edge. When you've got the competitors who can come in and sell and make claims, they don't have the clearances and FDA certifications to back it up. When I go into other spaces, such as aviation or hospitality or government, municipal buildings, retail, real estate management, large properties, of that nature, schools, universities, they're not regulated in many cases by the FDA. So the competition is a lot more, and there's not any watchdog saying that they can or can't do what they say. So tend to also see a little lower margins in some of these other spaces as the competitive landscape is basically based on results, and people do give a shot before they fail, then they call us. So seeing traction in these other areas that I just mentioned is important and growing. And what we're finding and what we saw in healthcare is, most of our new sales come from referrals, meaning someone who used us somewhere, had great success and then told a friend, or they went and worked somewhere else. Similar occurrences are starting, not happened yet, but just starting to take place in some of the other commercial applications that I mentioned in locations. So one place might use us and then the management team leaves or go somewhere else, but at the same time, some management team comes in, and they're used to using somebody else, so it becomes a bit stiffer competition for holding on to some of those spaces. So some of it, the business is a little less sticky. Much, much larger TAM if we're looking at TAMs and SAMs. But it is more competitive and a lot more churn. So we have to balance what our core sweet spot is, and that still remains where the lion's share of our margins are coming from, the healthcare space, and we'll always probably be that as well. But I do like the large scale, because a margin dollar versus a percent is also very important, especially as we scale to some of these larger numbers. So when we figure out how to conquer those spaces and get the same, similar types of competitive advantage and our name out there, you'll start to see those grow at some of the same paces that we do grow in the healthcare space. So it's exciting. I wouldn't look for quarter 2, quarter 3 for it to be something significantly moving the needle, but it is part of the long-term strategy, especially if there's any ups or downs in the healthcare space that we want to kind of make us a bit immune to. We want other ways to make money and grow, not just the place we're the best at. Unknown Attendee: And a couple of examples that you mentioned like large buildings or airports or airlines. I mean, just -- I assume these would be larger in size compared to what the company has done typically in healthcare? Robert Banks: I would say larger in points of application, but not necessarily large flow rates at one time. I mean we're not doing the entire building. It would be fixture by fixture. And they do seem attractive. But some of those -- they're just -- even though it makes sense, they're not always making a decision that would make sense to us. Say like, cruise ships, for example, when we reach out to them and try to get them to adopt some of the filters, it still comes down to price. And more often than not, our competition is against doing nothing, not a competitor. So it still takes a lot of education, and that's why the education arm of pillar that we're really focusing on now is going to be so important, because it's really going to be kind of creating the market as we're building and growing it. And that's what that blank space, that white space of sales is super exciting. It does take some time, effort in development, but that's -- I see it as another frontier that we can start to open up. Unknown Attendee: Okay. One last one. I'll make it a 2 part. EPA has -- there is a new push on from the EPA with new regulations for PFAS and microplastics. I think you have talked about those 2 in the past where you have some products in the area. Do you expect those regulations, when they come into play, to help? Are you already hearing from customers or new customers about that? And the second part for Judy is, I mean, the gross margin was light due to the external factors, but how do you expect that to trend further out in the year in Q2, Q3, Q4? Robert Banks: I'll answer the first part, and then turn it over to Judy after that. Short answer, yes. As there are drivers such as regulations, guidelines, even if it's not a rule, but it's a suggestion, we do see the activity and the churn. The issue we have now is that there is not enough of a driver to overcome the cost. Adding a filter of any kind is a cost. And when we're talking to the average homeowner, when they're trying to decide between the price of gas or a filter, they start to make certain choices that are pretty clear. But we do get a ton of questions about nanoplastics, microplastics. Every time an article comes out in a different periodic publication, we see that as an opportunity for us to market our product as a solution for that. Right now, it tends to be limited to bigger spenders or people with some other need because the plastics and forever chemicals problem is not such an acute right now problem. It's something that you're preventing injury longer term. So it has to be an education so that people do see the long-term benefit of spending the extra money to have safer water. So I really am excited and looking forward to kind of the discussions that we continue to have. We've got some excellent