加载中...
共找到 15,428 条相关资讯
Operator: Welcome to Southwest Gas Holdings Third Quarter 2025 Earnings Conference Call. Today's call is being recorded, and our webcast is live. A replay will be available later today and for the next 12 months on the Southwest Gas Holdings website. [Operator Instructions] I will now turn the call over to Justin Forsberg, Vice President of Investor Relations and Treasurer of Southwest Gas Holdings. Please go ahead. Justin Forsberg: Thank you, Joanna, and hello, everyone. We appreciate you joining the call today. This morning, we issued and posted the Southwest Gas Holdings website our third quarter 2022 (sic) [ 2025 ] earnings release and filed the associated Form 10-Q. The slides accompanying today's call are also available on Southwest Gas Holdings website. We'll refer to those slides by number throughout the call today. Please note that on today's call, we will address certain factors that may impact 2025 earnings and discuss longer-term guidance. Information that will be discussed today contains forward-looking statements. These statements are based on management's assumptions on what the future holds but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions, regulatory approvals and a capital project at Great Basin Gas Transmission Company that is potentially incremental to current estimates. This cautionary note as well as a note regarding non-GAAP measures is included on Slides 2 and 3 of this presentation, in today's press release and in our filings with the Securities and Exchange Commission, all of which we encourage you to review. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statement. As shown on Slide 4, on today's call, we have Karen Haller, President and CEO of Southwest Gas Holdings; Rob Stefani, Chief Financial Officer of Southwest Gas Holdings; and Justin Brown, President of Southwest Gas Corporation, as well as other members of the management team available to answer your questions during the Q&A portion of the call today. I'll now turn the call over to Karen. Karen Haller: Thanks, Justin. Thank you for joining us today to discuss our results and outlook. Starting with Slide 5. During the quarter, we successfully completed our disposition of Centuri through 2 final sales transactions. This allowed us to fully pay down the remaining debt at the holding company, provided significant capital to reinvest in the core business and left us with a strong balance sheet. With our focus now fully on our natural gas regulated business, we are better positioned to address the increasing energy needs of our growing service territories. As we enter this next chapter, operational and financial performance remain a top priority. At quarter end, Southwest Gas' trailing 12-month return on equity or ROE further improved to 8.3%, demonstrating our commitment to consistent ROE improvement over the last several years. We are optimistic for the future regulatory environments in all our jurisdictions. Later in this call, Justin Brown will discuss our anticipated rate case road map heading into the next few years as we expect new rates in effect in California in 2026 and seek approval for new rates with requests for alternative forms of ratemaking in Arizona and Nevada. We believe the future is bright for improved rate-making opportunities as we work to further improve delivered returns for our shareholders. Significant regional energy demand is driving potential incremental growth at our Northern Nevada interstate pipeline asset, Great Basin, which could drive our already strong capital growth profile higher. We are reaffirming each of our previously communicated guidance ranges with full year net income now expected towards the top end of the $265 million to $275 million range. We continue to expect robust capital spending driven by safety, reliability and economic activity in our service territories. All our forward-looking guidance ranges exclude the potential impacts of the 2028 Great Basin expansion opportunity and the impacts of alternative forms of ratemaking opportunities in Arizona and Nevada. I'll provide more detail on guidance later in this presentation. Moving to Slide 6. We're thrilled to have achieved the full deconsolidation and separation of Centuri. During 2025, we completed 4 follow-on offerings and 3 concurrent private placements to generate nearly $1.4 billion of net sale proceeds. A large portion of the total net sales proceeds were used to repay all debt previously outstanding at the holding company. Past August, the remaining $225 million on the term loan was paid in full, along with the remaining balance that had been outstanding on the revolving credit facility. All residual proceeds from that transaction as well as the final trade in September are expected to support Southwest Gas' capital expenditures, including the potential Great Basin expansion project, the dividend payments to shareholders and other general corporate purposes. We are excited for the future as the strategic transformation enhances transparency and aligns us squarely with long-term value creation as a fully regulated natural gas business. As you can see on Slide 7, we are heading into the final months of 2025 on track to achieve our 2025 strategic priorities. Our utility and regulatory strategy have primarily been completed as we await final approval in our California rate case. Additionally, we continue to see the impacts of our company-wide optimization initiatives as we have observed year-to-date operations and maintenance growth that continues to be below the rate of inflation. We have begun executing Precedent Agreements from the potential shippers on the 2028 Great Basin expansion project and are working to have the rest of them finalized soon. Other activities such as work on the environmental assessment and FERC prefiling efforts are on track. Finally, with the full repayment of HoldCo debt during the third quarter, we have now completed all expected financing activities for the remainder of 2025 without having to issue new equity financing for the second consecutive year. On Slide 8, I'd like to highlight that S&P upgraded Southwest Gas Holdings issuer and Southwest Gas Corporation's senior unsecured long-term debt credit ratings each to BBB+ with stable outlooks. Our enhanced corporate risk profile further demonstrates the positive impact of the complete separation of Centuri. As of the third quarter of 2025, our cash balance increased to nearly $780 million, and we had more than $1.5 billion of liquidity across the business, which enables us to make strategic investments that are expected to generate stable long-term returns. I'd also like to highlight the utilities net income growth, which was primarily driven by positive regulatory outcomes and strong economic activity in our service area, enhanced by cost optimization efforts. We are enthusiastic about the company's future and are confident in the promising opportunities ahead. Before we discuss our results in more detail, as you may have seen in our press release earlier this morning, Rob will be leaving Southwest Gas Holdings December 1. The Board of Directors has initiated an internal and external search process to identify Rob's successor. On behalf of the entire management team, I want to thank Rob for the contributions he's made to the company over the past 3 years. He's been an important part of our team as we transition to become a fully regulated natural gas utility business. We wish him well in his next chapter. You can find further information on this announcement in the press release and an 8-K that will be filed later today. Now I'll turn the call over to Justin for a regulatory and economic update. Justin Brown: Thanks, Karen. On Slide 10, we highlight our proposed Great Basin expansion project as we continue to make progress on finalizing Precedent Agreements with counterparties. Within the next week, we anticipate receiving final decisions from all shippers who were set Precedent Agreements. Since we continue to receive inbound interest about expansion opportunities on Great Basin, we may consider holding a brief supplemental open season before determining the final scale of the proposed 2028 expansion. This will help clarify the magnitude and timing of this inbound interest so we can determine the appropriate course of action, including whether any interest for capacity can fit within the 2028 expansion time frame or whether there is sufficient interest to justify an expansion in subsequent years. As is generally the case with all development projects involving multiple parties, especially projects of this size and scope, we are ultimately subject to the time lines and needs of each of the potential shippers. We are diligently working with them and remain steadfast in our commitment to help ensure their energy needs are met. While this process has taken a little longer than we initially expected, in order for us to meet the proposed in-service date of November 2028, we have started working on a parallel path to ensure that date remains viable. For example, we recently engaged in engineering procurement and construction management firm to partner with us as we work toward a prefiling application with the FERC. This firm will assist us in finalizing engineering and design work, completing the environmental assessment as well as other items necessary to file for this FERC's Certificate of Public Convenience and Necessity in the fourth quarter of 2026. We will plan to provide periodic updates as we achieve key milestones. Moving to Slide 11. I wanted to highlight a significant filing we made in Nevada during the quarter. In September, we successfully filed our first triennial resource plan as required by a statute that was put in place during the 2023 Nevada legislative session, referred to as Senate Bill 281. Similar to integrated resource plan requirements for electric utilities, the newly required process in Nevada requires gas utilities in the state to file a plan every 3 years outlining, among other things, anticipated demand for natural gas, the sources of planned acquisitions of natural gas, the identification of the mix of supply and demand-side management programs. The bill aimed to modernize the state's gas utility regulations, bringing them under a similar statutory framework as electric utilities to better prepare for a changing energy system and to optimize investment for the benefit of customers. This process of filing and receiving approval of a resource plan is expected to enhance certainty for investors in the state. Our current plan includes nearly $225 million of expected investments for the benefit of our customers for expansions, system integrity, including distribution and transmission integrity management programs, customer-owned yard line replacement programs and a long-term gas supply arrangement. We believe this new process allows for increased transparency and predictability for customers, investors and other stakeholders. We expect a final decision in the second quarter of 2026. Turning to Slide 12. Here, we lay out for you a potential time line for how opportunities for alternative ratemaking in both Nevada and Arizona could play out in the near term and over the next several years. In Nevada, SB 417 is the law that was passed this past legislative session that allows for alternative ratemaking opportunities such as multiyear plans and formula rates. We currently expect to file a rate case as early as March 2026, which is 6 months following our gas planning filing. We expect new rates to be effective as early as October of 2026. The Public Utilities Commission of Nevada has begun rule-making workshops to implement SB 417, and we're excited about the potential for this approach to streamline regulatory processes, reduce cost for customers and improve the timeliness of cost recovery. We're in the early stages of the rulemaking process, which we anticipate finishing up early next year. At the conclusion of the rule-making process, we should have greater clarity on the mechanics and time lines that will be allowed for implementing an alternative ratemaking plan. However, given the general structure set forth in SB 417 and the fact we will look to this next rate case is the basis for alternative ratemaking plan, we reasonably believe potential alternative rate-making adjustments could begin as early as 2028. Similarly, in Arizona, following the Commission's December 2024 policy statement that supports utilities proposing formula rate plans, we expect to file a formula rate plan in Arizona as part of our next general rate case. We are currently targeting a filing for our next Arizona rate case in the first quarter of 2026. If we assume a fully litigated rate case time line, we expect new rates to be in effect during the first half of 2027 with the potential for the first annual formula rate true-up process to begin in 2028. While the Commission has expressed support for formula rate adjustments through its published policy statement, the approval of utility plans is still forthcoming. We are encouraged by the fact that several peer utilities in Arizona have active rate cases requesting the application of formula rates. We are proactively monitoring the progress and anticipated outcomes of each of these cases as they will provide valuable insights to refine our current expectations regarding formula rate mechanics and implementation time lines. We remain optimistic about the prospects of formula rates in Arizona as this new approach could streamline the regulatory process, reduce costs for customers and improve the timeliness of cost recovery. We're excited about both of these opportunities, and we believe that alternative ratemaking enhances our ability to attract investment into both Arizona and Nevada as we continue to play our role in supporting the state's economic growth. Turning to Slide 13. In California, we successfully reached an agreement in principle to resolve all issues in our pending rate case with the exception of cost of capital and capital structure. The agreement results in a recovery of over 90% of our adjusted ask of $43 million before any adjustments for cost of capital and capital structure. The settlement also provides for continuation of our annual attrition adjustment of 2.75% as well as continuation of several existing and new regulatory mechanisms that we propose to ensure the safety and reliability of our distribution system and to mitigate regulatory lag. Of note, the California Commission recently granted our motion seeking authority to establish a general rate case memorandum account. This essentially protects us from any potential delays in the issuance of a final decision by allowing us to recover differences between our authorized and actual revenues between January 1, 2026, and the actual effective date of the Commission's final decision. And with that, I'll turn the call over to Rob, who will review our financial performance for the third quarter. Robert Stefani: Thanks, Justin, and thank you, Karen, for your words earlier. It has been rewarding to work alongside the talented team at Southwest Gas as we navigated such an important time at the company. I am confident the company is well positioned for continued growth and success under Karen's leadership. With that, I'll turn to our financial results for the third quarter. On Slide 15, we provide a walk from last year's third quarter earnings from continuing operations to the current quarter. Beginning with the utility, Southwest Gas reported higher margins supported by rate relief to better align with Southwest Gas' cost of service and capital investment as well as continued customer growth. These benefits were partially offset by higher operating and maintenance expense related in part to incentive compensation accruals, depreciation and amortization tied to ongoing capital investment and higher net interest related to the PGA liability balances. Southwest Gas Holdings corporate and administrative results reflected lower overall operating expenses and reduced interest expense due to the full repayment of the holdings term loan and revolver bank debt using proceeds from the Centuri offerings. Overall, earnings per share related to continuing operations improved by $13.4 million or $0.19 per diluted share when compared with last year's third quarter. Consolidated EPS for the quarter was $3.74 per diluted share. The company's sale of its remaining stake in Centuri in September represented a full disposition of Centuri and qualifies for reporting as discontinued operations. Earnings related to discontinued operations, which includes the net gain on the sale of Centuri contributed $3.68 per diluted share to consolidated earnings. Slide 34 in the appendix breaks down consolidated earnings for the 3 and 9 months ended September 2025. Moving on to Slide 16. We provide a bridge of quarter-over-quarter performance drivers for Southwest Gas. In the third quarter, utility operating margin increased by $26.8 million. This improvement was primarily driven by $22.3 million of combined rate relief across all jurisdictions, while an additional $1.6 million came from customer growth. O&M expense increased by $4.1 million compared to the prior year quarter. This increase was mainly attributable to variable labor and benefit costs, including a $4 million increase in incentive compensation. This increase was partially offset by reductions in bad debt expense and leak survey and line locating expenses. Of note, year-to-date O&M expense is up approximately 2.5% overall, less than inflation and reflective of our continued focus on cost discipline at the utility. Depreciation and amortization increased $4.9 million, reflecting a 6% increase in average gas plant in service as compared to the third quarter of 2024. This growth demonstrates ongoing investment to enhance safety, reliability and a response to customer expansion. Other income declined by $3.4 million, driven primarily by a $3 million decrease in interest income, which is largely tied to lower carrying charges on the PGA balances. Notably, deferred purchased gas cost balances moved from a $213 million liability as of September 30, 2024, to a $356 million liability as of September 30, 2025. As a reminder, last quarter, Nevada approved our application to return these overcollected purchased gas costs to customers more quickly. We have already seen Nevada's elevated balance begin to decline compared to this year's second quarter. PGA balances are shown in the appendix on Slide 28 as well as in our Form 10-Q. Lower comparative gains on the values associated with company-owned life insurance drove a $0.5 million decrease quarter-over-quarter. Interest expense rose $3.8 million, primarily due to interest incurred on the overcollected PGA balance compared to interest income recorded in the same quarter of last year. So the net impact of about $7 million between other income, as previously discussed, and net interest expense can be attributed to the change in the average PGA balance over the comparative periods. Finally, income taxes increased by $4.6 million, reflecting the impact of higher pretax net income during the quarter. As shown on Slide 17, as Karen mentioned, we successfully executed 4 follow-on offerings of the company's Centuri stock between May and September of this year. In September, we completed the full separation of Centuri. These transactions, inclusive of 3 private placements collectively generated $1.35 billion of net sales proceeds and estimated after-tax cash proceeds is about $1.3 billion. The $50 million estimated cash tax on the transaction represents a low effective tax rate of approximately 3.7% due to the utilization of net operating losses and capital loss carryovers while estimated cash taxes is shown in isolation and after the utilization of net operating losses and capital loss carryovers and ultimately could adjust up or down as we consider any consolidated or combined federal or state income tax return impacts that will ultimately determine the actual NOL and capital loss carryover utilization. The sale of Centuri by means of a series of taxable sell-downs is expected to be tax efficient for shareholders. Moving to Slide 18. We show our 2025 financing plan for both Southwest Gas Holdings and Southwest Gas Corporation. We do not currently expect any significant financing activities in the remaining months of 2025 at Southwest Gas Holdings or Southwest Gas Corporation. The 2026 financing plan is expected to be released with our fourth quarter 2025 results. Using the net proceeds from the Centuri sell-down transactions, we fully repaid all of the term loan and bank debt previously outstanding at the holding company. Remaining proceeds are expected to be deployed in the near term to partially fund the dividend as well as support future capital investments at Southwest Gas, including the potential 2028 Great Basin expansion projects. Southwest Gas Holdings remains committed to paying a competitive dividend to our stockholders. Our planned dividend payouts in 2025 are expected to result in a payout ratio competitive to natural gas peer companies. We plan to continue to balance factors such as projected capital requirements, impacts to credit ratings, the competitiveness of the dividend yield, economic conditions and other factors and expected dividend policy sizing of earnings from continuing operations going forward. The Board generally updates dividend policy in February each year, and we expect to evaluate our recommendation of that policy between now and the reporting of our year-end results. I will conclude by discussing our balance sheet on Slide 19. Throughout the year, we've outlined the strength of our balance sheet and commitment to maintaining an investment-grade profile at Southwest Gas and at the holding company. We were pleased to learn that on September 22, S&P upgraded Southwest Gas Holdings issuer and Southwest Gas Corporation senior unsecured long-term debt credit ratings each to BBB+ with stable outlooks, driven mostly by the exit from our position in Centuri, debt reduction at the holding company level and improving the general risk profile of the business. We expect this upgrade should lower borrowing costs, enhance access to capital and signal an improving company profile to the investment community. On the slide, we show debt by entity. On a consolidated basis, our net debt sits at just over $3 billion across the enterprise. We are in nearly a $600 million cash position at the holdings level, reflected in the slide as the corporate and administrative line and we have about $3.7 billion of net debt at the utility. The balance sheet and liquidity position is strong with nearly $800 million of consolidated cash and another $700 million of liquidity available under our holdings level and utility level revolvers. Back to you, Karen. Karen Haller: Thanks, Rob. We are pleased with our results over the first 9 months of this year and aim to carry this momentum through the last few months of this year and beyond. On Slide 21, we reaffirm our 2025 utility net income guidance range of $265 million to $275 million but are now guiding toward the top end of the range given progress we've made throughout the year so far. For 2025 and beyond, we reaffirm each guidance metric and continue to expect the impact of the regulatory cycle to result in nonlinear net income growth over the forecast period. As a reminder, each of our forward-looking compound annual growth rates are calculated off a 2025 base year and they do not currently include any impacts related to the potential 2028 expansion opportunity at Great Basin or any outcomes related to the potential for alternative ratemaking in Arizona and Nevada in our next rate case proceedings. We expect to refresh our guidance ranges for 2026 in our year-end call this winter and will make decisions on the assumptions included in the plan at that time. Before we move into the Q&A portion of the call, I'd like to draw your attention to Slide 22. This highlights our commitment to delivering exceptional customer service while advancing our strategic priorities and achieving strong financial performance. At Southwest Gas Holdings, we remain confident in our trajectory as a leading pure-play natural gas business. Our focus is on sustaining robust organic rate base growth driven by strong regional demand while enhancing earnings through disciplined financial management, operational excellence and constructive regulatory engagement. With that, let's open the call for questions. Operator: [Operator Instructions] We'll take our first question from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: I appreciate it, as always. And Rob, all the best. Look, I wanted to just follow back up on Great Basin. Obviously, a good amount of time spent in the remarks here, but I do want to press a little bit to the extent possible. You talked about trying to finalize the Precedent Agreements in the near term. Can you walk through a little bit more of the specific time lines, any issues? And then more importantly, perhaps, speak to a little bit of the time line of when it would actually be included in the outlook, maybe tightening up the CapEx range as you zero on exactly the scope of what's contemplated here, if you will. And then maybe I'll throw on also if you can speak to assumptions one should be using as best you can for heuristics on ultimate capital cost and capital structure. Justin Brown: Julien, it's Justin. Yes, I'll try to unpack that and just follow up if there's anything I missed. So as we've talked about previously, we had conducted the open season. We had significant demand interest of capacity up to the 1.76 BCF, and we circulated Precedent Agreements and kind of draft Precedent Agreements to potential shippers. We received those back, incorporated the comments that we could and then we sent out final versions of those Precedent Agreements, which incorporated kind of the assigned capacity as well as kind of the surety requirements that we would expect of the shippers for us to proceed with the project. And we're just in the process of getting that feedback from them now on kind of a final decision of who's willing to commit and who's not. And so we'll complete that process hopefully within the next week. And then once we have that, we'll be able to assess kind of the ultimate scale of the project. And then as I mentioned, we continue to receive inbound inquiries. So we may look at even hosting a supplemental open season that's relatively brief to just kind of firm up what is the capacity and kind of the final estimates around the 2028 expansion. I think when we think about kind of guidance and different things, we would probably look to kind of our regularly scheduled fourth quarter call in February to kind of update as we should know at that time what is in and what is out and what that project looks like and kind of more of the assumptions on the financing and different things that you alluded to. Hopefully, that addresses what you're getting at. Julien Dumoulin-Smith: Yes. Justin, I appreciate it. Actually, if I can ask you to elaborate a little bit. I mean, there's a $1.2 billion to $1.6 billion range here. You talked about up to 1.76 BCF a day. Is there a scenario here where that's upsized to address what you just alluded to with that additional open season? Or is that kind of contemplated in that range as far as you're concerned for CapEx? Justin Brown: Yes. Based on that range we provided, that's reflective of kind of the feedback we were getting and kind of what our estimated cost was in order to upsize the system to meet that potential capacity. Julien Dumoulin-Smith: Okay. Excellent. I appreciate that. And ultimately, let me -- if I can press it this way. If it is, as you suggest that you'll be able to put this together into some form of guidance by 4Q, should we expect an integrated CAGR in tandem with that, that would correspond with the '28 in service? Justin Brown: Yes. We'll assess it at that time as we get information on the project, and we're able to kind of factor that in with our overall capital expenditure plan and kind of the guidance we -- we've been giving. I think as last year, we gave a 5-year guidance on CapEx, so it would be incorporated in that. Julien Dumoulin-Smith: Excellent. All right. I'll leave it there. All the best. Speak to you soon. Operator: The next question comes from Chris Ellinghaus at Siebert Williams Shank. Christopher Ellinghaus: Rob, on Slide 16, the margin increase for the quarter, there's a delta for a third item beyond rate relief and customer growth. What's included in that last little sliver? Robert Stefani: Yes. I mean, there's the rate relief, there's customer growth and then there's just recovery mechanics on like interest recovery mechanisms and whatnot. Christopher Ellinghaus: Okay. That helps. As far as Great Basin goes, so you get the agreements here next week and you might do an open season. Does that suggest that the FERC filing is sort of late in the quarter and what's your anticipation of the FERC review schedule? Justin Brown: Chris, it's Justin. Yes, we're still targeting based on the initial inquiries that November 2028 in-service date, which is why we've started on a parallel path as we're firming up kind of commitments on the shippers to ultimately determine who's in and who's out. We've started that process. And based on our schedule and timing, we feel like we're still on schedule to make a filing in the fourth quarter of '26 with FERC for that certificate of public convenience and necessity. Christopher Ellinghaus: So you said that you thought this next potential open season could be fairly quick. Does that leave you adequate time to get something done in December? Justin Brown: Yes, we believe so. I think our approach would be to have a pretty quick turnaround to kind of finalize up anything in terms of a 2028 expansion. That would be the intent behind it is to be able to stay on track. Christopher Ellinghaus: Can we presume that you would prefer to have the full magnitude of the expansion in the first phase as opposed to having a future expansion? Justin Brown: Yes, Chris, I think that's a fair assessment. I think just when you think of economies of scale and ultimately the rates that the shipper would pay, obviously, we want to try to maximize that initial expansion. It's just we continue to see -- receive inbound inquiries around kind of maybe additional needs down the road. And so we want to try to factor that in so we can be as efficient as possible with the expansion. Christopher Ellinghaus: Okay. And lastly, the Nevada process for the alternative ratemaking, does that leave you with sort of a 3-month window of uncertainty as to filing? And how do you perceive that process so far? Does it seem like it's on your expected time line? Justin Brown: Yes. So the -- as I mentioned, the commissions going through the workshop process now. We're working diligently with stakeholders. I think to the extent we can get kind of consensus regulations that will help expedite the process. And if not, I think we've talked about in the past where part of the language of SB 417 allows us to use that rate case even if we made a filing after we filed the rate case, we could make a request for formula rates or alternative form of rate making after we filed our rate case as long as we do that within, I believe it's 6 months of a final decision of that rate case. So we feel really good about using this next case is really the basis for an alternative formula or an alternative ratemaking plan in Nevada. And to your point, it's really going to -- we'll know more over the next couple of months on whether that's included upfront in the filing that we make that we're targeting in March or if it's something that happens at a subsequent date but is incorporated as part of that rate case process and they use the information included in the rate case to form the basis of that alternative ratemaking plan. Operator: The next question comes from Paul Fremont at Ladenburg. Paul Fremont: And to Rob, best wishes to you. It's been great working with you. And I guess my first question is how long does the company think it will take to find a CFO and who's going to be performing that function after December 1? Karen Haller: So as we announced in the press release, Paul, that we would be -- the Board has undertaken an internal and external review. We don't really have a specific time line that we have put forth. Our focus is on getting the right person in the job and having the right skill set for the company moving forward. Paul Fremont: And I mean is somebody going to be performing the CFO function starting on December 1? Karen Haller: Absolutely. We have -- whether we would name someone in an interim position, if we don't haven't named somebody at that point, we will -- the Board would be making that decision. Otherwise, we have a very strong bench within my finance and controllers group, and they will be able to function without any problem in handling those duties. Paul Fremont: Great. And then I guess I wanted to get a sense of the cash position and when you're actually going to start using that cash for construction. When would construction start, if you were to move forward on Great Basin? Karen Haller: Justin, do you want to address the time line on the Great Basin? Justin Brown: In what regard, Paul, sorry? Paul Fremont: I just want to get a sense. I mean, are you going to put -- are you going to leave like the cash in treasuries between now and when you actually need it for construction? Are you going to have... Robert Stefani: Paul, this is Rob. Yes, we obviously have put that cash to work in short-term funds and whatnot. So the cash is obviously earning the short-term rate in the interim. Justin Brown and his team are assessing the Great Basin project and the scoping of that. Obviously, there could be some long lead time deposits on various equipment that would be required. So as that project continues to get more refined, then we can comment more on the usage of the cash. But obviously, sitting on a very nice position and can move forward on that project given those balances. The -- I think beyond that, I don't know that there's much else to comment on. Paul Fremont: So for modeling purposes, we should assume that it will remain in short-term investments until the actual construction starts to ramp up? Robert Stefani: That's right. Paul Fremont: And then last question. With Centuri gone, are you expecting to give EPS guidance on the fourth quarter call? Or are you going to stay with sort of net income guidance? Robert Stefani: I think we've talked about that, and we kind of commented along the way that we do expect to give kind of more longer-term EPS guidance that I think to maybe Julien's earlier question too, would incorporate some of these potential opportunities along the line. Operator: The next question comes from Tim Winter at Gabelli. Timothy Winter: And congrats on the strong update. And Rob, best wishes in your future endeavors. We'll miss you. My first question, I think, is for Justin. If you could help me understand how the formula rate would work in Arizona or at least what your expectation is. So you'll file a historical test year in the first quarter at '26, maybe 15 months for a decision and then come what January 1 of '28. They'll look at the earned ROE and if there is an adjustment, is that made on a prospective basis or a historical basis? Or how is that going to work? Justin Brown: Yes. Those are all good questions, Tim. And what we're really kind of utilizing is the framework is really the policy statement itself. I think some of these nuanced details are going to get worked out as they start approving them as part of rate cases, which is why we're really focused on some of the pending rate cases right now to kind of help inform that as we go forward. When you look at the policy statement itself, I think, generally speaking, the idea and as you look at the testimony that's been filed in some of these other cases, the idea would be, as you laid out, you have a rate case. At the end of that rate case, you would then have a period of time, but then you would -- I think they referred to it in the policy statement an annual true-up. I think some of that may come down to, are you including post test year plan in your rate case, are they not doing that anymore and they're just going to the formula, that may determine ultimately some of the timing there. But I think when you look at it, it would be, to your point, you would file a case in '26, a decision in '27. We would look at probably making a filing sometime the end of '20 -- I'm sorry, at the beginning of '28. And again, there's a review period in different things on when before the rate actually goes into effect. And so our thought would be probably sometime in that '28 window is when we'd expect to see a true-up rate that goes in effect that would be the difference between what you've been authorized in your last case versus what you're actually experiencing and truing up rates to reflect that difference, and then you would do that annually for a period of time. Timothy Winter: Okay. Okay. And then if I could move over to -- back to a Great Basin. Number one, are there any potential major obstacles that you're aware of? And then number two, assuming the high end of the range that you forecast in November '28 [ COD ], what would be the earning -- sort of the earnings profile going forward? I mean, would there be any AFUDC recorded during construction? Or how would the -- thereafter, would it be there a step-up or a ramp up? Or how do I think about that? Justin Brown: Yes, Tim, I'll start with the first part. In terms of major obstacles, we don't really see any as we've looked at the project. I think the biggest obstacle is just working with the different counterparties on kind of their timing, their capacity needs and getting that firmed up is really probably the biggest obstacle. But when we think about the project itself, once we actually have signed Precedent Agreements from counterparties, the project itself is really an upsizing of our existing system and the existing right of way with compressors. So we don't see any major concerns from a project execution standpoint. Again, similar to what we mentioned earlier, I think when we think about the financial aspects of it, I guess, to answer your question, yes, we would anticipate accruing AFUDC during the project. But when we think about kind of the profile of that and timing, I think that's something that we would have better insight on at the February call just based on where we are in terms of getting -- kind of finalizing the scale of this project and working with the counterparties to get people signed up. Operator: [Operator Instructions] The next question comes from Christopher Jeffrey at Mizuho. Christopher Jeffrey: Maybe just 1 last 1 on Great Basin. It seems like the price per dekatherm was updated to $18 per month. Just kind of curious how firm that number is now that it's in the Precedent Agreements and maybe what does it change, if anything, on economics versus when the range was $14 to $17 prior? Justin Brown: Yes. This is Justin again. Yes, we don't really anticipate that being a material change to the economics of the project. We had originally scoped it out as a $14 to $17 based on kind of initial feedback from the open season process. And then as we firmed up those inquiries and capacity requests as well as our internal designs, that's how we landed on the $18, and that's what was included in the Precedent Agreement. So that's kind of the most up-to-date number based on the capacity of 1.76 BCF that people had expressed interest in. Operator: This concludes the Q&A portion of today's conference. I would now like to turn the call back over to Justin Forsberg closing remarks. Justin Forsberg: Thanks again, Joanna, and thank you all for joining us today and for your questions. This concludes our conference call. We appreciate your interest in Southwest Gas Holdings and look forward to speaking with many of you soon as we emerge from the quiet period. Operator: This concludes today's Southwest Gas Holdings third quarter 2025 earnings call and webcast. You may disconnect your lines at this time. Have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to Anika's third quarter earnings conference call. [Operator Instructions] I will now turn the call over to Matt Hall, Director, Corporate Development and Investor Relations. Please proceed. Matt Hall: Good morning, and thank you for joining us for Anika's Third Quarter 2025 Conference Call and Webcast. I'm Matt Hall, Anika's Director of Corporate Development and Investor Relations. Our earnings press release was issued earlier this morning and is available on our Investor Relations website at www.anika.com, as are the supplementary Powerpoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer; and Steve Griffin, Executive Vice President, Chief Financial Officer and Chief Operating Officer, who will present our third quarter 2025 financial results and business highlights. Please take a moment and open the slide presentation and refer to Slide #2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur, that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which may include adjusted EBITDA, adjusted net income from continuing operations and adjusted earnings per share from continuing operations, which are used in addition to results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the presentation slide deck and our third quarter 2025 press release. And now, I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl? Cheryl Blanchard: Thanks, Matt. Good morning, everyone, and thanks for joining us today to discuss Anika's third quarter 2025 results. Please turn to Slide 3. This quarter reflects strong execution across our strategic priorities, including robust Commercial Channel revenue growth, completing the filing of the third and final PMA module for Hyalofast and continued progress toward completing the final requirements needed to file the Cingal NDA. I'll start out by walking you through the financial results for the quarter, which are in line with expectations, while also generating strong operating cash flow and positive adjusted EBITDA. Revenue for the quarter was down 6% compared to the same period last year, as expected, as Johnson & Johnson continues efforts to stabilize pricing in our important and profitable U.S. OA Pain Management business, which accounts for the majority of our OEM channel revenue. As a note, J&J announced their intent to separate their orthopedic business to enhance strategic and operational focus. We do not anticipate any negative impact to our OA Pain Management business related to that separation. And in fact, after the quarter, J&J MedTech exercised its option to extend the current license and supply agreement for Monovisc for another 5-year term through December 2031. The expected results from our OEM channel were offset by strong continued momentum in our Commercial Channel, where we delivered double-digit growth in the quarter, advancing our strategic priorities, while moving Hyalofast and Cingal closer to FDA approval and launch. Commercial Channel revenue grew 22%, fueled by strong Integrity growth, continued growth of Hyalofast outside the U.S. and international growth in OA Pain Management. Additionally, the steps we've taken to improve our cost structure is flowing through, with SG&A expenses down 12% year-over-year and overall operating expenses down 3%, driving improved profitability and free cash flow. Turning to our Commercial Channel portfolio. Integrity procedures in the U.S. grew for the sixth consecutive quarter, driving Regenerative Solutions growth of 25% year-over-year. Integrity growth is outpacing the overall U.S. soft tissue augmentation market, keeping us on track to more than double Integrity procedures and revenue in 2025 compared to last year. As shown on Slide 4, about 500 Integrity procedures were performed during the quarter, bringing our number of surgeon users to nearly 300. Our U.S. commercial team remains focused on expanding adoption and repeat use, supporting existing users as they integrate Integrity more fully into their practice, while also training new surgeons on its safe and effective use. Notably, over 60% of users have completed multiple cases, a strong indicator of growing and sustained clinical confidence. We are also excited that we started limited launches of Integrity outside the U.S. and cases have been performed in 10 countries. This growing base of experienced users demonstrates sustained clinical confidence and adoption of this game-changing technology that offers both enhanced regenerative capacity and greater strength when compared to competitive products. During the quarter, we also initiated the limited release of the first SKU of the larger shapes and sizes of Integrity, designed for a variety of tendon applications, including in the hip, knee and foot and ankle. A number of surgeries have been performed and the initial feedback from surgeons has been positive. Additional SKUs of shapes and sizes that are designed for more specific tendon augmentation applications, will be released in the coming quarters. We expect these additions to further accelerate adoption and support continued commercial momentum into 2026. Also contributing to our commercial channel growth was the continued success of our international team, driving Hyalofast expansion and delivering double-digit gains in international OA Pain Management revenue. The team partnered closely with distributors to strengthen business in existing markets and expand into new geographies. International OA Pain Management revenue grew 21% year-over-year, primarily driven by the timing of distributor orders. Year-to-date, that business is up 6% compared to 2024. This successful quarter for our international business was underscored by a major milestone. We have now surpassed sales of 1 million Cingal injections since the 2016 launch. The strong uptake of Cingal outside the U.S. is a testament to its effectiveness to relieve both short and long-term pain and get patients back to active living. Turning to Hyalofast. On October 31st, we submitted the third and final module of our PMA to the FDA, marking a major milestone in our U.S. regulatory pathway for our breakthrough cartilage repair device. We look forward to engaging with the agency to progress toward U.S. approval and commercialization. Concurrent with earnings, we have also released the data from our U.S. Phase III FastTRACK study. As previously reported, while Hyalofast consistently demonstrated improvements in pain and function, the study did not meet its 2 co-primary endpoints under the original statistical framework. This was in part due to a disproportionate amount of missing data in the microfracture active control arm. While Hyalofast showed clinically meaningful improvements in both KOOS pain and IKDC function from baseline at 24 months, it was not statistically significant when compared to the active microfracture control arm. Statistically significant improvements were achieved in relevant key secondary endpoints, including KOOS sports and recreation function, quality of life and total KOOS, all of which have been used as the basis for FDA approvals of other cartilage repair products. In addition, because the data was not normal and not missing at random, as assumed in the predefined statistical analysis plan, supplemental statistical analyses were prepared for FDA consideration. These analyses include a review of observed data, which is the data without statistical imputations. In the observed data analysis, we achieved significance for KOOS pain. The post-hoc analysis also included responder analyses for several outcome measures. Our responder analysis provides the number of patients in the study who achieved a clinically meaningful level of improvement. In the FastTRACK study, more Hyalofast patients achieved higher levels of improvement in pain at 24 months than microfracture patients did, and with statistical significance. We believe these additional analyses confirm the consistent and meaningful clinical benefit that Hyalofast with BMAC brings to patients with cartilage defects. We're encouraged by the strength and consistency of the data we have submitted to the FDA, both from the FastTRACK study and the over 15 years of independent clinical experience outside the U.S. The international experience continues to demonstrate Hyalofast's safety and efficacy across a broad range of patients with over 35,000 treated to date as we continue to see strong penetration of Hyalofast in the over 35 markets where it is sold today. Now turning to Cingal, our next-generation OA pain management product. During the quarter, we made meaningful progress toward our U.S. NDA submission. We successfully completed the first of 2 toxicity studies and initiated patient screening for the bioequivalent study, which remains on track to begin before the end of the year. As a reminder, these studies represent the final steps required for our NDA filing. We're encouraged by our continued progress with this important program and remain focused on advancing Cingal towards regulatory submission and ultimately, commercial availability in the U.S. market. Lastly, beginning in 2023, the company undertook a comprehensive strategic review, evaluating a broad range of alternatives. We have formally concluded that process and remain focused on executing our product growth strategy and enhancing operational performance to create shareholder value and return capital. As part of that commitment, we are commencing a second $15 million share repurchase under our previously announced program. We continue to prioritize key growth and regulatory milestones, including growing integrity, engaging with the FDA on the Hyalofast PMA submission, completing the Cingal bioequivalent study and subsequent NDA submission and delivering ongoing operational improvements aimed at strengthening profitability and cash flow. And with that, I'll now turn the call over to Steve for a detailed review of our financial results. Stephen Griffin: Thank you, Cheryl, and thank you, all, for joining us. Our third quarter results reflect steady progress across key areas in both profit and cash flow, with performance in line with expectations and signs of continued momentum. We're executing on our key objectives and the resulting improved financial performance is showing. Please refer to Slide 5 of the presentation as I provide financial updates on the quarter. In the third quarter, Anika generated $27.8 million in total revenue, a 6% decline compared to the same period in 2024. Our commercial channel, which includes globally distributed, highly differentiated products, delivered $12 million, up 22% year-over-year. This growth was driven by continued momentum in our regenerative solutions portfolio, which was up 25% in the quarter as the Integrity Implant system continues to gain market share. Integrity has now delivered sequential growth for 6 consecutive quarters in the United States and remains on track to more than double in 2025. With the launch of larger shapes and sizes in the third quarter, we're encouraged by the continued expansion and trajectory of the platform. Also, within our commercial channel, international OA pain sales grew 21% in the quarter as our international sales team continues to gain share with our existing product portfolio. Year-to-date growth stands at 6%, slightly below expectations, due to shipment timing impacted by the second quarter production-related disruptions. We expect any remaining impact to be resolved before year-end. While this channel can be somewhat variable quarter-to-quarter, it continues to show strong underlying momentum, building on several years of consistent double-digit growth. Revenue in the OEM channel, which includes our domestic OA pain and non-orthopedic products sold by third parties under long-term agreements, declined 20% in the third quarter to $15.8 million, in line with our full year guidance, primarily due to pricing pressure on end-user sales. Orthovisc sales were lower, reflecting both reduced pricing and a continued shift towards single-injection treatments. Monovisc saw strong unit growth, up low double-digits in the quarter, though this was offset by a double-digit decline in pricing. Year-to-date, Monovisc unit volume is up 11%, while average price is down 17%. Despite ongoing pricing pressure, we continue to expect more stable revenue trends as we head into 2026, supported by anticipated unit volume growth that we believe will mostly offset price dynamics, resulting in flat to modestly lower revenue, in line with our previously provided financial framework. Recall, J&J is responsible for marketing and selling OA pain products in the U.S. We continue to work with them in an effort to drive for greater price stability and market expansion. On a combined basis, Monovisc and Orthovisc continue to lead the U.S. market and remain profitable contributors to our business. The remainder of our OEM business, our non-orthopedic sales, declined in the quarter due to the timing of customer orders. Third quarter gross margin was 56%, a decrease of 10 percentage points year-over-year, but an improvement of 5 percentage points sequentially from the second quarter. The year-over-year decline was primarily driven by a $3.2 million reduction in Monovisc and Orthovisc sales to J&J, largely due to lower pricing. This impacted both transfer units and royalty revenues and directly reduces gross profit. Sequential margin improvement reflects our recovery from early summer production disruptions, which had previously led to elevated inventory reserves and negatively impacted gross profit. Turning to operating expenses. Total third quarter OpEx was $18.8 million, a decrease of $700,000 or 3% compared to the same period last year. Selling, general and administrative expenses declined $1.7 million or 12%, primarily driven by headcount-related cost savings and lower stock-based compensation. Following the 2 divestitures completed earlier in 2025, we streamlined and optimized our organizational structure to better align with our strategic priorities and reduce operating costs. Notably, general and administrative expenses were down 17% year-over-year. We remain focused on identifying cost savings initiatives, while continuing to invest in areas that support sustainable long-term growth, partially offsetting the G&A savings. Research and development expenses increased $1 million or 17%, driven by the costs associated with the Cingal toxicity study. Year-to-date, R&D expenses are up 1%, driven by a $1.8 million increase in external expenses, largely due to a $2 million increase in Cingal pre-filing requirements. In contrast, total internal R&D expenses are down 12% year-to-date versus 2024, underscoring our commitment to operational efficiency, while maintaining momentum in key development areas. Adjusted EBITDA from continuing operations was positive in the quarter, totaling $900,000, a decline of $3.7 million compared to the same period in 2024. This result exceeded the anticipated breakeven level and represented a $1 million improvement over the second quarter. The year-over-year decline was primarily driven by reduced high-margin revenue from J&J, partially offset by meaningful reductions in operating expenses. The improved expense profile contributed to profitability that was better than previously guided. Now turning to cash and liquidity. Anika delivered strong operating cash flow of $6.9 million in the third quarter, up from $5 million in the same period last year. This improvement was driven by favorable timing, stronger working capital management and disciplined cost controls. Year-to-date operating cash flow totaled $6.6 million, a $2.8 million increase over 2024. This performance reflects the company's disciplined approach to working capital and expense management. We invested $1.9 million in capital expenditures during the quarter, an increase of $700,000 year-over-year, primarily due to timing. These investments are focused on expanding capacity at our Massachusetts manufacturing facility to support anticipated volume growth across Monovisc, Cingal, Integrity and Hyalofast. This positions us to efficiently scale operations and meet future demand. We ended the third quarter with $58 million in cash and no debt. As Cheryl mentioned, we are commencing a second $15 million share repurchase, consistent with the plan announced in May 2024. This repurchase will be executed under a 10b5-1 program, which we expect to complete by June of 2026. It reflects our ongoing commitment to returning capital to shareholders while preserving the flexibility to pursue strategic growth initiatives. Now on Slide 6, I'll review our full year financial outlook for 2025. We are maintaining our full year 2025 guidance. We continue to expect our commercial channel to generate between $47 million and $49.5 million in revenue, representing a year-over-year growth of 12% to 18%. Our OEM channel remains on track to deliver between $62 million and $65 million in revenue for 2025, representing a year-over-year decline of 16% to 20%. At the midpoint of an 18% decline, this range reflects higher volumes offset by lower pricing from J&J. Now turning to profitability. We are maintaining our 2025 adjusted EBITDA guidance range of positive 3% to negative 3%. Our liquidity remains strong with no need to raise capital, and we remain confident in our ability to execute on our strategy. We continue to be focused on improving our expense profile to deliver positive operating cash flow. This financial discipline enables us to reinvest in the business, capitalize on the value propositions of our product pipeline, and ultimately deliver sustainable returns for our shareholders. With that, I will now turn the call back over to Cheryl. Cheryl Blanchard: Thanks, Steve. In closing, we're pleased with Anika's solid third quarter performance, which reflects continued momentum in our commercial channel, disciplined expense management and meaningful progress across our pipeline. Additionally, with strong operating cash flow, a healthy balance sheet and a clear path toward key regulatory milestones, in total, we believe this will deliver long-term value for shareholders. We want to thank our shareholders for their continued support, and we'd also like to extend our deepest gratitude to the entire Anika team whose dedication to developing, manufacturing and delivering world-class HA-based products enables us to restore active living for patients around the world. And with that, we'll open up the line for questions. Operator, please proceed. Operator: [Operator Instructions] Your first question is from Michael Petusky from Barrington Research. Michael Petusky: Thanks for some of the additional detail in the presentation today. That's great. So I guess I want to ask a question around Integrity, Cheryl. In terms of what you would view as the bigger priority or maybe the lower-hanging fruit, I mean, is it driving increased utilization with your existing surgeon base? Is it doing more trainings and expanding the footprint? I mean, can you just sort of talk about how you guys are approaching maybe turning 300 surgeons into 600 and 500 cases a quarter into 1,000 cases? Like how do you get there? Cheryl Blanchard: Great question. Thanks for that, Mike. So I'd say, first of all, that we're feeling very bullish in the U.S. market with our team coming from a position of strength because what we're seeing from the surgeon reaction and adoption, new surgeon use and further penetration with existing surgeons is that this product really does provide significant clinical advantages. It's stronger, has higher suture retention even when wet and it has additional regenerative capacity. It just -- it does things that the existing products out there don't do. So, I would tell you, though, that we are probably equal parts focused on going out and getting new surgeons, getting new surgeons excited about the technology and also continuing to do training and education on the safe and effective use of the product for new and existing surgeons, especially as we continue to launch these additional SKUs that are really designed for use in the other tendon applications in the hip, in the knee, and the foot and ankle. So, I would say it's really across the board, and our team is very busy doing both. Obviously, we've talked about this year that we are on track to double this year. And so, we continue to invest in this product. We think it's a great product. We believe in what it's doing, and we're excited for that team to continue to drive both penetration and acquiring new customers. Michael Petusky: Okay. All right. Great. And I guess, if you could just remind me and maybe others, the timing for sort of wrapping up everything related to Cingal bioequivalence and the second toxicity, is that sort of mid-'26? Is that when you hope to sort of wrap all of that up? Or am I [ misremembering ]? Cheryl Blanchard: No, I don't think you're -- we have not given a specific updated timeline, which we will be in a position to do at the next earnings call because we need to get the bioequivalence study started. We've talked about -- we are on track to start that by the end of the year. We started screening patients for that study. And as soon as that study gets started, we'll be able to provide a more fulsome update on the timeline. We have one last toxicity study that will be done in the first quarter. And then the timing of the bioequivalent study is really what's going to dictate our fulsome timeline to get to an NDA filing. But everything is on track as we sit here today. Michael Petusky: Okay. And then just one more. This is probably for Steve. Steve, in terms of capital deployment priorities, obviously, you guys called out the share repurchase. Can you just talk about either ranking or how you guys think about sort of share repurchase relative to internal investment relative to M&A? Obviously, you have a balance sheet that could support some -- multiple things. Can you just talk about how you think about capital deployment? Stephen Griffin: Absolutely. I appreciate the question, Mike. When we look at the hierarchy of our capital needs, I'd say, first and foremost, we have internal investment that we're making into our business today. We've shared that we're investing approximately $14 million of profit into our regenerative solutions portfolio, which is the launch of Integrity and then the preparations associated with Hyalofast. We look at that as a strategic investment that we're making as part of the growth of our product pipeline. That's first and foremost that we talk about. Second is the need for CapEx in the business to support those product launches. Most of all of our CapEx is associated with our Bedford-based manufacturing facility to support the growth of our cross products in Cingal and Monovisc as well as all of our [ high-end ] products, Integrity and Hyalofast. And then third on that list would be the share repurchase that we've communicated today. Are there other actions that we could do and things we could look at? Certainly, we have a long list of things that we consider outside of the ones that I just referenced, M&A being one of them. But at this point, that's not something that the company is ready to undertake. And I'd say those -- first 3 of those areas that we pay the most attention to in terms of ranking our priorities. Michael Petusky: Okay. And then actually, let me sneak one more in, and then I promise I'll get off and let other people ask questions. Steve, in terms of the production issues, I was under the impression that, that had largely been resolved earlier. In Q3 it seems like some of that persisted. Is that a different issue? Or is that essentially hangover from the same issue? Stephen Griffin: It's the latter. It's the hangover from the same issue. So from a resolution, we're back to where we are from a yield perspective where we historically were. It's just about getting back on all of our POs for customers that we were not on track to. So this is just a matter of available capacity and running our teams over weekend shifts and the like to get back to PO, which is why I'm focused around getting it back to healthy by year-end. It is obvious we take every customer PO very seriously, but it has a small impact on some of our [ OUS ] customers and a very minimal impact on our U.S.