people in our team who are sharing that message and how to make things change. Brianne McGuire's work with the Water Institute, and all of our sales team, Shane Sullivan and the guys and gals are really good at going in and solving some of these problems for our customers. And a lot of times it's just curiosity plants the seed. And when they decide to make a move, they come to us. So that's a really fun part of our job, and I'm fortunate enough to be able to participate in many of those conversations as well. So for the second part, I'll turn it over to Judy. Judy Krandel: Great. Thank you for the question. First, we do want to point out that last year's first quarter had an unusually high gross margin. The euro was weaker against the dollar, tariffs weren't there. If you look at sort of the gross margin from Q4 of last year to Q1, it was only slightly lower. And so if you think about it, we did mention our tariff cost is over $200,000 this quarter. When tariffs moved from 15% to 10%, 1/3 of that, we would not have experienced. So you can sort of do the math, 1/3 of that tariff would not have been there, which really will improve our margins. I think as most of you know who are familiar with the business, we buy inventory ahead of time to be prepared, and we have been growing inventory to support higher sales. So as the inventory with the 15% tariff flows through and we start seeing the new inventory come through, we will see an improvement in margins, with all other things being equal. As Robert mentioned, we're considering other mitigation factors. Are there -- can we pass on some of this tariff to our customers as we watch what customers or our other competitors are doing. So we're looking for ways to mitigate this as well. And of course, we'll see how successful commercial is as a percent of business, but don't forget every incremental dollar of commercial business drives incremental gross profit dollars. So we are hopeful that we'll see some improvement in margins as we go through the year and these things take effect, but we feel very good about the health of our core product margins. These are just some external factors. Unknown Attendee: Got it. Got it. I know it takes a lot to produce this number. So a great job on this programmatic revenue numbers and turnaround. Operator: At this time, there are no further questions. So this concludes our -- we have a question from Ralph Weil with R. Weil Investment Management. Ralph Weil: Nice quarter in the programmatic business. Have there been any pricing pressures from your competitors in the business that may have been more so than normal? And maybe I missed it, but I heard about the nano, microplastic comments. But what about the PFAS area? Are we able to make any headways in that area? Or is that something that's become too difficult? And can you comment about the potential in the home market. I see a lot of ads about filters for the homes, et cetera. Is that something that we might be looking at? And I'm sure that if we would be doing that, it wouldn't be on our own, maybe with a partner, for all I know. Can you just comment on any of that at this point in time? Robert Banks: I can talk to all 3 of those points. And at the end of this, if I missed any of the point, please just reask. First thing you asked about was price pressures. At Nephros, we've never been seeking the lowest cost per filter. And the price pressures we've always faced has been a purchasing agent that looks at a SKU and compares our filter to the next. Well, that's fine and dandy, but if our filter costs 20% more, but it lasts 100% longer, 60 days instead of 30 or 6 months instead of 3 months, then that price per SKU goes out the window. What we have been seeing is that the low end is getting more competition where we see some entrants come in. But what I've noticed in the field, and I've been getting reports from our friends out in the West Coast and Kelly down in the South, is that the filters start to crack and leak and cause problems, and it's a great opportunity for us to step in with our products. So price pressures, yes. We've been able to incrementally raise prices year-over-year, and we do that each year. It does not keep up with inflation necessarily, but it is something that we try to make sure we try to stay on top of. We really want to talk about value and what we provide with our filters, how much water we filter, the contaminants that we're removing, because there isn't really a filter doing the same thing. So the price comparison becomes inadequate comparison when the 2 filters do and can accomplish different tasks. We're always looking at that market situation and trying to capture price where necessary. We're making sure that we create customers that stay with us for a long time. We have a very high retention rate. And we look -- we're in it for solving their problems and providing them more value than what they pay us in price. So we're always happy to have that discussion when it comes up, and it's easy when you have kind of a product like Nephros to be able to get past that and win the opportunity. As far as PFAS. PFAS, forever chemicals, we do hear a lot about that. We see a lot about that. But it's not too difficult, quite the opposite. PFAS is actually fairly easy. There's quite a few species and more specific types that we're trying to remove. You have to take a look at what we're trying to address at any particular application. Our filters, our solutions for PFAS are slightly different. They also remove other contaminants, iron and some other things as well. So we try to provide some differentiation. But because there are a number of solutions out there, and it just becomes a little bit harder to command the price that we want or to prove it when there's other people making claims as well that maybe don't have as much rigor as we do. So we continue to see PFAS as something where we're opportunistic about. I don't know that it's going to eclipse sales in our infection control product line to that extent. So it's more of a commercial product line. But always happy to address and look at any of the opportunities because at a minimum, it starts the dialogue where I can go and talk to them about infection control and other filters that they have needs for. Now speaking about the home market and the potential there. The home space is huge. There are millions -- tens of millions of people filtering water in their homes, whether they're on well water, city water, whether they're concerned about contaminants coming from surface, lots of different needs and questions. And there's a lot of commodity filters providers out there, anything from the pictures of water filters or the ones that go in your tap. What I started to see more and more today that I have not seen in the past is people concerned about what's coming in their water from a biological perspective. So once the conversation starts turning towards infection control, that's where we shine, and we have great solutions for either point of use -- fixture points, and not yet for the whole home, but that's something that we're exploring. But to your point, when we start dealing with the average homeowner, there's a lot of regulation out there saying that you've got to remove a certain amount of viruses or bacteria or endotoxins from your water. So we rely on an educated customer who can come in and request it. We have partners that do very well and service those homeowners in different markets, typically high-end homes or maybe homebuilders. And we're starting to form more and more arrangements with those partners. And that's how I tend to address the home market. And I hope that, in the quarters to come, maybe a couple, 4, 6 quarters out that we have some meaningful movement in those areas to report and share with you. But that is an exciting market that I hope to figure out how to penetrate without sacrificing our infection control product lines in the healthcare space. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Robert Banks for any closing remarks. Robert Banks: Thanks, Debbie. And guys, it's been a really great quarter, and the team is working really hard. We've got our rockstars across the board. Stacy with dialysis is just phenomenal. Kelly, Nick, shout out to those guys who are just rock solid. I mentioned the Shane in the West. And with Dana's expertise in New York City and Jim with his years and years and years of sales experience, I just feel really comfortable with this team. By adding our service pillar and what Alfred is doing to really help the team install and get safety, it's been a big boost. And now augmenting it with education to kind of grow it and see that market upstream, I have full confidence that Brianne and other webinars and the full team support behind, we'll just do phenomenal things going forward. So look forward to the future growth and more great stuff. So thanks for joining and all the continued support. Bye, everybody. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to Hawaiian Electric Industries, Inc. 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 at that time, please press star, then the number 1 on your telephone keypad. To withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Mateo Garcia, Director of Investor Relations. Please go ahead. Mateo Garcia: Thank you. Welcome everyone to Hawaiian Electric Industries, Inc.'s first quarter 2026 earnings call. Joining me today are Scott W. Seu, Hawaiian Electric Industries, Inc. President and CEO; Paul Ito, Hawaiian Electric Industries, Inc. and Hawaiian Electric Senior Vice President and CFO; Shelee Kimura, Hawaiian Electric President and CEO; and other members of senior management. Our earnings release and our presentation for this call are available in the Investor Relations section of our website. As a reminder, forward-looking statements will be made on today's call. Factors that could cause actual results to differ materially from expectations can be found in our presentation and our SEC filings in the Investor Relations section of our website. Today's presentation also includes references to non-GAAP financial measures, including those referred to as core items. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. We will take questions from institutional investors at the end of this call. Individual investors and others can reach out to Investor Relations. Now, Scott W. Seu will begin with his remarks. Scott W. Seu: Aloha kākou. Welcome, everyone. For today's call, I will start with an update on the Maui wildfire tort settlement, and discuss our progress on other key priorities. Paul Ito will walk through our financial results, and then we will open it up for questions. Since the Maui wildfires in 2023, we have told you we would take the actions necessary to offer those who suffered loss an accelerated path to recovery and to regain the financial strength and stability of our enterprise. Resolving the Maui wildfire tort litigation was a fundamental step in this process. We came to key terms of a comprehensive settlement agreement in August 2024, and signed a definitive settlement agreement shortly thereafter. Last month, on April 10, the final conditions of the settlement were satisfied when the last subrogation insurers withdrew their appeals. We then immediately made the first of our four annual $479 million payments as stipulated under the agreement. I am grateful to all parties involved that we were able to work through an extremely complex and challenging process and begin compensating those who suffered loss. This marks a pivotal milestone for those affected by the Maui wildfires, and our hearts are with them as they continue on their journey of healing and recovery. While we have advanced the wildfire settlement agreement, we have worked in parallel to reduce wildfire risk across our communities as quickly as possible. Our utility teams continue to work with urgency toward reducing wildfire risk and strengthening the resilience of our grid. On April 13, we submitted our first update to our wildfire mitigation plan, or WMP, to the Public Utilities Commission, which covers 2026 and 2027. In accordance with the PUC's approval of our WMP in 2025, we will continue to submit updated WMPs every other year starting in 2027, with each update covering a two-year period. This schedule will foster a predictable, deliberate approach toward planning and implementing our wildfire risk reduction measures. Proactive risk management and continuous improvement will continue to define our approach as we move forward. Turning to the next slide. Affordability is a core focus of ours, and affordability pressures have intensified given the recent increase in fuel prices across the globe. We have always been committed to supporting our communities during times of uncertainty, and we have displayed this commitment during the pandemic, the Maui wildfires, and in the current period of high oil prices. In early April, we told our customers to prepare for potential increases in energy costs in the coming months, driven by rising global oil prices linked to escalating geopolitical tension. We also rolled out new options to support our customers through this challenging time. Starting April 6, we began offering customers options that can smooth short-term billing spikes and provide additional financial flexibility. These include interest-free payment plans for up to six months and $50 bill credits to customers in areas that rely more heavily on diesel fuel generation, which has seen the largest increase in fuel costs. As we work to help customers through this higher-cost period, we continue to advance strategies that systemically address household energy burden. This includes supporting electrification, rooftop solar, and EV adoption, all of which have contributed to an average household energy burden in Hawaii that is below the national average. We also believe we are well positioned as a company to navigate the impacts from the sharp rise in fuel costs. Paul will talk more about our strong liquidity position, but I will note that our prudent balance sheet management ensures we are well prepared for the unexpected. Current global events highlight the importance of a diversified mix to limit the impact of geopolitical instability and price volatility. Reducing customer bill volatility is one of the many reasons we supported adding renewable energy, such as solar plus storage, to our grids. Renewables not only contribute to our state's renewable energy and decarbonization goals, they also increase bill stability. Turning to the next slide. We are in a transitional year as we prepare for our expected reset of rates in 2027. On March 6, we submitted our rate rebasing request jointly with Ulupono Initiative, an intervenor in many of our PUC proceedings and a working group party in performance-based regulation. This joint proposal advances an unprecedented stakeholder-driven, nontraditional approach to utility rate adjustment. The approach is consistent with the fundamental principles of PBR, which encourages innovation and the evolution of utility regulation. Our request prioritizes customer affordability while allowing the utility to undertake the investments and expenses that are critical to safety, reliability, and resilience. Our proposed rebasing would increase consolidated base rates by approximately 5.3%, phased in over two years to moderate customer impacts. This equates to an increase in the average customer bill of $8 to $12 in 2027, and an additional $2 to $3 in 2028, varying slightly by island. The requested increase could also help improve our return on equity, which we expect will continue to be impacted in this year of transition as we prepare to enter our second multiyear rate period. Paul will discuss our expectations for 2026 in more detail. Performance incentive mechanisms, or PIMs, are also an essential element of PBR. Although development of PIMs for the second multiyear rate period has not yet been completed, our joint proposal recommends that a total of 200 basis points of PIMs be available, composed of 150 basis points of award potential and 50 basis points of penalty potential. Affordability is fundamental to our regulatory framework, and by the end of our current multiyear rate period, we will have provided more than $100 million in revenue requirement reductions to customers. As we implement any approved rate rebasing in our second multiyear rate period, we will continue