-based customers. Michael Petusky: Okay. I think you had said that you had expected a overall gross margin to sort of return to like the high 50s, like 58%, 59% in the second half. Is that maybe tracking a quarter behind? Like essentially, should we expect gross margin in Q4 to look more like Q3 or more like high 50s? Stephen Griffin: It's probably between where we are today and a little bit higher towards the fourth quarter. A lot of it comes down to the recovery from a product shipping perspective. So I would say that's probably more associated with some of the current gross margin dynamics. Michael Petusky: Okay. But 58%, 59% longer term is doable, I assume. Stephen Griffin: Yes. A lot of that comes down to pricing with J&J, right? So as you know, that's a very profitable piece of our business. So I don't really give long-term gross margin projections just because that pricing has been so volatile. What you're seeing us return to is north of 55%, between 55% and 60%. That's kind of a more normalized level for the business today, barring changes that could occur from a pricing perspective. Operator: There are no further questions at this time. And that concludes our question-and-answer session for today. Ladies and gentlemen, the conference call has now ended. Thank you all for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Banco Santander-Chile's Third Quarter 2025 Earnings Conference Call on the 5th of November 2025. [Operator Instructions] So with this, I would now like to pass the line to Patricia Perez, the Chief Financial Officer. Please go ahead. Patricia Pallacan: Good morning, everyone. Welcome to Banco Santander-Chile's Third Quarter 2025 Results Webcast and Conference Call. This is Patricia Perez, CFO, and I'm joined today by Cristian Vicuña, Head of Strategy and IR; and Lorena Palomeque, our Economist. Thank you, everyone, for joining us today for the review of our performance and results in the third quarter. Today, Lorena will start with an overview of the economic environment, and then Cristian will go through the key strategy points and the results of the bank in the third quarter of the year. After that, we will have a Q&A session where we will be happy to answer your questions. So let me hand over to Lorena. Lorena Palomeque: Thanks, Patricia. During the third quarter of 2025, we observed positive economic indicators in the Chilean economy. Preliminary market figures suggest GDP grew around 2% year-on-year in Q2 or almost 3% when excluding mining. While we await the full national accounts report on November 18, which will also include Q1 and Q2 revisions, we estimate GDP growth of 2.4% by the end of this year and close to 2% for next year. We are now just a few days away from the presidential and congressional elections in Chile. Also, the outcome is still uncertain, polls suggest that a change in the government administration with an opposition candidate is the most likely scenario, which could generate stronger tailwinds for the economy next year. In terms of inflation, also moderation is already evident, it remains above the 3 target -- the 3% target with core inflation now below 4%. Limited second round effects, anchor expectations and a narrow output gap will allow inflation to converge to below 4% by the end of this year. We expect this inflation process to continue given the softer demand environment, both globally and domestically. In this context, we maintain our forecast for the U.S. of 3.6% for the end of this year, converging to 3% next year. Regarding the monetary policy rate, during the third quarter, the Central Bank of Chile maintaining the policy rate at 4.75%, responding to an inflation environment that continues to ease. Nevertheless, the bank will emphasize that it will closely monitor the evolution of core inflation, which remains higher than expected as well as domestic demand before considering a new rate cut. We expect another reduction in the last quarter of the year, bringing the rate to 4.5% by year-end and followed by an additional cut during the course of next year. On Slide 5, we present recent developments in the regulatory framework. Regarding the mortgage subsidy law, which was approved in May of this year, its implementation has continued within the framework of the allocation of the funds awarded in the first auction held in June. Under the law, 50,000 subsidies will be provided with almost 18,000 already authorized by banks. This has provided some momentum to the housing sector, whose growth is expected to become increasingly evident in the coming months. With respect to the interchange fee, the second rate cap reduction remains on hold and under review by the commission, and we are awaiting further updates on this matter. Open Finance system of FinTech law established an implementation schedule that begins with a collateral submission of information that banks and payment card issuers must share in July 2026. However, the system's technical definition remains under consultation, while costs and other operation details are still pending. This has prompted calls to review the implementation time lines, a request the [ FMC ] is currently analyzing. During September, the framework law on sectoral authorization for permits related to productive, energy and mining initiatives was approved. This will enable the development of tools for the simultaneous processing of permits streamlining the approval of low-risk projects, which should in turn accelerate investment in these sectors. As we mentioned before, there are only a few days left until the presidential and congressional elections in Chile, which will be held on November 16 with a potential runoff on December 14. According to the latest current polls, left wing candidate, Jeannette Jara leads the presidential race with 27% support, followed by right candidate, Jose Antonio Kast with 20%. While the presidential race has gained visibility, we must not overlook the parliamentary elections where the entire Lower House and nearly half of the senate, 23 out of 50 seats will be renewed. Polls show that Chileans remain highly concerned with crime, security and the economic growth. Simulation suggests that right wing candidates may gain ground in Congress, driven by local campaigns emphasizing security. This implies that even if the left wing candidate wins the presidency, Congress could lean right, potentially moderating more vital policy initiatives. As such, while some [ electoral ] related volatility is likely in the near term, we believe the longer-term market impact will be limited. And with that, I will now pass over to Cristian. Cristian Vicuna: Thanks, Lorena. On Slide 7, we show our value creation strategy for our stakeholders through our vision to become a digital bank with Work/Café. Our focus is on attracting and activating new clients, understanding their needs and deepening engagement. We aim to surpass 5 million clients by 2026 while continuing to grow our base of active customers. Next, we are building a global platform that leverages artificial intelligence and process automation to scale efficiently. It's about reducing the cost per active client and driving operational excellence. Our target is to maintain an efficiency ratio in the mid-30s or better, a reflection of a bank that is both digital and disciplined. We are focusing on broadening transactional and noncredit fee-generating services. Through this, we aim to grow our fee generation in double digits and ensuring best-in-class in recurrence, our income fees divided by our structural operating expenses. Our growing client base means more activity, and we are seeing increasing transactional volumes, especially in payments. Our digital ecosystem encourages clients to transact more frequently and seamlessly, driving engagement and loyalty. Finally, this is underpinned by strong CET1 levels, ensuring that our expansions remain sound, responsible and aligned with regulatory expectations. All of this leads to a strategy where we are capable of attracting value creation with ROEs above 20% and a dividend payout of 60% to 70%. On Slide 8, we can already see how our strategy over the last few years has succeeded in changing our income mix and creating a more efficient and profitable bank. Our key measure of value creation has been the strong growth in ROE achieved while maintaining solid capital ratios during the implementation of Basel III. Our ROE has increased more than 6 percentage points, more than double the increase in the rest of the industry. This has been supported by a 5 percentage point improvement in our efficiency versus a 2% improvement in the industry, demonstrating our consistent cost control and the success in the implementation of our digital transformation. We are particularly proud of successfully migrating our legacy mainframe systems to the cloud earlier this year under Project Gravity. On the other hand, we have been transforming the composition of our income revenue streams with fee generation increasing from 15% of our revenues to 20%, reflecting the success of the expansion of our client base and noncredit-related services through our digital accounts and card payments as well as other services such as asset management, brokerage and our acquiring business. Meanwhile, the composition of the industry revenues has remained stable. This mix is driving our revenues ratio to the best-in-class in the industry. This ratio, which shows how much of our costs are paid by our fee generation now stands at above 60%, far above for the rest of the industry. We are very proud of the success of our strategy has had so far. And as you will see later on, we are enthusiastic about the evolution of our results in the coming year. Now in Slide 10, we will take a closer look at the results this year. As of September, the bank generated a net income of CLP 798 billion, a 37% year-over-year increase resulting in a return on average equity of 24% and an efficiency of 35.9%. Growth was supported by an 8% rise in fee income and a 19% increase in financial transactions. Mutual funds grew 15%, and our recurrence ratio reached 62% year-to-date. Our net interest income, which includes our readjustment income increased 17% year-over-year, and our net interest margin remained at 4%. Furthermore, currently, we are provisioning a dividend payout of 60% of this year's income to be paid in April next year. This year, we have also been highly recognized on several fronts. We are proud to have been recognized by several institutions. Euromoney named us Best Bank in Chile, Latin Finance recognized us as Best Bank and Global Finance awarded as the Best Bank for SMEs. This year, we have improved our sustainability rankings with our MSCI ESG rating improving from A to AA and our Sustainalytics grade improving to 15.4 points. On Slide 11, we can see the evolution of our quarterly return over equity, where we can see that we have maintained our ROEs above 21% even in quarters with lower inflation such as this recent quarter, where the UF Variation was 0.56%, and we reached an ROE of 21.8%. On a yearly basis, our NII has improved 16.6% with a strong increase from net interest income as a result of a lower cost of funding, which improved some 100 basis points year-over-year. With this, our year-to-date NIM reached 4%. And given our current macro expectations, we expect our NIMs to stay around the 4% area for what is left of 2025. On Slide 12, we can see how our rapidly expanding client base is leading to a higher fee generation. We currently have 4.6 million clients, of which around 59% actively engaged with us and some 2.3 million are digital accessing the online platforms on a monthly basis. The number of current accounts is increasing 10% year-on-year, driving the 5% and 4% growth of our active clients and digital clients, respectively. The growing client base has led to a 12% annual increase in credit card transactions and a 15% rise in mutual fund volumes that we brokered. Overall, our clients maintain high satisfaction levels with the bank and our product offering. Furthermore, we continue to expand our footprint among companies, where we have increased the number of business current accounts by 23% in the last 12 months. This is explained by the simple business accounts we offer to smaller companies and the integrated payments offered through Getnet. As we can see in the table on the right, the increase in our client base and product usage is translating into high fees and results from financial transactions, growing 11.5% year-over-year. Our main products such as cards, Getnet, account fees and mutual fund fees continue to show strong trends, with cards and account fees registering a higher expense in the quarter related to certain campaigns in our loyalty programs during the quarter. On Slide 13, we can see how our recovery of income generation and tight cost control has improved our key performance metrics. Our efficiency ratio reached 35.9%, the best in the Chilean industry in 2025 so far, and our recurrence ratio reached 62%, meaning that over 60% of our expenses were financed by our fee generation. In early 2025, operating expenses rose temporarily due to the cloud migration costs, mainly reflected in higher administrative expenses during the first quarter. However, overall, our operating costs grew below inflation in the year so far. In the quarter, our total core expenses decreased 3.4%, mainly due to lower personnel expenses related to the seasonality caused by the winter holidays and national holidays in September. Overall, we have maintained our best-in-class levels of efficiency and recurrence compared to our peers. Furthermore, we continue to innovate in our branch network to align with our Work/Café format, improving both efficiency and customer experience. It is thanks to these adjustments to our contact points with clients along with the evolution of our digital platforms that we have been able to achieve these impressive levels of operating performance. On Slide 14, we show an overview of our cost of risk and asset quality. As in prior quarters, cost of credit has remained above historical average, reflecting elevated nonperforming loans earlier in the year. From the graphs, you can see that our NPL and impaired portfolio have shown some improvement in recent quarters with a slight pickup in September due to some seasonality related to collections in the month caused by the national holidays. However, our initial data for October is showing better performance. And over the last few months, we have seen tangible improvements in our asset quality that we expect these trends to continue in the coming quarters. On Slide 15, we can see that the CET1 ratio reached 10.8% in September '25, far above our minimum requirement of 9.08% for December 2025 and demonstrating some 45 basis points of capital creation since December 2024. This was driven by our income generation in 2025 and considers a 60% dividend provision for our 2025 profits accumulated so far and a 4% increase in risk-weighted assets. As noted in our previous call, we have a 25 basis point Pillar 2 capital charge, of which 50% was made by June 2025, in line with regulatory requirements. So on Slide 16, we show our guidance for what's left of 2025 and our initial guidance for 2026. Regarding our 2025 forecast, we are well on track to meeting our guidance with NIMs around 4% and efficiency in the mid-30s. Overall, we expect ROE to finish the year slightly above 23%. For next year, we're expecting GDP growth of 2% with a UF variation just below 2.9% and an average monetary policy rate of around 4.4%. With the upcoming elections in just 2 weeks, we expect a more favorable business environment next year, supporting mid-single-digit loan growth. Despite the slightly lower inflation, the loan growth and slightly lower rates should help to sustain our NIMs around 4%, while our fees on financial transactions should grow mid- to high single digits. This does not include any impact for a further interchange fee reduction, which is yet to be defined by the interchange fee commission. Our efficiencies should remain around the mid-30s, while our cost of credit should continue to improve gradually to reach around 1.3% for the year. With all of this, our initial expectations for 2026 are for an ROE within the range of 22% to 24%, underscoring the high ROE potential of Santander-Chile. With this, I finish my presentation, and we can start the Q&A session. Operator: [Operator Instructions] Our first question is from Lindsey Shema from Goldman Sachs. Lindsey Marie Shema: Congrats on the results. Looking ahead to 2026, it seems like ROE might be a little better, a little worse, but somewhat the same. Just wondering here on our end, what are the main upside and downside risks for your ROE estimate? And then on that note, does it factor in an unfavorable election result? Or could there be further downside there? Cristian Vicuna: Well, so thank you for the question, Lindsey. I'm going to hand over the first part because we assess that some of the most beneficial potential scenarios of next year are related to the change in political cycle. And we are not actually considering most of those effects into our guidance -- our current guidance. Patricia Pallacan: [indiscernible] Cristian Vicuna: Well, to provide some perspective, we are not considering in the potential scenario of growth for next year, the benefits of a political change that could trigger further growth in the commercial part of the loan portfolio. So we are thinking of mid-single digits, but a more benign scenario will probably make the commercial portfolio of the middle market companies grow stronger than this, maybe even going to figures of 7% to 8%, probably very skewed to the second part of next year and more into 2027 because of the delay of some projects to get approved and passed through to the practical part of the investment. So that's one of the things that's not actually considered on our guidance. The main risks that we have seen so far this year and next year are coming from the external part of the macro scenario. You have seen the volatility in terms of assets and commodity prices and all the effects that have come from all the discussions from international trade effects of the U.S. policies and the consequences of this. So that's a source of uncertainty that's also not considered in the central part of our scenario. But all in all, I think that we are favorable of the upcoming quarters in 2026 and that in general terms the more adverse scenarios are considered within our guidance. Patricia Pallacan: Yes. And maybe to complement the answer, our base case scenario considers a lower inflation, but partially offset by a lower monetary policy rate on average for next year. And also offset by better growth dynamics in terms of loans. So that could be better -- even better depending on the political landscape for next year. And we think for both scenarios, we are well prepared in our targets and guidance. Operator: Our next question is from Daniel Mora Ardila from CrediCorp. Daniel Mora: I have 2 questions. The first one is regarding loan growth. Can you provide further color of what do you expect about loan growth in 2026 by segment? If we can have the guidance by segment would be great. And I would like also to know if you can comment about the competitive pressures in loan growth, especially considering that there is one key competitor that is showing very high figures of loan growth in Chile. I would like to know if you feel the pressures, especially in the commercial segment. That will be my first question. And the second one is regarding NPLs and cost of risk. I would like to know, considering the slight deterioration of NPL in the consumer segment and mortgage segment, what will be the path or the evolution of asset quality indicators in 2026, given that you are guiding for a reduction of the cost of risk next year? Patricia Pallacan: Thanks, Daniel, for your questions. I will take the first one and Cristian will take the second one. So regarding the composition of loan growth for next year, we are seeing like a quite homogenic growth composition [ in segments ]. So regarding consumer loans, we continue to see growing at a healthy pace in that product. Regarding the mortgage portfolio, we also -- during this last quarter, we are seeing better dynamics leveraged by the government support or stimulus coming from the subsidies. So we are seeing good dynamics for next year as well. And regarding the commercial loans, that will be like the question mark, but we are also seeing better dynamics for next year, especially leveraged by the political landscape, right? And if we have the right changes in the regulation that we have already seen as part of the transition we will have growth in our guidance for next year. Cristian Vicuna: So within the commercial portfolio, to give you a little more flavor, we are expecting for the retail part, SMEs to grow mid-single digits as within our general guidance. But as I mentioned earlier, the question mark is what will happen with the large corporates and the investment decisions that they might trigger because of the political landscape. This is what we are not seeing yet in terms of market dynamics. And it's probably related to the part of your question about the competitive pressure, right? So I think that in terms of the commercial part of the portfolio, we are seeing some players growing, but we don't assess it on the local part of the portfolio. And we believe that this is set to improve by the second half of next year. And turning to your credit cost of risk and risk in general performance. So, so far this year, we are showing closer to 1.4% cost of risk year-to-date. We have some seasonal effects on September in terms of the absolute movements of the portfolio, especially in the NPL part, we are seeing it's pretty stable. Most of the increase in cost of risk is coming from the improvement that we have been displaying in the commercial NPLs. So these commercial NPLs are coming down from levels of 4.1% 12 months ago to levels of 3.4%. So we've been doing some write-offs of some nonperforming loans there, and that's explaining most of the pickup that we are seeing in terms of cost of risk. We know that's not going to continue for the upcoming quarters. So that's what makes us believe that the total cost of risk is set to improve in the next periods. Operator: Our next question is from Neha Agarwala from HSBC. Neha Agarwala: My first question is on the interchange fee. Could you remind us what are the current levels for the interchange fee? And what is the risk that the second caps actually go through next year? What is your expectation in that regard? Cristian Vicuna: So just a reminder, like we had a committee that was in charge of assessing the rate fees for the card business in general. So they implemented the first part of their reduction from levels of around 1.4% in credit to levels of 1.14%, which is the current rate and from levels of 0.6% in debit to levels of 0.5%, which is the current rate. So the second rate cut, which was suspended, it was set to decrease credit fees to levels of around 0.8% and debit to levels of around 0.35% and prepaid also to levels of around -- similar to credit of 0.8%. So that's the part of the decision that's being reviewed. The committee is expected to come to a decision by the final months of this year or early next year. Our initial assessment was that the total reform will mean an impact in our credit card fees of around $50 million, half and half in both impacts. So the second part is expected to come next year. We don't know. But the impact will be in the neighborhood of the $20 million in fees in the card impact if the committee comes to the decision to implement the second cut. Neha Agarwala: Very clear. So if the second cut actually happens, which is not in your guidance, the impact would be between $20 million to $25 million for 2026. Cristian Vicuna: Yes. Neha Agarwala: Super. And my second question is, again, going back to the cost of risk. I know you talked about it. But this year was -- we saw the NPLs coming down. You had to do some write-offs, there were one-off cases. But 2026, the asset quality should perform better than what we had this year. So why isn't cost of risk coming down, even more in the initial targets? Cristian Vicuna: I think 10 basis points, it's a good range to start because we are still not seeing the full effects of the projects that we've been implementing to improve the collection cycle. So we are still -- and I agree with you, which might sound a little conservative, but we are comfortable guiding some conservative improvements and leaving some room there. Operator: [Operator Instructions] Okay. It looks like we have no further questions. I will now hand it back to the Santander-Chile team for the closing remarks. Cristian Vicuna: Thank you all very much for taking the time to participate in today's call, and we look forward to speaking with you again very soon. Operator: That concludes the call for today. Thank you, and have a nice day.
Operator: Greetings, and welcome to the Kodiak Gas Services Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Graham Sones. Please go ahead. Graham Sones: Good morning, and thank you for joining us for the Kodiak Gas Services conference call and webcast to review third quarter 2025 results. Participating from the company today are Mickey McKee, President and Chief Executive Officer; and John Griggs, Executive Vice President and Chief Financial Officer. Following my remarks, Mickey and John will discuss our financial and operating results and 2025 guidance, then we'll open the call for Q&A. There will be a replay of today's call available via webcast and also by phone until November 19, 2025. Information on how to access the replay can be found on the Investors tab of our website at kodiakgas.com. Please note that information reported on this call speaks only as of today, November 5, 2025, and therefore, you are advised that such information may no longer be accurate as of the time of any replay listening or transcript reading. The comments made by management during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views, beliefs and assumptions of Kodiak's management based on information currently available. Although we believe the expectations referenced in these forward-looking statements are reasonable, various risks, uncertainties and contingencies could cause the company's actual results, performance or achievements to differ materially from those expressed in the statements made by management, and management can give no assurance that such statements or expectations will prove to be correct. The comments today will also include certain non-GAAP financial measures. Details and reconciliations to the most comparable GAAP measures are included in yesterday's earnings release, which can be found on our website. And now I'd like to turn the call over to Kodiak's President and CEO, Mr. Mickey McKee. Mickey? Robert McKee: Thanks, Graham, and thank you all for joining us today. I'd like to begin today's call, as we do with all meetings at Kodiak with a safety topic. As we head into the holiday season and prepare to travel and spend time with friends and family, I want to remind everybody that safety doesn't stop at the workplace, whether you're commuting, visiting family or running errands, please avoid distractions while driving. No text or call is worth risking your safety. Please join me in committing to staying focused behind the wheel so we can enjoy the holidays with those who matter most. We had a busy third quarter, delivering solid financial results and executing on several strategic actions to improve the operational and financial outlook of the company while remaining focused on returning capital to shareholders. Let me begin by discussing some of the strategic actions we have taken over the past few months. First, we went live with our new ERP system in August that was delivered on time and under budget. We consolidated several legacy systems into an integrated platform that will increase our visibility with real-time financial and operational information and enable us to deploy multiple facets of AI technology into our everyday business. The implementation of the new ERP system involved a lot of hard work by the team, and I want to thank everyone involved for their dedication to getting this important project over the line. The new ERP system is a foundational step in our agentic AI initiatives. The team is currently working on multiple AI agents across a broad range of processes, including parts sales, customer order handling and supplier and inventory management. We're specifically excited about our tech parts agent, which will assist our field service technicians in locating the right parts for the job in an expedited manner. These agentic AI initiatives complement our operational AI initiatives, which include condition-based preventative maintenance scheduling and predictive failure detection, just to name a few. The next, as a result of the CSI acquisition 18 months ago, we inherited operations in 5 foreign countries. As part of our strategic goal to high-grade our fleet and concentrate capital and efforts on markets with the best combination of growth and returns, we made a decision to exit all of our international operations. I'm pleased to report that during the third quarter, we successfully exited the last of our international operations by divesting our operations and assets in Mexico, which included the sale of approximately 19,000 operating horsepower. We had great people in those countries, and I wish the buyers well, but we firmly believe that the U.S. is the right place to be for Kodiak in the contract compression business. Relative to the international markets where we previously operated, including Argentina, Canada, Chile, Romania and Mexico, we believe the U.S. offers higher returns, lower operating risk and a superior growth outlook for many years to come. And we successfully divested all of these operating areas in under 18 months from the close of the highly successful acquisition of CSI. The next major initiative in Q3 that I'd like to highlight is the strategic moves we made with our balance sheet. During the quarter, we termed out $1.4 billion of debt through 2 bond offerings at a weighted average cost of debt of 6.6%, including the first ever 10-year term bond issuance in the compression sector. These offerings were another strategic step in derisking our business and setting us up for continued growth and success by allowing us to stagger and extend our debt maturities and significantly increase our liquidity. We ended the quarter with $1.5 billion of availability in our ABL Facility, giving us ample flexibility to pursue exciting future growth opportunities. Finally, we returned an industry-leading amount of over $90 million to our shareholders in the quarter through a $50 million share repurchase and our dividend. Furthermore, as a result of the underlying strength of our business fundamentals, our strong financial results and our outlook for future discretionary cash flow, we increased our quarterly dividend by another 9% to $0.49 per share, equal to approximately 35% of our discretionary cash flow, our stated goal for return of capital to our shareholders. Since September 2024, the $110 million in share repurchases we've completed, have allowed us to reduce our share count by nearly 3.5 million shares. We have approximately $65 million available under this program, and we expect to use it. Share repurchases are a fundamental and exciting part of our overall shareholder return strategy. We ended the quarter with $4.35 million in revenue-generating horsepower. Average horsepower per revenue-generating unit was $965, a figure that continues to lead the industry and that has increased each quarter since we closed the CSI acquisition. In the third quarter, we deployed approximately 60,000 new horsepower that averaged more than 1,900 horsepower per unit and roughly 40% of those new units were electric motor driven. We also added about 30,000 operating horsepower through a small purchase leaseback with an existing customer and through the exercise of an early buyout option on some previously leased units. Including the exit from Mexico, we divested approximately 26,000 operating horsepower of nonstrategic units during the quarter. Our investments to grow the fleet, along with strategic divestitures of noncore units drove our fleet utilization to roughly 98% another industry-leading metric. Our large horsepower units remain fully utilized at over 99%, reflecting the continuing strong demand for large horsepower compression, and we expect that to continue. With new or expanded pipelines representing over 4.5 Bcf a day of incremental Permian gas takeaway capacity coming online by the end of 2026, our Permian customers have been very active this fall in ordering new compression to be delivered next year. In addition to the new pipelines, there's another 4 Bcf a day of sanctioned pipeline projects that are expected to be online by the end of the decade with numerous other Permian egress projects in the works. Given the recent surge in new compression orders, new pipeline takeaway capacity and forecasted natural gas volume growth, lead times for new compression equipment has significantly stretched out to upwards of 60 weeks. We'll give you more details on our 2026 capital spending plans next quarter, but as a result of the high level of demand across the industry and our customers' needs, our capital plan for 2026 is effectively fully under contract. Before we discuss our third quarter financial results, a few thoughts about the macro environment. Since oil broke below $70 in the first quarter, we have seen the U.S. E&P industry adjust to the lower pricing environment in different ways. Permian operators have high-graded their drilling locations and realized increases in drilling and completion efficiencies, such as reducing days to drill to help offset the decline in oil prices and rig count. The result is that we continue to see oil production growth from the Permian Basin and the U.S., and our customers continue to see accelerating growth in natural gas. So we expect 2026 to be a big year in gas growth from the Permian Basin. Given this backdrop, combined with the strength of our business model, the demand outlook for large horsepower compression remains very strong. Kodiak has continued to deliver top line revenue growth, margin increases and Contract Services segment growth throughout the year. Also, as I'll discuss shortly, we have taken several steps to reduce cost and boost our operating efficiencies. We see no reason why this dynamic won't continue into 2026, driving further revenue growth and margin improvement. Now turning to third quarter 2025 results. We once again delivered sequential growth in contract services adjusted gross margin and set another record in quarterly discretionary cash flow. As John will discuss in more detail, adjusted EBITDA for the quarter of $175 million was negatively impacted by over $5 million of nonrecurring SG&A expenses associated with the divested Mexico business. Given strong customer demand, historically high industry-wide utilization and disciplined decision-making by the contract compression industry, pricing conversations with customers continues to be constructive. We completed the majority of our planned 2025 contract renewals in the first half. But in Q3, we recontracted just over 200,000 horsepower at above our current fleet average. Contract Services adjusted gross margin percentage matched the high watermark we set last quarter at 68.3%, a 230 basis point increase compared to the third quarter of 2024. In addition to fleet growth, optimization efforts and pricing, we're seeing margin improvements from setting new large horsepower units and our investments in technology to drive fleet uptime and reliability. Specifically, we've reduced lube oil consumption on a per horsepower basis through our AI and machine learning deployment. And our fleet reliability center that monitors our fleet remotely 24 hours a day is helping us identify problems before they become more expensive repairs with longer downtime. This drives lower engine and compressor repair costs and leads to better uptime for our customers. In our Other Services segment, third quarter results were consistent with our expectations. We're seeing positive momentum in our station construction business as evidenced by the recent award of a 30,000 horsepower compressor station that will feed supply fuel gas to a power plant located in Texas. This project is expected to kick off soon and will take roughly a year to complete. As Texas and other areas in the country look for additional natural gas-fired power plants to satisfy surging electricity demand, we're optimistic that more opportunities like this will arise. I'd now like to pivot to a few things that I believe are an underappreciated part of Kodiak's investment case, our short cash conversion cycle and our industry-leading discretionary cash flow yield. Unlike other midstream and infrastructure companies with lengthy construction projects that require substantial percentages of total capital expenditures long before revenues are generated, Kodiak has a short time frame between capital outlay and first revenue. The ability to quickly generate cash plus the strong returns on our growth investments allows Kodiak to generate a discretionary cash flow yield that we believe to be among the best in the midstream investment universe. We generated nearly $117 million in discretionary cash flow in the third quarter and over $450 million over the last 4 quarters. That equates to approximately 15% discretionary cash flow yield at our current stock price. We define discretionary cash flow as adjusted EBITDA less cash taxes, cash interest and maintenance CapEx. This represents a starting point for our capital allocation framework. We continue to use this cash flow to return capital to shareholders, buying back approximately $50 million in stock in Q3 2025 and paying out a well-covered quarterly dividend. Now I'd like to turn to the outlook for the remainder of 2025. Even following the sale of Mexico and the incurrence of extraordinary and nonrecurring SG&A expenses during Q3, we remain on track to hit our annual revenue, margin and adjusted EBITDA guidance, and we're right where we expected to be with capital spending. At the end of the quarter, we have deployed about 90% of the new units for the year with the remainder expected to be installed in the fourth quarter. Given our reduced outlook for cash taxes, we're on pace to exceed our discretionary cash flow guidance. Therefore, we increased our outlook on this metric for the year. In summary, we're very pleased with our third quarter results. We're on track to achieve our full year guidance and the steps we've taken this year position us for continued margin growth in the future. Our focused large horsepower business model is helping us generate industry-leading discretionary cash flow yields, position us to further strengthen our balance sheet and return cash to shareholders. And now I'll pass the call to John Griggs to further discuss our financial results and our updated guidance for the year. John? John Griggs: Thank you. As Mickey made clear, we accomplished some really important strategic objectives during the quarter, actions that serve to set us up well for the next leg of returns-oriented growth in the years to come. Let's turn to the quarter's highlights, and I'll start with our Contract Services segment. We generated solid revenue growth in this segment in Q3 as evidenced by a year-over-year increase of 4.5% and quarter-over-quarter increase of 1.2%. Revenue per ending horsepower was $22.75 this quarter, a nice uplift versus the same quarter last year and effectively flat sequentially. We anticipated this outcome, and we called it out on our last quarterly call because we knew we were adding a lot of revenue-generating horsepower during this quarter, but only a portion of that horsepower's revenues. With less new horsepower being set in Q4 and in conjunction with the recontracting rate increases and solid pricing for new units, Mickey already spoke to, we expect to see a nice uptick in the revenue per horsepower metric for Q4. Relative to Q3 of '24, Contract Services adjusted gross margin percentage increased by 230 basis points to 68.3%. The margin improvement is a reflection of the success we've realized in achieving higher pricing per horsepower alongside lower operating expenses per horsepower. We've driven these results through a relentless focus on high-grading the fleet through large horsepower, gas and electric additions, combined with the sale of noncore, low-margin units. And we're habitually rolling out new technology and process initiatives that either reduce costs, defer spend or improve labor productivity or some combination of the 3. In our Other Services segment, we generated revenues and adjusted gross margin in line with our expectations. We've seen a resurgence of contract activity and that, plus our backlog gives us confidence that we remain on track to achieve our annual revenue and margin guidance. Reported SG&A for the quarter was $37.8 million. And after adjusting for nonrecurring or noncash items, it was $31.5 million. As Mickey mentioned, the $31.5 million still includes approximately $5 million in professional expenses associated with the cleanup and sale of our former Mexico operations. With our Mexico operations and assets now sold, we expect SG&A to revert back to a more normalized level during Q4. During the quarter, we booked a noncash charge of $28 million in other expenses that was related to our multiyear negotiation with the state of Texas over the taxability of our compression assets. We've recently made significant progress in gaining clarity on the issue and ultimate potential settlement. The charge takes our reserve to an amount we believe will satisfy this obligation in full. Based on our current discussions, we'd expect to pay the state and close out this accrual in early '26. By doing so, we'll eliminate a significant contingent liability that has been with us for many years. And importantly, we believe that our view and the state's view on taxability of these assets is relatively aligned, and we don't foresee any changes to our future margins or return on investment associated with the tax structure going forward. Net loss attributable to common shareholders for the third quarter was $14 million or $0.17 per diluted share. Excluding the loss on the sale of our Mexico business, the Texas sales and use tax charge and other onetime items, adjusted net income was $31.5 million or $0.36 per diluted share. Maintenance CapEx for the quarter was approximately $20 million and trending toward the low end of our guidance range for the full year. Our investments in technology and the insights we're gaining from that are allowing us to extend preventative maintenance intervals and commensurately associated spending on a major portion of the fleet. We're increasingly seeing the benefit in our maintenance CapEx and believe we'll see more of that going forward as well. As expected, growth CapEx more than doubled quarter-over-quarter to approximately $80 million based on the addition of the roughly 60,000 in new horsepower. Year-to-date, we've added roughly 140,000 horsepower, and we're on pace to slightly exceed our forecast of 150,000 for the year. Other CapEx was $12 million for the quarter. As we previously highlighted, other CapEx was front half weighted in 2025 due to capitalized spend on our new ERP system as well as some residual spend on our CSI-related fleet upgrades, which are now complete. The discretionary cash flow came in at $117 million, an increase of approximately $14 million versus the comparable quarter from last year. Free cash flow for the quarter was $33 million. With regard to the balance sheet, we made great strides in the execution of our finance strategy. We achieved our goal of terming out the majority of our ABL into bonds with staggered maturities, including the first 10-year bond in the compression space. These actions derisk our balance sheet and add a further element of cash flow stability to our business, which in turn helps us execute on our capital allocation and shareholder return strategies with enhanced confidence. During Q3, we issued $1.4 billion of bonds, exiting the quarter with $521 million drawn on the ABL and leaving us with approximately $1.5 billion in availability. Total debt at quarter end was approximately $2.7 billion. We exited the quarter with a credit agreement leverage ratio of around 3.8x, up from the prior quarter, mainly as a result of debt financing fees as well as our $50 million share repurchase from EQT. We expect to exit the year at about 3.6x. Last, our Board recently declared an increased dividend of $0.49 per share. Even with 2 increases totaling nearly 20% this year, our dividend is well covered at 2.9x. Briefly on guidance. As we close out the year, we remain on track to hit our segment level guidance for revenues and margins as well as adjusted EBITDA, even after all the extra spend on Mexico during Q3. On CapEx, our prior guidance remains unchanged as the vast majority of 2025's capital spending is now behind us. We expect the fourth quarter CapEx and new unit growth will decline from Q3 levels. Thanks to our reduced outlook on cash taxes and reduced spend we're seeing in maintenance CapEx, we're on pace to exceed our prior guidance for discretionary cash flow. We now expect to generate between $450 million and $470 million in discretionary cash flow for the year. And with that, I'll hand it back to Mickey. Robert McKee: Thanks, John. Our business model, which generates stable and recurring cash flows is performing well in the current market. The demand outlook for contract compression remains robust, demonstrated by our ability to maintain strong pricing and continued growth in our industry-leading horsepower utilization. Additionally, our new unit horsepower order book is essentially fully contracted for 2026 as we capitalize on the robust outlook for growth in natural gas. Besides the top line growth, we are successfully making steps to increase margins by divesting noncore units and investing in technology to reduce costs and increase uptime. These targeted actions have enabled us to reach new financial milestones across several important metrics. As a result, we delivered year-over-year increases in Contract Services revenue, adjusted gross margin and set a new quarterly record in discretionary cash flow, strengthening our ability to return capital and drive ongoing value for Kodiak shareholders. Thank you for your participation today. And now we're happy to open up the line for questions. Operator? Operator: [Operator Instructions]. Our first question comes from Doug Irwin with Citi. Douglas Irwin: I just wanted to start with '26 here. And I realize you haven't given any explicit guidance, but it sounds like you have a pretty good idea of what bookings are looking like into next year at this point. So just wondering if you could maybe provide a bit more detail about how the backlog is shaping up and maybe just high level, how you're thinking about fleet additions and pricing power relative to the last few years. Robert McKee: Doug, this is Mickey. Thanks for being with us today. Yes, we're not quite ready to give guidance into '26 quite yet. But like we said in our prepared remarks, we're effectively fully contracted out for what we plan on spending for next year. We've been pretty clear about the fact that our plan is to spend kind of roughly 60% of our discretionary cash flow on our growth capital for any given year. And we think that next year ought to be pretty comparable to that. And we have contracts out into the latter parts of next year that ought to be somewhere in that ballpark. So next quarter, when we give official guidance for '26, we'll give that more detail, but we feel pretty good about where we're at right now and set to have continued growth into next year. Douglas Irwin: Understood. And then my second question, just around M&A. I think so far this year, you've been focused on more kind of smaller acquisitions and divestitures, but it sounds like a lot of the obvious high grading is maybe concluded at this point. So just curious if larger scale M&A is something that's on your radar? And if so, what kind of deals might make sense? And would you maybe even consider stepping outside of traditional compression if the right opportunity presents itself? Robert McKee: Yes, Doug, I mean, we definitely would consider that. We don't comment too much on potential M&A deals. But I will tell you that the strategic actions that we took this year set us up to be in a position to consider some of that stuff for next year. So we went live with our ERP system, which was a huge step for us to dial in technology and utilize AI going forward as well as the bond issuance that we did that's freed up $1.5 billion worth of availability on our ABL. So as of this quarter, we have a balance sheet that's in a position to pursue some M&A activity if the right opportunity presents itself. Operator: And our next question comes from John Mackay with Goldman Sachs. John Mackay: Last quarter, you -- we spent a fair amount of time on some of the initiatives you were working on with your customers, kind of sale leasebacks or other kind of similar types of deals. Can you maybe just catch us up on where those sit and how conversations gone so far? Robert McKee: John, good to talk to you this morning. So in Q3, we had a small purchase leaseback transaction that we executed on that was really good for us and helped us grow the revenue-generating horsepower by above that 30,000 horsepower mark. So we've got good conversations with that kind of stuff going on. Nothing -- no big things super imminent right now, but those conversations are happening with customers. And just kind of back to Doug's question that I just answered, right, like the strategic initiatives that we executed on in this quarter with the ERP implementation that allows us to get that real-time financial and operational data at our fingertips as well as the bond issuance freeing up a lot of liquidity for us is those were 2 really important steps as a prerequisite to executing on some larger type of not only M&A, but also kind of like strategic transactions with our customers. So we had to get those steps out of the way first before we could take the next one. So we're excited about the progress we made in the third quarter. John Mackay: Understood. And then going back to your comment earlier around, I guess, you're doing some station construction for some power out in the basin. Can you talk a little bit more about what the opportunity set looks like there for you guys and whether Kodiak could get more kind of directly into the power gen side? Robert McKee: Yes, absolutely. I mean that specific opportunity is one of our station construction deals. We've got a ton of backlog that it looks like for opportunities in our pipeline for that station construction business, a lot of interest in the power sector. And so we are doing a lot of work there. We're gaining a lot of valuable expertise and industry insight there. And if the right entry point presents itself, then we will probably take advantage of it. But nothing to report just yet, but we're doing a lot of work, and we're very interested in the segment. Operator: And we'll go next to Connor Jensen with Raymond James. Connor Jensen: I noticed that lead times are back above 60 weeks for equipment, which lines up with what we've heard from others. Wondering if this will potentially lead to higher prices down the road on incremental orders that you could maybe capture through higher prices and just kind of how you're thinking about that dynamic? Robert McKee: Yes. I mean I think lead times are a function of the demand in the industry, right? And so I think you're seeing this -- the industry see an extraordinary amount of demand from not only takeaway capacity increases in the Permian Basin, but significant volume increases that are being projected for natural gas, not only in the Permian, but in other basins as well. So I think you're starting to see this LNG capacity come online and you're starting to see a significant amount of volume increase projections from our customers and others that are saying, man, we need a lot of compression, and we need a lot more of it. So I think that is all going to be positive for pricing going forward, and we expect that we will continue to have positive pricing discussions with our customers. Connor Jensen: Got it. That makes sense. And then a nice job exiting all the international operations focus on the core U.S. market. Is there any cost savings to be had being an entirely domestic business? And how should we think about divestments following this presumably at a lower pace now that you have all the international businesses sold? Robert McKee: Yes. I think going forward, the divestitures will come at a lower pace, now that we've successfully exited Mexico and Argentina. Those businesses were definitely at a lower margin contribution than the standard large horsepower compression that we have that's very, very concentrated in the U.S., especially in the Permian Basin. So we're certainly divesting of lower-margin business there. So I would consider -- I would definitely think that it would be helpful to our overall margin. So -- but it's a pretty small contribution. So it's not going to be a big impact. John Griggs: And I will add to that, this is John, to -- and we called it out in the prepared remarks. It was in our press release. So we explicitly spent about $5 million on professional expenses in the third quarter in SG&A for a business that's now sold. So that's kind of all wrapping up. And so there is a bona fide savings you won't see repeat in the fourth quarter and beyond. Operator: Moving next to John Annis with Texas Capital. John Annis: For my first one, with the new horsepower added this quarter, can you talk about how much of that is electric? I think you may have mentioned around 40% in your prepared remarks, if I heard you correctly. And then just more broadly, has there been any recent changes in your customers' desire to add electric motor drive compression? John Griggs: Yes. Thanks. This is John. I'll tackle the first piece and then hand it back to Mickey for the customer kind of feedback. So in the third quarter, we added around 60,000 new horsepower and about 40% of it happened to be electric. We also, over the course of the year, have kind of told everybody that about 40% of the total order book for '25 was electric. So that was just a coincidence in terms of the third quarter versus the year. In terms of what Mickey is saying in the future, I'll turn it back to you. Robert McKee: Yes. I mean I think that you're definitely seeing a little bit of a pullback away from electric-driven compression orders and inquiries coming in. It's just a power problem, especially in the Permian Basin. They're just the lead times for getting power and connecting the grid access is just a problem for people that have aspirations to go to electric. I think those aspirations are still there. They just are looking at shorter-term solutions and that kind of thing that are kind of then the longer-term electric desires that they have. So the power problem is real, and it's kind of shifting some of those customers' desire to go electric. John Annis: Terrific. For my follow-up, you highlighted robust natural gas demand drivers, including power for data centers and LNG. Can you quantify what portion of your new unit deployments or backlog are directly tied to serving these emerging areas versus traditional wellhead production? And then are there any differences in contract terms, duration or equipment requirements for these applications? Robert McKee: John, it's really hard for us to quantify what of our -- how much of our compression is going to serve LNG versus data center demand and that kind of thing. Once that gas gets into a pipeline, you never know if that certain molecule is going to support fuel for power for a data center or it's into the Gulf Coast to be liquefied and said to Europe for LNG. So we really can't tell the difference from our standpoint. We do know that there's a lot of demand for natural gas and it all requires multiple stages of compression. It's good for our business. So we see it coming down the pipeline, and we don't see any differences really from those standpoints of contract terms or duration there. So from where we sit in that value chain, it's too early to kind of determine. Operator: Moving next to Zack Van Everen with TPH & Company. Zackery Van Everen: Maybe just going back to the 60 weeks on new equipment. Does that kind of indicate you're already starting conversations with customers for 2027? And would you guys be willing to order some on spec just to make sure you have the equipment when it's needed? Robert McKee: I would think that the discussions for 2027 will start happening really quickly. We've been pretty busy here so in the last month or so. So I haven't heard about many discussions into '27, although I do know that they're starting to happen. We haven't traditionally ordered equipment on spec, Zach, but -- and to the extent that we can avoid doing so, we will for compression. But there's some things we can do in working with packagers and working with the Cat dealers on making sure that there's engines kind of in the pipeline coming down and that we can have access to. So there are some things we can do to kind of manage our supply chain there without having to really step out on a limb and order full equipment packages on speculation out with that longer lead times. Zackery Van Everen: Got you. That makes sense. And maybe related to the same question, have you seen contract duration get extended as we see continued rates increasing for customers is when they renegotiate. Has that gone out from the typical 3 to 5 years? Or are you still within that range for most new contracts? Robert McKee: Most new contracts are still within that 3- to 5-year range. So we are starting to see some interest from some customers that want to term equipment out for longer than that, but haven't gotten too much traction there as we're really more prone to key in on price rather than term for those contracts. Operator: [Operator Instructions]. And we'll go next to Selman Akyol with Stifel. Selman Akyol: I just want to go back to the station construction opportunity that you're seeing. And you talked about backlog, and I just want to make sure I understand that. Is backlog opportunities that you've identified? Or is that stuff you've identified and you actually expect to become order and we should expect to see it at some point flow through? Robert McKee: A little bit of both, Selman. I think that we probably have more opportunities in our pipeline today than we've probably had in the last couple of years. Now conversion rate on those, I think we expect to be pretty high, but haven't signed, sealed the deal on all of those yet, but we feel pretty good about that business model going forward and the contribution that it's going to have in 2026. Selman Akyol: And then as we think about margins, you've talked about divesting lower contributions. You've got your ERP system. You've talked about AI. What should we be expecting margins as we kind of go through '26? Is there still upward pressure to those numbers that you're putting up? Robert McKee: I think so. I mean we're not quite ready to guide on '26 what margins are going to look like yet, but we would expect those to be higher than they are today. Selman Akyol: Got it. And one last question, if I could squeeze it in. Can you just talk about what the outlook is for other basins besides the Permian? I know the Permian gets all the attention, but seeing any uplift in any others? Robert McKee: Yes. Selman, good question. And quite frankly, the bulk of the capital spend by our customers has gone to the Permian Basin, like you said. So we key on the Permian probably more than most people. But I will tell you, there is some uplift in opportunities that we're seeing in some other basins. We've got some really interesting opportunities that we're taking advantage of up in the Northeast as well as in the Eagle Ford as well as in the Rocky Mountains. So we're seeing some of those other basins start to have a lot more interest and activity. So it's a good thing. And we think that certainly from a natural gas standpoint of supporting LNG build-out and data center build-out and that kind of thing, some interest from these other basins is a quality thing for us. Operator: And we'll hear next from Eli Jossen with JPMorgan. Elias Jossen: Maybe just on some of the strong liquidity you guys have and the optionality it creates. I recognize that '26 is pretty filled out, but can you just talk about what makes the most sense to do with that dry powder? I mean, could we think about something bigger in the Power Solutions realm? I know you guys talked about you're looking at those, but maybe just stacking that kind of opportunity set versus some of the M&A that's out there. John Griggs: Yes, sure. So this is John. I'll tack it, and I'm sure Mickey will chime in, too. So look, you asked a broader question. I am going to say that our capital allocation framework that we've been consistently applying since we went public is still the one that we're going to stick to, and that's an algorithm that kind of looks at that 3% to 4% growth in horsepower on a year-over-year basis for several years, generates upper single digits EBITDA growth for several years in a row, and that should translate into a similar, if not slightly higher discretionary cash flow growth rate going forward as well, too. We want to honor the 3.5x long-term leverage target that we've kind of set forth. And so we will always want to protect that balance sheet. But then we've got this great pile of discretionary cash flow that we have the optionality and what we're going to do stuff with. We're still seeing wonderful returns. We always talk about kind of the new horsepower sets that we see and generating really, I guess, high-quality returns well above our hurdle rates on new horsepower. So we'll continue to do that. And then as we think about M&A, Mickey answered a lot of those questions at the beginning. So we've gotten so many of these things that have kept us pretty focused post going public, post-CSI integration, exiting the international operations, exiting the small horsepower business, implementing the new ERP system that were really real geared up to just take advantage of this kind of, I'll call it, new management capacity that we have for the next chapter of Kodiak's growth. So we're going to look at all opportunities within compression that fit our kind of pistol, which is going to be the large horsepower, high-quality assets in the right basins. And then as we think about power, how can you not think about power in a world that we live in? Our customers ask us to do it. We're in the electric power business. We have relationships with all of the people that are buying their own distributed power that are concerned about what's going to happen to the grid and stability. So it's conversations that we'll continue to have going forward. And then the last is that opportunity to work creatively with our customers to potentially do the purchase leaseback type transactions. Those would be wonderful ways to grow our business without growing industry capacity to a degree and can make great financial sense for investors. So it's really -- it's -- we're sitting really well for 2026 to try to think about, once again, the next chapter of Kodiak's growth that is in addition to this awesome long-term business model that we have in large horsepower U.S. compression. Elias Jossen: Yes. Awesome. Really appreciate the color there. And then maybe just kind of back to some of the 60-week lead times and the contracting that you're seeing. Can you just talk a little bit about pricing trends, particularly in the Permian? I know those continue to move up and to the right, but just what you guys are seeing on the pricing front and how you expect that to evolve in the future? Robert McKee: Yes, Eli, we don't expect things to change that much. I think we've still got the ability to command leading-edge pricing that we have for the last couple of years. We've repriced a good bit of our fleet, but there is still a significant piece of our fleet that we haven't repriced. And so we expect kind of the existing price book of the existing fleet to continue to move up over time as we adjust some of the legacy contracts that we had that are 3 or 4 years old. And then we expect to continue to command kind of leading-edge pricing on new unit deployments that we have coming out the door, too, because, quite frankly, with the inflation and increased cost of operations on that stuff, we have to command a higher price to command the same kind of margins that we've had. So we'll be focused -- laser-focused on those, but we think that the pricing situation remains pretty status quo, and we think we can still drive pricing on new units and the existing fleet. Operator: Anything further, Mr. Jossen? Elias Jossen: I leave it there. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Mickey McKee for closing comments. Robert McKee: All right. Thank you, operator, and thank you to everyone participating in today's call. We look forward to speaking with you again after we report our results for the fourth quarter. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day, and welcome to Sempra's Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Louise Bick. Please go ahead. Louise Bick: Good morning, and welcome to Sempra's Third Quarter 2025 Earnings Call. A live webcast of this teleconference and slide presentation are available on our website under the Events and Presentations section. We have several members of our management team with us today, including Jeff Martin, Chairman and Chief Executive Officer; Karen Sedgwick, Executive Vice President and Chief Financial Officer; Justin Bird, Executive Vice President of Sempra and Chief Executive Officer of Sempra Infrastructure; Caroline Winn, Executive Vice President of Sempra; Allen Nye, Chief Executive Officer of Oncor; and other members of our senior management team. Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statements we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K and 10-Q filed with the SEC. Earnings per common share amounts in our presentation are shown on a diluted basis, and we'll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We'll also encourage you to review our 10-Q for the quarter ended September 30, 2025. I'd also like to mention that forward-looking statements contained in this presentation speak only as of today, November 5, 2025, and it's important to note that the company does not assume any obligation to update or revise any of these forward-looking statements in the future. With that, please turn to Slide 4, and let me hand the call over to Jeff. Jeffery Martin: Thank you all for joining us today. Before discussing today's financial results, I want to spend a moment reviewing how we've positioned our portfolio to deliver significant value to our owners through the end of the decade. Today, our company is situated at the intersection of several important secular trends, including the ongoing electrification of America's energy systems, AI deployment and the growing need to deliver energy safely and reliably. In order to capitalize on these trends, we've worked closely with our Board of Directors to update our corporate strategy to focus on lower risk and higher value transmission and distribution investments, growing our position as a leader in large economic markets, shifting our capital allocation to fund the growing needs of our U.S. utilities and doing so with a sharp focus on Texas, which is a market that we believe offers the best long-term value proposition for our owners. Next, let me turn to our financial results. Earlier this morning, we reported third quarter 2025 adjusted EPS of $1.11, which compares favorably with the prior period's results of $0.89. Also, with the strength of our year-to-date results, we're affirming full year 2025 adjusted EPS guidance range of $4.30 to $4.70 while also affirming our 2026 EPS guidance range of $4.80 to $5.30. And finally, we're affirming our projected long-term EPS growth rate as shown on this slide. Please turn to the next slide, where I'll provide an update on our 2025 value creation initiatives. You'll recall that earlier this year, we announced a company-wide campaign focused on 5 initiatives to create value for owners. First, we set a goal of investing approximately $13 billion this year with the vast majority being allocated to our U.S. utilities. Through the first 3 quarters, I'm pleased to report that we've successfully deployed nearly $9 billion of capital and remain on track to meet or exceed our year-end goal of $13 billion. Moreover, at Sempra Texas, we're benefiting from improving returns, primarily attributable to increased capital efficiency at Oncor, which is associated with the newly implemented unified tracker mechanism. Moving to the second initiative. We're pleased with our recent announcement to sell a 45% stake in Sempra Infrastructure Partners for $10 billion. We view that transaction as a major catalyst in unlocking Sempra Infrastructure's franchise value while also benefiting Sempra in numerous ways, including: number one, improving our business growth profile as the mix of regulated earnings significantly increases; number two, unlocking reinvestment capital for our U.S. utilities; number three, adding an average of $0.20 to EPS accretion over the 5-year period starting in 2027; and number four, fortifying our balance sheet, deconsolidating Sempra Infrastructure Partners' debt and paving the way for improved credit metrics. In parallel, the ongoing sales process for Ecogas continues to generate a lot of interest from a number of prospective buyers, and we're expecting to receive final bids before the end of the year. Both transactions are expected to close by the middle of 2026. The last initiative shown here at the bottom of the slide is aimed at improving community safety and driving operational excellence across the organization. This includes efforts to improve the regulatory environment with a view toward reducing enterprise risk. A great example is California SB 254, which strengthened the long-term stability of the state's wildfire fund while also improving claims liquidity. The key takeaway on this slide is that progress on these initiatives is translated into improved financial and operational results, and I cannot be more proud of our employees who have embraced our commitment to both modernize and scale our organization, improve our cost structure and better serve all of Sempra's stakeholders. Please turn to the next slide where Karen will walk through business updates. Karen Sedgwick: Thanks, Jeff. At Sempra, California, SB 254 was enacted, which is a significant derisking event for the California electric utilities. Jeff mentioned it earlier that the bill calls for an even split of funding between the California IOUs and their customers with no upfront contributions. Importantly, SDG&E share of the various contributions is a modest 4.3% for what amounts to just under $13 million per year through 2045, with additional future contingent contributions being required only if needed. Continuation account also strengthens the cap on reimbursement in the event of a finding of imprudence. It's also important to note that any contributions made by IOU shareholders to the continuation account may be also counted as prepaid credits against potential reimbursement amounts in the future. Taken together, we believe these measures, which are outlined on Slide 15 in the appendix, significantly strengthened the financial safeguards for electric utilities, an important achievement for all of California. As we approach year-end, we're tracking several regulatory matters in California that we hope to wrap up, including Track 2 of the GRC, the T06 proceeding at FERC and the CPUC's cost of capital proceeding. Moving to Sempra Infrastructure. We previously announced a definitive sales agreement that's expected to reduce our ownership percentage to 25% will be accretive to EPS forecast and credit. And following the close of the transaction, we expect to maintain a solid cushion above our FFO to debt thresholds. Among other benefits, a lower equity stake will also improve our regulated earnings mix, while allowing Sempra to deconsolidate Sempra Infrastructure's debt from our GAAP financials. In our LNG business, Port Arthur LNG Phase 1 continues to make notable headway with Train 1 expected to reach COD in 2027. We're on schedule and on budget with over 1/3 of piping installation complete on Train 1. Recently, we also completed the Tank A Roof Air Raise, which is another important milestone for the project. Earlier in the quarter, you'll recall that we also reached FID at Port Arthur Phase 2 and issued a full notice to proceed under our fixed-price EPC contract with Bechtel. This is important because it gives us the opportunity to leverage continuous construction at the site and reduce project risk. To date, we placed all high-value orders for long lead plant equipment and also completed the project's first permanent piles for Tank C and Train 3. I'll also add that the value proposition of Sempra Infrastructure's LNG franchise continues to grow. As the European Council recently backed the EU's proposal to end deliveries of pipeline gas and LNG from Russia by the end of 2027. Moving to ECA LNG Phase 1. The project is over 95% complete and pre-commissioning activities are ongoing. Certain systems have moved into the commissioning phase, and we're currently working on repairing an auxiliary turbine designed to increase efficiency. Based on progress at the site, we continue to expect first LNG production in the spring 2026 with commissioning cargoes expected to commence thereafter. At Cimarron Wind construction continues to advance with the overall project being approximately 95% complete. And just last week, Cimarron achieved initial synchronization of approximately 1/3 of the turbines that are now online and operational. And importantly, the project remains on target to achieve COD in the first half of 2026. Finally, at Sempra Texas. Oncor's base rate review continues to make considerable progress. In September, a settlement on interim rates was approved that allows Oncor to apply the final approved rates back to January 1, 2026, if the case is not finalized by that date. And through October, Oncor has evaluated interpreter arguments, submitted rebuttal testimony and is actively engaged in settlement discussions with all parties. Next, the procedural schedule calls for a hearing on the merits to begin the week of November 17. With completion of the base rate review and an updated 2024 test year, together with the opportunity to improve capital efficiency with the UTM, Oncor will be better positioned to support customer growth across its service territory. And at the end of September, we continue to see strong growth in Oncor's core markets. Oncor's active LC and IQ has increased over 10% from the prior quarter. Further, premise count increased by 16,000 and Oncor also built, rebuilt or upgraded nearly 660 circuit miles of T&D lines during the quarter. As customer growth continues to accelerate, in the transmission expansion plans advance, Oncor anticipates a substantial increase to its 2026 to 2030 capital plan. Please turn to the next slide. Turning to the Texas 765 transmission expansion. We believe this remains a key growth driver that's underappreciated by the market. ERCOT estimates $32 billion to $35 billion to complete the full build-out. And as a reminder, we estimate Oncor's portion of these projects will surpass 50% of the total investment with Permian projects expected to come online by the end of 2030 and non-Permian projects being completed in the 2030 to 2034 time frame. As a result, Oncor is now forecasting an increase of over 30% to its projected 2026 to 2030 capital plan. And though we're still early in our fall planning process, Oncor continues to see substantial upside opportunities to its updated base plan forecast. That's why at Sempra, we're prioritizing the Texas market within our portfolio and assuming a constructive rate case outcome you should expect us to allocate a significantly greater share of investment capital to Sempra Texas in our roll forward plan. Please turn to the next slide, where I'll review the third quarter financial results. Earlier today, Sempra reported third quarter 2025 GAAP earnings of $77 million or $0.12 per share. This compares to third quarter 2024 GAAP earnings of $638 million or $1 per share. Note that third quarter 2025 GAAP earnings include a $514 million tax expense related to classifying Sempra Infrastructure Partners as held for sale, which is nonrecurring in nature. On an adjusted basis, we're pleased with our strong year-to-date execution, as third quarter 2025 earnings were $728 million or $1.11 per share. This compares favorably to our third quarter 2024 adjusted earnings of $566 million or $0.89 per share. We believe this sets us up well for the remainder of the year as well as next year where we're anticipating strong year-over-year growth from the midpoint of our 2025 guidance. We're continuing to expect several regulatory decisions in the next several months and don't want to get ahead of the CPUC. Ultimately, the resolution of these matters will be helpful in determining where our full year financial results come in. Please turn to the next slide. Variances in the third quarter 2025 adjusted earnings as compared to the same period last year can be summarized as follows: At Sempra, California, we had $76 million primarily from higher income tax benefits, partially offset by higher net interest expense. This included $32 million associated with the election to accelerate deductions for self-developed software expenses authorized under OB3 as well as return to provision impacts and timing of flow-through tax benefits in the quarter. We're also pleased that Sempra California had $47 million from higher CPUC based operating margin, net of operating expenses, partially offset by lower cost of capital. Turning to Sempra Texas. We had $45 million of higher equity earnings from higher invested capital, Oncor system resiliency plan and unified tracker mechanism, partially offset by higher operating and interest expenses. At Sempra Infrastructure, we had $26 million, primarily from higher asset optimization, partially offset by lower transportation results, lower tax benefits and others. At the parent, the $32 million decrease is primarily due to higher net interest expense, lower investment gains and others, partially offset by higher income tax benefits from OB3. Please turn to the next slide. To conclude our prepared remarks, we continue to execute on our 2025 value creation initiatives and also have delivered solid third quarter and year-to-date financial results. Further, the Sempra Infrastructure Partners transaction is a significant positive catalyst for our company and reinforces our mission of building America's leading utility growth business. To accomplish that, we're targeting strong rate base growth in Texas and California with a view towards posting improved and more durable earnings and cash flows in the future. And as we've indicated, we think there are significant incremental capital investment opportunities to do just that over both the near and long term, which is why we feel confident in announcing that Oncor's roll forward capital plan is expected to increase by at least 30% over its current $36 billion base capital plan. Looking forward, we expect to officially announce Sempra's 2026 to 2030 capital plan on our fourth quarter call in February, subject to the completion of Oncor's pending base rate review. Thank you for joining us, and I'd now like to open up the line for your questions. Operator: [Operator Instructions] And our first question will come from Nick Campanella from Barclays. Nicholas Campanella: So look, you've done a lot to derisk the balance sheet with the transaction that you announced 5 weeks ago. Obviously, you're talking about this higher CapEx outlook at Oncor. Just with the proceeds that are kind of coming in on a staggered basis, '26 and '27, just how are you kind of viewing balance sheet capacity for this increase? And is it fair to say there should be no equity through '27? Or just how are you kind of thinking about that? Jeffery Martin: Yes. Thank you, Nick. Let me take the equity question first, and then I'll pass it over to Karen to give more color on the balance sheet. But I would just start on the equity side and just say we're in great shape on this front, right? As you indicated, the proceeds from the SI transaction are expected to eliminate 100% of the common equity that was previously in the 2025 to 2029 financing plan. It also sets us up well as we look to roll the plan forward to 2030, which we expect to discuss in February. But with the proceeds that you talked about being staggered and coming into us in 2026 and 2027, I think one of the key takeaways is we're in a great position to fortify our balance sheet, which Karen will talk about momentarily. We have more work to be done this fall, but Karen and I are committed to maintaining a strong balance sheet to efficiently fund growth. And as we have in the past, Nick, we'll use all the tools we have available to grow the business in a thoughtful way. Now let me turn to the balance sheet briefly. One of the things our management team does from time to time is we spend time discussing how we create a competitive advantage in every market cycle. And in today's market cycle, one of the things that we've identified with our Board of Directors is the importance of maintaining balance sheet strength, and that was a central part of the thesis that was behind the SI transaction and why we're taking a series of steps over the next 12 months to fortress our balance sheet to support the strong growth in our utilities. That is one of the key takeaways today. We're seeing remarkable growth in our utilities, particularly in Texas, and we expect that not just to end Nick in 2030, but to extend well into the middle part of the next decade. And that's why privilege and the balance sheet is so important. And with that, Karen, perhaps she could talk about how you're thinking about next steps. Karen Sedgwick: Sure. Thanks, Nick. Yes, I think you're looking about it as correct, Nick. We've been working closely with the rating agencies. They're giving us time to complete the SI transaction. And as we update our 5-year plan, we'll look to incorporate the benefits of that transaction. So as a reminder, we expect to get EPS accretion there, deconsolidate SI's debt and improvements to our overall credit. And I'll remind you that we expect to receive improved credit profiles from each of the agencies. So this includes improving our view of our risk profile, our business risk and improved downgrade thresholds. So as I mentioned in our prepared remarks, that we plan to build a solid cushion on our balance sheet, and we'll provide more specifics when we roll out the financial plan next year. But in the interim, we feel really good about where we are and the strategy we've laid out. Jeffery Martin: Thank you, Karen. Nicholas Campanella: And then maybe just switching gears to Texas. Just I see the schedule here going through April '26. Hearings are about 1.5 weeks out. Just since we're past testimonies now, is settlement less likely? Is this something that you're kind of still actively working towards? Can you talk to that quickly? Jeffery Martin: Sure. Allen and his team are doing a great job. I think, for the overall audience, I'd refer everyone to Slide 13 for the procedural references that Nick is referring to. And Allen, perhaps it might be best if you would just briefly talk about where you're at in the proceeding and what you think the next steps are. E. Nye: Yes. Thanks, Jeff. Where we are, I think, is accurately portrayed on Slide 13, as you all both mentioned, interveners and staff both filed their testimony now. Staff testimony didn't get us all the way to where we need to be, but we thought it was very constructive. We did file our rebuttal last Friday. We continue to engage in settlement discussions with the parties. And we will continue to engage in settlement discussions with the parties. At the same time, we've got a hearing set for the first -- for November 17, the week of, and we're preparing to go to hearing that week, if necessary. We're really confident in the strength of our case. I'll remind you that we do have an order on interim rates, which becomes effective January 1, 2026. So we'll continue to talk. We'll continue to see what we can get done on the settlement front. And if we're successful, we'll obviously let everyone know. And if we have to go to hearing, we'll be ready to go. We expect an order, as you said, at the second quarter '26. Jeffery Martin: Thank you, Allen. Appreciate it, Nick. Operator: Our next question will come from Jude Jordan from Wells Fargo. Shahriar Pourreza: This is actually Shar on for Jude. Jeffery Martin: Hey, Shar. Congratulations on the new assignment. Shahriar Pourreza: Appreciate it. Appreciate the support there. Just real quick on the SIP transaction. Can -- I guess, where do we stand on the leakage there? I mean, I know, obviously, you've got accretion numbers. You're looking at sort of a tax-efficient way to do this. I think you're still assuming around 20%. So what's the status there, I guess? Jeffery Martin: Yes. I think that that's a good number. We're still looking at that. Obviously, there's some complexity there given the assets we have in Mexico, the international implications, both state and federal, but 20% is still a good number for you to guide yourself to. Shahriar Pourreza: Okay. Perfect, Jeff. And then just, I guess, the 30% increase, just curious what's included in there? How much of that is awarded 765 kV versus base system needs increasing? And how does that increase kind of stack up against that $12 billion of prior upsides you called out in 4Q? So just any visibility there would be great. Jeffery Martin: Sure. Shar, I really appreciate this question because I think it's been one where there's been a lot of ambiguity and a lot of questions we've taken as part of the call. We tried to discuss this in our prepared remarks, but let me go through and provide a couple of reminders, I think, that will be helpful to the listening audience. When Oncor rolled out through 2025 to 2029 capital plan last February, we indicated a base plan of $36 billion, and you're exactly right, there was a defined set of upsides there of about $12 billion. With the updates we've had over the last several months, both from ERCOT as well as the PUCT on the 765 kV transmission expansion and early indications within the fall planning process, Oncor is very comfortable increasing their expectations for the base capital plan to increase by about 30%. And here's the key distinction. That's primarily being driven by the state's acceleration of the Permian plan that now needs to be completed early. It has to be done now, Shar, by 2030. The other key thing to note is that Oncor also has line of sight to additional upside. You remember the upside was previously about $12 billion we're now targeting something that's substantially similar. So Shar, when you put that together, the base plan increase and expected upside, Oncor will have a $55 billion to $60 billion capital opportunity through 2030. And I might just add for context that in our 2025 to 2029 plan for Sempra, we currently sit at $56 billion. So if you just take the midpoint of that expectation, the roll forward base plan and upside is bigger than Sempra's current 5-year plan. So the key takeaway from this call is, yes, we've had great financial results, I feel great about 2025 and the pull-through in the 2026. But we've made a commitment to back Texas, right? And to do that, with our Board of Directors, we launched a capital recycling program because we wanted to load our balance sheet, so we were in a position to officially fund the growth we're seeing in the future. And I think Allen and his team have come forward with some very solid numbers, and we look forward to giving you more specifics on that in February. Operator: Our next question will come from David Arcaro from Morgan Stanley. David Arcaro: Well, I guess I was curious now on the as you look at that Oncor load growth pipeline continues to chuck a lot and grow quarter-by-quarter. I guess I was just wondering if you could characterize. Like what is the maximum amount of new load that you could connect, if we're thinking about kind of the 2030 time frame? Are you full on data center activity? I mean how much could that actually increase as you look at the pipeline in order to feather it in or weave it in to even further enhance the load growth from here? Jeffery Martin: Yes. Let me do a couple of things here, and I'll provide some color, Allen, and I'll pass it to you to kind of walk through kind of summing up the numbers. But let me just start with what we've discussed in the past, David. We've indicated that the state of Texas has a coincident peak of about 86 gigawatts, okay? That's a historical record. Today, Oncor system peaks at about 31 gigawatts. And on the last quarterly call, Oncor indicated that they had line of sight at least to approximately 39 gigawatts. So between now and the end of the decade, they are very comfortable that they're going to double their load. What's interesting about the CapEx increase that they're now forecasting, it's really less about that, it's more about the acceleration of the transmission plan. So the key takeaway is you don't need to associate Oncor's growth as it's been announced today, with what might or might not happen relative to load growth. It is principally being driven by the state's desire to accelerate supporting the oil and gas industry and getting an expanded transmission grid in place in the western part of Texas. Now that being said, the team has done a great job of tracking what those new opportunities are. And the way to think about your question as Allen goes through it is what we're going to talk about in terms of potential load growth and how much to your language can be feathered onto the system, it's really driving our growing confidence in this story continuing well into the middle part of the next decade. So with that, Allen, maybe you could kind of talk about the different buckets of where you see growth are. And really, to David's point, where this quarter-over-quarter growth is coming from? E. Nye: Yes. Thanks, Jeff. Thanks, David. Growth remains incredibly strong. I think you've heard that multiple times this morning from kind of this load growth on the transmission side, these large industrial commercial customers. I think as Karen said, we have over 600 active requests now, that's up 60% since the same time last year, third quarter over third quarter. 210 gigawatts of data now versus 186 last quarter, an increase of about 13% and 16 gigawatts of other non-data LC&I customers. What's different this time and what Jeff was alluding to is we typically go through a process with these customers where we come up with a high confidence load number. And I talked about this the last couple of quarters. But we've had, as Jeff said, around 39 gigawatts of what we call high confidence load and that's made up of, in the past, 9 gigawatts of signed FEAs or interconnection agreements and 29 gigawatts that we submit an officer letter to ERCOT if those customers meet kind of 6 criteria that we lay out for them. And -- but we don't sign those FEAs until studies are complete and ERCOT has approved the interconnection. In order to try and get more visibility into this massive queue that we're talking about, we've kind of done something different over the last few months. And that is in addition to doing just a typical FEA process, or interconnection agreement process, we've instituted what we call the interim FEA process. And the interim FEA process is not a full FEA, the studies aren't done, ERCOT has not approved the interconnection, but what these interim FEAs do is the customers collateralize them. They give us about $6.5 million when we sign these things. The customer also provides us additional information that allows us to then begin or proceed with the studies we need to do that ultimately need to be approved by ERCOT. Very, very strong uptake; very, very strong interest in this interim FEA process. To date, we've signed up about 19 gigawatts pursuant to this interim FEA process. And I can tell you that interest in signing these is very high. The number will change by the next time we talk about it. Now a couple of caveats. It's not clear how ERCOT will view these interim FEAs versus the FEAs themselves. And obviously, with the SB6 rule-makings going on, it may alter the criteria that we ultimately need to use for this process. But I can tell you that in addition to the numbers I've already told you, I think I mentioned on past calls that when I got this job, we had about $200 million of collateral that we were holding and that had moved up to about $2 billion as of last quarter related to these activities. As of now, that collateral that we hold is up around $2.7 billion. That gives you a general indication of the uptake on this new process that we're using. David Arcaro: Excellent. Yes, makes sense. And then pivoting maybe a little bit. With strong earnings this quarter and now year-to-date, curious if you could comment how that positions you in terms of achieving the 2025 guidance? And maybe as you look forward to 2026, are you seeing opportunities for expenses to be pulled forward or other initiatives to give you a head start on that 2026 earnings outlook? Jeffery Martin: Yes, David, thank you for that question. I mentioned this in my prepared remarks. I'm just so pleased with the work of our team, and we spent a lot of time trying to make sure that we've got a common set of business objectives across our 22,000 employees and that's certainly showing up in the strong financial performance we've seen thus far for the year. So for 2025, I'd mentioned, we're tracking several regulatory matters, and we're pleased to be running well ahead of our financial plan for the year. That's why earlier today, David, we were comfortable affirming our 2025 guidance. And I would also mention that we believe we can finish in the upper half of that range. Turning to 2026. We also affirmed that guidance. Obviously, it's going to be a stub year because we expect to close the SI transaction sometime between Q2 and Q3. But I would just mention, we're in the middle of our fall planning process right now and still tracking several key items. Obviously, the SI closing with KKR as well as the base rate review that Allen just updated you folks on a few minutes ago. So our goal at this point is to review both 2026 and 2027 guidance with The Street at our February call, together with rounding out our full year results for 2025. So I think the summary point here is I'm really excited about the progress we've made in 2025. We feel great about 2026, and we're excited to get back in front of folks in February and provide guidance for 2027. Operator: Our next question will come from Carly Davenport from Goldman Sachs. Carly Davenport: Maybe just on the transmission expansion in Texas that you've referenced. One of your peers came out this morning with plans to expand manufacturing for transformers and breakers. Just kind of curious what you're seeing from an equipment and supply chain standpoint and how you feel about execution on growing capital plan? Jeffery Martin: Yes. I mean I really want to give credit to Allen and his team here and Allen, I'll let you talk about it in a second. But going back to the pre-COVID days and being part of the boardroom, and seeing Allen layout kind of this 11-point plan for growing that business, the supply chain has been front and center. In fact, Carly, in September, we took the Sempra Board of Directors to Dallas. And the #1 issue we wanted to talk about was their ability to deliver on their growth plans and the strength of their supply chain. We also had the benefit, Carly, to have Governor Abbott kind of join the Sempra Board in a private 3-hour dinner, as we continue to due diligence the growth case in Texas. And one of the things we did was we took the entire Board on a field visit to their Midlothian supply center. And this is an Amazon-like supply center. Hopefully, we can start hosting some investors there in the future, but they have a hub-and-spoke model across North Texas and that Midlothian center, which is about 45 minutes from Downtown Dallas, really is a state-of-the-art 21st century digitally driven warehouse center that not only supports their supply chain across the 5-year plan, it is the center of their storm recovery system. So we came away from that incredibly impressed with the work that's gone into it. And now, Allen, maybe you can provide a little bit more detail around what you've done to feel good about delivering on your 5-year plan. E. Nye: Yes, thanks for the question, Carly. I think Jeff did a pretty good job describing it. We started about 8 years ago fortuitously redoing our supply chain, redoing our logistics, adding the Midlothian facility, expanding the number of vendors for each type of product that we need and that has paid incredible dividends for us moving forward. I've said on past earnings calls that we had with regards to the prior plan, our current plan, everything we need to accomplish that 5-year plan. Nothing about that has changed. Look, every day, you got to stay vigilant on it. Our people work very hard to stay very close to our vendors and our suppliers. You got to deal with challenges. It doesn't mean I have every piece of equipment in a laydown yard somewhere, but it means I've gotten in some way line of sight either a contract or a commitment or an agreement for everything we need. We'll stay vigilant all that. We'll keep working on it, but we're extremely confident. We made a commitment to the state to complete the Permian plant by 2030, and we have every intention of doing so, together with all the other activities we have on our system. Jeffery Martin: Allen, you did -- one of the things you guys did, which I thought was really helpful was how you went out in the marketplace, both in Asia and Europe to taking care of the 765 equipment well before it became something that crystallized for the state. Can you briefly update the audience on that? E. Nye: Yes, we did exactly what Jeff is talking about. I mean we've been very blessed in that our Board and our shareholders have given us authority in advance of actually approval of plans, of financial plans, 5-year plans and 1-year plans, to go out and make commitments in order to be in a position to actually execute and we did exactly what Jeff is talking about with regards to the 765 step plan. Carly Davenport: Great. Super helpful. And then maybe just shifting gears a bit on -- just on California, curious as sort of the Phase 2 process kicks off, how you sort of envision Sempra's involvement there and perhaps any perspective that you'd share on the potential -- what potential solutions could look like? Jeffery Martin: Sure. I would just start by saying that Sempra has been very engaged in Sacramento on trying to find ways to improve public policy to support public safety. I got to give a lot of credit, Carly, to Governor Newsom, he has been out front and kind of leading this effort. He's made it a priority. It goes well beyond just serving electric customers. It's about making sure that the state of California continues to take steps that are progressive and thoughtful to reduce risk from a public safety standpoint. We have Caroline Winn with us today. She heads up, you may recall, both San Diego Gas Electric and SoCalGas and she has been front and center on the next steps on the study bill. And perhaps Caroline, you could share your thoughts on the study bill. Caroline Winn: Yes, be happy to. Earlier this week, the utility submitted a series of abstracts. The way to think about the abstracts is their problem identification statements that really frame the issues and it will inform the white papers due next month. Maybe I'll just note 4 areas of focus. One, we believe a shared risk model through new cost-sharing approaches needs to be looked at. Number two, new insurance and funding structures. Number three, enhancing the process for paying claims quickly and fairly for wildfire victims and fourth, maintaining affordability and accountability. Now these abstracts will form the foundation of, as I mentioned, the joint white papers next month, December 12, and will help inform the comprehensive report prepared by the California Earthquake Authority next April. I think the key takeaway here is that we believe that wildfire resiliency must be a shared responsibility between utilities, insurers, government and communities, and we're constructive on the effort to identify new models that will address wildfire risk across the state for decades to come. Jeffery Martin: Thank you, Caroline. The only thing I would add, Carly, to is and I tell folks this, but California is the fourth largest economy in the world, right? This is the home of technology and innovation. And this is just really a leadership opportunity here at the state level. And I think from Sempra's perspective, we're prepared to roll our sleeves up and do our part. But we're comfortable that we'll find a way between now and the next legislative session to take the next step to continue to derisk the state. Operator: Our next question will come from Sophie Karp from KBCM. Sophie Karp: On California, I guess, as you continue to emphasize Texas more in your capital plan and you see a lot of growth there. Could there be a more decisive step to deemphasize California or maybe through some strategic options for your California utilities? Jeffery Martin: Well, look, I think -- and you're asking a great question. One of the things we've done with our Board of Directors is take a step back and say, where can we allocate capital over the next 5 years to create the most equity value, the most long-term value for our shareholders by 2030? And I think our analysis points to making sure that we load capital in areas where we have the best risk/reward. And right now, we think that's Texas. But look, these things change from time to time. One of the things we're working on in the Texas market. As you recall, they have a relatively thin equity layer compared to other jurisdictions. And California is actually a very good complement because it allows Oncor to have -- its principal shareholder have a strong balance sheet, which we think is important to support its growth. We continue to have the largest natural gas utility in the Western Hemisphere, is here in California and that tends to have a 23% or 24% FFO to debt quality. It's a very important for overall credit stack within Sempra. We're a leader in our electric business here in California. So we're going to be thoughtful about allocating capital to make sure we minimize bill impacts. We have found religion, and we're working very, very hard to take cost out of the system in California to make sure that as we grow the business, it minimizes impacts on customers. But look, we have a strong leadership position in the State of California and very few companies in the United States have the leadership position we have in Americas 2 biggest economies. So California will always be an important part of Sempra, but it's really a very nice complement from the diversity of the investments here and the credit quality matched up with what we're trying to grow in Texas. Operator: And we have time for one last question today. And our last question will come from Julien Dumoulin-Smith from Jefferies LLC. Julien Dumoulin-Smith: Saved the best for last. There we go. I appreciate it. Let me try to wrap this up. So a couple of questions here. First on Oncor, well kudos. If I heard you right, $55 billion to $60 billion, well in excess of 30%. What's your confidence on being able to earn the ROEs at that level, just given that cadence of spend is pretty historic? I get the recent legislation. And then related just coming back to where we started the call on equity needs. At what point do you start to think about equity as being part of this? Because I would suspect that we're going to talk about this in a renewed fashion, just given the magnitude that we're discussing here, if you don't mind. Jeffery Martin: Well, let's do a couple of things. I'm going to start with talking about the $55 billion to $60 billion. Just remember, that's the roll forward of the base capital plan of $36 billion, and we're going to increase that by about 30%, Julien, and you can do the back envelope that's between $10 billion and $11 billion. And we're expecting a comparable number that will remain there in the upside. The upside we talked about before is still there. It's a very similar number. And that's how I got to this potential capital deployment, which we think is a real opportunity, by the way, between $55 billion and $60 billion. We're very excited about it. And the great news was, as I indicated earlier, we planned for this, right? We led a capital recycling program to fortress our balance sheet so we can fund this thing efficiently. Turning to your second question, which was on the ROE topic. You recall that they currently have an authorized ROE of 9.7%. And Julien, they have been under-earning that for 2 principal reasons over the last several years. Number one, there was this regulatory lag. The majority of that is resolved as part of the unified tracker mechanism. You've heard us reference several times today, we're starting to see material improvement in capital efficiency. So part of that under earning is being taken away by the UTM. And then secondly, part of that under-earning is associated with having a 2021 test year. Obviously, when the base rate review is resolved, their new test year will be 2024. So the state because it has a backwards test year, you don't really expect them to earn at the 9.7% level. And certainly, they're not authorized to ever earn over that like we are in California. But I think you're going to see a material improvement when we resolve both of those matters. And that's one of the reasons Sempra has been more willing to aggressively fund this business as part of our long-term plan. And then I think if I could tackle your third implied question, which was on capital and balance sheet. Look, there's nothing wrong with issuing equity, right? If you're thoughtful about using all the tools in your toolbox, if you look at Sempra, you recall from prior presentations, we've raised $15 billion from equity sales at Sempra Infrastructure since 2021. We're not reticent to find the most cost-effective way to fund growth. And at the same time, Julien, the great secret at Sempra is since 2017, we've gone from about $14 billion of rate base to a number that's over $60 billion and we're going to drive that well over $90 billion or $100 billion by the end of the decade. We are growing a remarkable utility within Sempra. So we will use equity as we need it. But the great news is we took equity off the table in the prior plan. We're going to load the balance sheet. We're going to maintain cushion. And what we're going to expect to do is as we go forward in that plan depending upon how our capital rolls out, we would certainly issue equity if we thought it was necessary. But remember, we're going to compete that against all the other options we have inside of Sempra. And if you followed us for a long period of time, I think that's been our track record. Julien Dumoulin-Smith: That's excellent. And let me put a capper on this. I mean it's been a phenomenal year, Jeff, in terms of turnaround here. I mean, truly, the 7% to 9%, right? You put this all together. Clearly, this wasn't contemplated when you articulated that 7% to 9% earlier. How do you think about the various pieces that go into this, right? Clearly, there's a little bit of equity offset or some other permutation that will dilute the upside here. But what are the other puts and takes? Because otherwise, it seems pretty meaningful relative to what you said previously. Jeffery Martin: Yes. Well, you remember, I talked about that 7% to 9%. We didn't put it in writing at the time, but I said it orally on the February call or the Q4 call. I think one of the things we've discussed as a management team before this call, Julien, is we remain bullish on our growth prospects. And that's why we came out today and obviously reaffirmed the long-term growth rate. But I would also kind of highlight some of the points you're making in terms of puts and takes. Let's start with Oncor. I talked about seeing improved capital efficiency there, and that's having a positive impact on their returns. And obviously, we're going to increase our capital program. Go over to Sempra infrastructure. We've improved the runway, Julien, of their growth by basically taking FID on Port Arthur Phase 2. One of the things that Justin feels really great about is, he's got 5 or 6 very significant construction projects that give us great EBITDA growth through the end of the decade. And now with Port Arthur Phase 2, you've got great visibility into the early part of next decade. And then we've talked about, and Karen did a good job in her prepared remarks, talking about the KKR transaction. Obviously, we think it's going to be accretive to credit and EPS, while allowing us to deconsolidate debt at SI. And again, it goes back to balance sheet. We see our balance sheet as a strategic resource to grow this business in the future. So I think our takeaway would be: The team has done a great job, as you highlighted kindly, by the way, this year of stacking a series of positive catalysts in front of our company. And to your point, it really gives us more support for what we think is a great long-term outlook. Julien Dumoulin-Smith: Excellent. Well, maybe with that, we'll leave it. Very curious to see what you guys have to say. Take care all the best, and we'll talk to you sooner now. Jeffery Martin: Thanks a lot, Julien. Operator: Thank you. That concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Jeff Martin for any additional closing remarks. Jeffery Martin: Well, I'd like to just start by thanking everyone for joining us today. I know there were a number of competing calls this morning, so we appreciate everyone making the time to join us. I think it's a final point, many of you likely saw Oncor's recent 8-K announcing the retirement of Jim Greer. We want to make sure we take a moment and recognize his many years of service and major contributions to the growth and success of Oncor. In his role of COO, Jim Greer made a lasting mark on the State of Texas. I also think congratulations is in order for Ellen Buck, who will be succeeding Jim. Ellen is an absolutely outstanding leader, and we look forward to supporting her future success. And finally, I'd like to congratulate our friend, Don Clevenger, on a well-deserved promotion to Executive Vice President as he continues in his role of Oncor's CFO. If there are any follow-up items, please reach out to our IR team with your questions, and we look forward to seeing many of you at EEI in Florida next week. This concludes our call. Operator: Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to Centuri's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you your host, Nate Tetlow, Centuri's Vice President of Investor Relations. Please, you may begin. Unknown Executive: Thank you, Olivia, and good morning, everyone. Today, we issued and posted to Centuri Holdings' website our third quarter 2025 earnings release and earnings slide deck. Please note that on today's call, we will address certain factors that may impact this year's earnings and provide some longer-term guidance. Some of the information that will be discussed today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are as of today's date and based on management's assumptions on what the future holds, but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions and regulatory approvals. A cautionary note as well as a note regarding non-GAAP measures is included on Slide 2 and Slide 15 of the presentation, today's press release and our filings with the Securities and Exchange Commission. We encourage you to review these documents. Also provided are reconciliations of our non-GAAP measures to related GAAP measures. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statement, except as required by law. Today's call is also being webcast live and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. On today's call, we have Chris Brown, President and Chief Executive Officer; and Greg Izenstark, Chief Financial Officer. I will now turn the call over to Chris. Christian Brown: Thank you, Nate. We're delighted to have you on board, and hello to everybody on the call. We appreciate you joining our third quarter 2025 earnings call. We are proud to have delivered record revenue for the quarter, improved our base profitability and produced third quarter adjusted net income of $16.7 million, an increase of $11.4 million from the same quarter last year. While the concept of discussing our base business performance is not new to us, it does reflect a new way of discussing our results with the market. With today's earnings release, we've introduced a couple of new non-GAAP measures, which are base revenue, base gross profit and base gross profit margin. Each measure simply excludes the impact of storm restoration services, which is out of our control and creates volatility in our reporting numbers. Storm restoration services are an important part of our service offerings for customers. However, we believe that these new measures will provide our stakeholders with better information, better aligned to evaluate the fundamentals of our business performance and provides for improved period-over-period comparisons. In the third quarter, we increased our base revenue by 25% and saw a 28% increase in base gross profit. This is remarkable growth and reflects the dedication of our teams across the U.S. and Canada, and their unwavering commitment to safety, productivity and delivering exceptional services to our customers. As I start with the commercial update, we have continued to make great strides in our business development. Our Q3 bookings of approximately $815 million reflects a book-to-bill of almost 1. Importantly, nearly 80% of the dollar value of the bookings reflects new revenue opportunities, meaning strategic bids on new MSAs. The work includes the 9-figure natural gas steel pipeline replacement project for an existing Midwest customer, driven by the PHMSA Gas Mega Rule pipeline regulations. Additionally, work scopes exceeding $50 million for data center campus projects across Pennsylvania and a sizable contract for a mechanical vapor recompression system serving a renewable natural gas sector. We are seeing continued momentum in the pipeline for bid opportunities, and we are now winning bids at a very constant rate. Total bookings for the year now stand at $3.7 billion, putting us well ahead of the 1.1x targeted book-to-bill for the full year 2025. On the MSA front, we booked $170 million in renewals, which included an extension with a long-standing utility partner in the Northeast. We also secured more than $65 million in incremental MSA work, which included new MSA contracts in the Midwest and Southeast for gas and electric distribution work. Our backlog reached a record high of approximately $5.9 billion, up from the $5.3 billion last quarter. We are experiencing significant growth with many of our existing customers, which gives us line of sight to incremental workload under existing MSA contracts. This is what drove the more than 10% increase in backlog from the last quarter. Our overall opportunity pipeline remains very robust at about $13 billion. We now have over 600 strategic bid opportunities in the pipeline, which collectively represent a little more than half of the $13 billion. The strategic bids also include $1.3 billion related to various data center opportunities. Over the near term, we are tracking $1.7 billion of strategic bids with an award decision expected by the end of the first quarter 2026 and about $1.3 billion across MSA renewals and new MSA awards also due by the end of Q1 2026. With the visibility we have in our backlog, the near-term booking expectations and a conservative baseline for incremental awards in '26, we have line of sight to double-digit revenue growth in 2026. More details on the backlog, pipeline and the growth outlook are on Slide 8 within the investor deck we've posted today. Let's turn to efficiency. We've executed a strategic fleet optimization initiative with the goal of generating more cash for the business. The initiative has 2 key components. First, we're targeting an optimal 50-50 funding mix, maintaining half of our fleet on the balance sheet whilst leveraging leasing structures for the remainder. Second, we are aiming for a 20% plus improvement in fleet efficiency through enhanced supply and pricing, improved utilization rates and optimized allocation across our business units. Last month, we began executing the funding plan by entering into operating lease agreements totaling approximately $50 million. These initial leases are primarily focused on equipment that we had been -- that we have had on the short-term rental agreements. We will continue to keep the market updated as we make more progress -- more significant progress on these initiatives. Recently, in September, we completed our separation from Southwest Gas Holdings upon the closing of their sale of the remaining shares in Centuri. In conjunction with the full separation, we appointed Christopher Krummel as Independent Chair of the Board of Directors. Chris brings over 30 years of financial executive experience in energy and construction and serves well to lead our Board. And lastly, we recently announced the addition of Ryan Palazzo as President of U.S. Gas. Ryan has more than 3 decades of experience, deep industry relationships and leadership capabilities to drive operational excellence, drive further profitability and strategic growth. We are thrilled to have added Ryan to our team. Now over to Greg to discuss the results. Greg Izenstark: Thank you, Chris, and good morning to everyone joining us today. Third quarter 2025 consolidated revenues totaled $850 million, a new quarterly record and was an 18% increase from Q3 2024. Consolidated gross profit was $78 million compared to $75.8 million in the prior year period, and gross profit margin of 9.2% in the third quarter of 2025 compared to 10.5% last year. When isolating our base results, the strength and growth of the business is clear, with base revenues up 25% and base gross profit up 28% compared to last year. Base gross profit margin was 9.1% in the third quarter versus 8.9% last year. Net income attributable to common stockholders in the third quarter was $2.1 million, or $0.02 per share compared to a net loss attributable to common stockholders of $3.7 million, or $0.04 on a per share basis in the same period last year. In the third quarter of 2025, adjusted EBITDA was $75.2 million, which compares to $78.8 million in the prior year's quarter. Adjusted net income in the third quarter came in at $16.7 million, or $0.19 on a per share basis compared to $5.3 million, or $0.06 per share in the prior year's period. The difference between our GAAP and non-GAAP adjusted net income primarily reflects the after-tax impact of amortization of intangible assets, certain non-recurring costs and non-cash stock-based compensation. Notable in Q3 2025 was $8.2 million, or $0.09 per share in charges related to the debt refinancing executed early in the quarter. Now to our segments. U.S. Gas revenue was $412.4 million, an increase of 13% compared to the prior year. This improvement largely reflects solid growth in MSA volumes and certain bid projects, demonstrating the underlying strength of our customer relationships and market position. Gross profit margin was 7.7% in the third quarter of 2025, modestly improved over last year's 7.6% in the third quarter. We continue to focus on margin improvement and our priority continues to be centered around better contract management and operational execution. Canadian Gas revenue was $74.2 million, up nearly 40% from the prior year period. Operational performance in this segment remains strong against the backdrop of sustained favorable demand as evidenced by the 21.9% gross profit margin in the quarter. Union Electric revenue was $214.5 million, an increase of 25% year-over-year. Base revenue in this segment was $213 million, reflecting a 29% year-over-year increase. Growth has been fueled by robust activity in projects serving industrial end-user segments, particularly substation infrastructure and inside electric work. Gross profit margin in the Union Electric segment was 9.1% in the third quarter of 2025, slightly ahead of the third quarter of last year. Base gross profit margin improved to 9% from 8.1% last year, driven by the strong increase in project work. Non-Union Electric revenue in the third quarter of 2025 was $149 million, an increase of 16% year-over-year. This segment is most relevant to base business comparisons as historically, a majority of storm restoration services related to this segment, including last year's very active hurricane season. Base revenue in Non-Union Electric was also $149 million in the quarter, which is a 58% increase from last year. This growth reflects the significant expansion we've seen in MSA activity, building on the momentum we discussed in recent quarters. Gross profit margin in the Non-Union Electric segment was 7.1% in the current period compared to 16.6% in the prior year period, reflecting the just mentioned significant storm work last year. Base gross profit margin was 7.1% compared to 8.7% in the prior year period. The primary driver of margin pressure in the quarter resulted from ramping crews for new and expanding MSAs. Specifically, headcount increased more than 20% this year to support the growth in workload. As crews gained experience and these operations mature, we expect to improve productivity, resulting in margin improvement. We have already seen margins improve in October, and we expect continued progress throughout the remainder of Q4. Turning to capital expenditures. Net CapEx was $21.5 million, and our free cash flow in the third quarter 2025 was negative $16.3 million. Our free cash flow generation tends to be seasonal in nature, with more generation occurring in the second half of the year. With the strong growth we delivered this year, our accounts receivable balance has increased. However, this is a timing issue, and we expect this to normalize in the fourth quarter. As such, we expect to generate meaningful free cash flow in the fourth quarter. Moving to the balance sheet. On a trailing 12-month basis, our net debt to adjusted EBITDA ratio was 3.8x at September 28, 2025, a slight uptick from 3.7x at June 29, 2025. With the anticipated step-up in fourth quarter free cash flow, we expect our year-end leverage ratio to be approximately 3.3x to 3.4x. We ended the quarter with $16.1 million in cash and cash equivalents on our balance sheet. Early in Q3, we successfully completed a refinancing of our debt arrangements. We extended our revolver maturity to 2030 and increased the facility size to $450 million. We also extended our $800 million Term Loan B maturity to 2032 at a modestly improved interest rate. Finally, turning to our 2025 outlook. We increased our full-year revenue guidance to $2.8 billion to $2.9 billion. The increase is consistent with the significant growth in our base business, which more than offset the lack of storm activity this year. For adjusted EBITDA, we expect between $240 million and $250 million. Again, this revision is consistent with lower forecasted storm activity, including a de minimis amount of storm work assumed in the fourth quarter. Lastly, our net CapEx. We've maintained our planned investment range of $75 million to $90 million. We remain confident in the outlook of our base business and are making the necessary investments in a more capital-efficient manner to optimize the growth opportunities ahead of us. I will now turn it back to Chris to wrap up our prepared remarks. Chris? Christian Brown: Thank you, Greg. As we wrap up today's call, I want to emphasize that Centuri continues to execute on its strategic vision of building a premier standalone utility services company capable of delivering sustainable and profitable growth. Our third quarter results demonstrate solid progress. Base revenue growth was 25%. Base profit -- gross profit was 28%, reflecting our team's commercial drive, dedication to operational excellence and customer service. Our commercial momentum remains robust with $3.7 billion in bookings through September, a record backlog of $5.9 billion and a total opportunity pipeline of $13 billion. Put together, our commercial success so far in 2025, it positions us well for double-digit revenue growth in 2026. The fundamental drivers supporting our business remains strong, accelerating utility infrastructure investment, the energy transition and expanding customer relationships across North America. As we advance our comprehensive multi-year strategic planning process, we're positioning Centuri to be a differentiated leader in this significant market opportunity. We very much appreciate your time and interest today. And operator, let's begin the Q&A. Operator: [Operator Instructions] Your first question comes from Justin Hauke of Robert W. Baird. Justin Hauke: Great. I appreciate the new disclosure with the base revenue and gross profit. That certainly helps. And I guess it leads to my first question is just to maybe understand the EBITDA impact from the storm because you obviously quantified it for the third quarter and gross profit. But the $15 million decline in guidance, how much of that EBITDA impact is the storm? Is that the full $15 million? And then maybe if you can quantify the impact of 3Q versus 4Q in the guide, given that there was a decent amount of storm activity last year in 4Q? Greg Izenstark: So the decline in the kind of the midpoint of the guidance is all related to storm activities. In fact, our forecasted storm activities were a bit higher, and we've actually been able to make up some of that with just our base business growth. And it was probably 60-40 from a percentage perspective between Q3 and Q4 on a storm basis, but that was our expectations, I think was your second question. Justin Hauke: Yes, no, I just was trying to confirm that it was entirely storm and that, that was the $15 million and the split between the quarters. So yes, I think that answers it. I guess my second question -- I got a couple here, but I guess the second one that I would just ask about would be, you called out some of the ramp in the MSA contract work that wasn't at full utilization, I guess, in the Non-Union Electric piece. And I was just hoping maybe you could quantify that impact. And would you expect in 4Q that's at full utilization? Or is that something that's going to linger as a cost until we get into '26 and kind of get the revenue contribution in line with that? Christian Brown: Justin, it's Chris. Let me answer that. If you just look at the process we go through, you've got to deploy capital to find opportunity, deploy capital to bid opportunity. You've then got to win it. You've then got to reposition resources. You bring in new resources. All of that sort of costs the business with no revenue contribution. You then mobilize the teams and it takes a while for them to get productive. So, I think when you've had such a massive ramp-up, I think the Non-Union business in the core is up about 50% year-over-year. There's always going to be a little bit of a lag before you get to that level of performance you want. I actually think as we look at October and we look into November, that more or less is fully recovered. By the time we close out the year, that particular scope of work will be at the levels we expected it to be from a margin standpoint. But I would caution, we will add progressively bigger scopes of work all around the nation, and we'll have a similar phenomenon. It's just the nature of project-related business. Operator: Your next question comes from Sangita Jain of KeyBanc Capital Markets. Sangita Jain: So, obviously, a lot of progress on bookings and the core profits improving. Can you help us understand the difference in margins between, let's say, the data center type opportunities versus PHMSA-related work or other bid work? Christian Brown: How do I answer that, Sangita? I would say -- I'll let Greg talk to the general margin profile in the business across the core and the MSAs in a minute. But let me talk more specifically around what we're seeing in the pipeline, first of all, and then to data centers. We've been playing a little bit of catch-up as we've discussed on prior calls to get a sufficient amount of both backlog and coverage to be sure that we're able to grow the business at the core and not rely upon storm. I think it's taken us to maybe the third -- getting into the third quarter to have sufficient backlog, sufficient coverage and a sufficient data set. So, we've really got a good handle on our business so that we can be predictable. We've got volume into the business, and we're basically able to recover the overhead that we need to for the size of the business. We're now coming to a point where as we look to the future and we start to look at new bid opportunities, of which -- we're looking at $2 billion at the moment. We're looking at where it makes sense to put margins up in the competitive environment. It's more difficult on MSAs that are renewals because there's already a price expectations set with the customer, and we're able to do some things. But we are now in a position as we start to look at new market opportunities, bid opportunities, including data center work where we can put our margins up in the core of the business. And that's what we're currently doing. It's been very difficult to do that until we have enough baseload work, until we've got enough volume into the business until we've got a good control on it. But we're now at that point where we've got full coverage for this year. So, we know exactly what work we're going to do between now and the year-end. We've got high visibility for next year, and you saw it in the coverage slide in the deck, I think it was Slide 8, if my memory is good. Our focus now is how do we put margins up and get a better return on our invested capital, simple as that. Greg Izenstark: And to follow on that, you asked about the margins kind of in our backlog. And while margins project by project might differ a little bit, I think we're very pleased with the bid margin that we're getting on the awarded work. Some of that data center-related activity is a project-based, so it's a bit higher than maybe some of the MSAs, but we're very pleased with what we're getting on award. Sangita Jain: Great. That was very helpful. Go ahead. Christian Brown: Sorry, Sangita. I was just going to add one thing is even with the sort of mobilization impacts in the Non-Union business, our core margins have gone up by 0.2% over the past. And that's despite the fact we've added over $100 million of core business of revenue in the quarter. So the work we were booking in the first part of this year, which is now going to the revenue line is already proving to be more profitable and it's still at its early stages of execution. Sangita Jain: Right, right. That was very helpful. And then just a quick follow-up. In your double-digit revenue outlook for next year that you just alluded to, is there any kind of storm that you're building in that? I know this year, it was an average of 3 years, but just wondering what you're thinking about for next year? Christian Brown: Sangita, I stress what we said in our text that -- in our spoken word. Storm will always be part of our business because customers want us to do storm work for them when they're in a crisis situation and with that bad weather come. Our customers want that, and the population needs that. But it's very difficult to plan because we can't predict the weather, even though we don't like to be able to do that. So, you will only hear us talk about base business, base backlog, base coverage. And if storm happens, it would be upside to what you see. It will not be in our planning purposes. And the logic being is one, it makes us more predictable. Two is if we add more to the base in terms of people, resources and equipment, it means that if there is a storm event, we get more opportunity and upside. So, we're just going to talk about the base in terms of growth, budgeting and guidance. And we will, of course, continue to let you know what storm has happened over a trailing period of time, so you can factor that in. But coverage is all going to be around base business that we can control. Operator: Your next question comes from Joe O'Dea of Wells Fargo. Joseph O'Dea: Can you just elaborate on the strength of the base revenue growth a little bit more in the quarter when you talk about that 25%? How that compared to internal planning? Anything that you saw coming into Q3 that you thought might be in Q4 versus just a broader acceleration? Christian Brown: Joe, without giving you my budget sheets, I talk generally. There was no -- let me deal with the second question first. There was no desire and no attempt, and there's no underlying pull from Q4 into Q3. That's not the case at all. So it's not like we've had a -- we pulled Q4 revenue into Q3. That's not the case. The $850 million that came out of the third quarter is exactly what it is, the revenue for the quarter. So, we've not looked to highly impressed in the third quarter. We've got really good coverage in the fourth quarter, and that's why we've raised the revenue guidance. So, we expect the momentum in the fourth quarter to continue. The only thing about the fourth quarter is we've clearly got 2 holidays being Thanksgiving and the year-end, and that's really the only factor we've got. In terms of base business performance, I think we've done better overall in our performance in the base business that we all expected and that's a good thing. And that's really driven by the success of our teams in finding the opportunity, getting the organization focused on servicing our customers and doing more for our customers that led to the backlog and has led to the revenue growth. And I think everybody has seen double-digit growth within their base businesses across all of the 4 service lines. And we would push to continue that going into next year. But we've performed better in the base business than we may have expected. But you also remember, Joe, we've only been at this as a team for a few quarters now. We're only just seeing the benefits of the pipeline. And it's good to be impressed and good to be pleased and good to exceed your internal targets on the base business. But we're also learning and we want more out of it, and that's what we seek to do in the future. Joseph O'Dea: And then how do you think about the process for prioritizing the bid opportunities in front of you when you talk about the 600 bid opportunities in the pipeline and how you think about margin as a prioritization focus versus top line growth versus where you've identified regions that you want to get bigger in? Just how all that comes together for prioritization around the bid opportunities? Christian Brown: Yes. That's a big question. Our number -- I think the #1 priority, I think, really rests within the gas business. We've had a fantastic quarter. We've had 2 fantastic quarters of performance in the gas business. And I think Q4 sits really well when we look at the backlog, look at the work the team has done. We've added more strength to the team, some new people. But the priority is to sort of eliminate the seasonality in the business. So, that work we are starting ahead as we come into the first quarter. So on the gas side, the priority is winning work around the U.S. that allows us to work 24/7, 365 days a year, primarily focused on the first quarter. So, that would be number one that jumps to mind immediately because once we're able to fix the seasonality, I think the profitability across the full gas business will completely change for us. Then when it comes to the rest, look, general principle on margins, I'll just repeat. We've now got the sales analytics. We've got the organization positioned to profitable growth. We have a very accurate data set now. We track win rates. We track margins. But we need to monitor this a little bit. We've got -- we believe we don't have a problem finding profitable growth. You've seen that in this year's performance. If you just look at where we're trending from a full-year revenue target, we put the coverage slide into the deck, I've repeated twice now. That demonstrates a further 10-plus percent just on what we know today. So, I frankly don't believe we're at that phase where we're worried about end market opportunity. So, we're going to start to prioritize and get our margins up. We've got to be very selective how we do that because we've got some core customers that we must nurture, continue to support because they rely upon us. But there'll be new opportunities with new customers where we can afford to price it up and we may win a few, we may lose a few. But the win rates are holding good already as we come through to the end of the third -- into the fourth quarter. So, we will be sensitive to trying to put our price margin -- our price up and our margins up as we look to the next phase of our growth going into '26. Operator: Your last question comes from Steven Fisher of UBS. Steven Fisher: Just wanted to follow up on a few of these things, particularly starting off with U.S. Gas. And I know you said you're pleased with the result. I'm just kind of curious how the margins and the overall profits from that compared to your expectations. It sounds like it's still somewhat of a business where you're putting some focus operationally. It sounds like there is some new leadership. Where is the focus there just from a sort of an execution perspective? I know you're trying to kind of build it out regionally to reduce the cyclicality. But just operationally, where is the focus there? And how did this quarter compare to your expectations? And then I'll ask my second question now is just with regard to the $3 billion of strategic bids, how are you thinking about the discrete overall project mix relative to sort of distribution work and MSA just kind of flow work. Where are you comfortable having discrete size project as a percentage of the overall business mix? Christian Brown: All right, Steve. I'll try and answer the question for you. Let me talk intimately about the gas business. I think 8 months ago, gas performance was consuming an inordinate amount of time as well as the leadership's time to sort of complete what was started last year, which was sort of simplification of the organization. The delayering that building ahead of me was much needed. There was a refocusing effort. There was some rightsizing needed to be done. There was some accountability and performance management we needed to do. And I think we've really come through that. I think the second quarter performance did better than I expected. The third quarter performance was very predictable with the mix of work we've got. And I think we're -- I wouldn't say we've taken our foot off the gas, nor have we taken our eyes off the ball here, but the team that leads that business is really operating at steady state now. And I don't foresee anything structurally we need to do there. I think we'll well up the experience curve about how we should be operating. And I think the margins are good. I really do. I know there's a lot written about the margin should be better. But if you look at -- and we just benchmark our margins. If you look at the margins in our gas business with the mix of work that we currently execute, we're very pleased with where the margins are. What we're not pleased with is the seasonality. And we had a negative $15 million in the first quarter this year. We've got to fix that as quick as we can. So, that remains to be a priority where we're spending our time talking to different customers and new customers and migration of customers where we know we can work in that first quarter. The second thing I would say to you is we've -- I'm proud of the gas business. I'm proud of the gas team. And I think Dylan and his team have done a fantastic job under difficult circumstances last year going into this year. We've got it at steady state, but we needed more bandwidth in the business so that we can grow with new customers. So the logic for bringing Ryan in -- and I'll talk a bit more about that in a second. Bringing Ryan in was to bring more bandwidth to the leadership team so that we can look at things differently. We can look at pricing. We've got slightly different customers but doing the same services and really much -- and focus the business more strategically about getting margins up. So on the gas side, very pleased where we are. The mix of work and the margins we've got are commensurate with where we are. I don't think there's going to be much that changes there. The real focus is seasonality, new customers that allow us to take the same services at higher margins. And that's why Ryan has been brought in to support the team here. So, that's where the gas business is. Steven Fisher: Super helpful. Christian Brown: On the $3 billion, Steve -- on the $3 billion -- so on the last call, and Nate is probably going to tell me, I'm not totally accurate on this. But we had -- I think July 4 week, when I got that sales report, we had about $2.2 billion of opportunities that would be decided in the next 6 months. That's now the $3 billion we referred to. So, this is like-for-like over a quarter period. And so that has increased well over 40%, 45%, which tells me that the opportunities that are in the pipeline are converted to real bids because that $3 billion are either tenders we've already submitted or the tenders we're working on and we're about to submit. It's not really stuff that we'll bid in the future. It's now. Its real and now. Of that mix, most of it is actually accretive bid work. It's about $1.7 billion, if my memory is good. And then $1.3 billion of it is really MSA renewals, most of which -- I think 85% of the $1.3 billion is MSA renewals and the other 15% are new MSAs or additive MSAs to the base business. Meanwhile, the $1.7 billion is new additive bid work that we're working on. The mix within that, I know you was going to ask me, is about 60% electrical work and 40% gas related. That's the mix. Does that answer your question, Steve? Steven Fisher: Yes. Operator: We have reached the end of the question-and-answer session. I will now turn the call over to Nate Tetlow. Please continue. Unknown Executive: Thank you all for joining the call today, and we appreciate your interest in Centuri. That concludes the call. Operator: Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Eversource Energy Q3 2025 Earnings 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, Rima Hyder, Vice President of Investor Relations. Rima Hyder: Good morning, and thank you for joining us today on the third quarter 2025 earnings call. During this call, we'll be referencing slides that we posted this morning on our website. As you can see on Slide 1, some of the statements made during this investor call may be forward looking. These statements are based on management's current expectations and are subject to risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections. We undertake no obligation to update or revise any of these statements. Additional information about the various factors that may cause actual results to differ and our explanation of non-GAAP measures and how they reconcile to GAAP results is contained within our news release, the slides we posted and in our most recent 10-Q and 10-K. Speaking today will be Joe Nolan, our Chairman, President and Chief Executive Officer; and John Moreira, our Executive Vice President, Chief Financial Officer and Treasurer. Also joining us today is Jay Buth, our Vice President and Controller. I will now turn the call over to Joe. Joseph Nolan: Good morning, and thank you for joining us today. Starting on Slide 4. Over the past 10 months, our team's relentless focus on executing on our key strategic initiatives has driven strong results and consistent performance. We are well on our way to delivering against these initiatives and ending the year on a strong note. Our strong results have also greatly improved our standing among our peers. On a year-to-date basis, our share price has been a top performer among the EEI peer group. Today, I'll walk you through how we're capitalizing on our unique market position, fueling sustainable growth and strengthening the balance sheet to power our future outlook. Moving to Slide 5. In the last few months, we have gained more clarity on the Connecticut regulatory environment and the impact for our ongoing and future regulatory proceedings at PURA. Additionally, each day of construction that passes yields progress on the derisking of Revolution Wind. We're seeing a constructive shift in Connecticut's regulatory landscape. Last month, Governor, Lamont appointed 4 new commissioners at PURA, filling out the 5-member requirement under Connecticut law. With this new commission on the way, there is now a genuine opportunity to collaborate with all parties on regulatory initiatives and to achieve more balanced regulatory outcomes. This will enable us to better serve the needs of our customers in this state and to do so with a strong focus on safety, reliability and affordability. Critical needs exist for state and regional infrastructure investments to maintain a strong, reliable and resilient grid that can accommodate new sources of generation to meet the increasing levels of projected electric demand. A transparent and predictable regulatory process is going to benefit all stakeholders, including our customers, and we are looking forward to getting back to work on Connecticut's energy goals. For our ongoing Yankee rate case, we submitted a motion to adopt an alternative resolution with PURA. This was in response to PURA's request for parties to reach a consensus based resolution to reestablish trust in balance in the regulatory process and avoid further legal appeals. Our proposal includes important customer affordability provisions that we believe are supportive of all stakeholders affordability goals. We expect to see a final decision from PURA today. We remain on schedule to receive a final decision for the sale of Aquarion Water on November 19 and we continue to expect to close the transaction by the end of this year. As you may be aware, we filed a comprehensive offer of compromise to address concerns raised by the Connecticut Office of Consumer Counsel. The commitments that were outlined in the offer of compromise provide additional assurances that the transaction will serve the interest of Connecticut and the customers served by Aquarion Water. Moving on to an update on offshore wind. We have substantially completed construction of the onshore substation for Revolution Wind project. We expect to provide back-feed energization to the offshore facilities by the end of November, which will support testing and commissioning of those facilities. In parallel, we will complete the final testing and commissioning of the remaining onshore equipment. Overall, as Orsted has stated, Revolution Wind is substantially complete and work has continued since the stop order was lifted in September. We recognized an increase to our liability to GIP in the third quarter, which was largely offset by tax benefits. We continue to support the project's owners in their completion of this important generation resource for New England. As I said at the start of the call, our execution has delivered positive results and we have made great headway on our many key strategic initiatives this year. We have continued to deliver on our operational metrics with top decile reliability performance among our peers. We have significantly improved our FFO to debt ratio through constructive regulatory outcomes and managed our balance sheet to support solid credit ratings. And we know we are not done yet. We have continued to invest in transmission and distribution infrastructure across our service territories. We are on track to invest nearly $5 billion this year. We have installed over 40,000 AMI meters in Massachusetts and completed the communication network deployment in the Western portion of our service territory. These achievements are just a few that underscore the strength of our execution engine and the depth of our operational rigor. As you can see on Slide 6, we have many growth opportunities ahead of us. Our service area is truly the crown jewel of the country. This area is home to cutting-edge biotech and research in the best universities and health care in the world. As these industries expand, they turn to us for a reliable, resilient grid, making us an indispensable partner in their success. We're seeing robust load growth, driven primarily by electrification of transportation and heating, decarbonization initiatives from both the public and private sectors and economic expansion across manufacturing and commercial sectors. These factors help to ensure that our growth is broad-based, durable and aligned with state sustainability goals. Year-to-date, we have seen weather-normalized load growth of 2%. And this summer, we experienced a peak of over 12 gigawatts, the highest record since 2013 as load growth in our service territory has started outpacing the impacts of distributed generation such as rooftop solar. The evolving electric demand landscape presents a need for numerous transmission projects such as upgrades linking onshore and offshore wind to load centers, interconnections improving regional reliability and addressing congestion as the generation mix for our region evolves. Some of the projects we are pursuing to get ahead of this continued load growth include the Cambridge underground substation, which will be the largest in the nation in 1 of 14 substations currently on the drafting table that we expect to build in Massachusetts alone to support future growth. Being opportunistic about land acquisitions in our service territory to support this growth, such as the Mystic Land acquisition we did last year with more in the pipeline. Responding to requests for proposals from ISO New England to address longer-term transmission solutions, such as the most recent one to bring power from Northern Maine to Southern New England. These opportunities, some being outside of our 5-year forecast period could add billions of dollars to our future investment plans. Each project that we are considering not only supports our growth trajectory, but also deepens our value proposition as a grid innovator. We also recognize that as demand increases, affordability must remain top of mind. We are working closely with our regulators to offer our customers various options to address affordability as shown on Slide 7. We collaborate with large and small customers to design rate structures that incent efficiency. For example, earlier this year, we worked constructively with our regulators in Massachusetts to offer a 10% discount to our gas customers during the winter peak months and recover that in the summer months to smooth the impact of high bills. Similarly, starting this month, we are offering a seasonal heat pump rate in Massachusetts. Eversource electric customers who use a heat pump to heat their homes can take advantage of a seasonal heat pump rate, which is a reduced rate during the winter months. We are expanding energy efficiency programs to provide incentives for residential and low income customers who choose to adopt energy-efficient technologies. These programs, coupled with AMI give customers greater transparency and control over their energy pocketbook. Our nation-leading energy efficiency programs have already generated $1.4 billion in savings for our customers. We have also implemented low-income discount rates for our most vulnerable customers, and we are recognized for our leadership in advocacy for state utility partnerships in hardship programs. We are excited about new energy supply coming into our region, which should alleviate supply cost pressure on customer bills. Over the next 12 months, Eversource is directly supporting new generation coming into the region totaling over 2,500 megawatts. We aim to deliver reliable, sustainable energy while keeping costs manageable and partnering with customers to ensure affordability through cost-effective investments, efficient operations and equitable rate design. Before I hand the call over to John, I want to thank our 10,000-plus employees for their dedication, our regulators for their collaborative spirit, and our shareholders for their trust. We're executing against a clear strategy, serving extraordinary customer base and working to build the grid for tomorrow, responsibly and sustainably. I look forward to your questions and sharing more details on our path forward. With that, I'll turn the call over to John Moreira. John Moreira: Thank you, Joe, and good morning, everyone. This morning, I will review third quarter earnings results, provide a regulatory update and discuss our recent financings and progress on credit metrics. I'll start with our third quarter results on Slide 9. As announced last month, during the third quarter, we recognized a net after-tax nonrecurring charge of $75 million, or $0.20 per share related to our offshore wind liability. This charge increased our estimated liability for future payments to GIP by approximately $285 million, which was offset by $210 million of tax benefits. These tax benefits were the result of a change to previously estimated tax attributes primarily associated with Revolution Wind. Our GAAP earnings for the third quarter of this year were $0.99 per share, including the impact of this recent offshore wind net charge. GAAP EPS for the third quarter of last year was a loss of $0.33 per share, reflecting the impact of the sale transaction of South Fork and Revolution. Excluding the after-tax losses from offshore wind in both years, non-GAAP recurring earnings for the third quarter of 2025 were $1.19 per share compared with $1.13 of non-GAAP recurring earnings per share last year. Now looking at the quarter results by segment, starting with transmission. Higher electric transmission earnings of $0.01 per share were due to increased revenues from continued investment in the transmission system. Next, we have higher electric distribution earnings of $0.03 per share that reflect distribution rate increases in New Hampshire and Massachusetts provided for cost recovery for infrastructure investments in our distribution system. These higher revenues were partially offset by higher interest, depreciation, property taxes and O&M. The improved results of $0.04 per share at Eversource's Natural Gas segment were due primarily to base distribution rate increases in both Massachusetts utilities and from capital tracking mechanisms to provide timely cost recovery of investments in our Natural Gas businesses. These revenue increases were partially offset by higher interest, depreciation and property tax expenses. Water distribution earnings were lower by $0.02 per share for the quarter as compared with prior year, primarily due to higher O&M and depreciation expense. Eversource parent earnings results were flat for the quarter, excluding the net impact from offshore wind that I mentioned earlier. As a reminder, all of these segment results reflect the impact of share dilution. Overall, we are very pleased with the solid performance for the third quarter and our recurring earnings are in line with our expectations. Moving to some key regulatory items as shown on Slide 10. As Joe mentioned, we recently filed an alternative resolution proposal in the Yankee rate case. If adopted by PURA without modifications, the alternative resolution would waive our statutory right to appeal the final decision, resulting in a fair and balanced outcome. The alternative resolution is an improvement over the draft decision, increasing revenues by approximately $104 million as compared with the PURA's draft decision of $55 million. The alternative resolution would also provide customer relief this winter to a greater extent than the draft decision by accelerating the refund of an existing regulatory liability. Also, as Joe mentioned, on the Aquarion sale, PURA has maintained its final decision date of November 19 and pending that decision, we continue to expect to close the transaction by year-end. In Massachusetts, we received the approval of our NSTAR Gas PBR adjustment, and we also filed a motion for reconsideration on the NSTAR Gas rate base reset. Next, let me reaffirm our 5-year capital plan of $24.2 billion, as shown on Slide 11, which reflects our 5-year utility infrastructure investments by segment through 2029. As a reminder, this plan only includes projects for which we have a clear line of sight from a regulatory perspective. Through September, we have executed on $3.3 billion of our $4.7 billion infrastructure investment plan. We are very pleased with this progress, and we are on track to meet our planned target for the year. We continue to see additional capital investment opportunities in the range of $1.5 billion to $2 billion within the 5-year forecast period. We plan to update our next 5-year capital plan in our fourth quarter earnings call. Turning to Slide 12. We remain highly focused on improving our cash flow position and strengthening our balance sheet condition. As I have stated before, we expect our FFO to debt ratio for 2025 to be approximately 100 basis points above the rating agency thresholds by year-end. In fact, our Moody's FFO to debt ratio was 12.7% as of the second quarter of this year and reflects an improvement of over 300 basis points from December of 2024. We expect this ratio to be over 13% as of the third quarter. As we have shared with you last quarter and as shown on Slide 13, we have executed on substantially all the items necessary to improve our cash flows and strengthen our balance sheet. As a result, our operating cash flows have continued to improve, increasing over $1.7 billion year-over-year through the third quarter. Moving on to our financing activity on Slide 14. While earlier this year we did not anticipate issuing long-term debt at the parent company during 2025. However, we did see the need to capitalize on favorable credit spreads, proactively prefunding an early 2026 maturity and strengthening our liquidity position. Given where our short-term debt balances were forecasted to be and in order to maintain an appropriate level of liquidity, we issued $600 million of parent company debt. On the equity side, to date, we have issued $465 million of equity under the ATM program. We expect that this level will take care of our equity needs for the near term. We also continue to pursue recovery of our deferred storm costs. As of the third quarter, 98% of our deferred storm costs are either under review or already in rates. And as a reminder, our previous cash flow improvement forecast did not assume securitization as the cost recovery mechanism for the Connecticut deferred storm costs. Next, I will turn to 2025 earnings guidance as shown on Slide 15. As announced in October, we are now in 2025 recurring earnings per share guidance to the range of $4.72 to $4.80 per share to a higher midpoint and reaffirming our longer-term EPS growth rate of 5% to 7% off of the 2024 non-GAAP EPS base. We remain confident in our EPS growth trajectory driven by disciplined execution of our strategic plan, targeted customer-focused investments in transmission and distribution are backed by constructive regulatory frameworks that enable timely cost recovery for our operations. Continued progress on storm cost recovery combined with strict O&M discipline strengthens our financial foundation and positions Eversource to deliver consistent long-term value to customers and shareholders. I'll now turn the call back to the operator to begin our Q&A session. Operator: [Operator Instructions] Our first question today comes from Shar Pourreza from Wells Fargo. Shahriar Pourreza: So just on Yankee Gas, obviously, everyone is watching this one. You've got this motion to adopt the alternative resolution out there. There's some stuff coming out now on it, I think. Is there anything you want to flag? And just remind us, what's kind of embedded in the plan around the outcome? Is it fair to assume that you're kind of conservative around what you're embedding there? And any sort of updates, I think we're starting to see some things come across. Appreciate it. Joseph Nolan: Sure. As you know, our call started at 9:00 and the commission went in and the order is out. We need to go through it. As you know, the devils are in the details. So we'll continue to take a good look at that, and I think we'll have some answers for folks on this call later today, I can promise you. John can talk to you a little bit about what's embedded in the plan. John Moreira: Yes. No, Shar, I would say it's in line with our plan, and it appears that the decision is a little bit better than the draft decision, which is very encouraging for us. But as Joe mentioned, we have to go through it. It's -- the ink is not dry yet at this point. So -- but we will have much more information when we meet with you all at EEI. Shahriar Pourreza: Perfect. I'm just glad we're getting through this process. That's good. And then just on the NSTAR Gas PBR, right? I mean, you have a proposal for recovery of roughly $160 million. Just walking through what you did and didn't get. Why did the Massachusetts, DPU deny that? Is there kind of an opportunity to get it later? And does this mean you're filing a rate case? Obviously, the governor has been kind of warning around rates being too high, then guiding the DPU to scrutinize everything. So I just want to get a sense there. I appreciate it. John Moreira: Good question, Shar. So the $160 million component, the piece is the 3 major items. One is a roll-in of GSEP, which is about $107 million. That really has no impact to customers. It's just going from the right hand to the left hand, the normal PBR adjustment, which was -- which did get approved of about $10 million. What we had proposed as a mitigation plan for the DPU was to allow us to roll in rate base similar to what we saw last year that the DPU approved for EGMA. That number is about $45 million. And we were very specific when we made that mitigation filing that if we did not receive the rate base role and then our alternative would be to file a general rate case. So as of yesterday, we filed a motion for reconsideration and we also filed our intent to file a rate case. There's been a lot of change, not only in the Connecticut PURA, but also in Massachusetts. The putting 2 new commissioners really have not been there that long. So we're hopeful that the efforts that we will work very closely with the DPU will move in the right direction. Shahriar Pourreza: Okay. Perfect. Big congrats, Joe, on sort of the traction. It seems like you guys are getting to a pretty good inflection point here. So congrats. Joseph Nolan: Thank you. Well, I'm very, very proud of the team. We've worked very, very hard at that, getting our message out there. We've been all over actually all the states talking about the issues and engaging key decision makers. So we're really, really proud of the team. It took a village [ job], but thank you, and I will see you at EEI. I'm looking forward to seeing you. Operator: Our next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just to go back to Connecticut, I guess just as you think about the recent changes from a regulatory standpoint, are there any updates you can share from conversations with credit agencies in terms of their views, just given the focus on the regulatory environment and some of the credit rating changes that they've made recently? John Moreira: Sure, sure. I would say, and I have -- I always have discussions with the credit rating agencies, but I'm sure you can appreciate. Right now, they're in a wait-and-see mode. They want to see some constructive regulatory outcomes to make the determination similar to what we expect and would like to see come out of PURA. But working collaboratively, we think that this new commission is focused on working collaboratively with all the utilities. So -- but I would overall, they're in a wait-and-see mode right now. Carly Davenport: Got it. Okay. That makes a lot of sense. And then just one other one, I guess, on Connecticut as well. I know you guys have talked previously about kind of timing to file another rate case at CL&P. Just kind of curious how the recent shifts kind of impact your views on timing there? Joseph Nolan: Yes, sure. We had never really had any intention to filing prior to 2026. So we are looking at that, as you know, a filing of that nature is comprehensive. So we would need to get test year and that type of stuff. This would not be something that would happen until at least second, third quarter, if we were to file. Obviously, we're going through that now, and that's what we're looking at, at this point, Carly. Operator: Our next question is from Jeremy Tonet with JPMorgan Securities. Aidan Kelly: This is actually Aidan Kelly on for Jeremy. Joseph Nolan: You're breaking up. Aidan Kelly: Can you guys hear me now? Joseph Nolan: Yes, it's better now. Yes. Aidan Kelly: Upon on the equity... Joseph Nolan: But Jeremy, we're losing you again. Can you call in and we'll come back to you? We'll put you back in the queue? Aidan Kelly: Sounds good. Operator: Our next question is from Andrew Weisel with Scotiabank. Andrew Weisel: First question, Joe, you talked about the land acquisition strategy. I know Mystic was a big one last year. Can you talk a little more how you're thinking about this? Is this kind of like a land grab where you're trying to get as much acreage as possible in strategic locations for your own stand-alone development? Or is it working with potential customers or partners like large load customers or data centers? And would it be right to assume that dollars are small, it's more about optionality? Joseph Nolan: Well, yes, a couple of things. This would be for our own use, for our own regulated business. It's in locations that are strategic in nature to allow the injection of energy, whatever energy that is. We are not in the data center business. We're not attracting data centers. As you know, we have a finite amount of generation in the region. What we're working on kind of the single and double strategy that I talked about is to be able to unlock the captive generation that might be in the New England market to allow it to fall freely also to allow anyone else to interconnect into our territory. So we did purchase the Mystic, and we'll have some news on another very strategic site that we're excited about that will position this company for decades to come. Andrew Weisel: Interesting. Looking forward to that. Okay, great. Then on equity, just a couple of fine-tuning questions maybe for John here. It looks like the 2025 outlook went up by about $200 million, and you removed the comment that the majority of the outlook will be issued in the back half of the forecast period. But John, I think I also heard you say that you're satisfied for the near term after the recent activity. I might have asked a similar question last quarter, but just wondering about the outlook. Maybe you can detail some of these changes, does that relate to kind of CapEx or the long term thinking of how to get to your targeted credit metrics? John Moreira: Yes, yes. So I mean, as I said in my formal remarks, for the near term, I believe we're done, right? Although we took that off the slide, it wasn't an indication that we're going to continue to issue equity. Still the majority is we may have issued like 37%, 38% thus far. So I still stick to my position that the majority of that will be issued towards the latter half of next year. With the approval of Aquarion, once we get that decision, that's going to bring in net cash at $1.6 billion. And then with the securitization of Connecticut storm costs likely coming in the door in '27, I think we're primarily covered for those years. So my position still stands. So as I said in my formal remarks, the near term, we're good for now. I have the appropriate level of liquidity. I'm very happy with that, given the financings that we did in the last 2 months. Andrew Weisel: Okay. That's very clear, and it sounds like you're in a good position. Thank you so much. Operator: Our next question is from Anthony Crowdell of Mizuho. Anthony Crowdell: I guess JPMorgan did an update of phone system in a new building there. Just, I guess, quickly on Revolution. I think it was reported from Orsted this morning, it's 85% complete, Revolution. Just if you could talk about what are maybe the critical parts left bringing the project to completion, that's end and is it second half '26 when you believe it's all finished? Joseph Nolan: Yes, Anthony. Yes, Revolution is going very, very well. And right now, we're -- Orsted announced this morning that 52 of the 65 turbines are installed, I will tell you that the work that we're doing in Rhode Island is pretty close to being finished. We've got great job at that onshore substation, we're going to begin to see some power there at the substation very, very soon. So right now, I know that Orsted is talking about a second half of 2026. But I will tell you that we've made significant progress. We've brought the dates in by 4 to 5 months. So we're hoping that we can see that improve. But I will tell you that I feel very, very good about the project and the work that's been done down there. So I think we'll see that project schedule improve. Anthony Crowdell: When is the first megawatt, first power expected to come online from the project? Joseph Nolan: Yes. That's an issue that -- for Orsted to discuss. We are basically a partner that's building the onshore piece. They are the conductor of this particular train. So let them -- they can tell you what's going on. Anthony Crowdell: Got it. And then just flipping to the storm cost securitization in Connecticut. I know it's with PURA. Any -- and I know the recent change there and it -- only recently has changed. But any update on maybe the timing of getting resolution on the storm cost securitization? Joseph Nolan: Yes. So a couple of things. I mean, our focus has been on the Yankee case. It has been on the Aquarion sale. So when we start to sequence these items, those are the things that were top of the list for us. We now shift our focus onto storms. I think the team has done an extraordinary job of documenting everything. We've had tremendous success in both Massachusetts, New Hampshire. And I don't think it will be any different in Connecticut. We have been asked that we pulled that ahead right now. It's a second quarter event, second, third quarter that we'll see a decision. But we think given that the decks have been clear that PURA we're hoping that, that can improve. We can get a decision that will allow us to go forward with securitization and get that money in the door for us. So yes, and the other issue is the interest cost, which -- that will provide us a great opportunity there to stop the interest cost. Operator: Our next question is from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Look forward to see you guys next week. Look, I wanted to just follow up on the Massachusetts backdrop. I know Shar asked it, but just how would you frame expectations here from gas onto the electric PBR? Just with respect to the backdrop here, anything to read -- again, I get that the gas PBR had very specific metrics but anything that you'd read into the backdrop here on the electric or EGMA? John Moreira: Well, the -- similar to what we have on the electric side, we have the same