working with our customers to provide options to address affordability pressures. Turning to an update on Waial. In late March, the PUC issued a decision and order approving our proposed Waial Generating Station repowering project, which had been selected in December 2023 after a competitive bidding process. This is a milestone approval, allowing us to move ahead with a critically important firm generation project that will enhance energy reliability and resilience for our customers. The commission approved cost recovery through our exceptional project recovery mechanism, or EPRM, totaling $908 million. This amount includes the original estimated project cost of $847 million plus an adjustment for inflation. We do foresee project costs will exceed this amount since, as many of you know, there have been significant and unforeseeable cost increases that have impacted power generation projects worldwide over the two years since our original cost estimate. However, the commission has confirmed that we may seek recovery above the currently approved amount in a future rate case or rate rebasing proceeding, which may be in 2031. Including the inflationary adjustment that we will recover through the EPRM, the projected incremental amount we will seek recovery for after the project is in service totals $247 million. In April, following the PUC's approval, we executed contracts for the purchase of six gas turbines for the Waial project to secure production slots and remove exposure to non-tariff price increases. In summary, we expect 2026 to be a year of transition now that we have reached the pivotal milestones of finalizing the tort litigation settlement and launching our alternative rate rebasing process. We are no longer navigating a crisis. We are strengthening our foundation while working to build a safer, more resilient future for the communities we serve. Our focus going forward will continue to be on the critical processes underway with key stakeholders, including the liability cap rulemaking and rate rebasing processes underway with the commission, and executing well on our Waial repowering project. We will continue to be laser focused on affordability and supporting our customers and communities, especially given fuel price impacts from the Iran conflict. I will now turn the call over to Paul Ito to discuss our financial results. Paul Ito: Thank you, Scott. I will start with our financial results on Slide seven. For the first quarter of 2026, we generated net income of $30.5 million, or $0.18 per share, compared to $26.7 million, or $0.15 per share, in the same quarter of 2025. The results include less than $1 million of pretax Maui wildfire-related expenses, net of insurance recoveries and deferrals. This is down considerably from roughly $4.5 million in the same quarter of last year. Excluding the Maui wildfire-related expenses, and excluding last year's losses from our strategic review of Pacific Current, which we refer to as noncore, consolidated core net income and EPS were $31 million and $0.18, down from $39.8 million and $0.23 in 2025. Utility core net income for the quarter was $35.7 million compared to $49.7 million in 2025. There were unprecedented heavy rains and damaging wind events from February through March, requiring 35 days of emergency response by the utility. Kona low storms in March caused massive flooding across multiple islands, with an estimated $2 billion in damages, resulting in President Trump issuing a federal disaster declaration in early April. The decrease in utility net income primarily reflects higher O&M expenses from the quarter's severe weather. We also saw higher O&M expenses due to higher insurance costs, primarily related to the deferral of wildfire liability premiums in 2025. Interest expense was also higher compared to last year due to the $500 million high-yield debt issuance last September. Holding company core net loss for the quarter was $4.8 million compared to $9.9 million in 2025. The lower core net loss was driven by lower interest expense due to the lower debt balance following the retirement of holding company debt in April. Turning to the next slide. As of the end of the first quarter, the holding company and the utility had approximately [inaudible] and [inaudible] of unrestricted cash on hand, respectively. In addition, the holding company has approximately $535 million in combined liquidity available under its ATM program and credit facility capacity. The utility also has approximately $518 million of liquidity available under its accounts receivable facility and credit facility capacity. Scott discussed rising fuel costs, and while we have a fuel cost pass-through mechanism, the higher costs started to impact our working capital following quarter end since we pay for fuel when delivered based on the daily average prices of the previous month. For example, prices for fuel delivered and paid for in April are based on daily average prices in March. Those higher fuel costs are reflected in rates with a lag of approximately one to two months. With our strong liquidity, we believe we are well positioned to handle the increase in working capital requirements due to the sharp rise in fuel prices. As mentioned, we made our first $479 million settlement payment on April 10. This payment was made using the funds previously set aside in a special purpose vehicle. We expect to make future payments in April 2028 and 2029. Our financing plans for these payments are unchanged from what