composition on the gas side. We have to perform. And on the gas side, this was the first touch point being under the PBR structure for Yankee -- for NSTAR Gas. So there's several performance metrics. There's really 3 criteria that you have to meet. One of them is you have to meet the performance measures that have been approved by DPU. We -- there were 18 actually. We performed very well in 15. So 3, we did not perform. And those 3 are very, let's call it, very subjective opinion surveys like J.D. Powers and surveys that we do, which are very driven by how the customers perceive us. The history of the precedent in front of the DPU as it relates to these performance measures is always viewed as while the company didn't have control. Okay, the company couldn't have done anything. And obviously, in a high-cost environment, it's very challenging. So that was the reason that the DPU took the action and did not allow us to roll the $45 million into rate base. And as I mentioned earlier, yesterday, we did file for a motion for reconsideration. So we will continue to work with the DPU. Obviously, as I mentioned, it's -- we have some new players sitting at the table, and we look forward to working with them very closely as we progress on this motion. Julien Dumoulin-Smith: Right. But the PBR metrics on the electric side kind of have that same composition, though? John Moreira: And we performed well. We have performed well. It's not an annual assessment with NSTAR Electric, it's a 10-year deal, you have a 5-year. So the fifth year happens in 2028. Julien Dumoulin-Smith: Excellent. No, indeed. And then just if I can -- I mean, obviously, you guys roll forward typically with 4Q. But any early indications, especially as it pertains to transmission and long lead time right time investments where you perhaps had some visibility here already? And any indications from ISO New England's planning process this year? John Moreira: Well, as you've seen in the last 5-year plan that we rolled out, the latter years are no longer a dip. And I expect that trend to continue where the outer periods will be more increasing versus what we've seen historically. So that's the reason -- that is the primary driver, that's because we have the clarity, and we have the projects that are in the queue to allow us to roll that into our plan. Julien Dumoulin-Smith: I appreciate the disclosures on the credit side, and we'll talk to you soon. John Moreira: Operator, I would like to correct a statement that I made earlier to Andrew Weisel's question. I think I may have spoken I just want to get that on the record. The equity, I said that our equity needs in the near term are taken care of. And I stay with my statement that I had made previously that the majority of the equity needs will be towards the tail end of our forecast period. I think in my former -- in my answering Andrew's question, I may have said next year. That is not the case. Operator: Thank you for that clarification. Our next question is from Paul Patterson from Glenrock Associates. Paul Patterson: So just on -- I'm having a little trouble with this. How should we think about your tax rate on an adjusted basis for the quarter and how you see it going forward? John Moreira: Paul, this is John. So as I've said previously, over the past several years, we have taken advantage of some very attractive tax benefits last year, and I may have said this previously, we were in the high teens. The expectation is this year, it's probably be in the low 20 -- 20%. But I think next year in 2026, we probably would get to more of a normal sustainable level. But we've taken full advantage of some nice tax benefits for the past several years and we will continue to harvest any and all tax benefits that we can actually achieve. Paul Patterson: Okay. Because when I look at the after-tax benefit or the -- excuse me, the hit on the offshore wind that was offset by the tax benefits, should we -- are all of those tax benefits reflected in the non-adjusted number? In other words, they seem to be allocated. When you talk about the write-off, it seems like that's being allocated to the write-off. And that isn't leaking into the -- correct? John Moreira: That is not the case. So let me -- the percentages that I just mentioned only relates to our normal recurring results. The $210 million that we harvested to offset the tax liability is directly related to offshore wind. And it's primarily the final change in estimate from where we were at the end of the year of 2024. And the characterization of that benefit is really we were able to deem the loss on wind as more ordinary versus capital. So we changed the percentage that we had used in '24 versus that tax split of capital at ordinary increased in this year when we file our tax return in the third quarter. So we were able to allocate more as ordinary versus capital and ordinary, we can carry forward for 15-plus years. So that's really what changed in our tax position as it relates to offshore wind. Paul Patterson: Okay. And there's -- and so okay, that answers the question, that's kind of what I thought. So okay, I appreciate the clarity. Operator: Our next question is from Sophie Karp with KBCM. Sophie Karp: I don't know if you guys know this on top of your head, but I'm curious what legally constitutes kind of the end of the Revolution project as far as your agreement with Orsted? Like at what point are you no longer on the hook for anything there? Like is that first power? Is that something of other milestones? Any color would be helpful here. Joseph Nolan: Sure. So it's similar to the protocol we're using on the South Fork project. It would be COD. At COD, we will hand that over and that is when we are off the hook. Sophie Karp: And what is COD specifically? Joseph Nolan: Full operation, turning over of all of the documents all -- anything associated with the work that we have done and the PPA is in full force. Operator: I'm showing no other questions at this time. So I would now like to turn it back to Joe Nolan for closing remarks. Joseph Nolan: Thank you once again for taking the time to join us today. We know many of you have been patient investors over a long time, and we will continue to execute our key strategic initiatives that create value for our customers and shareholders. We look forward to seeing many of you at EEI next week, safe travels. Operator, this ends our call today. Operator: Thank you. This does conclude the program, and you may disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the SmartRent Q3 2025 Earnings Call. [Operator Instructions] Now I would like to turn the call over to Kelly Reisdorf. Please go ahead. Kelly Reisdorf: Hello, and thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martell; and Daryl Stemm, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC, both of which are available on the Investor Relations section of our website. Before I turn the call over to Frank, I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including in our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to provide updates regarding forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with the reconciliation to the most directly comparable GAAP measure is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the Investor Relations section of our website. And with that, I will turn the call over to Frank. Frank Martell: Thank you, Kelly. Good morning, everyone. I'm pleased to report that the third quarter was a period of substantial progress for SmartRent. We continue to grow our annual recurring revenue and significantly narrowed our operating loss in line with the commitments we made on our last call. During Q3, we continued to expand our installed base, which now includes more than 870,000 units, up 11% from prior year. SaaS revenue grew 7% from prior year levels and now represents 39% of total revenue, up from 37% in Q2 of this year. SaaS growth is being fueled by our increasing installed unit footprint and higher pricing. As we look forward to the balance of this year and into 2026, we expect to continue to significantly expand our installed base as we capitalize on the investments we are making in our sales organization as well as expanding platform capabilities to deliver even greater ROI to property owners and operators. Let me now highlight 3 important milestones from the quarter. First, we completed the actions necessary to reset our cost structure that we outlined last quarter, unlocking more than $30 million of annualized expense reductions. We believe that this will result in adjusted EBITDA and cash flow neutrality on a run rate basis exiting 2025. Cost efficiency was the primary factor in narrowing our adjusted EBITDA loss from $7.4 million in the second quarter of this year to $2.9 million in Q3. Second, our relentless focus on achieving profitability, combined with disciplined working capital execution helped us to exit the third quarter with unrestricted cash of $100 million compared with $105 million at the end of Q2. Maintaining our strong liquidity position should provide ample capacity to fund high ROI reinvestments, which are expected to drive customer and shareholder value and build a strong base for long-term success. And third, we added a seasoned expert during the quarter with a consistent track record of transforming key workflows and processes. Our go-forward goal is to simplify and automate our key internal processes over the next 18 months. We expect to see significant financial and operational benefits from this initiative beginning in 2026. Our progress in Q3 is the outcome of clear priorities, disciplined execution and a focus on what matters most, building expanding profitable and durable platform. I will now focus the remainder of my comments today around our business model and why we believe it provides a platform for durable revenue growth and higher levels of sustainable profitability in 2026 and beyond. From my point of view, SmartRent's opportunities for accelerating profitable growth and sustained market leadership are compelling. We operate in a large expanding market with a purpose-built differentiated platform and a growing SaaS footprint. As a hardware-enabled SaaS company with meaningful scale, our foundation is domain expertise and close alignment with the needs of our customers. Our solutions are retrofit friendly, integrates seamlessly with third-party hardware and systems and are designed to deliver measurable ROI. With IoT-focused platforms deployed 870,000 rental units and over 1.2 million users relying on our operational and community management workflow tools, we have a significant advantage. I believe we are increasingly poised to leverage our scale advantage to improved operational execution, the introduction of new and enhanced capabilities driven by data and analytics and the infusion of AI. SmartRent delivers strong value that our customers rely on. As a result, we have developed sticky and long-term customer relationships. Our net revenue retention rate is well above 100%. In a recent survey, 90% of property managers cited net operating income expansion as a key reason for continued investment in SmartRent. I want to conclude my prepared remarks today by saying how energized I am about the opportunities for growth and transformation at SmartRent. Over the past 4 months, I've had the chance to spend significant time with many of our key stakeholders, including our largest customers. These sessions have provided me with critical insights into both the company's foundational strengths as well as areas we need to address to realize our full potential. On the next call, I will be providing a 3-year strategic framework for evolving our business model to capture the unique benefits we provide to the rental market and its key participants. In closing, I believe we made important progress in the third quarter and are well positioned to exit 2025 with accelerating momentum. I want to thank our team of dedicated SmartRent employees for all their focus and commitment. It's making a difference. I will now turn the call over to Daryl for a detailed discussion of our Q3 financial results. Daryl Stemm: Thank you, Frank, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Our third quarter results demonstrate clear progress across both profitability and operational execution, highlighted by reduced losses, lower operating expenses and a stronger recurring revenue mix, and we remain firmly on track to achieve our run rate targets as we exit 2025. For the third quarter of 2025, total revenue was $36.2 million, down 11% year-over-year. The decline primarily reflects our strategic move away from bulk hardware sales that occurred in advance of customer implementation time lines in favor of a more sustainable SaaS-focused revenue mix. Breaking this down a bit further, SaaS revenue reached $14.2 million and increased 7% year-over-year. SaaS revenue now represents 39% of total revenue compared with 33% of total revenue in the same period prior year. Hardware revenue totaled $11.5 million in the third quarter, a 38% decline year-over-year for the reasons previously noted. And Professional Services revenue increased by 113% year-over-year to $7 million, reflecting the higher installation volume and improved project efficiency. The shift in revenue mix towards SaaS continues to strengthen the quality and predictability of our model, a key objective in our path to profitability. Our annual recurring revenue reached $56.9 million, up 7% year-over-year reflecting steady expansion of our recurring base and the successful execution of our strategy to scale higher-margin platform-driven growth. As of September 30, our installed base reached 870,000 units, up 11% from the prior year, with 83,000 net new units added since the same quarter prior year. We deployed more than 22,000 new units during the quarter, a 49% increase compared to the prior year period and booked 22,000 units for a 30% increase, reflecting continued customer demand and stronger execution resulting from our investment in our sales organization. Turning now to profitability. Gross margin was 26%, lower year-over-year as a result of nonrecurring inventory charges related to our decision to sunset our parking management solution and focus on our core IoT and smart operation solutions, partially offset by a higher mix of our higher-margin SaaS revenue. Professional Services gross profit improved by $3.7 million, shifting from a loss of $3.5 million in the prior year quarter to a profit of $200,000 this quarter. We believe the breakeven performance of our Professional Services revenue stream, which was driven by ARPU increases and cost reductions is sustainable. Operating expenses decreased by 34% year-over-year to $16.6 million, an $8.6 million reduction from the prior year period. Our third quarter operating expenses were aided by approximately $2.5 million of accrual reversals, which we don't expect to recur in future periods. Net loss improved 36% year-over-year to a loss of $6.3 million and adjusted EBITDA improved 23% to a loss of $2.9 million. Our $30 million cost reduction program is complete. These efforts have meaningfully reshaped our expense base, aligning them with our current revenue level and created a leaner, more efficient operating structure that supports future growth. We ended the quarter with $100 million in cash, no debt and $75 million in undrawn credit, giving us a strong balance sheet and the flexibility to execute from a position of strength. Net cash burn improved by 79% from roughly $24 million in the same period prior year to $5 million this quarter. This improvement is primarily driven by a reduction of operating losses and improved accounts receivable collections. From here, our focus turns to selective reinvestment especially in our sales and account management functions where we're seeing early traction from targeted hiring and process improvements. Equally important, we're investing in product innovation, as Frank mentioned, to strengthen differentiation and fuel long-term growth. We remain committed to preserving the cost discipline and operating rigor that have driven our turnaround. We're operating with discipline, building momentum and have clear line of sight to achieve run rate non-GAAP neutrality exiting 2025, positioning SmartRent for durable, profitable growth in 2026. Thank you for joining us today. Operator, you may now open the line for questions. Operator: [Operator Instructions]. And your first question comes from the line of Ryan Tomasello. Ryan Tomasello: Looking at SaaS revenue growth of 7%, that came in lower than deployed unit growth of 11%. And it looks like the drivers there are ARPU related, which I think is partly driven by site plan. So I guess my question is, what's the current strategy at site plan, which seems to be a drag on growth? And then within core IoT ARPU, it looks like that was still flat sequentially, backing out site plan. So are there any other drivers there to call out? I think you mentioned the sunset of your parking management solutions, whether or not that was an impact? Any color on that would be helpful. Daryl Stemm: Yes. Thanks for the question, Ryan. So first of all, with regards to the overall SaaS ARPU, I would say that this is a 1 quarter aberration. We had some adjustments to revenue, SaaS revenue that were non-IoT related. So primarily smart operations were site plan as you mentioned. And that had an impact of about $0.15 on our reported SaaS ARPU number, which should correct itself in Q4. And so I would expect to see a return to the $5.65 to $5.70 range of SaaS ARPU in Q4. Ryan Tomasello: Can you just elaborate what that -- what those adjustments were? Daryl Stemm: Yes. We have a number of accounting estimates that we make on both revenues and on expenses. And so the adjustments were really just around some estimates that we use in our calculations. And we're constantly tweaking our estimates to make sure that our financial statements are reasonably representing to use the auditing term, our true financial results. This quarter, it was just a little bit larger than typical. Ryan Tomasello: Okay. And then Frank, your commentary certainly is suggesting optimism about growing the installed unit base next year. Can you elaborate just on the progress you've made specifically within the sales organization? And if you're able to, at a high level, discuss the type of annual unit deployment capacity you think the business can structurally support based on your current sales and installation infrastructure? Frank Martell: Yes, look, I think I'm -- the company has kind of settled in that 20,000 to 25,000 level. We can do more than that, significantly more than that with the current capacity. As I said in my prepared remarks, I visited most of the major clients. Everybody is talking about their plans, which include potentially quite a number of units to be installed. The macro environment is a little challenging. So that's creating a little bit of friction. But by and large, I think there's a lot in the hopper out there. We did add a leader about a year ago, terrific person that's really driving expansion. We've expanded dramatically our account -- key account management structure. We have a lot of, as you know, large clients. So more specific attention to those clients. We launched a customer council, which we're excited about, which will allow us to better coordinate our -- some of our new products and solutions that we have in place. So that's a positive. And then I think we have just more sales folks, some former employees that have come back, plus a few new ones. So we will, I think, be positioned well to ramp up from the current levels. We're doing 22,000, 23,000 units right now. And I expect that to increase, but more to come on that front. And you mentioned site plan. So as Daryl alluded to, smart IoT and operations are the core of this company and will remain the core of this company. We're actually holding serve at smart operations. We have over 1 million users. We're putting some investment behind the solution sets there, and we'll continue to do that, probably accelerate that into next year. So smart operations is a core component. It's is not declining. It's kind of holding serve. So I just want to make sure that, that was clear. Operator: And your next question comes from the line Yi Fu Lee with Cantor Fitzgerald. Yi Lee: Great work on reaping operational improvements in the cost structure and flowing this benefit to better profitability. So Frank, I just want to start with you. You mentioned like the past 4 months, you spoke with a lot of stakeholders, right? Just want to get your feedback, like what are some of the positive and negatives you're seeing in the field? Frank Martell: Sure. Look, I think I've covered a lot of ground with customers. And I think one thing about SmartRent that's very interesting is that the companies like the solutions very much. They value the return on investment that we generate. They're very supportive of the company despite some of the challenges over the last year or so. And I would say it's a very open collaboration. So I think from a customer point of view, it's actually quite positive for SmartRent, support of SmartRent. And I think that's fantastic. It's also -- it's a collaborative discussion with them about how we can continue to evolve our products and solutions to be a bigger part of their business. And that's why I think things -- we did not have any problem creating our customer product council, which we've already kicked off and was very active. So I think that's, again, a kind of encouraging sign. And the last thing I'll say is we don't -- we have very little to none customer turnover, which is not something that's very common. And so I think from that point of view, we are a sticky solution. And I think from that perspective, it's a great base to work with. So it's really encouraging from that perspective. I think now that we've got more predictability in the business, I'm hopeful that we'll see an acceleration in unit orders despite the fact that there's some challenges in the macro environment. Yi Lee: And with that, Frank, like, I know like, Ryan, asked about the sales organization. I want to continue to focus on that. You guys made a lot of investments from last year, bringing in a new CRO, hire a couple of folks in key pillars, right? Just want to get a sense, what are the things like in terms of go-to-market that you think -- and you mentioned the run rate is about 20,000 to 25,000 units per quarter, right, of new net units. What are the go-to-market things that you think the changes you made that could help improve, let's say, in 2026? Frank Martell: Yes. I think, first of all, one thing I would just say on the unit count that Daryl talked about in his presentation, we've been working through the overhang of these bulk hardware sales that were made over the course of early 2024 and late 2023. That had a reduction -- an effect of reducing our run rate on units because they were pulling forward into earlier periods. We should be through that by the end of this year. So we'll have a run rate that looks more like the market demand cycle looks and that should be a benefit. It's not very far from 23,000 to 30,000 units, really. And so we're shooting for a much higher number and building the organization to accommodate that. And I think things like improving the sales organization in terms of numbers of people, and frankly, the underlying systems that support that group, that's all well in hand. As I said earlier, we have a fantastic leader that's really doing a very good job on the organizational enablement front and also the client relationship building front. I will remain active with the clients. And I think there's a lot of upside there. Yi Lee: Got it. And then Daryl, flipping to you on the financial side. I think Frank mentioned that by the end of this year, the bulk hardware sales should normalize the headwind. I was wondering, can you give us some color? Does it mean like in 2026, we should see a smoother growth rate quarter-over-quarter? And then your comments about run rate cash flow neutrality to exit 2025, should we get used to this going forward, Daryl? Daryl Stemm: Yes. So first -- to answer your first question with regards to what the growth rate might look like, what you've been seeing for most of the past year is that our hardware revenues, in particular, have been muted because we've made the shipment of the hardware for much of the installation volume that we're still now undertaking a year ago plus. So our -- I would expect that even if our volume were simply to stay in the 20,000 to 25,000 units per quarter range, that our hardware revenue would increase as we have to, then as we work through the whole hardware sales, we will be shipping hardware for current period installation. So there'll be a more closely coupled cadence to the hardware revenue with the deployment volume. And can you repeat your second question, please? Yi Lee: The second one was the possibility. You mentioned our free cash flow exiting end of this year to be positive. So that -- should we get used to this discipline -- financial discipline in 2026, meaning like this consistency? Daryl Stemm: Well, we're certainly going to strive to be as disciplined as we have been this past quarter and for Q4. I think that our initial desires were simply to reduce the cash burn so that we can then evaluate how to use the $100 million of cash that we have in -- and apply it for its best purpose, be it reinvesting in the company or otherwise. So my expectation would be that we'll continue to remain very disciplined in our use so that we can then make very disciplined decisions around how to best use the $100 million. Operator: There are no further questions at this time. That concludes today's call. You may now disconnect.
Operator: Good morning, and welcome to the Inspired Entertainment Third Quarter 2025 Conference Call. [Operator Instructions] Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the third quarter 2025 earnings press release and in accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. These also apply to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those exposed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. The company assumes no obligation to update or review any forward-looking statements, except as required by law. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. As a reminder, the slide presentation will be advanced by the operator to accompany management's remarks. A PDF version of the slides will be available following the call in the Investors section of the company's website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead. A. Weil: Thank you, operator. Good morning, everyone, and thank you for joining our third quarter conference call. As we reported earlier this morning, third quarter and trailing 12-month adjusted EBITDA were $32.3 million and $110 million, respectively, both well ahead of consensus and last year, and a result that we're pleased with. In a departure from [ press ] protocols, we have prepared a brief slide deck today summarized here on Slide 4, which will be presented by President and CEO, Brooks Pierce, and myself. There are a lot of moving parts right now, the sale of holiday parks, the restructuring of pubs, the continued phenomenal growth of interactive as examples that paint a very exciting picture, and we feel that this kind of comprehensive discussion will help us put everything in proper perspective. Then at the conclusion, we will discuss earnings, balance sheet and cash flow projections for '26 and '27. To begin, I'll hand it over to Brooks, who will discuss in some detail, current results and operations. Brooks Pierce: Okay. Thanks, Lorne. Before I dive into the business update, I want to briefly address the upcoming U.K. budget announcement on November 26 and the discussion around potential tax changes in the gaming industry. There's been a lot of coverage and discussion on all sides of the issue and its impact on the industry, but frankly, this isn't new. We've managed through -- we managed through the 2019 triennial, which cut maximum stakes in betting shops from effectively GBP 50 to GBP 2, a major change that we successfully navigated through product innovation and operational discipline. Today, performance in that business is well above pre-triennial levels. Potential shop closures have been in the headlines as well, and our experience tells us that this is also manageable. Typically, lower-performing shops are most at risk, and much of that play finds its way to nearby shops, effectively lowering our servicing costs. The potential increase in remote gaming duty would be another facet we have experienced dealing with. We've managed similar changes in other markets, and our performance in the Interactive segment speaks to our ability to adapt effectively. Once the U.K. budget is announced, we'll share more specifics. But in the meantime, we're planning proactively and are confident in our ability to manage changes effectively, just as we have in the past. And we have a number of levers and opportunities at our disposal to navigate our way through this. Okay. Moving to the next slide. We're pleased with the performance of the business in the third quarter, and are carrying that momentum into the fourth quarter. We're confident we'll exceed Q4 2024 performance and current guidance, assuming current FX rates don't change materially. The Interactive and Gaming segments were particularly strong, with Interactive achieving more than 40% year-over-year adjusted EBITDA growth for the ninth consecutive quarter. October is now complete, and is the single largest revenue month for this segment in our history, and last week was the biggest week we've ever had. This was all highlighted by the success of some of our seasonal games, but frankly, we're seeing strong performance throughout the portfolio and market share gains across our key geographies in both the U.K. and North America. We're also pleased to see a second consecutive quarter of stabilization in the Virtual Sports segment, and are confident that it will grow year-over-year in the fourth quarter. The close of the sale of the holiday parks business on November 7 is a milestone in our shift to higher adjusted EBITDA margins, lower CapEx and close to 40% lower head count going forward. Taking the proceeds from the holiday park sale to improve our net leverage puts us in a stronger financial position as we move through the fourth quarter and into 2026. In addition, we announced today that our Board has reauthorized a $25 million share buyback plan as part of our plans going forward. The next slide demonstrates the success of our strategy in making North America a bigger part of our business, in large part due to the growth we're seeing in this market from our Interactive business, but we're also gaining momentum in our North American VLT business that I'll cover in more detail later in the presentation. The success of the Vantage cabinet in the William Hill estate is coming through in our results and was highlighted recently by evoke in their trading update. We're also starting to see the impact on performance of the refreshed terminals in the Greek estate. Although the year-over-year performance in the Virtual segment continues to be impacted by the taxation that started in January in Brazil, our comps in the fourth quarter and 2026 will be easier, and we've also introduced a number of initiatives and increased our customer counts in Brazil and Turkey, and we're starting to see some of that improvement come through the numbers. As you can see on Slide 8, we've been generating solid year-over-year adjusted EBITDA growth every quarter, and the trailing 12 months adjusted EBITDA is now at $110 million. It is certainly a positive, but the most important aspect of this slide is the impact we expect to see going forward with the sale of the holiday parks business and the move in our pubs business to a machine and content-led strategy. Both the Interactive and Virtual segments are operating at higher than 60% EBITDA margins after corporate allocations, and we expect the operating leverage of both of these segments to strengthen further as revenue increases. Combination of margin expansion, the sale of the holiday parks business and the change in the pubs business model will significantly reduce our capital intensity and have a very positive impact on cash flow. The next couple of slides highlight not only the strong performance of the Interactive segment, but frankly, the significant opportunity we see ahead as additional iGaming states potentially come online, the potential we believe could be transformational for our business. Our content is resonating broadly across all the key geographies, and we're positioning the business to scale across even more. Looking ahead to next year, we plan to increase game deliveries through added capacity and a new interactive studio. The most common feedback we get from customers is they want more of our great content, and we're excited to deliver on that challenge. As we've talked about in the past, we're very bullish on the opportunity for an increase in the number of iGaming states. It's clear that iGaming is a much larger opportunity than online sports betting, as you can see in the GGR from just 3 of the existing iGaming states. The delivery of additional states is very seamless, and frankly, should produce significant operating leverage as the only real cost to add states is in bandwidth. We don't have a crystal ball, of course, but we're confident that states will see the opportunity and feel it's a matter of when not if. Now moving over to Hybrid Dealer. We've been talking about Hybrid Dealer for some time, and we felt validated to have won the award at G2E for innovative product of the year. More importantly, we're starting to see the network effect of rolling this product out across our customer base. We have a very good mix of both Tier 1 and Tier 2 customers and have seen success with both. Our William Hill-branded roulette game in the U.K. is producing amazing results, which we view as a proof point for other operators. The next phase of development will emphasize and highlight our proprietary player-favorite content, such as our Wolf It Up! and Piggy Bank family of games. We see this as the natural evolution of our product strategy, supported by an increasing pace of game delivery to meet the strong market demand. While Hybrid Dealer is not expected to be as large as the broader interactive market, we believe it will be a valuable complement to our portfolio, enhance our offering, add diversity to our content and contribute meaningfully in 2026 and beyond. Moving over to Gaming. Our Gaming business continues to perform well across our 3 key markets of the U.K., Greece and North America. In the U.K., we're gaining share in the betting shop business with the addition of 2 key customers. In Greece, our new cabinets are strengthening our leading position. And with nearly half of our machines still to be upgraded, we see continued opportunity for growth. In North America, performance in Illinois and key Canadian provinces is at its highest level since we introduced these products into mature markets, which frankly, is never easy. Notably, 98% of our Illinois customers ordered our game pack subscriptions this year, validating our philosophy that server-based gaming is a powerful tool for operators to keep their players engaged, and we see applicability for that in many more markets around the world. And now I'll pass it over to Lorne. A. Weil: Thanks, Brooks. A lot of interesting concepts and data to digest. I'll begin with Slide 14, giving a snapshot of where we are at the end of the third quarter. I apologize if some of this material was repetitious for those who have been following us for a while, but will help level set for anyone new to the story. So we're starting with trailing 12-month revenue, adjusted EBITDA and EBITDA margin of $310 million, $110 million and 35%, respectively. The digital retail mix is just under 50-50 and net leverage ratio of 3.2x. As we move through the rest of the material, I'll try to explain why we're confident in projecting significant expansion in margins, reductions in leverage and strong free cash flow. Slide 15 summarizes the underlying dynamics that have been underway for some time. Earlier, Brooks talked about the high margin relatively low CapEx and scalability of our digital business. It's the swing of the mix of our business in that direction that's a primary driver of financial performance. In parallel, the divestiture of the holiday park business provides an immediate boost to margins. And the operational reengineering going on throughout the company allows us to make up for the divested holiday parks EBITDA. In a moment, I'll quantify with some specificity on the exact impact of each of these 3 elements. Slide 16 summarizes the 3 things that, of course, everybody wants: revenue growth, expanding margins and growing free cash flow. Although generally, in my experience, you only get to pick 2. And as the slide implies, in our case, the 3 are highly interdependent. Our revenue growth is driven by the compounding of market share gains within growing markets, with content development and greater allocation of resources to marketing, having recently been the principal underlying drivers. Revenue growth, revenue mix and scalability together drive expanding margins, and the latter combined with declining CapEx drives free cash flow, if only it were that easy in execution. Slide 17 decomposes our projection of a 1,000 basis point increase in adjusted EBITDA margin between now and 2027, with the increase being almost equally split between the increased digital mix, the sale of holiday parks and the operational reengineering that we have undergoing. Regarding the latter, we expect most of the benefits to begin to take effect in the first quarter of 2026. Which finally brings us to Slide 18, where we bring this all together. To summarize, we're projecting the digital mix after corporate allocation to reach 60% by 2027; headcount to decline by nearly 40%; adjusted EBITDA margin to grow by 10 percentage points, from 35% to 45%; free cash flow conversion to reach 30% of EBITDA; and net leverage to decline to 2. A few minutes ago, Brooks discussed the expectation of increased U.K. gaming taxes in the November U.K. budget. It's for this reason that for now, we've expressed absolute adjusted EBITDA guidance in terms of high single-digit growth, which will then translate to more specific guidance once the tax proposal is known. As Brooks mentioned earlier, we've been through this drill before, and we're confident we can do much to mitigate any impact. And I should mention that certain important upsides, new iGaming states, for example, would be significant additional mitigating factors as they [ do not ] factor at all into our analysis. Finally, this entire discussion is focused on organic growth and does not reflect any expectation of M&A impact, which we continue to look at very carefully. And with that, we can open to Q&A. Operator, we can have Q&A now, please. Operator: [Operator Instructions] And your first question comes from the line of Ryan Sigdahl of Craig-Hallum. Ryan Sigdahl: Appreciate kind of the targets and laying out the path over the next several years what this company looks like. Still kind of digesting that in real time, but very back of the envelope math, maybe staring at Slide 18 here. If we assume EBITDA grows at a high single-digit CAGR, EBITDA margin expands by 10 points over the next 2 to 3 years. I guess that implies revenue is kind of flattish, maybe even down? I guess, walk through what's going on there, and maybe part of that is the starting point of holiday parks included or not? Brooks Pierce: Yes. I think the -- well, the principal reason for that is obviously the holiday parks business going away. So that's the single biggest driver of the revenue that you kind of modeled out. But I wouldn't say we obviously are confident that the rest of the business segments are going to continue to grow at varying degrees. Obviously, the Interactive business continues to race ahead, but the Gaming business and the Virtuals business, both we expect to grow. Ryan Sigdahl: Helpful. Yes, I think it's just a comparison of kind of the starting baseline there. Virtual Sports, I think I heard expect year-over-year growth in Q4. I guess, what gives you that confidence in the acceleration because it was up [ 1 ] decimal point sequentially, and so it appears like it's stabilizing. But what gives you the confidence to see a reaccelerating growth, at least sequentially, which will get you back to year-over-year growth by Q4? Brooks Pierce: Yes. A couple of different things. We've made some adjustments with our biggest customer that we're starting to see the benefits coming through already. We've added additional customers in Brazil. I think we added 6 in the quarter, which you wouldn't have seen full impact up, and we'll get that in the fourth quarter. And we've also seen some nice growth out of some of the business that we're doing in Turkey, and we're adding another stream of content in the Turkish market. So a combination of kind of all of those things gives us confidence that we're going to grow. I think the fourth quarter number EBITDA is [ 7.2 ] from last year. So it's not an insignificant amount we need to grow, but that's what our target is. Ryan Sigdahl: If I may, a quick follow-up just on that, any commentary or added detail on what those adjustments with your largest customer were? And then I'll hop back in the queue. Brooks Pierce: Thanks. No, I think we'll probably keep that to our -- between us and our customer, if you don't mind. Operator: Your next question comes from the line of Barry Jonas of Truist Securities. Barry Jonas: Lorne, can you expand a little on your M&A commentary in the prepared remarks? Just curious what the pipeline looks like and the types of companies deals you'd be most interested in? A. Weil: Sure. Well, I think to begin -- from a financial point of view, we're only interested in deals where they're going to -- there are significant touch points with the company and our operations now so that we can anticipate meaningful immediate synergies and a deal that makes significant financial sense. We're not going to do anything that's highly in a diversification mode or pay crazy prices that we can't mitigate by having a lot of operational synergies. So that's sort of -- that's the overarching concern. In terms of kinds of companies, we're interested -- we would be interested either in what people nowadays call tuck-in acquisitions that strengthens one of our existing businesses. The most likely would be an interactive studio or an interactive business that had products that we don't have or was addressing markets that we don't address that we could easily fold in. Same thing would be possible in our equipment business. I think it's unlikely that we would do something very big in an M&A sense right now because the business is running beautifully. There's plenty of opportunity to, as I said, to do tuck-in acquisitions, and that's kind of what we're doing, Barry. Barry Jonas: Got it. And then I noticed there was a release about your premium iGaming entrance into West Virginia recently. Just curious if you could talk more about that? And then any other notable jurisdictions you'll be soon to enter, hopefully? Brooks Pierce: Yes. So we've started with DraftKings and Rush Street, I think, are the 2 first customers in West Virginia. For a while, we're kind of waiting to see how some of these markets develop. Delaware as well, which was originally pretty small, but Rush Street's made that into a pretty amazing market. And same thing in West Virginia. So a number of our operator customers were pressing us to get the content in all their markets. So clearly, so West Virginia is rolling out, we'll start seeing the impact of that here in the fourth quarter. I think the rest is what we talked a little bit about is new states. I think the only state we're not in now is Rhode Island, which is kind of a unique environment. So certainly, if any states were to be added, that's a huge bonus for us. In terms of the international markets, I think we have almost 500 customers now. And we're pretty much in every market you can think about. I would say that probably the biggest market that we're not participating in a meaningful way that we hope to is probably South Africa. But Brazil is growing and some of the other Latin American markets are growing. So we kind of have no lack of geographical opportunities for us. Chad Beynon: Great. Congrats on the quarter and appreciate the new targets. Operator: Your next question comes from the line of Jordan Bender, Citizens. Jordan Bender: Maybe just follow up on the M&A comments. First, you mentioned you're going to open a new interactive studio. Are you buying this or is this an organic initiative? And then maybe more broadly, kind of related to the M&A part of this, have you seen multiples for studios come down at all? I know those have been quite elevated in years past. It seems like that's kind of a natural fit for the trajectory of your business at this point? Brooks Pierce: Sure. Maybe I'll answer the first part and a little bit of the second part, and then Lorne can expand. So the studio is going to be -- we're building it ourselves. We've hired the guy who run the studio. He's got a noncompete. So he'll get started after the first of the year, and we'll build it out. And it will be a lot of the content that we are kind of known for, but we also will give him some runway to try some newer types of content that maybe will help broaden our portfolio. In terms of M&A, we've looked at lots and lots and lots of studios. And probably the single biggest issue for us is there's lots of markets where some of these studios get revenue that we won't go into, and that's probably the single biggest gating factor as to why we haven't done an acquisition in that space before, but we continue to look at it. And as the content pipeline gets bigger and bigger, there's more and more of these companies that are popping up. So we're constantly looking at that. And maybe, Lorne? A. Weil: Yes. No, I don't have anything to add to that. I think that's right. Jordan Bender: Perfect. And just following up, on the share buyback, it's been a couple of years since you've bought back stock. Can you just maybe remind us of your philosophy, is this going to be kind of a programmatic buyback opportunistic? Just anything to help us there. A. Weil: Yes. I mean I think -- well, just to address the point about not having done a buyback for the last couple of years, that largely was occasioned by the accounting issue that we, fortunately now has completely behind us. But while it was going on, we weren't able to buy back stock. So now we're in a situation where that's all behind us. We're generating plenty of cash. We -- our cash position itself is strong. And so we're obviously in a position to do it. And we think right now, our stock is at a level where, regardless of what anybody's philosophy is about the subject of share buybacks in the context of capital allocation, it's -- our view is it's obviously very attractive. I don't think it's going to be programmatic, though. I think it's still going to be opportunistic because we're constantly balancing the goal to bring our leverage ratio down to the level that we talked about in these projections, and I think that's a priority. And we don't know whether and when a meaningful M&A opportunity will come across or will come along and then we need to act on that. So I don't think we want to be programmatic about share buybacks because again, we're balancing all of these factors. But we're certainly going to be more aggressive than we've been in the last couple of years. That's for sure. Operator: And your next question comes from the line of Chad Beynon of Macquarie. Chad Beynon: I wanted to revisit, Brooks, your comment about interactive October being the largest in history and obviously looking at the financials for Q3, the $11 million of EBITDA. So maybe first question, are you adding new partners in your biggest market like the United Kingdom? Are you just gaining market share? And then the second part of that, do you think that certain partners are better cushioned against some regulatory changes? I know we'll hear more about that. But yes, I guess, just wanted to ask about Tier 1, 2, 3 partners versus just overall share in that market. Brooks Pierce: Yes. Thanks, Chad. Yes, I mean it's kind of exactly what you would want. It's pretty broad-based. It's across our 3 biggest markets, North America, U.K. and Greece, but some of the other smaller markets are growing as well. And principally, it's us gaining share. I think we are ranked #4, #5 in the most recent Eilers report in North America. I think we've made a pretty focused shift to having build games that resonate with the North American players, and that's turning out. And so all the big guys, whether it's DraftKings, FanDuel, BetMGM, Rush Street are all doing better and better. But it really goes all the way through Tier 2, Tier 3, lower markets. So it's pretty broad-based across the business. And like I said, the October numbers were great. You get the advantage of having Halloween. I mentioned that last week was the single biggest week we've ever had. We had the confluence of payday in the U.K., Halloween and the resetting of limits all happen in one week. So that kind of led to pretty phenomenal results. But we obviously, as we go into the fourth quarter, December is historically one of the biggest, if not the biggest months with all the Christmas games. And November is also a very good month. So the fourth quarter is shaping up nicely. Chad Beynon: And then on the prediction markets. Obviously, you guys have extremely minimal exposure to, I guess, North American sports betting. We have seen a lot of the publicly traded equities trade off as a result of some competition there. Can you just talk about prediction markets, if that -- if you believe that affects any of your business segments here? Brooks Pierce: No. We don't -- we certainly aren't seeing anything. Unfortunately, it's because we don't have -- the one that it might potentially impact would be Virtuals in North America. And as I've said on a number of the calls, we're frustrated by the pace at which we're getting Virtual Sports in North America. The content, the NBA content, the NFL content is resonating with markets outside of North America, but we're still struggling to get more and more operators in North America launch. So that's really the only part of the business that I would see impacted. We certainly aren't seeing any impact in the interactive space from prediction markets, taking players away. I think they're fairly -- even though the operators obviously try and cross-sell, I think they're fairly separate and distinct players. Operator: Your next question comes from the line of Josh Nichols of B. Riley Securities. Josh Nichols: Great to see the parks business approaching a sale here and the stock buyback. Sorry if it was already addressed, I joined the call a few minutes late. But I wanted to just talk about the Interactive business, phenomenal growth that you've been seeing there overall. I think it's on pace for something like close to like 50% growth this year. Do you expect that, that pace is likely to continue next year? And what are the key kind of drivers that you see that's going to be driving Interactive, whether that's like Brazil or [ expanding ] your partnerships with some players in the U.S. and things that are in the pipeline for that business? Brooks Pierce: Yes. We sort of addressed it a little bit earlier, but I'm happy to go back through it. Yes, I mean, look, 9 quarters in a row of more than 40% EBITDA growth is -- eventually the math gets a little bit more challenging, but as I mentioned, the October numbers were great. We expect the fourth quarter to continue to build on that momentum. The biggest issue for us, which, again, I talked about a little bit, is what our customers are saying is, "Your games are great, your game mechanics are great. We just want more of them." And hence, that's why we're investing in the studio to increase the capacity so that we can get more games out to the market, which I think will hopefully help us sustain the growth levels. There's so much content out there now that you really do have to have the combination of the quality and the quantity, but our game design teams have come up with some really interesting mechanics. We mentioned in the presentation about this persistence game that we're doing called Player Link that's driving increased play. So we've got lots of levers that we're pulling, and we hope this streak continues. Josh Nichols: And then last question for me, Virtual Sports, obviously, a smaller piece of the business today, but good to see how that business has stabilized over the last couple of quarters. You talked about trying to get up and running with some more operators in the U.S. What needs to be done to really get that business back into growth for 2026? And are there a couple of larger opportunities that you're kind of optimistic about when we look beyond just the fourth quarter but for next year really? Brooks Pierce: Yes. I mean, so not to put any undue pressure on BetMGM, but they're likely to be the first big operator in North America. So they've gone live with us in Ontario and they're seeing phenomenal results over the last few months. And it's got some regulatory and resource challenges that we're working through with them, but we expect, hopefully, to go live with them yet this quarter. And I'm hoping that, that will be a catalyst for a number of other operators to see that virtual sports resonates and works in every other market around the world we've been in, and we think it will in North America. So unfortunately for us, we haven't been able to, frankly, because the operators have lots of priorities that they're working on for their iGaming, and their sports business and virtuals just kind of has slid down their priority list a little bit. But I still believe that it will resonate. I still believe we have licensed content with the NFL, NBA, and NHL that will resonate with the North American player base. And once -- like I said, it's doing phenomenally well in Ontario. I think once we get one of the big guys, hopefully BetMGM first, live in North America and they do well, I think that will hopefully be a catalyst for the other big operators to put some resources to this. Because it's not a challenge for us, it's really just a resource issue for the other guys. Operator: And there are no questions. I will now turn the conference back over to Mr. Weil for the closing remarks. A. Weil: Thank you, operator, and thanks, everyone, for joining the call today. I know -- is it Sportradar, just started 5 minutes ago. So we probably lost a few of our listeners, but just to reiterate where we are, we're feeling very ebullient about the business right now. The rest of this year looks solid, and we're pretty confident that as we move through '26 and '27, we can achieve the kind of performance parameters we talked about in the presentation. So thanks again for your support, and we look forward to talking to you in a few months. Thanks. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Henrik Andersen: Good morning, and welcome to Vestas' Q3 reporting and also closing and looking forward to close a very solid year 2025. I'll also take here the opportunity to extend a big thank you to our customers, colleagues and not least our external stakeholders, great support and commitment through the current environment through the first current 9 months of the year to the execution we are talking and going to talk much more about, today. So with that, could I go here to the key highlights. So, key highlights, revenue of EUR 5.3 billion. That's an increase of 3% year-on-year driven by higher deliveries, despite negative foreign exchange development. When we look at the EBIT margin of 7.8%, earnings achieved through improved Onshore project execution, lower warranty costs, partly offset by our manufacturing ramp-up, which is continuing, but also progressing well. When we look at the order intake of 4.6 gigawatts, up 4% year-on-year, driven by U.S. and Germany and Onshore is up more than 60% quarter-on-quarter comparison to last year. When we look at the manufacturing ramp-up, the driver cost and also investments the Onshore and Offshore ramp-up is progressing as we focused on delivering a very busy fourth quarter but also as importantly, getting a strong start of 2026. By this, we also decided to return value to our shareholders, I think, most importantly, in line with our capital structure strategy and also solid liquidity position, a share buyback of EUR 150 million will be initiated and will be starting as of tomorrow morning. And then on the outlook, we narrowed the outlook in terms of turnover EBIT, reflecting the lower Service EBIT, but also the stronger Onshore execution. With that, I will talk about the market environment we are in. And again here, wind energy is key to affordability, security and sustainability. That is our narrative and we can see it actually working in across many of our markets, as you've also seen in our order intake and not least also in our delivery table. When we look at our global environment, no doubt, inflation, raw materials and transport costs are stable, but tariffs will increase cost over time for the end user. When we look at the ongoing geopolitical and trade volatility leading to a regularization. We have spoken about that in now many of the previous quarters, and I will almost say the previous years. And we are seeing it's continuing, and we are dealing and planning and executing well in it. When we look at the market environment, there is a heightening focus on energy security and affordability across many of our main markets. The grid investment is prioritized in our key markets and we can see it's progressing in a number of markets, but also probably have status quo in the numbers of others. On the permitting side, it is improving in some markets, but overall permitting auctions and market design is still challenging. Maybe here is the perfect place also to just express a bit of a concern with Europe's continuing introduction of rules like CSRD, CBAM and others, while the rest of the world are after competitiveness. However, when we then look at the project level, I will say, Vestas, we see a strong project execution in the quarter and also year-to-date. We see some regional disruptions from time to time, but we are coping very well with it. And of course, that's then leading to the result we are also seeing in Power Solutions today, which I'm sure Jakob will talk us much more in details about. When we look at the Power Solutions in Q3 2025, strong quarter across all key markets. So, when we look at the Q3 order intake of 4.6 gigawatt, that's up 4% compared to the last year. The increase was mainly driven by strong order intake in the Americas, especially in the U.S. as well as continued positive momentum in EMEA, especially in Germany. There are no Offshore orders in Q3, so it is a clean Onshore order intake quarter. The ASP declined to EUR 1.01 million per megawatt in Q3 compared to EUR 1.11 million per megawatt in the prior quarter. The decline was driven by a change in the order mix with higher share of supply-only orders in the U.S. Generally, we are very pleased with the positive continuing price and price discipline we are showing and our customers' support and understands it. When we look at the order backlog in Power Solutions, it increased to EUR 31.6 billion. That's up EUR 3.3 billion compared to 1 year ago as our energy solutions continue to have good traction with customers across our core markets. And you can see more of the details in the chart to the right. With that, on to Service. So, Service outlook revised and also the recovery plan is progressing as we go through and we are now three quarters in. So, the Service order backlog increased to EUR 36.6 billion from EUR 35.1 billion a year ago, despite EUR 1.5 billion headwind from foreign exchange rate movements year-to-date. When we see a Service, it reached 159 gigawatt under Service. It's flat compared to Q2, as additions were offset by a higher level of expiries and also deselecting in the quarter as the commercial reset continues. This is some of the consequences we have spoken about in the previous quarters as part of our Service turnaround. And I think we can now start seeing that some of it also shows at least in the Service under -- the gigawatt under Service as such. When we look at the Service recovery plan, which runs until the end of 2026, it's progressing, and we are seeing early signs of operational improvements and also a reduction especially in our overdue work orders and the backlog of the same. That's very healthy, and it's very positive to see. And of course, we will continue working with that, and we look forward to talk more in details over the coming days. However, earnings in Service are also affected by foreign exchange rate headwinds as well as some costs related to some specific Offshore sites, which has led to a revision of the 2025 outlook of Service. You will see here to the right, the breakdown of the Service order backlog, EUR 36.6 billion overall, of which EUR 31 billion is Onshore, 159 gigawatts under active Service contracts and then an average duration of 11 years. You will see the breakdown on the regions below. And as you will also not surprisingly see in Asia Pacific, if you don't have new order intake, it also is limited to how much you grow gigawatt under Service. With that, take you through development. Development, not a lot, so I'll have that pretty quickly. Discipline, the same. We also focus very much about finding projects and advancing projects. But as you can also see, the environment right now is a lot of focus on in the key markets to progress projects, and we haven't really progressed anything in Q3. So, I'm pretty sure from a performance point of view, they also feel that for Q4. In Q3 2025, we had a pipeline of development projects that were stable around 27 gigawatts with Australia, U.S., Spain and Brazil, holding the largest opportunities. Strategic focus is on maturing and growing a quality project pipeline as well as conversion of mature projects in project sales and related turbine order intake. You can see the regional breakdown below. And I'll go to sustainability. In Q3, Vestas is the most sustainable energy company in the world, and we keep having that focus also with our customers and stakeholders. When we look at the turbines produced and shipped in the last 12 months, they are expected to avoid 461 million tonnes of greenhouse gas emissions over the course of their lifetime. You will see that here to the right. And of course, as we are ramping up, we expect that to continue increasing. The carbon emission from our own operations over the last 12 months increased by less than 1%, which is actually a very positive achievement, because our activities are increasing. So therefore, keeping Scope 1 and 2 at the current level is a testament to the focus and execution of our operations across. It is also saying when we ramp up Offshore, it is a significant change in business mix. So, there will be an upward pressure on the carbon emission, because we are using and spending more time at sea, at vessels and other transport measures. When we look at the number of recordable injuries per million working hours, that was up from 2.8 to 3.3 year-on-year. Safety remains a top priority for us as we tirelessly work to improve our safety performance across our value chain. I think also here from a personal point of view, I would say this is not good enough. When we see overall the year, we have less serious injuries and we have no fatalities that's positive. But the higher frequencies in especially Northern Europe and North America with onboarding many of our new colleagues, that also means that when we ramp-up Offshore, we see some of those frequent injuries we shouldn't see. So therefore, we have highlighted that. We talked directly to our colleagues, how do we see our colleagues and our family members remain safe on sites in this. So therefore, we are taking it extremely serious that it has not gone down, but actually gone up in the last 12 months after Q3. With that, I will hand over to the financials. Jakob, take it away. Jakob Wegge-Larsen: Thank you, Henrik, and let me take us through details. I'll just flip the slides. Let us take through the details of the income statement and the highest ever third quarter gross profit. Revenue increased 3% year-on-year, driven by growth in Power Solutions offset by slightly lower revenue in Service, primarily as a result of negative foreign exchange rate developments. Gross profit, that I just spoke to, increased to record-breaking EUR 772 million in the quarter, the highest ever in the third quarter. The record was achieved by improved profitability in Onshore, lower warranty costs, partly offset by manufacturing ramp-up costs. And EBIT margin before special items was 7.8% in the third quarter. As mentioned throughout the year, '25 is a backend-loaded year. The third quarter that we are just going out of was a strong start to a busy second half, and we expect a better balance between earnings in the third and fourth quarters compared to previous years. Diving into the segments starting with the strong performance in Power Solutions, as Henrik also alluded to. Revenue increased by 4% year-on-year, driven by higher megawatt delivered at stable average selling prices. EBIT margin before special items improved to 3.9 percentage points year-on-year to 8.1%. The improvement was driven by lower warranty provisions, continued strong onshore project profitability and importantly, execution, partly offset by costs related to the manufacturing ramp-up in our Offshore in Europe and Onshore U.S. Moving into the Service segment. Service revenue declined 3% year-on-year due to lower transactional sales compared to last year, while contract revenue was stable. Revenue growth in the quarter was affected by 3% currency headwind. Service generated EBIT of EUR 153 million, corresponding to an EBIT margin of 17%. The profit levels is in line with recent quarters, but we expect additional costs in Q4 related to some specific Offshore sites. The Service recovery plan continues and it will take time before benefits are visible in the financials. Net working capital decreased in Q3, mainly due to a reduction in inventory as a result of high project deliveries in the quarter and continued focus on working capital management. Important to notice, compared to Q3 last year, we have seen EUR 1.4 billion improvement in the net working capital. That leads us into the cash flow statement, where importantly, and what you have seen also where we say we initiated a share buyback on the back of strong cash flows and our net cash position. Our operating cash flow was EUR 840 million in the quarter, a significant improvement compared to last year. The improvement was driven by better profitability and a favorable development in net working capital, as you just saw. Adjusted free cash flow in the quarter amounted to EUR 508 million, also a substantial improvement, driven by the same reasons as mentioned in above. And then finally, we ended the quarter with a net cash position of EUR 0.5 billion. Total investments in the quarter amounted to EUR 274 million in quarter 3. The spending is primarily related to tangible investments such as transport equipment and tools as well as property plans and equipment across our turbine portfolio, such as the Offshore 15-megawatt EnVentus and our 4-megawatt platform in the U.S. Importantly, we are also very pleased to welcome more than 400 new Vestas colleagues at the Onshore blade factory in Poland, which we took over in September from LM Wind Power. The factory will deliver blades for our EnVentus platform and expand our industrial competitiveness in Europe. Looking at provisions and our lost production factor, we see signs of stabilization. The repairs of the sites mentioned in previous quarters are now largely completed. Disregarding these sites, the underlying LPF has trended down during '25. Warranty costs amounted to EUR 160 million in the quarter, corresponding to 3% of the revenue, and that is a significant improvement from the 6% we saw in Q3 last year. Warranty consumption was EUR 206 million for the quarter. The higher consumption level in the quarter is related to the above-mentioned repairs. And finally, ending on a high, we can report our best EPS and RoCE in 5 years. Net debt-to-EBITDA ended the quarter at minus 0.2x compared to 0.9x a year ago. Investment-grade rating from Moody's, we still have with a stable outlook. Earnings per share, measured on a 12-month rolling basis, improved to EUR 0.9, driven by the better profitability. Our return on capital employed, which broke the 10% barrier last quarter improved again and now to 13.6% as the earnings recovery continues. And finally, our strong financial position and improved key metrics allows us to return cash to shareholders. Thus, we are initiating a share buyback of EUR 150 million starting tomorrow. And now back to Henrik to take us through the outlook. Henrik Andersen: Thank you so much. So thank you, Jakob, and thanks very nice slide to finish with. And if we were a bit out of sync, I have to catch up with that change of your slides in the future. But we will rehearse that. When we look at the outlook, the outlook for the year, revenue narrowed EUR 18.5 billion, EUR 19.5 billion from previous EUR 18 billion to EUR 20 billion. Of course, there are some negative foreign exchange that you picked up. On the EBIT margin before special items, 5% to 6% narrowed from 4% to 7%, and Service is expected to generate an EBIT before special items of around EUR 625 million. And then total investments remained stable at EUR 1.2 billion, as we also had in our previous outlook. With that, I will just say thank you for listening in. I will pass to the operator, and we will go to the Q&A. And also in that slide, you will be able to see the financial calendar for 2026. Over to you, operator. Operator: [Operator Instructions] The first question comes from the line of Sean McLoughlin from HSBC. Sean McLoughlin: Let me just come to Offshore. The ramp looks to be progressing as expected, but you've postponed the investment in the blade plant in Poland. I wanted to understand just what is your latest view here on the market? And what is the risk that we might see in early peak of deliveries in '26 and '27 and potential underutilization thereafter? And ultimately, what would it take in your mind to kind of put that blade expansion back on track? Henrik Andersen: Thank you, Sean, and with a little bit of risk of using an expression here and throwing a good colleague under the bus. I will sort of say here, that blade factory that is so-called stopped in Poland was never built in Poland either. It's actually an old decision that was paused 18 months ago. It got interpreted a bit and probably got its own life and that I will use a bit also to say to everyone here on the call and others listening in. It seems like Offshore is getting an unreasonable bashing everywhere in the day-to-day press or among analysts. Yes, there have been headwinds and others. But from us, we don't see that. It is a piece of land we have. So if we, at some point in time, wanted to do a further capacity expansion, then it's an opportunity and option for us. And right now, we are working well. We are progressing well with our own capacity plant upgrade and that we will just wait and see. This is a dependency on what happens in the backlog when we look 4 years plus ahead that's where we will adjust capacity. Currently, we don't see any reason for raising the question or question too, if we need to adjust capacity downwards. That's for sure, Sean. So, we are ramping up. And therefore, in a call like this, start talking about capacity downwards. That's not -- we have a backlog of more than EUR 10 billion of projects and we will be throughout this year, next year and into '27 reach what we will call a more stable full capacity utilization. Sean McLoughlin: And if I could just follow up on Offshore is looking at the moving parts for you effectively not lifting the midpoint of the guidance after the strong Q3 surprise? I mean, is Offshore a component of that? Or is that really driven by Service? Henrik Andersen: I don't -- as I said here, if we look at the midpoint here, you can sort of see if you have three quarters now, you can see we struggled to absorb the Offshore ramp and the ramp-up cost in generally, if we are laying around EUR 2.5 billion in turnover. Now we are above EUR 5 billion. We have a very good quarter. But again, there, it's a lot easier to absorb it when we have a higher turnover. So, we are pleased with where we are, probably is around the maximum of the ramp we are seeing here in the second half of the year. So therefore, coming into '26, we should start seeing also, it's reducing and disappearing over time. So, that is sort of the -- in our heads, the timing of it. And then as I said, in the mid-range, also here, Sean, of course, we still have also the business absorbing for instance, tariff and other exchanges that happens in the world. So, we're not -- we're actually very pleased with what is in here, and we're also very pleased with what Onshore execution is supporting our continued investment into Offshore. Operator: The next question comes from the line of John Kim from Deutsche Bank. John-B Kim: Two questions, if I may. If we think about the updated guidance here and include the headwinds in Service, I believe it still implies a sequential -- a weaker margin in Q4 for Power Solutions. I'm just wondering if you could give us a bit of color here whether it's more about the cadence of the Onshore deliveries or potentially a bigger drag in Q4 from Offshore? How should we think about that? Henrik Andersen: I think here, it's the busiest quarter again in Q4. We walk into Q4. You will have seen it. We always said when we started the year back end loaded, but it's second half of the year. I will sort of say here, when you look at that, John, I would much rather see it in that we have managed to equalize Q3 and Q4 much better. Last year, we didn't. So therefore, compared to last year, we are looking into a Q4 that looks fairly much as execution of Q3. And then there can be a variation to the theme of what do we have in the backlog in there. You shouldn't read more into that. Then it is a busy quarter. We got 56 days to go, and we will always be subject to the normal variables in Q4. So that -- yes, we won't try to make it worse, that's for sure, in the Onshore execution, which we so far have had a really good run at this year. John-B Kim: Okay. Helpful. And on the Service guidance, EUR 625 million as the updated guide. I want to say there's a little bit under EUR 20 million in FX headwind. Is the remainder of the difference from EUR 700 million to EUR 625 million due to the Offshore that you had mentioned in the commentary? Henrik Andersen: I won't comment on your FX calculation. I think, we probably will see it slightly a bit more than that. But as I said, let's not do that. What we are just saying here, if we have a couple of things where we put a lot of vessels and a lot of people see in a Q4, it will drag something. So when we see that in a Q4 of a Service, which, let's just say, between us, we maybe end up around EUR 1 billion in turnover, then you can easily invest EUR 20 million in some of these Offshore sites in a quarter, and that's why we are guiding towards the EUR 625 million. Operator: The next question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: I have two questions. First one is about the production ramp-up in Offshore and Onshore as well. So, you've been fairly clear stating that it has a material earnings dilution impact this year. Considering the progress you've done so far, how confident are you that this will have a materially lower dilution next year? Henrik Andersen: How material are we, we had listed. We know that it's ordinary ramp. So, that means, the longer you get in, the better we get added, Kristian. But it's also here for both the Onshore U.S. and Offshore. We see a tendency too that we are further into the Onshore U.S. So, that should be definitely disappearing over the coming 2026. And then, as I said, in the Offshore ramp, listen, we opened these the nacelle factory less than 6 months ago. So therefore, we are at a maximum of both onboarding and running the education and training there. So, I can't give you a date where it maxed out and then it starts coming down, but we do everything we can to actually having coming out gradually over '26. Will it be totally done in '26? I don't know, because there always be things. So that we will talk more about when we get to 2026 outlook in February. But we are comfortable with it, and that's probably the main reason here. We have more than 0.5 gigawatt I see now in the Baltic Sea and the North Sea. So, we see that progressing. But of course, we are into the winter season where it's a slightly different environment to construct and install Offshore. Kristian Tornøe Johansen: Understood. Fair enough. And then, my second question is on your order intake in the APAC region, which again this quarter was fairly low. So, just any commentary on the outlook and your optimism for actually seeing APAC orders pick up? Henrik Andersen: I would just say nothing more than he should be doing better. There's a whole region out there in Asia Pacific, so that we encourage them to do. I think, it's lumpy when you are in markets of the nature of what they have in Asia Pacific. They are a bit more depending on when does it come over the finish line. I'm pretty sure that it's a whole region and not wanting to show us and you that they are good. They're doing zero in fourth quarter, because that's not the intention. So, we'll see where they end in 31st of December, but game on for the region to build a proper FOI in fourth quarter. Operator: The next question comes from the line of Dan Togo Jensen from DNB Carnegie. Dan Jensen: Sorry, can you hear me now? Henrik Andersen: Yes. Dan Jensen: Okay. Good. A couple of my questions from my side as well. On warranty provisions, low this quarter here, but how should we think of this level both absolutely and also relative, of course, as you put on more on the Offshore side? Can you maintain this level here? Or is there a risk that we will start to see level or an increase in that ratio? And then a question on the share buyback, the EUR 150 million. Can you elaborate a bit about the math behind reaching the EUR 150 million? I mean, cash flow -- free cash flow generation was more than EUR 0.5 billion, and you have almost EUR 0.5 billion in cash by end Q3, and how should we think of it by end Q4? Will you again be possibly in a position where share buybacks could roll into the current program be released by a new program? Jakob Wegge-Larsen: Dan, this is Jakob here, let me take the first part, and then Henrik will comment on the latter. Warranty, what we should remember, and I'm sure that those are also the numbers you're looking at. '23, we had more than 5%. '24, we were down to 4.3%. And then this year, we are hovering around the 3%. So, it's something we're really proud of, and it's an outcome of our focus on quality. We also see the underlying LPF reducing as we say, except for these couple of sites. And our ambition is to continue that journey down. And again, looking at next year, we'll talk about after Q4, but it's certainly our ambition. We are not satisfied with the current level of 3%. We see further potential and we have higher ambitions. Dan Jensen: Okay. Sounds good. And then, on share buyback? Henrik Andersen: On the share buyback, I think always when we do these things, we look at it in a bigger scheme of things. We have had a highest EPS, as Jakob mentioned, highest EPS and highest return on capital employed for 5 years. As you know, our Chairman very well. It's probably also the highest EPS for most of the 10 years. So therefore, when we look into this, we think it's fairly reasonable that we also say to shareholders, you will get cash back. Could we have done more? Yes. Could we have done less? Yes. But we ended EUR 150 million, because it's also the time of the year where we can get this done until the 17th of December. And then, of course, we get together again in beginning of February. And as you're rightly saying, we're not about piling up cash here in an environment where we feel very comfortable of the investments we have been doing and still are doing in Offshore, but that is also to say if people have struggling to see the value in Vestas shares, then share buyback is the best way we can also say, we -- at least, we trust in the Vestas share. Operator: The next question comes from the line of Akash Gupta from JPMorgan. Akash Gupta: My first one is on Service. So, I think when we look at your Q4 -- implied Q4, it's slightly over EUR 140 million adjusted EBIT, which is smaller since 2020. Can you tell us maybe how much of this is structural and how much of this is like temporary figures? And can you also talk about growth rates for Service in Q4, given last year, we had 30% year-on-year growth in Service top line. So, that's the first one. Henrik Andersen: Thanks, Akash. I will say sort of top line first. When you see the Service top line, there can be, and there was also last year some repowerings. Therefore, if Q-on-Q, there are differences in the top line that can relate to special things like that. And you will also appreciate we do have transactional sales as part of it, which can vary. We don't comment much about that and don't want to comment much about it. But as we also discussed over the last quarters when we have embarked into this Service reset. It is important for us that also we get better in saying, in this quarter, we already know this is what we are going to do in the quarter in especially some of these Offshore sites. So therefore, we have to give you a bit more guidance on some of these. That is not a recurring thing. So therefore, when you're into next year, you should see probably year-to-date and what we have done in the previous quarters is the underlying run rate of the business. So, I'm not so nervous of that, but we got to pick it up with you when we have already now a month into Q4. So that's the reason why we are seeing it. And as I said, it relates to something specifically in Offshore that is in the quarter, dragging it down. Akash Gupta: Are these Offshore sites are same as where you were fixing some quality issues where you took provisions or they are different? Henrik Andersen: They are partly, partly different. So therefore, it's not related to any of that, and it's not related to the 236 either. So, this is something where we just know that when you're in this season, and you got to have it, then it's a focus from us, and it's a focus from the customers, and it is very few customers involved as well. Akash Gupta: And my second one is on produced and shipped turbine in the quarter. You had slightly over 3 gigawatt, which is down 17% year-on-year, and we had growth here in first half, and now we are flat on a year-to-date basis. Can you tell us what is driving it? Are there any supply chain issues like probably sourcing of magnets or any retooling of facilities? So, can you elaborate what's driving this Q3 produced and shipped turbines and expectations for Q4? Henrik Andersen: No, I will say here, and I think Jakob spoke to that, if I can point to a positive here. We get better and better together with our partners in having a straight through on the production and also the supply chain. So, we've been better able to control inventory. And therefore, if we do that, then are we also, to some extent, in some quarters, you can't adjust it completely from what is going to be delivered and constructed next quarter. So, we have been better at that, and there are no -- we haven't yet seen any influence of any supply chain shortages, then we wouldn't have used the expression of very good execution in Onshore. So, we actually, again, coming into Q4, we won't be many weeks away from when we have all what we need on site. So therefore, Akash, we are -- we see good traction on execution towards the end of '25 as well. Operator: The next question comes from the line of Colin Moody from RBC. Colin Moody: Just focusing on the very strong margin performance in Power Solutions this quarter, well understood on the drivers regarding warranties and volumes. But maybe just on that project execution point. Am I right in thinking this is essentially a contingencies release? And could you help us understand how much of a contributor this was and generally, should there be some more in Q4 to come? And generally, on contingencies, do you recognize the benefits of that release every quarter as projects approach the end or more kind of towards the back end of the year? Henrik Andersen: I don't know if I'm commenting on something a new special way of doing. We do exactly what we've always done. If we have a project, we do a pre and post cal cap, when we get the final payment from the customer, we put it into our P&L. So therefore, I can't comment on what others are doing in contingencies or whatever. We run whatever we do when we have a project, as you would expect us to do, there's always something in a project where you have what if something goes wrong. And of course, that gets released when you also have the project completed. So, it's a quarter where Onshore execution has been and delivered this. And of course, even in this quarter in Power Solutions, we have also spent quite a lot of amount in ramping still and investing in the Offshore and Onshore ramp. So for us, this is a normal quarter. But I think you should read back to what I started saying by it is difficult to absorb our investments in ramp when you have a much lower turnover and top line as you saw in Q1 and Q2. That's what you should read into it. There is nothing else. Then it's just a clean execution and profitability, and that's also what we are looking in for the full year. Colin Moody: Well understood. And then maybe just a second question, if I could. On U.S. market trends, clearly, very strong U.S. orders intake year-to-date. Just thinking about the July safe harbor coming up in 2026. How do you think about order developments going forward? And am I right in thinking that you shouldn't necessarily expect a big peak or ramp ahead of that deadline. But actually, you could continue to see very strong order momentum even beyond 2026 into 2027 and beyond? Henrik Andersen: Yes. Thank you. As I said, it's always difficult to predict in individual quarters. You know my statistics in that, that has been relatively poor, as Claus Almer will remind me of. So I think here, we are also saying we take the orders we can get to. I think it's also fair saying we are pleased with what we are seeing. We are having a well-covered order backlog in the U.S. and people are building out and planning for building out. What is that based on? That's based on that the Wind also in the U.S. has a very attractive levelized cost of energy. It goes well in combining up against gas and others. So therefore, it's a build-out ROCE that we will continue to see in the U.S. also beyond whenever PTC is expiring or not. I think we will probably have had more orders if we haven't had some uncertainties around the tariff side. But outside that, no, we love getting close to our customers in the U.S. and keep developing that plan for the coming years. So, we're in a good state. I won't comment on when orders are coming because that's simply too difficult to predict. But don't forget, when we talk about tariffs, we have a very, very large local supply chain that has been there for more than 2 decades. And of course, that we are supported well for and customers can come and see both the sourcing of the components and supply chain into the U.S. factories, which gives a very comfort situation and confidence situation between us and customers in the U.S. Operator: The next question comes from the line of Claus Almer from Nordea. Claus Almer: First of all, congratulations with the solid Q3. I will not ask about orders, but about the tariffs. So, first of all, did tariffs in Q3 had an impact on the profitability in power? That would be the first one. Henrik Andersen: Yes, it will always have now because if you're paying and your sourcing and you're constructing, Claus, you can see the deliveries in the table we have in the interim report. So therefore, of course, part of that is already under influence of tariff. And of those, that is -- that will be fully booked under and also split in the ratio between customer and us. Claus Almer: So, it's the quote that you're expecting to be able to mitigate some of these effects. So, could you maybe quantify what was the headwind in Q3 that maybe will vanish over the coming quarters or years? Henrik Andersen: That goes a little tight in what we are sitting with. So, we have a P&L to optimize in and for our customers and that we do very well. We can't mitigate 100% of tariffs, because there is not an opportunity to be 100% local sourcing in the U.S. So therefore, there will be a tariff and they will come on either projects or components and therefore, be booked up against the projects when we execute on them. We don't have an interest in sharing that. Why is that? It's not a market for many. So therefore, we keep that execution with us and our customers. They understand what we are doing and they support what we are doing, and I think we are in the best possible way, trying to mitigate what we can mitigate, but mitigate all of it, not possible. Claus Almer: Fair enough. Then my second question, which is also tariffs. So, there's been some quotes out today from you, Jakob, that U.S. customers are holding back due to the tariff uncertainty, which also was mentioned on this call. I guess this is mainly the ongoing U.S.-China situation which may last for quite a while. So, is there any way that you can reduce this uncertainty and thereby unlocking some of these projects in the pipeline? Henrik Andersen: I will just say maybe Jakob better comment on his -- himself. We fully agree on that. Of course, as I also said to the previous one, we will probably have taken more if it wasn't for the tariff, and that's absolutely right. And there is also probably a continuing backlog sitting and waiting for clearance on a few of these things. So therefore, let's see what happens there. But as I said, I'm not trying to predict sort of macroeconomics and geopolitics these days, because it's simply not predictable. So therefore, we do what we do. Whenever there is clarity and whatever the offtake is there, there are also cases now where the offtake is so much in demand that you actually will execute on it, whether there is small, low or even high tariffs on it, because that's what you need to get to your electricity and your energy supply. So year-to-date, we have more than 2 gigawatt of orders and our U.S. team are doing a cracking job in doing that. So, we do what we can to support them, Claus. So I think here, really, really good progress. Claus Almer: There's no doubt on 1.8 gigawatts from the U.S. -- player from the U.S. was quite amazing in the quarter. That was all for me. Operator: The next question comes from the line of Ajay Patel from Goldman Sachs. Ajay Patel: A couple of questions, please. Firstly, on Offshore, we're largely through this year, I'm just thinking about the Offshore business where that has been hampered by a number of issues this year, fixed cost absorption, ramp-up cost, maybe lower margins on the contracts. And I'm thinking beyond because that's a sizeable proportion of the reflection on the profitability of Vestas. Is there any sort of guide you can give on the ramp-up costs this year so that we can have better modeling of how that profitability may turn? And then the second question I had was you're performing really well on the Onshore side. You can see the green shoots of Offshore turning around sizably. You talked to Service margins improving by the end of the Service plan. It looks like the significant profit improvement to happen over the next 2 to 3 years. I'm just thinking today's buyback. Can we infer that sizable amount of cash flow that buybacks will be very much part of that debate. And that really, we're really looking at a picture that's got returns of value as a sizable proportion of the investment case? Henrik Andersen: You're asking me quite a number of questions in the question. S,o, I will try to, sort of, we believe very much in our three business areas. Onshore, very mature, very well developed. And you can say the Onshore has been -- if I was an inside Vestas colleague has been paying a lot for some of the investments we have continued doing in the Offshore. We are absolutely convinced and we adamant that Offshore will be a really great business area, not only for Vestas, but for a few around and also for our customers. So, we are not being caught by the same, I call it, a bit the frustration or depression over Offshore. But the great days of Offshore in the P&L for Vestas will rightly so come when you look beyond the further ramp-up in terms of projects in '26. So therefore, second half '26 into '27, you're right, Offshore would start looking much more like what we're also seeing in the Offshore profitability. That comes together with that we are doing the right things in Service. So yes, you can definitely come into a higher EBIT margin when you do the future years. It's not why we are looking at a share buyback in an individual quarter. But I think it's a testament from the Board and also from management here to see, we feel confident of what we are doing and where we are and that confidence you need to see. Because if there's something we probably discussed in the last 4 quarters, which is, when did the business turn around, when was it, we were comfortable of the turnaround we have done? And is it working? And I think today, we can definitely say to people, this is the first sign of it's working and then, of course, everyone can do their predictions. The more cash we get available, the more we will probably redistribute back. Because the biggest part of the investment we needed to get done in Offshore is actually behind us. Operator: The next question comes from the line of Alex Jones from Bank of America. Alexander Jones: Great. Two, if I can. First, just to follow up on tariff costs. To what extent were those already hitting the P&L this quarter? Or are there still the sort of incremental increase in tariff costs ahead as you work through inventory imported before the various tariff measures were put in place? And then second question, if I can, on Offshore. And sorry if I missed it, but could you explain exactly what is happening at the Offshore sites either because of technology or because of your customers' demand that is driving additional costs in Service in Q4? Henrik Andersen: If I take the Offshore first, then I can leave the tariff a bit more on to Jakob. I think we've spoken about the tariff already. But on the Offshore, it is specific sites. It is where we are manning up. It is not related to our 236, and it's not related to the, sort of, back in Q3 and Q4 last year, where we had a component failure in one of the platforms. So, this is about that we have, what I would probably more call a hyper care in a couple of Offshore sites where we agreed that with the customer. And therefore, of course, we are also investing in that. So, that is in winter and a high season for Offshore is a way of also us saying we are investing with in also prioritizing cost here. So that's what we have done and that's what we are sort of pre-guiding you on for Q4. Jakob Wegge-Larsen: And on the question around tariffs, it is hitting our books right now. As Henrik also answered in the previous question, continue hitting in Q4. But what is important is, and that's what we're also saying with our narrowed guidance, we can keep that within the narrowed guidance and you will see doing the math that we have the same midpoint as we had basically since the beginning of the year. So in that sense, yes, it's in there, and it will continue to be in there. Operator: The next question comes from the line of Max Yates from Morgan Stanley. Max Yates: Just one question from me. Just on the Services business. Could you give us an update on how the turnaround program is going? Are customers kind of accepting the renegotiated terms? And I guess maybe if you could just help us with the kind of how long we will actually -- how long it will take to actually see this in numbers? I guess you're kind of operating in a 16% to 18% margin. I appreciate you won't want to give guidance to '26, but do we still see sort of '26 as a year where the groundwork is being laid for future margin improvement? Or do you really see it as we'll start to see some of the improvement is actually coming through in kind of growth and margins in the Service business as we go into 2026? Just trying to get a sense of -- so we don't anticipate it happening sooner than we actually see it in numbers. Henrik Andersen: Max, I'll really, really appreciate your comment in that way, because I couldn't agree with you more. This is a global business that has 159 gigawatt under Service. And we have more than 15,000 employees. So, when you do a reset and a turnaround of the business, it will take longer time. So, please don't start making things in 22% or 25% Service margin in '26. We have said it takes the 2 years. We are 5 quarters away from finishing this work, because it does take some time. I'm really pleased with where we are in the Service team and Christian Venderby, who heads it, have done a really good job. We know the details of what we are going through, but I think also as we are hinting here. When we looked and talked about this 2 or 3 quarters ago where we said we probably would foresee that we will have some flat gigawatt under Service, then surprisingly it didn't happen in the first 1 or 2 quarters. Now it does happen, because we are getting to some of the gigawatts where, as I think we also spoke about that, for instance, something like multi-brand, it doesn't make an awful lot of value for shareholders, and it doesn't make an awful lot of sense for us, unless we have customers that ask us specifically to do it more on a cost-plus basis. So therefore, you will see now that we're actually having a real firm grip of what is happening from quarter-to-quarter. So, we're in good momentum. We're in good momentum of addressing where we wanted to have a better operational environment. And then we have a good momentum and also talking to customers straight and that includes even escalations to me as well. So, we are actually pretty pleased of where we are with the commercial reset and we are not done with it. That will be wrong. But that's because you cannot fix that much in 1 or 2 quarters. But run rate up until third quarter is the run rate. I will say, and that's, for me, the middle of the road we are going with. Operator: The next question comes from the line of Lucas Ferhani from Jefferies. Lucas Ferhani: Just a follow-up on Offshore. When are you kind of booked out to? I know you said you have EUR 10 billion of projects in the backlog that kind of last you until 2027, even into 2028. And then, when you look at the kind of the recent failed auction in several countries in Europe, and maybe the AR7 in the U.K. that was maybe slightly below expectations. It depends on who you asked to, how do you feel about kind of the ability to kind of get those redone and then rebid and then the orders coming through to the turbine suppliers kind of roughly on time? Henrik Andersen: Yes. No, as I said, it's a good 10 gigawatt. We are sitting and muscling around. We have more PSAs, but there are also more PSAs in discussions. So, I'm not so worried about that. And then, when you look at the near term right now, we have a lot to do in the coming 3 to 4 years. So that is also the cycle of it. So, where you come from -- and I keep in currency stay -- don't compare. Compare, but don't compare between the backlog and the process we're running between Offshore and Onshore. Because Offshore processes are longer and therefore, not so nervous about that. If there's one thing that concerns me and I hinted that a bit here is that we, at least in Europe, where Offshore should be one of the biggest solutions to get our, I would call it, less energy dependence on friends outside Europe. We are 50% dependent on energy import and Offshore should be one of the things we scale faster. But it seems like every country in Europe choose to go through a failed auction before they get it right. And of course, that takes time. And we've seen a number of countries, including the Danish government went through, I think last year, but that also means now you have a CFD backed. And even with the CFDs that will significantly improve the Danish electricity price as well. So therefore, it works and it works across. So, we are not so nervous about that. And when we look at AR7 in the U.K., I can only give a praise. Maybe I will also have one of the ones that would like to have a bit larger budget committed. But on the other hand, the government and the Secretary of State, that knows a lot about, Ed Miliband. Yes, he has conditioned himself that he can take individual projects out and also potentially progress that. So, I think we got to work through this. And if somebody wants to characterize it as an Offshore crisis, I'm not in that category. So, I think it's a proven technology. It's a proven market access that works and therefore, now is the time to show leadership, both from developers and OEMs to get it built out. So, we are more positive on that. We see '25, '26 to some extent, I'm happy that we are doing what we are doing right now, because if we had more stress on the factories and the ramp-up, that would only -- that will actually only create more concerns at Vestas. So, we don't have that. So, we are comfortable executing on it. And what I'm probably most encouraged by is also our customers like the discussions and the detailed discussions we are having leading up to 2030 and even beyond. Lucas Ferhani: Perfect. And just a quick follow-up on tariff. I think most of what we are seeing and what has impacted you so far is more the section 232 on maybe steel or specific components. But there's also a probe that has been launched in the U.S. into Wind specifically. Can you talk about how do you understand that? I obviously see that there's not much information out there. But how do you look at that risk of what could come out of this probe? Henrik Andersen: I know and there is sections and there are EU tariffs and there are other tariffs that seems to be changing every quarter. So, we are basically taking the stand that we will deal with it as it's being thrown at us, and therefore, we are also dealing with this. Outcomes, I can't predict, but what we are both guiding for, for the rest of the year is what we know and what we are dealing with and therefore, it's priced in. And I think we are best doing and best served with doing that. Because otherwise, we have to start changing every time there is a change in legislation. It might be -- it goes up in tariff, it might be that it goes -- I think the last week, we've seen initiatives that seems to be maybe talking to tariff returning towards the zero again in some areas. But let's see. I don't comment on that because it's way outside my area where I can affect it. What we can affect is how we execute and how we deal with them. And that's where we have a fantastic team in the U.S. and North America that are absolutely on the details with that. Operator: The next question comes from the line of Henry Tarr from Berenberg. Henry Tarr: Congratulations again on a strong quarter. The first question is just around Onshore and Onshore margins into 2026. Clearly, that business is running very well today. As I look into next year, what are the key drivers, sort of, volumes look relatively stable, pricing seems to level out. How are you seeing, sort of, cost trends and mix? Do you think there's more -- a little more juice left in that onshore margin as you look out? Or are we already sort of performing as well as you can hope? Henrik Andersen: Thanks, Henry. I think, I don't know, juice left, maybe I should comment differently. I think on '26, we'll comment on the 5th of February. I've learned that lesson over the years. We do nothing in the Onshore business to try to make it run worse right now, and we're actually doing reasonably well. So, what we have seen here expect more of the same. If we can do more and we can get more, it's probably where we have more concurrent projects where we can avoid having change cost and other stuff in the Onshore. But I'm really just pleased with seeing what is happening in the Onshore. And of course, we don't do that. I think that's also only fair, because there are limited players. So there's no need for them to sit and read the P&L of individual business segments between Onshore and Offshore. Onshore really well, and we will see if we can do more of the same next year. And we will try very hard. Henry Tarr: Fair enough. And then, just on staying on the Onshore from an orders outlook. You sort of covered the U.S. How about the rest of the world as you look to Europe and so on? I know you sort of referenced in the materials that you see potential for high single-digit growth in Onshore wind, sort of, globally out to 2030. Are you still, sort of, happy with that view and you still see a lot of movement and activity in Onshore Wind in Europe as you look out over the next few years? Henrik Andersen: I think there are two reasons in Europe. I think some of the countries are leading the way. If you take Germany, if you take a couple of countries like Romania and others, I think they are leading the way and saying, this is how we can get more done and built. And I think, those countries are absolutely examples to follow. I think on the -- on top of that, I think it's getting more and more discussed in details how we can do a repowering in Europe which again speaks back to Wind was very much founded and invented out of Europe. And therefore, we also have an aging fleet and that, of course, opens up a European repowering that could be a real business opportunity for people like us. It could also be a huge business opportunity for the owners and the developers. And secondly, it's a fantastic way of increasing the energy production in Europe. So that -- there are two levers there. I will avoid -- I would avoid commenting on countries where they potentially haven't got it right. But let us say, we are very pleased with our Spanish colleagues and our factory in Spain. But I think on the permitting side and the flow of projects in Spain, there's probably still some outstanding to wish for. So therefore, in Europe, we see really positive underlying. And of course, Germany is one, if you -- if we spoke about it 3 years ago, Henry, we wouldn't have gotten to the number we see today. And that's thanks to both current and previous government in Germany. When it comes to Asia and Asia Pacific, a lot is being done. A lot of also is being considered. Some of the countries are a bit new on the block getting into that. But as I said, there's still some firm order intake to be shown from our colleagues in Asia Pacific. And then, in Latin America, similar, we have had Brazil that's probably gone very low in PPAs. And therefore, we'll see when Brazil returns to that. But we do have some good feelings around that also Latin America will start showing some strength again, because some of the data centers and others are moving into LatAm across. So, I think bit disappointed probably where we are year-to-date in Asia Pacific and LatAm, very encouraged by where we are in North America and in Europe. And that, I think, is a trend that we see continuing. Operator: The next question comes from the line of Casper Blom from Danske Bank. Casper Blom: A bit of another kind of question from my side. I think it's been close to 7 years since you launched the EnVentus turbine platform. And we now see that more and more of the orders you get in are for these larger 6, 7-megawatt Onshore turbines. At the same time, we've also seen you talk about stable pricing environment now for the last 3 years or so after that was this material price hike a few years ago. Is it fair to say that there is an opportunity from you guys, sort of, sticking to the current technology, keeping pricing flat, and then basically just having, how could you say operational efficiency from the fact that you have now gained very, very material experience in developing this turbine? And as a supplement, do you have any kind of plans of adding new platforms in the foreseeable future? Henrik Andersen: First of all, platform introductions never happened on an analyst call. So Casper, that's the first. The other thing is EnVentus, we are super pleased. And you can say that you're touching spot on. The more we ramp up and the more we get in the backlog, the better we become at it and that also goes for our supply chain. So, when I started extending a big thank you here, it also goes to our partners in the supply chain, because they help us getting some of those costs out. And I think today, from when we have been in an environment where inflation was very close to zero or even at par and then interest rate. Everyone have seen a cost inflationary which, of course, also for some projects have either potentially dangered the project for being built. Now it's also about getting and returning and getting it built, and therefore, cost out is absolutely name of the game for all of us. So that goes through the supply chain and it goes into our factories. And the more volume you have, the better you get at it. So, that's an overarching one. And I think you saw some of that. If you take the V163, 4.5 megawatts that are now selling across most of the world, but particularly in North America and in the U.S. That was developed as a probably an 80% component from a 4-megawatt platform. And that also means that we are running high cost-out programs on. So of course, that's a school and textbook example of how we want also to build the EnVentus. So, you're right, Casper. And I think some of it will be using to continue to improve our profitability. Some of it, we will definitely also let go back to the customer. So, we make sure that the projects are being built and not being stopped for not having attractive enough investments case with local governments. Casper Blom: If I may supplement. I think, if one goes back in time, there was sort of a general rule of thumb that pricing would come down by maybe 3% or 5% a year due to technological advantages and sharing this with customers. Isn't it then fair to assume that, when -- as long as you can stick to current pricing and you continue to get better, then it's in favor of your margin? Or is that too simple? Henrik Andersen: I think, it's maybe a bit from an industrial company of nearly EUR 20 billion and maybe it is a little simplified. But I will say here, now you bring 5% in as a price reduction and other stuff. I think, we are now back at a profitable area for Vestas. So, it's not this morning, we got up and said, now we need to lower prices. As I said, we like the commercial discipline. We need to make money. If we don't make money, we don't invest in the technology for the future either. So therefore, it's a combination. But as I said here, we will share it in a reasonable ratio with our partners and customers. Come on, there's nothing better than having a signature and winning a business with a customer. So therefore, that's the prime target, and that pays for the rest. So therefore, Casper, what you've seen today is we can now definitely say and prove that we are out of the dark days of '22. And I think that's really what we want to say to both you and the rest of the market with what we are doing today. Operator: The next question comes from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I had two questions. So Henrik, I wanted to pick up on something that you mentioned, which probably is not something a lot of investors focus on, which is your CapEx. So this year, you're spending over 6% of revenues on CapEx. You've also said that your big investment program in Offshore is nearly done. So, on an ongoing basis, particularly given cash is king and can be buybacks in the future, what is a more reasonable level of CapEx for your business going forward, either absolute or percentage of revenues, of course, assuming no big investments and further platforms, right? So that was my first question. And secondly, I think on demand, particularly in the U.S. there's a lot of hype about demand from AI. People want to be building a gigawatt a week and so on. So, what are you sensing in terms of the opportunity for Vestas to kind of capture and what are you hearing from your customers on the impact from this new AI demand? Henrik Andersen: First of all, a gigawatt a week, then I will not get much sleep, that's for sure. Deepa Venkateswaran: Maybe that was global. Henrik Andersen: Okay. But as I said here, the reality is real. And that's maybe the way to prevent it. In AI terms, the reality is real. It's happening, and the electricity demand is going up. Then we can always discuss sometimes is the demand and supply out of sync. Then of course, it only gives one thing, which is an underlying increase of electricity prices, which unfortunately, you are seeing in part of the U.S. And I think, for that matter, will come to Europe as well. So I think there's something in this AI where we as said, we are part of the underlying base load. So therefore, we are the ones that has to build part of the baseload together with many others. So therefore, energy in demand is definitely it. And I think if we look at a country that normally does very long-term planning, namely China, you can see how they have built out energy sources in the last 3, 4 years. And namely, last year, they build as much renewable. They build as much coal. They build as much some of the nuclear as the rest of the world did together. So, somebody is taking bigger upfront decisions than probably the rest of the world are doing. And so for me, as a pretty fact-based person, I like to see that we take some of these decisions may be a bit quicker, and that also goes for the U.S. So U.S. are in a demand for energy and electricity. And therefore, we will continue to see that build out and Wind is part of it. Maybe we should call it something else than wind, but it actually is with a low LCOE, and it does local manufacturing, and therefore, it's supporting U.S. in its energy supply. So that's really. On the CapEx side, don't underestimate, there will still be tools and there will still be factories and other stuff that from time to time will affect the CapEx. But I think Jakob is nodding that when we look at EUR 1.2 billion, that's probably a bit where we spent quite a lot this year. But if a factory or other footprint comes in, that will then variate and deviate to the theme. But as we said all along, it should be start going slightly lower, but we won't give a guidance for it until we are in February for the coming year. And then, as you can see, we are not nervous for actually using the cash to buybacks. Because if we're not forced to invest more, then actually buying our own shares is with a pretty good return on the multiples we are seeing. Could we have the last question, Operator? Operator: So the next question comes from the line of Martin Wilkie from Citi. Martin Wilkie: Just a follow-up to that question on data center. When we look at some of the hyperscalers and where they're signing renewable PPAs. A lot of it seems to be in Latin America and Europe and actually not very much in the U.S. And when you look at the outlook and potential for data center orders, is that how you see it as well that they're actually more realistic in those regions? Or is there actually sort of pent-up demand opportunity in North America, where obviously, the volume of data center is probably a lot higher. Just to understand regionally how we could think about that. Henrik Andersen: Martin, I will say, I don't think so. I think, when you see other continents like Europe and Latin America wanted to announce data centers, I think it's actually because they want to have a bite of the party. I think the two main places to have these data centers will be China and the U.S. That's where the AI balancing act is happening. We are behind in Europe. So, if we get a data center somewhere in Europe and we are building it, yes, sure. We will applaud it. But I think the underlying is that U.S., but they are probably not just announcing it to the same extent as you are seeing. Because as much as you see the demand and supply, the demand side is right now higher than the supply side of possible build-outs. And that's probably why you're seeing less of those announcements in the U.S. But working for an American bank, I'm pretty sure you will know a lot of what goes on in the U.S. as well. So thanks, Martin. Martin Wilkie: Can I just have one unrelated follow-up just on Service. And obviously, you talked about these costs in the fourth quarter. But just to clarify, these will be effectively a onetime hit in the fourth quarter. And obviously in the past when you have percentage of completion, then you can amortize these costs over the life of service contracts, but we shouldn't read anything into the revised outlook for the fourth quarter in terms of what it could mean for '26. And I know you're not guiding '26 yet, but just so we can understand that these costs should be contained in the fourth quarter? Henrik Andersen: You're absolutely right. It should be contained in fourth quarter, and we don't intend that, and that also sits outside any POC for the service contracts in Offshore. So you're absolutely right -- assumption is right, Martin. Okay. With that, thank you so much. Thank you for listening in. Thank you for all your interest and the question. Really look forward to meet many of you over the coming days. And therefore, thanks again year-to-date, and see you soon.