we communicated last quarter. We still expect to fund the second settlement payment with debt and/or convertible debt and expect that payments thereafter will be funded with a mix of debt and equity depending on market conditions. We intend to manage our settlement financing consistent with targeting investment-grade credit metrics. We continue to see positive momentum from the rating agencies. Following the finalization of the global settlement and our first settlement payment, Moody's upgraded the utility to Ba1 from Ba2, one notch below investment grade, and the holding company to Ba2 from Ba3. Turning to the next slide, we have updated our CapEx forecast to reflect the Waial approval and we are now expecting approximately $157 million of Waial CapEx in 2026 versus previous expectations of approximately $90 million. As mentioned, we will request that about $247 million of Waial CapEx that is not being recovered separately through EPRM be recovered in the next rate case or rate rebasing proceeding. Lastly, as Scott W. Seu mentioned, we do expect higher O&M in 2026 as we progress through a year of transition ahead of our rate rebasing. This is due to the following factors: higher insurance premiums, primarily reflecting our deferral treatment of wildfire insurance premiums prior to 2026; storm response expenses related to severe weather in February and March; higher vegetation management expenses as we prioritize safety following record rainfall in the first quarter; higher overhauls and station maintenance expenses as we prioritize reliability; higher IT-related costs as we improve our cyber defenses; and higher labor and benefit costs. We expect these expenses to drive an O&M increase that significantly outpaces inflation this year. In addition, we also expect to realize the maximum penalty under our fuel cost risk sharing mechanism, or FCRS. This mechanism provides for earnings upside and downside based on procured fuel costs compared to benchmarks. You can see exactly what those benchmarks are in the appendix of this presentation, but as you might expect, due to the global energy situation that has unfolded since late February, actual costs are now considerably above those levels. As a reminder, the FCRS runs through our revenues, so penalties are recorded as a revenue reduction. Our rate rebasing request is intended to address many of these higher costs, such as the increased insurance premiums we experienced over the last few years. Additionally, we are in the process of reprioritizing work to mitigate the expected impact of the increases. With that, let us open up the call to questions. Operator: Thank you. If you would like to ask a question, please press star then 1. Your first question comes from Jamieson Ward with Jefferies. Please go ahead. Jamieson Ward: Hi, guys. Thanks for taking the questions. So first one, the rebasing proposal you showed today shows $145 million in 2027 and then an incremental $25 million in 2028, or $170 million. Our understanding from the March 6 filing is still $170 million, but it was $125 million and then $45 million. Can you clarify whether the phasing has been revised and, separately, is there any update on when the PUC might provide a procedural schedule? Scott W. Seu: Yeah. Thanks, Jamieson. Let me ask Joe Viola—he is our senior vice president who oversees our regulatory process area—to respond to your question. Joe Viola: Hi, Jamieson. To your first question, no, there has not been any change to the way we are going to phase in the proposed revenue increase. And second, we are waiting for further guidance from the commission. When we filed the proposal, since this was a novel process, we suggested a procedural process to review this that would allow for public input. And also, we would expect that we need to get a certification from the commission that we complied with the order that allowed this proposal. We are confident we did, but we are just waiting on that order and further guidance on what the process will be to review. Jamieson Ward: Got it. Appreciate that. So on the repowering and the $247 million gap that Paul spoke to and that is in the slides there, that you are going to seek in the next rate proceeding, which you estimated is around 2031. How should we think about the carrying cost of that—call it $250 million—between in-service and rate recovery and, I guess more importantly and pertinent to that current proceeding, how does the existence of the gap have or not have any impact on the current rebasing? Paul Ito: Let me answer the first question. The question was how are carrying costs accounted for associated with the project. We would accrue AFUDC at our current approved weighted average cost of capital, which on Oahu, I believe, is about 7.37% on a combined basis. So we would accrue AFUDC at that rate. Jamieson Ward: Perfect. Okay. Got it. And so is there any interaction with the current rebasing proposal, or is this something that would be allocated towards 2031? Joe Viola: Hi, Jamieson. This is Joe Viola again. No. There is no interaction. That project was not part of our rebasing proposal because it is not in service yet. We got approval to recover about 80% of that through a special recovery mechanism, and then in the next rebasing process around—we would expect around 2031—we would seek the final cost there. Jamieson Ward: Got it. Has the PUC opened or indicated any kind of timeline for opening a formal rulemaking docket on the wildfire liability cap under Act 258? I am not talking about new legislation; I guess that legislative session will work through that. The one that was already addressed in Act 258—the cap that was in until— Scott W. Seu: Jamieson, this is Scott W. Seu again. The PUC has not issued anything formal. We understand, as they alluded to in the report that they filed at the end of last year, that they would be initiating their work on the rulemaking process and, other than throwing out an 18- to 24-month expected time frame to complete that rulemaking process, they have not said anything further publicly. Jamieson Ward: Okay. Fair enough. We had not seen anything either, but just wanted to check. Last one I will ask was just S&P and Fitch, as you guys mentioned, now have positive outlooks on both Hawaiian Electric Industries, Inc. and Hawaiian Electric. So with the settlement now resolving—congrats again on that—what are the rating agencies communicating as the remaining gating items for an upgrade, and is the liability cap explicitly part of that conversation? Paul Ito: In our discussions with the rating agencies—and, of course, what they tell us is not “here is exactly what you need to do to get upgraded”—but our discussions have included, and their reports show, that what they are focused on is the outcome of the rate rebasing, progress on reducing wildfire risk across our system, the liability cap, and the wildfire recovery fund. All of those are taken as inputs into their rating methodology. They are focused on it; we just do not know, and they do not disclose, exactly which elements have to be present for an upgrade. But as you mentioned, we were very pleased to see that Moody’s upgraded us—both the holding company and the utility—one notch based on the settlement being final. And now they are turning their attention to the other things that I mentioned: the rate rebasing and the liability cap. Jamieson Ward: Got it. Thank you for that. I will hop back in the queue and give anyone else an opportunity to ask. Scott W. Seu: Alright. Thanks, Jamieson. Operator: Your next question comes from the line of Michael Logan with Barclays. Please go ahead. Michael Logan: Thanks for taking my question. I was just wondering if you could talk more about the drivers of the increase to your capital program. The separate recovery bucket was increased in your slide. I know some of that is associated with the repowering. I am just wondering if you could talk about other drivers and how much of it is EPRM recovery and therefore likely to earn higher ROE? Paul Ito: Hey, thanks for the question. In our CapEx forecast, we are forecasting generally what we describe as our baseline CapEx—our more business-as-usual type of projects—roughly $350 million to $400 million a year. The increase in CapEx is, as you mentioned, largely due to separately recovered projects like Waial, and there are two examples. Those are the bigger drivers. We have two buckets in that category: approved and applications waiting to be approved. In the approved bucket, the change for this quarter was that Waial is now approved. As an example, for 2027 there is about $250 million of capital in that particular approved bucket. But we still have capital that is not approved and pending approval, and that totals about $135 million in 2027. You can find the details in the appendix in our earnings deck. Hopefully, that gives you the color of the baseline CapEx and then the capital that we are putting to work where we get separate recovery or special recovery in between rate cases. Michael Logan: Thank you. And then, now that the settlement has been approved and you made your first payment, what are your current thoughts on the timing of raising the funds for the second payment? I know as of the last earnings call, you said you were leaning towards a convertible bond, but probably would not issue it very far in advance of the second payment date. Paul Ito: We have basically about a year to determine when and how to raise the next settlement payment. That gives us a lot of flexibility on timing. Our decision will really be based on market conditions, and we are going to be opportunistic in raising the second payment. As mentioned, convertible debt is an option; it does appear to be one of the cheaper sources of capital, at least at the moment, but that could change. So we are going to monitor conditions and, when we feel like it is a good time to access the market, we will do so. Michael Logan: Thank you. And then, also wondering if you could talk more about how you are feeling with the higher oil prices, fuel costs, and your liquidity position. It sounds like you feel like you are in a good spot. Do you expect to be there with just the cash on your balance sheet and existing credit facilities, or do you think you will rely heavily on commercial paper as well? Just wondering how you expect to bridge the timing mismatch between fuel payments and customer recovery. Paul Ito: At the end of the quarter, we had almost $1 billion of liquidity split between cash on our balance sheet, our senior credit facility of $300 million, and our AR ABL facility that is about $250 million—based on AR at the time, about $218 million. So we have significant liquidity available. We do, as mentioned, have a full fuel cost pass-through, but there is a lag, and so it could affect our working capital. Typically, the lag is a few months. We have a little bit over a month of fuel inventory. And then, of course, we bill customers, and the days