Operator: Good morning, ladies and gentlemen, and welcome to the Intact Financial Corporation Q3 2025 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on November 5, 2025. And I now would like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer. Please go ahead, sir. Geoff Kwan: Thank you, Sylvie. Hello, everyone, and thank you for joining the call to discuss our third quarter financial results. A link to our live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab. Before we start, please refer to Slide 2 for a disclaimer regarding the use of forward-looking statements, which form part of this morning's remarks and Slide 3 for a note on the use of non-GAAP financial measures and other terms used in this presentation. To discuss the results today, I have with me our CEO, Charles Brindamour; our CFO, Ken Anderson, Patrick Barbeau, our Chief Operating Officer; and Guillaume Lamy, Senior Vice President, Personal Lines. We will begin with prepared remarks followed by Q&A. And with that, I will turn the call over to Charles. Charles Brindamour: Well, good morning, everyone. Thank you for joining us today. I'm very pleased with the quarterly results we reported yesterday evening. Net operating income per share of $4.46 was the result of strong underwriting performance across all geographies and lines of business. Top line growth increased 6% in the quarter, while we delivered another sub-90 combined ratio. This highlights our ability to grow, while not compromising our margins. Our operating ROE is outperforming across all regions and has improved in the last year by 4 points to 20%. The industry environment is constructive in every market where we operate. We're gaining market share in personal lines. In commercial and specialty lines, we benefit from being predominantly exposed to the SME and mid-market space. In large accounts where we continue to see elevated competition our sophistication in pricing and risk selection as well as more than 20 specialty verticals enable us to choose where we play. This environment really plays to our strengths. The quality of this quarter's performance gives me a lot of confidence about the future, whether it's next quarter, next year or next decade. Now let me provide some color on the results and outlook by line of business, starting with Canada. In Canada, our business is firing on all cylinders. Our outperformance has never been stronger. We closed 2 points on growth and 10 points on combined ratio. And keep in mind, this is 2/3 of our business globally. Personal auto premiums grew 11% in the quarter, including a 3% increase in units. As profitability for the industry remains challenged, we expect hard market conditions to persist. Our underlying loss ratio improved 1.6 points year-over-year, contributing to an overall combined ratio of 91.5%, this is a strong result. We're positioned to continue to deliver a sub-95 combined ratio, in line with our objective. Moving to personal property. Premium growth was 10% in the quarter, supported by a 2% increase in units. Given the elevated level of weather and climate-related claims over the past few years, we expect current hard market conditions to persist. The combined ratio was healthy at 92.4% and we're well positioned to maintain a sub-95% combined ratio even with severe weather. Overall, in Personal Lines, which is nearly half of our business, we continue to see industry growth in the high single-digit to low double-digit range over the next 12 months. With strong absolute and relative performance in the first half of the year, we're really well placed to sustain growth and combined ratios going forward. In Commercial Lines, premium growth increased to 3% in the quarter, a clear sign that our growth initiatives are gaining traction. We see overall market conditions as constructed with industry premium growth in the mid-single-digit range over the next 12 months. With 85% of our business in SME and mid-market where pricing is favorable, there's significant opportunity for us to further improve top line growth. That's in addition to our ability to choose where we grow for large accounts and in specialty lines. Profitability remains very strong with a combined ratio of 82.8%, reflecting continued underwriting discipline, emerging AI benefits and prudent reserving. We remain well positioned to deliver a low 90s or better combined ratio going forward. Moving now to our UK&I business. Premium in the quarter were 5% lower year-over-year. Remediation efforts within the DLG portfolio continue to temper top line growth by driving improvement in the combined ratio. As remediation tapers off towards the end of '25, I expect growth to move in positive territory. Our teams in the U.K. are focused on integrating our products, raising the bar on service and expanding our distribution relationships. The fruits of their efforts will become more visible in the new year. When it comes to the industry, we see premium growth in the U.K. in the low to mid-single-digit range over the next 12 months. The combined ratio of 95.5% was solid as it included 3 points of excess cash. Our pricing and risk selection actions are gaining traction and we remain focused on evolving our UK&I combined ratio towards 90% by the end of '26. In the U.S. premiums were up 8% year-over-year with our growth initiatives leading to higher new business and improved retention. And this growth is driven by our strategy to grow in our most profitable lines. Indeed, the fastest-growing segments or those that grew by more than 20% are the ones that have sustainable low 80s combined ratio. That's the beauty of specialty lines. You can choose where you grow, regardless of the environment in which you operate. In the U.S., we see industry premium growth in the mid-single digits over the next 12 months. The combined ratio of 83.6% in the quarter improved by 4 points year-over-year. Our steady deployment of predictive models and pricing and underwriting allows us to grow, while not compromising our margin. This was the ninth quarter in a row with a sub-90% combined issue, and the business is built to maintain this performance going forward. Our team also continued to execute on our strategic priorities in the quarter. Let me highlight a few achievements. In the overall Specialty Lines, our team is making good progress on our growth agenda. We're both expanding our distribution footprint and deepening our existing broker relationships. Additionally, our teams are collaborating to export product expertise and verticals across geographies. On the back of our technology and entertainment products having successfully grown in Canada from the U.S., we've recently added Life Sciences in Canada. There are many of these growth opportunities that we're pursuing: Marine; renewable energy; surety; and trade credit are all examples across-border opportunities that we've launched or are working on. The sandbox we play is 10x larger than it was a decade ago. There's a lot of opportunities for growth. The investments we've made in AI over the past decade are currently generating more than $150 million in annual recurring benefits. We've accomplished this primarily from optimizing our pricing, risk selection and how we leverage data. Recently, we completed the rollout of our third-generation machine learning models and personal property and commercial fee. Our AI investments are also helping us to grow our top line faster. The recent expansion of our underwriting adviser from Canadian Commercial into one of our specialty lines has already resulted in our ability to quote 20% more than before due to faster data ingestion and processing. We expect this level to significantly increase over time. This quarter, we officially rebranded RSA, NIG and FarmWeb to Intact Insurance across the U.K., Ireland and Europe. This unites our global operations under one brand, a significant milestone for Intact 15 years after its birth. The reaction of brokers, partners and employees across our markets was exceptional. And so when combined with raising the bar on service, broadening our product range, and expanding our distribution relationships, this will drive profitable commercial growth and support our ambition of becoming the leading commercial and specialty lines insurer in the U.K. Our most recent employee engagement survey has again placed our Canadian and U.S. businesses as best employers for the tenth and seventh year in a row with, respectively. We've also made huge gains in the U.K. and Europe, placing in the top quartile of employers within short distance of best employer status. No doubt, this is where our teams are going in both U.K. and Europe. Engaged employees are crucial to delivering superior experiences for our customers and brokers. The strong performance we're posting again this quarter is a result of their contributions. And I want to thank all of our employees for that. I also want to highlight the tremendous efforts our people have made supporting communities in Atlantic Canada that were impacted by wildfires this quarter. It really was impressive to watch many regions mobilize together, including our teams at on-site. Intact's responsiveness is a demonstration of our values being put into action and the strong employee engagement we foster as an organization. The engines driving our outperformance have never been better. Operating ROE has clearly shifted into a higher zone and has been above 16% for the past 4 quarters. We view this shift as sustainable as it is underpinned by our competitive advantages in pricing, risk action and claims, but it's also supported by our mix shift towards commercial and specialty lines and our growth in distribution, coupled with very strong capital management. As we look ahead, we're well positioned to achieve both our key financial objectives of outperforming the industry ROE by at least 500 basis points every year, but also delivering NOIPS growth of 10% annually. On that, I'll turn the call over to our CFO, Ken Anderson. Kenneth Anderson: Thanks, Charles, and good morning, everyone. This quarter again underscored the earnings power of our business. Net operating income per share for the third quarter reached $4.46, which was $3.45 higher than last year, both our top line growth and our bottom line underwriting performance were strong. We delivered double-digit earnings growth in our distribution business and our investment portfolio continued to provide healthy and consistent returns. Our operating ROE at 20% highlights our ability to successfully navigate market cycles and continue to compound earnings growth. Let me add some color on the third quarter results. We reported a strong underlying loss ratio of 54%, 1 point better than last year, with improvement in all regions and lines of business. This is a testament to our rigorous focus on growing our competitive advantages in pricing, risk selection and claims. Catastrophes in the quarter totaled $394 million, primarily due to the wildfires in Newfoundland, weather events in Canada and some large commercial fires in both the U.S. and the UK&I. While this quarter wasn't as heavily impacted as last year, catastrophe losses were broadly in line with third quarter expectations. Favorable prior year development was solid at 5.2% in the quarter. This aligns with our near-term expectation of being around the upper end of the 2% to 4% range and continues to reflect prudent reserving across all segments. The consolidated expense ratio was 34.2% for the quarter, a 1.7 point increase versus last year. This was largely driven by increases in variable broker commissions and employee incentive compensation, reflecting our improved profitability and increased outperformance versus the industry. Overall, the year-to-date expense ratio at 34% remains in line with full year expectations. Operating net investment income increased 2% to $402 million in the quarter. This reflected higher invested assets. Our reinvestment yields are broadly in line with book yields and we remain on track to deliver approximately $1.6 billion of net investment income for the full year. Distribution income continues to grow at a healthy pace, increasing 11% to $147 million. This reflected higher variable commissions as well as the benefits from our continued capital deployment. On that note, I'm proud to highlight that BrokerLink outpaced its year-end goal by reaching $5 billion in annual premiums during the third quarter. With over 200 locations nationwide, BrokerLink continues to build scale and distribution through both organic and inorganic growth in personal and commercial lines. This positions us to grow distribution income by 10% on an annual basis. Nonoperating gains totaled $83 million in the quarter, and our ROE increased to 17.3% in the 12 months to September 30. This fueled a 5% sequential growth and a 14% year-over-year growth in our book value per share to $103.16. Over the last decade, our book value per share has compounded at an annualized rate of 11%. Our financial position continues to be strong with total capital margin of $3.3 billion and solid regulatory capital ratios in all jurisdictions. Our capital management framework is robust. We have positioned our balance sheet to deal with any external shocks that may arise, while also maintaining significant capacity to capture growth opportunities. Our profitability profile means capital generation is also very strong, and this will continue to provide fuel for M&A, be it distribution or manufacturing. Given the level of capital generation, we will utilize our open share buyback program opportunistically when we see our shares are significantly undervalued. This past quarter, we deployed $145 million to repurchase 535,000 shares. Even after these repurchases, our debt-to-capital ratio was 17.9%, well below our 20% target. We're positioned to continue to pursue inorganic growth opportunities. In conclusion, Charles mentioned that our operating ROE has moved into a higher zone. This will support us maintaining or even beating our impressive track record of 650 basis points of annual ROE outperformance over the past decade. It will also support our delivery on our other key financial objectives to compound net operating income per share growth by 10% annually over time and the pillars of NOIPS growth are strong. Our top line initiatives across personal, commercial and specialty lines platforms are gaining traction. We continue to invest in our competitive advantages in data, AI and claims, and this will drive further margin expansion. And strong capital generation will continue to provide fuel for growth opportunities. We are in a great position to deliver on both financial objectives for our stakeholders in the years ahead. With that, I'll give it back to Geoff. Geoff Kwan: [Operator Instructions] So Sylvie, we're ready to take questions now. Operator: [Operator Instructions] First, we will hear from Bart Dziarski at RBC Capital Markets. Bart Dziarski: I wanted to ask around the core loss ratio. So I'm thinking current accident year plus PYD, it's come in really strong. It's sub-49%. And when I look at the LTM kind of run rate, like there's been sequential improvement in that number for 8 quarters running. So wondering sort of at the top of that, what are some of the key drivers there in terms of that strong performance? And then how are you thinking about the sustainability of that? Charles Brindamour: Yes. So broadly speaking, because I think your question is on the overall performance. I think the first order of business, Bart, for us is to make sure that we stay on top of inflation. We do that in -- we're very focused on that and tend to move before the market moves. Second, Ken talked about the ROE outperformance track record. This is not something we take for granted. And at all times, we have multiple initiatives to expand the outperformance. And that goes straight to the underlying loss ratio, whether it is AI, whether it is in-sourcing, claims management and so on. And so that feeds straight into that in my mind. Thirdly, it is about footprint. And so we have a sophisticated view of where margins are beyond cost of capital. We equip the field with that affirmation and our growth is over-indexed towards areas where we feel that we're more than well rewarded for the risk. And I'd say, Bart, this is the sum of those 3 things that lead us to see an improvement in the underlying performance. It's not even across the board. But certainly a very deliberate game plan to continue to grind out performance and hopefully, absolutely important. And on the footprint point, I want to point out that if you look at the shift in mix of business over the past 5, 6 years, there is a bigger portion of our business that is in a sustainable low 90s, sub-90 zone than it was before. So when you look at our overall performance in aggregate, the growth in those segments will also lead to an overall improvement in performance. Bart Dziarski: Great. That's very helpful. And then just one other one for me is we're hearing lots on this sort of AI infrastructure thematic around the required CapEx that's needed. Is there an opportunity for insurance to play a role here? Like could you guys -- could this be a new source of sort of premium growth opportunities as we see the build-out in other sectors? Charles Brindamour: Yes. It is, and it's primarily true our specialty lines segment in the construction and engineering segments, in particular. There are opportunities in the energy segments. We have very strong verticals, whether it's traditional or renewable energy. And our teams in those verticals are focused on finding opportunities where we feel that we can achieve strong performance, and that's clearly an area of growth. Operator: Next question will be from Doug Young at Desjardins Capital Markets. Doug Young: Wanted to dig a little bit into the pricing cycle and the deacceleration that we're kind of seeing. And I get your comments around commercial and that you're more SME focused and personal is hardening. Hoping to dig a little bit further into what you're seeing, why is this time potentially different? And I know it's been a long time since we've seen a turn in the cycle, but why would it be different this time around versus the last time? And I guess, specifically on the personal side, we're seeing softening in the U.S., and I know the U.S. market is very different than Canada on the personal property and auto. But why wouldn't we start to see some softening after many years of really hardening pricing in personal auto and personal property. So I know it's a big question. I know there's lots in there, and I promise this will be my only question, but I was just hoping to get a little more detail. Charles Brindamour: Yes, sure. Let's see how we take your four questions. Seriously, I think we're not seeing this cycle in commercial lines will be different than previous cycles. I mean all cycles are different. But Doug, you've been following our story for a long time. You know that we're pretty stable throughout cycles actually, and that includes in commercial lines. And I don't see this being very different this time around, just to put things in perspective. And I think we're highlighting that more than 70% globally of our portfolio in CL NSL is in the SME and mid-market space. It tends to be a more stable space, and that's an advantage we have as a firm, not just because of the cycle, but because the law of large numbers works in the small, midsized business. And therefore, our pricing acumen can be put to work. That makes it even better to navigate those cycles. We've been flagging for well over a year that large accounts -- initially, we said cyber and financial lines were softer. And that's been true for the last year, 1.5 years, we've seen earlier this year an acceleration in large property schedule that is still true. It hasn't changed this quarter, but it certainly took place this spring and we're just watching where that's going. But it's really happening more at the tough end of the market in larger accounts than at the bottom end of the market. And so our job here is to basically make sure that we grow in the SME and mid-market space where conditions are quite constructive and then use our toolbox in pricing risk selection, our broad product range that we can export from market to market to basically find ways to grow even in large accounts, where I think we've got an excellent value proposition compared to many of our competitors. So we're not calling a different cycle or this time, it will be different. The difference between now and, say, 10, 15 years ago, is we have way more tools to navigate the environment in which we operate. With regards to PL, which is in a whole different zone in a hard market. I'll ask Guillaume to give a perspective on the market. But I think your question is also about why is it different? Or is it different than what's happening in the U.S. We think it is. So go ahead, Guillaume. Guillaume Lamy: Yes. So in personal auto, yes, there's been lots of rates. But when we look at the industry, it remains unprofitable with a combined ratio above 100%, both last year and this year. So the industry needs to take -- continue to take rates. So we expect our market conditions to persist and our growth momentum to flow into '26. As we pointed out, it's a contrast with the U.S. where the industry has reached profitability with key player posting pretty strong year-to-date results. We need to understand there's key differences between Canadian and U.S. market and personal auto. So Canada product is more heavily weighted towards liability coverage, so the cost equation is quite different. Secondly, regulatory framework in Canada and the U.S. are different with Canada generally being more stringent. So both those factors are driving very different competitive dynamics. Maybe coming back to Canada, we're really at that point in the cycle where we're outperforming on both top line and bottom line, and that's currently true in every region. So our growth was in the double digit for the 8 quarters in a row at 11%. That's fueled by 3 points of unit growth, an increase over Q2. And really, every metric is painting a positive picture. Retention is the highest it's been in 2 years. Quotes are up double digit from increased marketing investments. Our competitive position is improving with competitors still catching up. So the net result is that our new business sales are up 15% year-over-year. Think you were also touching on personal property. We do expect hard market conditions to persist in property as the industry is pricing in the weather trends. So despite 2025 being a milder year so far, CAT activity was well in excess of expectations in the last 2 years. So when it comes to pricing, CATs are expected to be volatile from one year to the next, and it's crucial to look at really deeper and longer-term trends. So the market in Canada is behaving quite rationally. So we expect industry to continue to reflect those long-term trends in pricing and the market to remain constructive even if we were to have a few good CAT years in a row. So here again, I'd say both our absolute and relative performance is strong, and we maintain a positive outlook on this product. Charles Brindamour: And Doug, if we go back to Bart's earlier question, which is how do you grind an improvement here. The first thing I said was to stay on top of inflation. And I think in first line, let alone that were on third-generation machine learning models in the field, us dealing with inflation, both from a pricing and a supply chain management has made a huge difference here. And I'll take you back just 2 years, where we shrank our units in personal automobile by 0.5%, thinking that the industry was not seeing the inflation that was coming. Fast forward today, outperformance, massive in personal lines. From a bottom line point of view, we're making the most from a top line point of view in this environment. And I think it really plays to our strength and kudos to Guillaume and his team to have navigated this so well. Operator: Question will be from Jaeme Gloyn at National Bank Capital Markets. Jaeme Gloyn: First question related to Canada Commercial Lines and the commentary that some of the growth initiatives are starting to take hold, but growth at 3% is still below the industry. And so I look at some of the commentary in the MD&A around AI and machine learning and the new broker platform. Is the view that these new initiatives, which are maybe gaining traction now will allow Intact to outperform the mid-single-digit industry growth rate that you're expecting? Charles Brindamour: I think nearly all these initiatives help us outperform from a bottom line point of view by a big margin. I'd say one portion of the headwind is mixed. If you look at our growth in commercial lines in Canada, 3% in Q3, you -- right there, you had a point drag of mix, and this has fluctuated this year between 1 and 3 points, and it's a function of uneven competition across the board. So I -- look, I'm -- we're not forecasting outperformance on growth on a 12-month horizon compared to the industry. But we have lots in the toolbox to generate more growth without compromising margins, just leveraging specialty lines across our distribution channel, it's one of those initiatives. The other one is we're in the process of deploying our technology, the broadest technology from a product and from a transaction point of view, to brokers in the field in addition to working on the funnel, which shows that we're also growing in units at the moment. It's hard to tell whether it will outperform from a growth point of view, the Canadian industry. I don't know, Ken, do you have anything additional you want to... Kenneth Anderson: Just to add a bit of context, I guess, at an industry level, when we look at MSA, the data at Q2, we have seen at an industry level growth tempering in the second quarter relative to the first quarter in commercial P&C. I think that's in line with the large account pressure at an industry level. At the same time, we've moved the 3% growth from a 1% growth in -- from Q2 to Q3. And that's where our trajectory is moving in a different direction to the industry overall. And that's what we've observed at the second quarter. Charles Brindamour: Purely. And we're using all the tools we have in the toolbox. We don't do that at the expense of margin. Jaeme Gloyn: Okay. Understood. And then in the U.S., obviously, a good result, up 8%, and it sounds like there are certain segments that are really driving that growth at plus 20%. Can you give us a little bit more color as to what segments those are that are driving that extra or excess growth rates? And then in terms of winning new business, what are some of the factors that are allowing Intact to win that new business? Is it just new products? Or is it something else within existing lines? Charles Brindamour: I think in the U.S., we have a very good business. It's outperforming, but it's small in relationship with the opportunities that exist in this market. And so distribution management is one big lever of growth. Investing in the lines that are most profitable is another big lever of growth, whether it's people or technology. In a number of our segments, we're adding products and that is making a difference. We're big push on, for instance, cargo in our marine units. And there's lots of levers we're pulling at the moment to make sure that we're capturing the growth opportunities that exist in this market. Patrick, do you want to highlight maybe some of the areas of growth in the U.S.? Patrick Barbeau: Yes. And it will also highlight what you were describing, Charles, earlier on how the mix in specialty in particular, help us with the bottom line. But if you take the top 3 or 4 lines that are growing the fastest right now in the U.S., and examples of that would be Surety, Cyber and some of the Accident and Health. Overall, that's about 40% of the book of business. It's growing north of 20% in the quarter, and it has produced a combined ratio in the 80% to 82% range over the past 3 years on average. So good for momentum on growth, while also sustaining very good profitability on the book overall due to mix change. Jaeme Gloyn: And just on how you're winning new business is -- just a quick comment on that. Charles Brindamour: Yes. How we're winning new business? First is we're expanding the reach to the number of brokers we're dealing with. Second, we're leveraging more verticals for brokers within their operation. Third, we're adding products on the shelves. And fourth, we've also bought a number of MGAs and you know, we're interested in deploying capital in the U.S., and that expands, so to speak, the shelf on which we can put our products. And that's really how we're winning new business in the U.S. Operator: Next question comes from John Aiken at Jefferies. John Aiken: I just wanted to drill down a little bit more on the U.S. If you take a look at the reported claims ratio, where the underlying current year loss ratio for the quarter exceptional. And I get the commentary that you're talking about product mix. But was there anything unusual that was driving the lower combined claims ratio this quarter. I guess the flip to that is, how sustainable is this moving forward in terms of do you think that you're going to be able to continue to outpace growth in these higher profitable lines? Charles Brindamour: Well, that's certainly the plan, but let's just keep in mind that when growth was a little more tepid in the U.S., it's because we were into meaningful remediation efforts. And as I said last quarter, I expected that the tempering effect of this remediation would slow down in the second half of this year, and that's what we're seeing in Q3, and I expect that to continue into next year. Remediation to keep in mind, is something that you continually should do, but sometimes there's more than others. And I think in the last year, 1.5 years, there was, and therefore, we're seeing now the potential of the business emerge more peerie without that noise. John Aiken: And when we talk about remediation, are you as excited about the prospects with remediation flowing off in the U.K. as what we saw this quarter in the U.S.? Charles Brindamour: Yes. I think the U.K. is a different ball game from the perspective that we're integrating the NIG portfolio, which we've acquired in '24 and what it means in practice is we're trying to improve its performance, which we have. We're bringing segmentation as well. And I do expect that the impact of the integration, which is almost a full 5 points this quarter will taper off as we enter into 2026 and towards the end of this year and as we enter into 2026. In the U.K., we're investing massively in technology in our regional presence. We're broadening our footprint. And I do expect that this will be a growth engine for us over time. But it's a meaningful transformation at the moment. Operator: Next question will be from Paul Holden at CIBC. Paul Holden: Maybe sort of a follow-up to that, Charles, on the U.K. business. So some good color around the DLG integration. Maybe you can talk about the business ex the DLG and how that's growing and the profitability there. Charles Brindamour: So the business ex DLG is doing well, I would say the area that's still in remediation in the U.K. is what we call the delegated authority business where we're shrinking that footprint a bit to make sure that it's our price, our product and our claims that we're using for the greatest extent possible in that segment of the market. That is creating a bit of a drag. Otherwise, the rest of the business would be in the low single-digit range. And we haven't really seen the impact of expanded distribution. That takes a while and I'm confident we'll start seeing that in 2026. And we haven't really seen the full impact of broadening our product range specialties, in particular, across a much broader distribution channel in the U.K. than we had before the NIG transaction. In the U.K., if I take you back 3, 4 years, RSA was focused on tens of brokers. Only the NIG integration, we're dealing with over 1,000 brokers. We're deepening the relationship by about 100 brokers a year. Anyway, this year, the idea is to deepen the relationship with 100 brokers with whom we didn't have a deep relationship before. You just get a sense of the scale of opportunity that this can bring. And you layer over that, a broader range of products, whether it is distributing marine, financial lines, et cetera, across those distributions. So there's a fair bit of upside there. I don't know, Patrick, if there's anything you want to add. Patrick Barbeau: No. There's some good momentum also in specialty lines and the combination of the DLG and the existing RSA products, to your point, as we get into Q4 and early Q1 will also expand the offer through the broker. So RSA getting -- RSA broker getting some of the offers that were only offered by DLG and vice versa. Paul Holden: And I guess the second part of that question was also with respect to margin. So if you suggest the DLG is roughly a 5-point drag on margin. It suggests you're getting your low 90s in that RSA book. Correct? Charles Brindamour: Ken? Kenneth Anderson: Well, yes, I think if you look at the quarter performance at 95.5%, firstly, you would -- there's 3 points of excess CAT losses in their 8 points of CATs in the quarter. So if you strip out the 3, I think you're back to a low 90s performance, which right now, that's where we would expect to be. I think the continued -- if that remediation tapers off, it will start to earn through into '26 and '27 and that's the further improvement that you'll see emerging in the, if you like, underlying combined ratio for the UK&I over the next 12 to 18 months. Paul Holden: Got it. And then the second question for me is just going back to Canada and personal auto. So good growth in written insured risks. It seems like you are building some momentum there. We can see it quarter-over-quarter-over-quarter. What should we expect over the next few quarters? Like it's my impression is you're saying competitors are still catching up to where you are on pricing. So that would suggest, if anything -- and you seem to like the margins. So if anything, maybe we can assume that written insured risk growth accelerates from here? Is that a reasonable expectation? Guillaume Lamy: Yes. So I think when we look at personal auto and our rates, inflation is stabilizing in the mid-single digit. Our rates are also stabilizing, I would say, just below 7% and we expect to stay in that range in the foreseeable future. As we're pricing for the inflation that we're observing. So when you look at the industry that still has some catch-up to do, I think we're very comfortable in our competitive position. We've seen that improve. We're seeing our retention improve. So we expect to stay in kind of market share growth going forward. So will it keep increasing from 3%? I think time will tell, but we're certainly expecting the current momentum to continue into the next 12 months. Charles Brindamour: Yes. And I think, Paul, the direct channel, the digital channel, these are all levers that we're pushing really hard in this environment. Nothing to do with rates, everything to do with building on those margins to gain market share where we can. Operator: Next question will be from Tom MacKinnon at BMO Capital Markets. Tom MacKinnon: Charles, when we look back at your Investor Day, you talked about how you could accelerate your NOIPS growth without any strategic capital deployment, and that was 2%. NOIPS CAGR and with DJ Capital deployment, we get up to 4%. But what's interesting is sort of without any M&A, it would have just been 1% through distribution income, which I assume just augmenting that with some bolt-on distribution acquisitions, smaller ones. And then it also said 1% through share buyback capacity. The last 10 years, you added 1% growth to NOIPS through share buybacks. If I annualize what you did in the quarter, 0.3% of your shares you bought back in the quarter, so that's over 1% annualized right there. Is this sort of the base case? Or should we sort of think about, hey, if you don't see anything major on the M&A front? That a 1% share buyback that you've demonstrated in this quarter would kind of be -- I mean, it seems to be consistent with what you laid out in your Investor Day earlier this year and consistent with what you've done in the past. So any comments around that? Charles Brindamour: Thanks, Tom. I'll ask Ken maybe to share some perspective on that. Kenneth Anderson: Yes. Well, I would say, firstly, Tom, in relation to the capital deployment component of the NOIPS growth compounding ambition. When it comes to distribution, yes, certainly, we feel with regular ongoing distribution capital deployment that will generate 1 point. I would say in an adverse if you like, scenario where we didn't do M&A, that was the scenario where we were just, I think, demonstrating that share buybacks are a tool in the toolbox to deliver a 1% NOIPS growth. But to be clear, that's been a scenario where there are no M&A opportunities. And that's not the scenario we're in today, to be clear. The earnings power and earnings growth is really strong. I think what we did this quarter was we're opportunistic in deploying $145 million to buy back a little over 0.5 million shares. But you will have seen that the capital margin has grown from $3.1 billion to $3.3 billion. The debt-to-capital ratio has come down. The dry powder has increased in the quarter in terms of what's available to deploy on M&A opportunities. And it's in that context that we're very happy to have the dry powder that we do. Charles Brindamour: Yes. And I think the point I made at the Investors Day was that the denominator is much bigger than it was a decade ago. So we proved to ourselves that we have the earnings power to grow at that clip prospectively. I think the point we made is, organically, we get in the zone. But then when you look at capital deployment opportunities, we would comfortably, we think, be north of 10%. And so when you look at the landscape from an M&A point of view, the first thing that matters to us as a firm is where do you outperform. And frankly, today, we outperform everywhere we operate. What therefore means that the sandbox for capital deployment is 10x bigger than what it was a decade ago. And within that, there are manufacturing opportunities in Canada, global specialty lines and in the U.K. and our distribution investment opportunities, in particular, in North America. And so for me, the M&A landscape is actually quite good. The sandbox is much bigger. But timing matters. We have very clear financial objectives, and that drives timing for us. Operator: Next question will be from Mario Mendonca at TD Securities. Mario Mendonca: This might be a request that you put a finer point on some of the things you've already said on this call. Charles and Ken, you talked about this higher new level of ROE. Now this quarter was special in some respects, the trailing 12 month increased significantly because the Q3 '24 CATs fell off and a more modest level of CATs fell into the trailing 12 months. So what I'm asking is, when you say this higher level of ROE is sustainable. Are you talking about the 19% nearly 20% plus this quarter? Or are you referring more to that what you've historically referred to around the 17% range? Kenneth Anderson: Well, I think what we're saying -- what we are saying, Mario, is that we've moved into a zone above mid-teens. Yes, Q3 was close to 20%. But as Charles mentioned in his remarks, it's been above 16% for the last 4 quarters. And I think that's what we were referring to. And we view that as sustainable in the context of the continued investments that we're making in the competitive advantages, pricing, risk selection and claims. And as Charles has also pointed out, the tilt of our business towards commercial and specialty lines gives us more room and coupled with the potential growth now, not just from manufacturing, but also from distribution, we feel we're very well positioned to sustain above mid-teens. Charles Brindamour: So beyond the drive to expand the ROE outperformance in the business in which we operate, you've got 2 structural changes. If you look forward 10 years compared to the last decade. The first one is distribution income is bigger, more stable and contributes positively to our forward ROE. And second, and that's very important, is the mix of business has pushed us in zones where we can earn meaningfully higher ROE than what we were able to earn a decade ago. So as you know, Mario, I never pinpoint a specific ROE. This is an industry with a certain degree of volatility. But what's clear to me is that we're in a different zone. And in a decade from now, when we look back 10 years, it will be a better ROE than when we look back 10 years today. Mario Mendonca: But that sort of brings me to the next question. You've -- when you're talking mix, I suspect you're talking about global specialty markets. It sounds to me like this business really suits you looking forward. Is there something about the business that makes growth through acquisition more challenging? Is it such a relationship-driven business that acquisitions generally don't work and this has to be done organically? Or can this business grow through acquisition? Charles Brindamour: This business can grow through acquisition, Mario. We've entered the U.S. in specialty lines through an acquisition. We've kept all our teams, all of our people, but we've taken the combined ratio from 100% to something that starts with an 8%. And how we done that? Well, that's the old recipe. Define success well, make sure the values are in place and then it's about pricing, sophistication, strong governance in the field, in-sourcing of claims and good capital management. We then, in 2021, did the same exact thing as we acquired RSA, which had a pretty big specialty lines business, both in Canada and London market as well as in Europe. We've taken the playbook, and we've done the same thing. I think there are meaningful M&A opportunities in global specialty lines, whether it is manufacturing or distribution, and we're very focused on those. But you know how we define success when it comes to an acquisition, this needs to generate at least 15% IRR at the long-term capital structure and it's an area that we're active in finding opportunities. Mario Mendonca: My last question is about the 10% annual NOIPS growth that you've described over the years. What I'm trying to figure out here is whether that actually applies to 2026. And I'm asking about 2026, specifically because there are a couple of reasons why it wouldn't apply. There are potential declines in reserve development, potentially higher CAT losses against a rather low year. So the question is this, does the 10% apply each year? And does it apply to 2026? Or is that more of a medium-term objective? Kenneth Anderson: So to be clear, the objective is to grow at a compound of 10% annually over time. It will -- by virtue of catastrophe losses, et cetera, there will be some lumpiness also M&A when it comes, can tend to shift your ROE into a new zone. But over time -- the objective be clear is over time. I think if you look at 2025 specifically, Mario, obviously, we'll see where the year end. At the 9 months, the CAT losses are a little below our expectation on a year-to-date basis. So I think that would be the one item that would contextualize how you would think about 2026. Operator: Question will be from Stephen Boland at Raymond James. Stephen Boland: Just one question, I don't want to delay this. Have you had any preliminary conversations with your reinsurance partners with renewal coming up? I'm just curious the outlook that pricing is going to be rational as there's going to be softness. Kenneth Anderson: Yes. So I would say, in relation to the [ 1/1 ] renewal reinsurers have had strong profitability in 2022 when the market hardened and that was a result of some structural changes and seasons taken higher retentions and pricing levels have gone up since then. But we would expect reinsurer capacity will exceed demand across the business as we head into the renewal. So I would say favorable conditions from our perspective as we head into the renewal season. Charles Brindamour: Yes, I think it should be a favorable renewal cycle. We manage our risk very tightly. This gives us an edge when it comes to buying reinsurance. We're not huge buyers of reinsurance also. We do that pretty much for tail risk purposes, but this should be a good renewal season for us. Stephen Boland: Okay. And Charles, just I'll sneak one in. I know I'm a bit late. But have you ever considered a stock split, the price has been elevated now for a while. I don't think you've ever done one. Is that something you could consider? Kenneth Anderson: Yes. I would say it does hit the radar from time to time, we evaluate it, but we haven't acted on it to date on the basis that. In substance, it's not really changing anything in substance and I think that was the conclusion that we've reached. Charles Brindamour: Yes. It's abated from time to time. I mean if you guys think this is something we should seriously consider. We'll look at it. I'm of the view that I don't know if it's a needle mover and therefore, we concentrate on other things, but we're open to feedback. Operator: Ladies and gentlemen, this is all the time we have today. I would now like to turn the call back over to Geoff Kwan. Geoff Kwan: Thank you, everyone, for joining us today. Following the call, a telephone replay will be available for 1 week, and the webcast will be archived on our website for 1 year. A transcript will also be available on our website in the Financial Reports section, and of note, our 2025 fourth quarter results are scheduled to be released after market close on Tuesday, February 10, 2026, with the earnings call starting at 11 Eastern Time the following day. Thank you again, and this concludes our call. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.