sales outstanding is roughly 20 to 25 days. So it is, again, a couple of months. The question of how much of an impact to liquidity we will see really depends on how long this elevated fuel price situation stays in place. But, again, regardless of whether it is short term or long term, we feel very confident that we have sufficient liquidity to weather it. Michael Logan: Thank you. And then, given the high oil prices, do you have an expectation for what you think bad debt expense could be if they remain elevated for the rest of the year? Or maybe an amount per month? Paul Ito: Maybe the way I will describe the potential impact—and this goes to the view of whether it is a long-term or short-term period of elevated fuel prices—I will use what we saw back when COVID occurred and then shortly thereafter the Ukraine–Russia war. In that situation, our bad debt write-off percentage peaked at about 51 basis points. Typically, we are in the 10 to 20 basis point range. So, obviously, a significant increase off our baseline, but generally speaking, a limited impact compared to what we have seen in other places. Part of that is, of course, we are not connected to other areas and, if you are living in Hawaii, you have to connect to the utility. So, again, we are ready for that, but it comes down to whether it is a near- or long-term impact in terms of how much that write-off percentage would increase. Michael Logan: Thank you. And then just wondering if you could share, amid these elevated oil prices, your thoughts on your confidence around the rebasing proposal and high customer bills. I know it is somewhat of a modest rebasing request, but just share your confidence about it getting approved right now and also what your expectations are for when you will get a decision on it. Scott W. Seu: Yeah, thanks. I think it is fair to say that our Public Utilities Commission is very focused on impacts to customers of the high oil prices. And as they look at our rate rebasing request, we understand that context—it puts pressure on them, it puts pressure on us. At the same time, as you mentioned, we worked hard, including with Ulupono Initiative, to come up with a rate rebasing proposal that is pretty solid and really tries to moderate the impacts on our customers and spread out some of those impacts. We cannot predict exactly what the PUC will decide here, but hopefully they understand that we are also putting customer affordability at the forefront. Michael Logan: Thank you. And then lastly for me, I was just wondering if you could talk about, in the rebasing proposal, the achievability of the PIMs. I know the prior framework seemed less conducive to achievement—the reward. Joe Viola: Hi, this is Joe Viola again. That is actually an ongoing discussion with the stakeholders in that process and with the commission. We have all lived and learned, so I think we are in a good position to identify, design-wise, what works and what does not work. That is actually the section of the process we are in right now. We are proposing, or are going to be proposing, changes to the PIMs to make sure that they are reasonably within our control to achieve and the targets are clear and based on good baselines—things like that. So, again, really just the lessons learned from the first time around: take those into consideration and propose PIMs that we think will be meaningful. Operator: We will now open the call for questions. Operator: Your next question comes from the line of Jamieson Ward with Jefferies. Please go ahead. Jamieson Ward: Hi, guys. Thanks. So just a quick follow-up on the Waial repowering. The AFUDC would only be through COD in, I believe, it is late 2029. Is that right? And then after that, you would have depreciation drag and so on. So, in summary, should we think about the incremental lag towards the end here, or just the incremental lag until it is factored in in that 2031 filing? Thanks. Paul Ito: You should think of Waial as essentially three projects in a larger project. There are six turbines—two turbines to be put into service in different years. The first pair is in 2029, the second pair is in 2031, and the third pair is in 2033. It is important to remember that we are approved for a baseline of recovery of $908 million across those six turbines. What remains to be determined is, when that first pair goes into service, we would have to file for recovery at that point in time, and that is what we will be asking for at that point in time. To be clear, because turbines are going into service in different years, we would start getting recovery in those separate years once those turbines are put into service. Jamieson Ward: Okay. Got it. Thank you. Thank you very much. Operator: And that concludes our question and answer session. I would now like to turn the conference back over to Scott W. Seu, CEO, for closing comments. Scott W. Seu: Thank you all for calling in today. In closing, we have reached a pivotal milestone now that we have resolved the Maui wildfire tort litigation. 2026 will continue to be a year of transition for us, but with our streamlined business model solely focused on our regulated utility operations, we believe we have a strong foundation to continue providing our communities with safe, reliable, and resilient service for the long term. Again, thanks everybody for joining us, and thank you for your support as we go forward. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
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