Operator: Hello, and welcome to Snam's 9 Months 2025 Consolidated Results Conference Call. My name is Zach, and I will be your operator on today's call. Please note this conference is being recorded. [Operator Instructions] I will now hand you over to your host, Francesca Pezzoli, Director of Investor Relations, to begin today's presentation. Please go ahead. Francesca Pezzoli: Good afternoon, ladies and gentlemen. Welcome to the presentation of Snam consolidated results for the first 9 months of 2025, which were approved by the Board earlier today. I'm here today with Luca Passa, Snam Chief Financial Officer. Luca will walk you through the key market trends, the latest regulatory developments and the main industrial and financial achievements of the period. He will then provide a detailed review of our financial results, and update of our full year guidance and a few closing remarks. After that, we will open the floor for your questions. With that, I'm pleased to hand over to Luca. Luca Passa: Thank you, Francesca. Good afternoon, everyone. Let me start with the key trends in the Italian gas market during the first 9 months of 2025 at Page #2. Gas demand in Italy was above 44 billion cubic meters, a 2% increase compared to the same period last year. Residential and commercial sector was up 2%, largely due to slightly colder weather condition, while industrial demand was broadly stable. The thermoelectric sector grew by more than 2%, driven by lower electricity imports and reduced hydroelectric output due to the lower rainfall compared to the same period in 2024, partially offset by weaker power demand. This confirms the critical role of gas-fired power generation in balancing the energy system, especially as we integrate an increasing share of renewable energy. Exports have also risen sharply, growing roughly 5x compared to the previous year, mainly through outflows from Tarvisio also driven by a decreasing TTF PSV spread differential becoming negative during September and October. Storage levels at 92%, well above the European average. Looking at supply flows, we have seen a notable shift. Pipeline imports decreased by 2.8 billion cubic meters, more than offset by liquefied natural gas imports, which rose by 4.2 billion cubic meters, a significant 38% increase year-on-year. This growth was supported by the full return to operation of the OLT terminal in Livorno and the start-up of the new terminal in Ravenna. As a result, LNG accounted for over 30% of Italy's gas imports. This contributes significantly to the enhancing both the country energy security and the diversification of supply sources, which is crucial in today's complex geopolitical environment. These dynamics highlight the relevance of a flexible and diversified infrastructure to ensure energy stability and system resilience in an increasingly volatile and interconnected environment. Let's move to the key financial highlights on Slide #3. We have delivered sound 9-month results despite persisting volatility. Adjusted EBITDA of EUR 2.227 billion is up 6.6% year-on-year, driven by growth in regulatory revenues. Adjusted net income at EUR 1.096 billion grows double digit year-on-year, thanks to higher EBITDA and greater contribution from the associates, only partially offset by higher depreciation and financial charges. Investment at EUR 1.767 billion were broadly in line with the same period of the previous year. Net debt stood at EUR 17.4 billion, down 1% versus first half 2025 after the investment activity carried out during the period and the dividend payment. The average cost of debt remained broadly stable at 2.6%. The Board of Directors also approved the distribution of an interim dividend for 2025 of EUR 0.1208 per share, representing a 4% increase compared to the previous year, in line with our dividend policy. As for regulatory updates and as already disclosed, the regulator has changed the RAB indexation for 2025 to the normalized index of consumer price for the European Union countries relating to Italy, IPCA Italy. At the same time, the for 2024 was updated to 7.9% from 5.3% to recover past adjustments. Therefore, 2025 tariff RAB was lifted to EUR 26.2 billion from EUR 25.8 billion. On the 6th of August, ARERA published a resolution for the progressive implementation of the full ROSS by 2028 with a transition period for 2026, 2027. The observation period for the 2026 WACC up date ended in September. The calculation is very close to the figure level, but the final outcome remains uncertain, and it will ultimately depend on the final inflation figure for 2026 and other components of the formula. The Council of Minister approved on June 30, a draft law for the definition of legislative framework for carbon capture and storage, hydrogen and methane emission reduction that needs parliament approval. Last week, on the 27th of October, the technical rules for CCS were issued jointly by the competent ministries. Several progress also on the financing front. We have successfully issued our first U.S. dollar multi-branch sustainability-linked bond totaling $2 billion and EUR 1 billion of EU Green bond. Moreover, in October, we have cash in EUR 121 million of Adriatic line grants. Moving now to our associates portfolio. The stake in ADNOC Gas Pipeline was sold to Lunate for EUR 233 million in March, while our 2% stake in ITM Power was disposed at the end of July. With regards to OGE acquisition in Germany, the foreign direct investment clearance is still ongoing, and this is one condition present for the closing of the deal. The long stop date is now November 17. In addition, we have signed an exclusive agreement for the acquisition of Higas, which has the rights for the conversion of its Oristano LNG coastal storage facility in the Sardinia region into an FSRU terminal. In 9 months, we have accelerated our strategy delivery. I'm now on Page #4. Let me remind the key highlights on gas infrastructure. We have more than 850 construction sites open, which represent a 19% increase versus 9 months 2024. Works on Phase 1 of the red decline are moving forward steadily with an overall completion at 43%. It was 35% at June 30. The BW Singapore regasification unit, moored offshore Ravenna began operations in May and 13 vessels arrived so far. In the 9 months, Italy received 165 LNG tankers, half of which coming from the U.S. for a total volume of about 15 billion cubic meters. At the end of September, storage level was 92%, as mentioned, 10% higher than the European average. At the moment, we have improved at around 95%, well ahead of the rest of Europe to be fully prepared for the winter season. Moving to our energy transition platform on Page #5. The first phase of the CCS project in Ravenna has delivered solid technical results. On the industrial phase, permitting for the pipeline is at an advanced stage and the process for storage has recently begun. We have submitted an application for the Connect European facility grants in excess of EUR 300 million, and we look forward to additional regulatory instruments to move ahead. As mentioned, the Ministry of Environment has just published the Ministerial Decree on CCS technical regulation issued jointly by the competent ministries. On biomethane, we have 72 megawatts already in operation, authorized or under construction, and our mission is to speed the ramp-up and maximize the value of these assets. Renovit backlog is broadly stable at EUR 1.4 billion. With regard to the H2 backbone, we have been awarded EUR 24 million contribution by the Connect European facility to cover approximately half of the feasibility studies, and we are progressing with them. Looking at sustainability and innovation, 35% of CapEx aligns with the EU taxonomy and 57% with SDGs, while sustainable finance is stable at 86% of the total. We expect 2025 Scope 1 and 2 CO2 emission down at least 25% versus 2022, which is our baseline. This is an improvement versus initial expectation of 20% reduction, mainly thanks to the new dispatching optimization tool supported by AI and a better performance on methane in this transition year of application of the new European rules. Furthermore, for the fifth consecutive year, Snam received a gold standard recognition from the United Nations Environment Program, UNEP, for methane emission reduction, confirming the group high standard of transparency and accuracy in methane emission reporting and concrete commitment on emission reduction. Our first employee share ownership plan has had an outstanding participation rate of 55% of the total workforce even more relevant as the first window only allowed for subscription through own capital, tangible signs of employees' alignment with the corporate objectives and their active participation is Snam long-term value creation journey. I would like to take this opportunity to express personally my sincere gratitude to all colleagues who joined and supported this initiative. Moving to Slide #6. Out of the total EUR 1.8 billion of investment broadly in line with the previous year, 35% is EU taxonomy aligned and includes. With regard to gas infrastructure, H2-ready replacements, dual fuel compressor station, biomethane plants connection. As for the energy transition businesses, H2 and CCS, a large part of biomethane CapEx depending on the plant's technical standards and energy efficiency, excluding cogeneration. SDG alignment is at 57%, of which the majority goes towards SDG 7, 9 and 13, respectively, affordable and clean energy, industry innovation and infrastructure and climate action. More than 50% of the CapEx are development investment, reflecting the company industrial growth phase. Let's now move to the 9-month 2025 EBITDA analysis on Slide #7. EBITDA for the period was EUR 2.227 billion, plus 6.6% compared to last year or plus EUR 138 million. Regulatory items were broadly neutral as the recognition of the 2024 deflator update for EUR 52 million and the adoption of Italian IPCA for RAB revaluation starting in 2025 for around EUR 23 million were counterbalanced by the WACC decrease for around EUR 77 million. The growth is mainly attributable to regulatory revenues increased for around EUR 119 million, Stogit Adriatica entered into the perimeter for -- from the 3rd of March 2025 and positively contributed by EUR 30 million. Ravenna FSRU that started operation from May and contributed by EUR 18 million. In details, the regulated revenues growth breaks down as follows: Transport and storage revenue increased by around EUR 122 million linked to the investment plan execution. Fast money effect amount to around EUR 16 million, higher allowed OpEx mainly due to inflation recognition, positive volume effect. These items were partially counterbalanced by the absence of LNG extra revenue recognized in the second quarter of 2024 for around EUR 40 million, lower output-based incentives by EUR 60 million versus last year, mainly attributable to the storage reverse flow service and the expected phaseout of input-based incentives. The increase in gas infrastructure operating costs, about EUR 29 million is mainly attributable to labor cost in large part due to the inflation recognition under the collective labor contract and new hires. With regard to the energy transition business, the plus EUR 5 million EBITDA contribution versus 9 months 2024 is mainly driven by biomethane supported by higher volumes. As for the full year guidance, we update our guidance to EUR 2.950 billion EBITDA, which reflects the positive impact of the 2024 deflator update accounting for around EUR 52 million and the switch to the Italian IPCA index for RAB revaluation starting in 2025, worth approximately EUR 40 million for the full year. I'm now on Page #8 on the associates. Their contribution to group net income was EUR 290 million, a plus EUR 57 million increase compared to the same period of the previous year. Out of the total contribution, EUR 197 million come from our international associates and the remaining EUR 93 million from the Italian associates. Let's now dive into the performance of each one. TAP slightly higher year-on-year contribution is mainly driven by inflation adjusted tariff and lower net financial expenses. With 16% of Italian imports, TAP is the second largest pipeline import route and will be further reinforced by the start of commercial operation of the 1.2 bcm yearly expansion from January 2026. SeaCorridor operating performance is slightly higher, thanks to lower OpEx incurred in the first 9 months, expected to normalize by year-end and lower D&A due to some investment postponement. With approximately 15 bcm imported, it represents the first Italian import route. Terega contribution is substantially in line, thanks to cost savings, we partially offset the higher financial charges due to 2024 refinancing. Moving to Austria. In 2025, TAG benefited from the new regulatory framework, which eliminates volume risk, bringing net income contribution to positive. Also GCA's performance benefited from the new regulatory framework, however, offset by a worsening in the bookings, which will be recovered in T+2 tariff. Worth mentioning the significant increase of exports from Italy to Austria underlying the strategic relevance of this route. Desfa lower contribution was due to extraordinary auction premium on LNG imports and export to Bulgaria in 2024. However, the market outlook remains positive. Greek gas demand rose by nearly 17% year-on-year, driven by higher power generation needs and a colder winter. LNG remains key, covering over 40% of imports and the Alexandroupolis FSRU is now back in operation. Desfa ambitious CapEx plan underpins this strategy. And just yesterday, the Komotini compressor station starts of operations marked the interconnection strengthening with Bulgaria and the wider region. Interconnectors contribution remains in line since we are reaching the yearly regulatory cap, thanks to capacity of almost 50% booked until 2026. EMG contribution is substantially in line compared to the same period of 2024. Regarding ADNOC, as already explained in March, we have completed the stake disposal. On the Italian associates, the growth is mainly driven by Italgas overperformance and by the higher contribution from Adriatic LNG following the increase of Snam participation in the company from last December. For the full year, we expect approximately EUR 365 million contribution from associates, excluding OGE potential contribution. Let's now move to the 9 months 2025 net income analysis on Slide #9. Adjusted net income for the period was EUR 1.096 billion or plus 10% compared to 9 months 2024 due to higher EBITDA by EUR 138 million, as previously commented, partially counterbalanced by higher D&A by EUR 77 million following rising investment and the enter into perimeter of Stogit Adriatica from March and Ravenna FSRU from May, higher net financial expenses by EUR 16 million, mainly driven by a slight increase in financial expenses related to debt, reflecting higher average net debt with an average cost broadly stable at approximately 2.6%. Contribution from associates is positive for EUR 57 million, as already commented as a result of higher international associates for EUR 33 million and higher Italian associates for EUR 24 million. Lower taxes reflect higher contribution from associates to EBT as well as tax credit adjustment related to 2024 income taxes. As for the full year, we update our guidance to EUR 1.420 billion net income adjusted, which reflects the positive impact net of taxes of the 2024 deflator update and the switch to Italian IPCA index for RAB revaluation starting in 2025 with a tax rate for the full year expected to be around 25%. Turning now to the cash flow on Slide #10. Cash flow from operation for the period amount to around EUR 2.063 billion and was the result of EUR 1.717 billion of funds from operation and EUR 346 million of working capital cash generation. The change in working capital was mainly driven by regulatory working capital with around plus EUR 170 million due to tariff-related items, mainly driven by tariff receivable decrease, around minus EUR 110 million absorption due to balancing activities and default service, about plus EUR 130 million of cash generation, mainly driven by the super bonus fiscal credit decrease and around plus EUR 160 million of temporary cash generation due to a reduction in receivable from the compensation energy clearinghouse related to flexibility service to be reserved by year-end. Net investment for the period amount to EUR 2.237 billion, including EUR 564 million of cash out related to Stogit Adriatica and around EUR 23 million of ADNOC disposal cash-in. Other outflows were mainly related to the payment of the dividend for EUR 969 million, resulting in a change in net debt of about EUR 1.188 billion. Moving to Slide #11. Net debt amounted to around EUR 17.4 billion at the end of September 2025. Net cost of debt, which is calculated as financial charges net of liquidity incomes on average net debt for the period was broadly stable at 2.6%, while the fixed/floating mix stood at 89% / 11%. Sustainable finance ratio is at 86%, well on track to reach our long-term target of 90% by 2029. Following the publication of a new sustainable finance framework, we successfully placed in May our first U.S. dollar multi-tranche sustainability-linked bond totaling $2 billion, which was the first sustainability-linked transaction globally with a net zero emission reduction target across Scope 1, 2 and 3. Moreover, in June, we have published a European bond fact sheet and issued our first European green bond of about EUR 1 billion, which so far is the largest senior single tranche by a European corporate. Following this transaction, the funding for the year is completed, leaving remaining part of the year for further opportunistic prefunding activities. Credit ratings were confirmed by Moody's and Fitch following OGE acquisition announcement, while Standard & Poor raised Snam positioning to A- following the upgrade of the sovereign, providing the strength of our credit metrics and business profile. As for the full year guidance, we reduced our net debt guidance to EUR 18 billion, thanks to higher cash conversion, a neutral net working capital effect, greater cash in from associates and an increase in investment-related payables. Net cost of debt is expected to remain stable at 2.6% with net financial expenses at around EUR 340 million. I am now on Slide #12 to wrap up the full year 2025 guidance, where we confirm EUR 2.9 billion of CapEx for the year, of which EUR 2.5 billion on gas infrastructure and EUR 0.4 billion on energy transition. As well as tariff RAB for EUR 26.2 billion, already reflecting the effects of the ARERA Resolution 130 as discussed earlier. We upgrade our full year guidance with respect to an EBITDA of EUR 2.950 billion versus the previous guidance of EUR 2.850 billion, mainly to reflect the effects of the above-mentioned resolution for a total impact of approximately EUR 90 million. Adjusted net income guidance moved to approximately EUR 1.420 billion from EUR 1.350 billion, mainly to reflect the above-mentioned resolution net of taxes. Net debt guidance significantly improves to EUR 18 billion, thanks to higher cash conversion, the neutral net working capital effect, greater cash in from associates and increased investment related payables. This outlook incorporates the expectation that the 24.99% OGE stake acquisition, if completed by 2025 year-end will be financed through either asset rotation or the issuance of a dedicated hybrid instrument. Finally, the Board has approved the distribution of an interim dividend for 2025 amounting to EUR 0.1208 per share with a payment due starting from January 21, 2026. This is up 4% versus the previous year, in line with the guidance and represent a 71.4% payout. To close on Page #13, the current energy scenario continues to highlight the crucial role of gas in ensuring system stability and resilience within an increasingly volatile and interconnected environment. We remain fully committed to support Italy's security of supply as shown by the high storage levels and the significant increase in LNG volumes injected into the network, demonstrating the country's role as a strategic energy gateaway for Europe. We are also accelerating the execution of our strategy with over 850 construction sites currently active across the country, the commission of the Ravenna terminal and the city progress on the Adriatic line. Our strong performance over the first 9 months with all key financial indicators improving reflects the solidity of our business model and operational excellence. This, together with greater financial flexibility, allow us to upgrade our 2025 guidance on EBITDA, net profit and net financial debt, supporting long-term sustainable value creation for all our stakeholders. We are now open to take your questions. Operator: [Operator Instructions] And the first question comes from the line of Javier Suarez of Mediobanca. Javier Suarez Hernandez: The first one is on the latest draft law on CCS and hydrogen. If you can elaborate for us your reading of this first draft and the possible implication for Snam and its business model? Then the second question is on the situation -- an update on the situation in Germany with OGE, which is -- the question is which is your best estimate for a decision for the conclusion or not of this deal and which in terms of deadline is the absolute maximum that you have to take a final decision in this operation. And then the third question is on the slide on energy transition. You are mentioning a EUR 1.4 billion backlog. If you can give us some details and granularity on this backlog. Luca Passa: Thanks, Javier, for the 3 questions. So when it comes to the draft law for CCS H2, this was already widely expected. It was proposed on the June 30, and we are waiting for parliament approval. We give basically the power to the regulator in order to regulate these 2 energy vectors, which currently are not part of the mandate of the regulator. Therefore, is, I think, a very important step when it comes to finalizing our investment decision around these 2 businesses. Now on CCS, on top of the draft law, as I mentioned during the presentation, also a technical specification last week were issued by the ministries and technical specification means security, how to handle, how to transport basically that type of molecule, basically CO2 molecule. So clearly, we are moving in the right direction and will allow us to basically give us, let me say, the way in which we are planning for CCS to take an FID on the industrial phase of the project by the beginning of 2027. When it comes to the German update on the potential acquisition, I can only mention that we currently are on the Phase 2 of the FTI procedures, which has been going since basically the end of April and that we have a long stop date with our counterpart on the contract that ends on the 17th of November. Therefore, our expectation is by then to have an answer one way or the other. And therefore, we will know shortly whether we can finalize and conclude acquisition because this is the only condition precedent for us to basically execute finally the contract. For the energy transition backlog, I can tell you that only 10% is now residential because it has gone down, as you probably remember, a lot of the works were related on the residential part of the Super Ecobonus tax allowances that was [indiscernible] in Italy up until 2023. 45% currently is on public administration, which has been the major focus of the company in the last couple of years and 45% on large industrial customers. So that is the split of the EUR 1.4 billion of backlog, which has a duration over 7 years currently. Operator: The next question comes from the line of James Brand of Deutsche Bank. James Brand: Congrats on the results. I just wanted to ask, I know you just kind of answered a little bit on CCS, but I was just kind of keen to understand the kind of time line there for getting more clarity and also what that opportunity could be worth for you if you're willing -- obviously, you haven't set anything out that's too concrete at the moment, but maybe just to delve into that a little bit. So you said you're hoping to start making decisions on projects in early 2027. Could you just tell us kind of what the next steps are on the regulatory side? Are we waiting for the law to pass and then the regulator to come out with some regulatory framework? Or if that's not the case, what else are we waiting for to be coming through, firstly? Secondly, I guess these investments are going to be outside the RAB, but maybe that's not clear yet. And thirdly, is there anything at all you can say about the scope of the investment opportunity here? It seems like it could be a very big one. And obviously, you haven't set anything out, but is there any kind of rough commentary you could give us or help us in kind of understanding how big an opportunity it would be? Luca Passa: Thanks, James, for your question. On CCS, clearly, the draft law needs to be converted into law by the parliament, and we expect that to happen, I would say, before year-end or just in and around year-end. That will give the powers to ARERA to start formally work on a draft regulation. Now we expect this business to be fully regulated, therefore, contributing to our regulated asset base. I will tell you what we have already included in our business plan presented last January, which is EUR 500 million of CapEx, of which EUR 300 million on transport and EUR 200 million, which is our share in the JV for the storage business together with Eni. The assumption for us is that clearly this EUR 500 million of investment will translate into RAB fully by the end of 2029. And the expected remuneration, at least what we assume so far is to have a remuneration which is similar to the one of gas for both transport and storage, but clearly at a premium. Our assumption is, on average, 100 basis point premium. Clearly, this is a discussion that we will have with the regulator once they are entitled formally to basically start drafting the regulation. But those are basically the expectation. In terms of investment, clearly, if we take an FID decision at the beginning of 2027, the amount of investment for both, I would say, transport is in the region of EUR 800 million more or less, and that will last even beyond clearly the business plan. When it comes to basically the JV, there is another EUR 1 billion, EUR 1.5 billion of investment on our side that will go even beyond those type of dates. But let me say that we will be more specific in terms of the scope of this investment in the business plan update that we will give to the market during the first quarter of next year. But as you pointed out, clearly, this will be a sizable investment. What I can tell you is it will be a fully regulated business and accreting to basically the regulated asset base of the company. Operator: And the next question comes from the line of Emanuele Oggioni of Kepler Cheuvreux. Emanuele Oggioni: The first is on the '26 allow WACC based on the official site of ARERA seems that they used the old ECB inflation parameter. So probably the trigger that will not be activated. I don't know if you can comment on this. We'll discover probably in a few hours or tomorrow. The second question is on LNG, the Oristano projects and the possible acquisition. I think probably before you will ask you try to get a higher level of protection for -- within the current regulatory framework for LNG. So basically, volumes warranted similar to the previous 2 vessels in Italy before to go ahead to the investments. And if we can expect investments in line with the previous 2 FSRU, so around EUR 400 million, EUR 450 million per vessel. And finally, when you can expect the update of the business plan will be in January or after along the year? Luca Passa: Thanks, Emanuele. We are finalizing -- my answer to the last question first. We are finalizing the date is going to be towards the end of February, beginning of March in terms of timing, but we have not finalized yet. When it comes to the first question, what I can comment is you all analysts have models in order to model whether the trigger gets triggered or not and what is the inflation assumption that you need to set into the model for it to trigger or not to trigger. So clearly, this is a decision that ARERA will take. And as you said, probably they already taken, but it will be public in the next few hours. So I cannot comment on that. I can only add that ARERA has always been a very reasonable regulator. Therefore, I expect them to take a reasonable decision also on this topic. When it comes to the Sardinia or Oristano project, first of all, this is going to be a virtual pipeline to the mainland. Therefore, also the LNG facility will be accounted into the transport regulation and nor the LNG regulation. So we will enjoy the same type of remuneration of a transport facility. The amount of investment that we are expecting to basically devote to both the LNG ship as well as the works that we need to do on site in terms of pipes is in the region of EUR 700 million will be fully detailed in the new business plan again that we presented between the end of February and the beginning of March of next year. Then on the broader question, whether we feel that LNG terminals need to be fully guaranteed in terms of volumes. Clearly, this is very important for us. You have seen from the numbers that LNG is becoming a key source of imports when it comes to gas. Therefore, we feel that this investment need to be fully regulated, and we should have guarantee on volume at 100% rather than the current 64%. Operator: The next question comes from the line of Sarah Lester of MS. Sarah Lester: Just a really quick one, please, on your latest disposals preference ranking. So I saw that you mentioned the possible asset rotation to fund the Open Grid Europe acquisition. So just wondering if you're able to please provide a bit more color around how you currently consider the pecking order for the potential candidates for disposal post ADNOC. And I suppose this is actually a broader question, too. It's not just within the Open Grid Europe context. Luca Passa: No. The asset rotation is not just in the context of the potential of the acquisition. It's part of the review of the portfolio that we are doing following clearly the strategic positioning of the company going forward across certain regions. Now what I can comment today is only on the public process that we currently have ongoing, which is the disposal of our biomethane platform. We have hired publicly all advisers, including financial advisers, and we will be in the market with that portfolio probably closely after year-end. The book value of that portfolio, just for you to remember, is in the region of EUR 560 million as of today. Operator: Okay. Next question is from the line of Marcin Wojtal of Bank of America. Marcin Wojtal: Just a couple of questions on the numbers, if you allow me. So firstly, you increased your guidance for EBITDA by about EUR 100 million. Can you just remind us what amount of that EUR 100 million actually flows mechanically into 2026? And my second question, could you just repeat the indication that you gave for associates for 2025? I didn't quite catch that decision, but if you could just clarify that guidance. Luca Passa: Yes. Marcin, the guidance for contribution of the associate portfolio for the full year expected today is EUR 365 million, which is slightly higher than what I said in the first half results call. And this EUR 365 million exclude any contribution from OGE because even if you go to closing, it will not be part of the contribution for this year. When it comes to what of the current guidance upgrade will translate into 2026, I can tell you that the same contribution on the [indiscernible] that we had in 2025, which is about EUR 40 million, we will also driven into 2026. So EUR 40 million is what we expect to have higher contribution from the new indexation in 2026. Operator: The next question comes from Davide Candela of Intesa Sanpaolo. Davide Candela: I have 2. First one is a clarification on net debt. You improved the guidance by EUR 400 million. I was wondering if that neutral working capital you're seeing is just temporary and as an effect for this year and will be reverted in the next year or it is actually a structural recovery you are seeing? Second question, in the Slide 5, you mentioned a contribution with regards to the reduction of methane emission from AI. I was wondering if with regards to this topic, you are also seeing some benefits on the cost side and your general operation in your company. Luca Passa: Thanks, David. When it comes to the working capital neutral expectation towards year-end, I mean, this is our job. I mean we need to plan on a working capital basis being neutral every year. Clearly, we had swings in the past 2 to 3 years, given that the market was either long or short with the relevant prices impact that affect clearly our working capital, especially towards year-end. But the expectation, if prices, let me say, stabilize across the numbers that we are seeing in the last -- in the recent months, we should have neutral working capital every year. And that's on this point. When it comes to the reduction of emissions, which is expected to be 25% vis-a-vis 2022, that is part of the work that we're doing on the way in which we dispatch basically our gas in the network. We fully digitalize our assets now is almost 18 months. And after clearly digitalizing our asset, we are using different type of algorithms also supported by AI intelligence in order to see what is the best dispatching method that allow us to consume less in terms of burning gas in order to pressure the gas into the pipes. Clearly, there are also some cost benefit, but those are part of the remuneration and in the numbers that already we are seeing when it comes to what is the cost of dispatching our gas transport. I can tell you that we are just seeing the first signs of a full digitalized network system that might even improve going forward, not only on emission reduction, but on general efficiency going forward. Operator: The next question comes from the line of Bartek Kubicki of Bernstein. Bartlomiej Kubicki: I would like to ask 3 questions. First of all, with regards to the slide on gas demand, you are pointing to higher gas demand from households. And my question is whether you see any reason to believe that the gas demand from households will structurally increase in the future? Or do you think it's rather going to be down trending and only impacted by weather? Second of all, on the energy efficiency order book you discussed before, I would like to ask you what do you see in terms of margins? Meaning do you see margins improving over time? Or do you think there's an increasing competition and consequently, margins are being squeezed? And the third question will be on your convertible bond on Italgas and the latest share price performance. If you can maybe explain a little bit how does it impact your financial costs and what it could do to your future cash outflows once the bond is redeemed? Luca Passa: Thanks, Bartek, for your 3 questions. So when it comes to gas demand, besides also the weather adjustment that you discussed, the expectation, and I don't think it's going to be driven mainly by residential, but both by industrial as well as thermoelectric production is for a stabilization of desire level of volumes. We expect this year to close basically with a full demand in the region of 64 basically bcm, which confirms the growth that we've seen in the first 9 months of the year. But let me also add that the expectation is to stay at this level up until 2030. Therefore, I think there is a structural shift when it comes to usage of gas and in particular, for thermoelectric production, which only started this year, but will be structural, and we will see it going forward also for the announcement of other countries to increase combined cycle generation when it comes to electricity. When it comes to the energy efficiency marginality, what I can tell you is that clearly, we have moved from a pure or, let me say, larger residential business to public administration and industrials. This business has always run in the region of 16% to 19% in terms of marginality. Currently, we are not seeing margin pressures, but the more the contracts are larger, the more sophisticated customers and all these customers, especially when it comes to public authority are public tenders, clearly, there is some kind of pressure on marginality, but it's not something that we are seeing because the book has been built over the last 24 months. When it comes to the Italgas exchangeable, what I can comment is it is an exchangeable currently is in the money in terms of where the share price is vis-a-vis the conversion premium. Therefore, we have optionality to convert if you want, starting from, I think, is September, October next year or wait for maturity. And in that case, we will decide whether to deliver share, cash or a mix of those. There is no impact in terms of cash flows in the sense that we have an underlying and we have set the terms to which the instruments will be reimbursed. Operator: The next question comes from the line of Charles Swabey of HSBC. Charles Swabey: I just have one on U.K. gas storage and your ambitions there through dCarbonX. Just I was wondering if you could provide any update on sort of the timing or size of the investment there? And if you're in conversation with government about any sort of potential regulatory framework that might underpin that investment. Luca Passa: What I can comment, Charles, on that is that current consultation, DCX is clearly working -- developing, let me say, a project in that respect. But as of now, in terms of where we stand and what could be, let me say, a pre-FID type of schedule, it's very difficult to say. Again, for us, our participation in DCX as a developer of these projects, then we will consider whether we want to invest in the project or not. So we have no commitment in that sense going forward. Operator: Thank you. As of now, there are no further questions. I will give it a moment in case there is any follow-up questions from the participants. There are no further questions. I will now hand you over back to your host, Francesca, for any closing remarks. Francesca Pezzoli: So thank you very much for listening. As usual, the Investor Relations team is available for any follow-up. Thank you. Bye-bye. Luca Passa: Thank you.
Operator: Welcome to Liberty Media Corporation's 2025 Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference will be recorded November 5. I would now like to turn the call over to Shane Kleinstein, Senior Vice President, Investor Relations. Please go ahead. Shane Kleinstein: Thank you, and good morning. Before we begin, we'd like to remind everyone that this call includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual events or results could differ materially due to a number of risks and uncertainties, including those mentioned in the most recent Forms 10-K and 10-Q filed by Liberty Media with the SEC. These forward-looking statements speak only as of the date of this call, and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Media's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. On today's call, we will discuss certain non-GAAP financial measures for Liberty Media, including adjusted OIBDA. The required definition and reconciliation for Liberty Media Schedule 1 can be found at the end of the earnings press release issued today, which is available on Liberty Media's website. Speaking on the call today, we have Liberty's President and CEO, Derek Chang; Chief Accounting and Principal Financial Officer, Brian Wendling, Formula One, President and CEO, Stefano Domenicali; MotoGP, CEO of Carmelo Ezpeleta, and other members of management will be available for Q&A. With that, I'll turn the call over to Derek. Derek Chang: Thank you, Shane. Good morning. We are entering the end of the year on a high note. It has been an incredibly productive period for Liberty. And we have executed on the priorities we laid out at the beginning of the year. First, on our planned split-off of Liberty Live, we currently expect to complete the split-off on December 15, and the stock is expected to begin trading as a stand-alone asset-backed equity the following day. Our shareholder vote will be on December 5. The split-off is expected to better highlight the value of our attractive position in Live Nation and an asset-backed equity that we believe will benefit from enhanced trading dynamics. Looking now at our operating businesses, we continue to invest behind their sustained growth. These aren't just sports properties, they're global entertainment brands. With this broader evolution comes expanded commercial opportunities to monetize a growing fan base with creativity and innovative leadership. Looking first at Formula One, we continue to build upon the commercial momentum we've seen all year. Just this morning, F1 renewed with their global partner, Heineken, in another multiyear deal. Underlying fundamentals are robust and support strong financial results this quarter and year-to-date despite having one fewer race. They have successfully accelerated renewal cycles across revenue streams, extending media rights agreements and renewing multiple promoter partners on attractive terms. Across sponsorship and licensing, F1 has partnered with an increasing number of high-quality consumer names, including, Hello Kitty, Pottery Barn and more as they consistently bring the sport closer to today's multidimensional fan. Additionally, F1 signed a landmark distribution partnership with Apple in the U.S. that seeks to highlight the innovation of both global lifestyle brands and position us well for the next leg of growth in the U.S. market. Stefano will provide more detail on this shortly. Next, on MotoGP, we closed the acquisition on July 3 and have been working diligently with their management team and supporting their strategic plan. We're fortunate to have the involvement of Chase Carey, Stefano Domenicali and Sean Bratches. Sean, as many of you know, previously led the commercial operations at F1. The top priorities at MotoGP as laid out last quarter remain enhancing the Grand Prix experience, expanding MotoGP's global footprint through capturing new fans and deepening engagement with existing fans and scaling our sponsorship roster. We are also in the early days in identifying areas of partnership between Formula 1 and MotoGP, some of which are more back-end in nature around sharing best practices and some of which we believe will drive commercial upside in the future. We are developing our long-term plans for MotoGP's broader monetization opportunities, many of which will build upon growth initiatives already underway prior to Liberty's ownership. Their adjusted OIBDA performance year-to-date reflects elevated costs as these investments are already being made with the associated revenue growth to come. We don't expect a material change in the investment cycle ahead, but we do anticipate continued growth in the cost base as they scale efforts to build commercial functions, enhance sponsorship capabilities and more. We look forward to continuing to update you on our progress, and we'll have more to share on behalf of Liberty and our portfolio of companies at our Investor Day on November 20, just before the Las Vegas Grand Prix. Before turning it to Brian, I want to also recognize and thank John Malone. I'm sure you all saw our press release last week, noting that John will be stepping down from the Liberty Media Board and assuming the role of Chairman Emeritus and Dob Bennett, Liberty's long-time Board member and former CEO, will be named Chairman. On behalf of Dob and myself as well as the entire Liberty Board and management team, it has been a privilege working with and learning from John for over 3 decades of partnership. His indelible influence on the industry, our company and us personally goes without saying. And I'm sure I speak on behalf of all of you in saying that we look forward to having John for our annual Q&A at Liberty's Investor Day in a few weeks. Now I'll turn it over to Brian for more on Liberty's financial results. Brian Wendling: Thank you, Derek, and good morning, everyone. At quarter end, Formula One Group had attributed cash and liquid investments of $1.3 billion, which includes $571 million of cash at Formula One, $176 million of cash at MotoGP and $78 million of cash at Quint. Total Formula One Group attributed principal amount of debt was $5.1 billion at quarter end, which includes $3.4 billion of debt at F1, $1.2 billion of debt at MotoGP, which leaves $523 million at the corporate level. F1's $500 million revolver and MotoGP's EUR 100 million revolver both remain undrawn at quarter end. We refinanced MotoGP's debt in August, shortly after closing. We priced approximately $230 million of new Term Loan A denominated in U.S. dollars, a new EUR 800 million Term Loan B and a new $100 million multicurrency revolver, all at reduced rates. with future reductions in margin expected as the business delevers. This new capital structure reduces interest expense, extends our maturities and presents a currency mix that better reflects the euro and U.S. dollar exposure of the business. In F1, we obtained an incremental $850 million Term Loan B and an incremental $150 million Term Loan A in July to fund a portion of the MotoGP acquisition. At quarter end, F1 OpCo net leverage was 3.0x, down from the initial 3.3x we gave as of 6/30 pro forma for the MotoGP acquisition. F1's covenant leverage was below the threshold of 3.75x to trigger a permanent reduction in the Term Loan B margin to SOFR plus 175 basis points. Interest will begin accruing at the lower rate promptly after earnings. MotoGP net leverage was 5.6x. In the near term, we very much expect to delever at both Formula 1 and MotoGP. Turning to the F1 business. I'll make a few brief remarks on the third quarter, but we'll focus on the year-to-date comparisons. A reminder that every quarter in 2025, luckily we will have incomparable race count and mix, which will impact quarterly comparisons. And our year-to-date 9/30 figures also have an inconsistent year-over-year race numbers and mix. The majority of the variability in Q3 year-over-year results is due to fewer race held in the third quarter compared to the prior year period. Q3 '25 held 6 races compared to 7 races in Q3 '24 with Singapore being included in the prior year, but not in the current period. Year-to-date through the third quarter, F1 also had one fewer race with Singapore included in the prior year period, but not in the current period. Despite one less race, the business is performing incredibly well with revenue up 9% and adjusted OIBDA up 15% and growth across all revenue streams. Sponsorship revenue continues to benefit from new partners and underlying growth in renewals in existing contracts. Media rights revenue increased due to underlying growth in contracts, strong revenue growth at F1 TV and the onetime benefit of the F1 movie revenue in the second quarter. Race promotion revenue was down slightly as underlying growth in contracts nearly covered the impact of one fewer race in the period. Other revenue grew driven by higher hospitality revenue, including from Grand Prix Plaza licensing revenue and increased freight. Note that we operated the same number of Paddock Clubs in both current and prior year periods, given that the Singapore Paddock Club is operated by the local promoter. Adjusted OIBDA increased on a year-to-date basis as revenue growth continues to outpace increased expenses. Team payments were flat year-to-date as the impact of 1 fewer race was offset by expected higher team payments for the full year. Team payments as a percentage of pre-team share adjusted OIBDA were 61.5% for the full year 2024 as a reminder, and we continue to expect leverage against that 2024 percentage for the full year of 2025. A reminder that team payments are best analyzed on a full year basis due to quarterly fluctuations in the team payments as a percent of adjusted OIBDA. Turning now quickly to the MotoGP's results. As a reminder, we closed the MotoGP acquisition on July 3 and began consolidating their results effective 7/1/25. Our financial results are presented on a pro forma basis in the release and in MD&A as though the transaction occurred on January 1, 2024, and a trending schedule will be posted to our website after the 10-Q is filed, including the results in U.S. GAAP for the full year 2024 on a pro forma basis. Also note that our U.S. GAAP reported results for Moto GP's revenue streams are more aligned to our current F1 reporting with previously disclosed MotoGP commercial revenue updated to include only sponsorship with hospitality being moved into other revenue. Majority of MotoGP's revenue and costs are euro-denominated and as such, are subject to translational impacts from foreign currency movements. In the following discussion of results, I'm going to focus on constant currency results. Similar to F1, I'll make brief remarks on the third quarter, but focus on year-to-date comparisons as we believe that is the most appropriate way to analyze the business. Year-over-year comparisons are impacted by the mix of races and generally, MotoGP flyaway races carry higher costs, including freight, travel and team fees. MotoGP held 7 races in the third quarter of both this year and the prior year. Revenue declined in the third quarter as increased race promotion fees due to race mix and contractual uplifts was offset primarily by lower proportionate recognition of season-based income with revenue from 7 out of 20 races recognized last year versus 7 out of 22 recognized this year. Year-to-date, MotoGP held 17 races compared to 15 races through the same period last year. Revenue grew across race promotion and media rights, primarily due to the additional events held and contractual fee increases. Sponsorship was relatively flat as contractual uplifts were offset by the impact of race mix on certain sponsorship revenues. Other revenue also increased from growth in World Superbike fees and an increase in hospitality revenue. Adjusted OIBDA declined year-to-date as the revenue increase was more than offset by higher cost of motorsport revenue due to mix of races, which drove increased freight and travel expenses as well as an increased SG&A due to higher personnel costs with strategic headcount increases to grow certain commercial functions, as Derek mentioned. Year-to-date results were also impacted by 2024 benefiting from a bad debt reversal early in the year. Looking briefly at Corporate and Other results year-to-date, revenue was $266 million, which includes Quint results and approximately $19 million of rental income related to the Las Vegas Grand Prix Plaza. Corporate and other adjusted OIBDA loss was $7 million and includes Grand Prix Plaza rental income, Quint results and corporate expenses. As a reminder, Quint's business is seasonal with the largest and most profitable events taking place in Q2 and Q4. And note that Quint's intergroup revenue from MotoGP beginning in July is now eliminated within our consolidated results. Turning to Liberty Live Group. There's attributed cash of $297 million. And on September 12, the Liberty Live Nation or Live Nation margin loan was amended to extend the maturity date from '26 to '28 and reduce the spread from 2% to 1.875%. $400 million of the margin loan capacity is undrawn at quarter end. And as of November 4, the value of the Live Nation stock held at Liberty Live Group was $10.5 billion, and we have $1.15 billion in principal amount of debt against these holdings. Liberty Formula 1 and MotoGP are all in compliance with their debt covenants at quarter end. And with that, I will turn it over to Stefano to discuss Formula One. Stefano Domenicali: Thanks, Brian. What an incredible season we are wrapping up at Formula One with thrilling on track action and all teams scoring points. 9 drivers from 7 different teams have stood on the podium, highlighting our depth of talent in one of the most competitive season of the recent time. McLaren claimed the Constructor championship in Singapore, and we are watching the continuing battle for the driver championship as we head into the final stretch of the season. Our global fan base continued to grow with exceptional engagement across the board. We have seen 5.8 million attendees throughout Mexico, up 4% relative to last year 2024 record at this time. Since summer break, Monza welcomed around 370,000 fans over its race weekend, while Austin and Mexico each welcomed over 400,000 fans. We are also seeing record percentage of female and under 35 attendees, reflecting the growing and broadening appeal of F1 events. The Paddock Club have serviced nearly 36,000 race day guests through the end of the third quarter, up 8% from same point last year. The Paddock Club remains sold out for the remainder of the season and early partners request for 2026 already signaled robust demands ahead. Given the consistent sell-out trends at many races, we are looking to add structure in partnership with promoters to increase capacity in some markets in 2026 to accommodate pent-up demand. Engagement and reach across this platform remain robust. We had a strong first half of the season with cumulative viewership up 10% year-over-year across broadcast and digital platforms and performance remained excellent into the third quarter. Nearly all races recorded year-over-year live viewership growth in F1's top 15 markets. The Sprint race format continues to draw fans with each Sprint season showing year-over-year viewership growth. Viewership for YouTube by Lights increased over 20% as of the third quarter, and the majority of the audience is under 35. F1 is still the fastest-growing major sport on social fueled by both an exciting on-track season and increased cultural relevance globally, highlighted this quarterly with buzz around the F1 movie. Social media followers are up nearly 20% of the third quarter to 111 million with notable growth on TikTok. Following the F1 movie, we were thrilled to announce that we are deepening our partnership with Apple as F1 news U.S. broadcaster distributor in a 5-year deal beginning in 2026. This is a partnership between 2 iconic global brands with a shared passion for innovation, entertainment and technological excellence as well as a very aligned customer demographic. We are working with Apple on an ambition plan to elevate how the sport is presented to U.S. fans through innovation on the broadcast feed amplified across their vast ecosystem of products and services, whether streaming the race itself or showcasing content on Apple News, Apple Sport, Apple Music, Apple Match, Apple Fitness and more. As shown by the success of the Apple movie, Apple marketing and activation power, coupled with its integrated ecosystem can have a significant multiplier effect on brand awareness. We look forward to sharing more with Apple in the coming months. Turning to other commercial updates. We continue to see competition for our exclusive rights and IP across revenue streams. We had another active quarter of media rights negotiations. We recently announced that Grupo Televisa has become our official broadcast partner in Mexico throughout 2028, and we are close to finalizing the remaining agreements required for territories where rights expire at the end of the season, including Japan, Latin America and Pan Asia. We are constantly innovating across both content and distribution to keep the fan engagement. F1 TV is a strategic cornerstone, not only for the flexible and dynamic ways we can distribute race content, but also the direct access it gives us to fan data and insight. We recently announced a new show, Passenger Princess, which aired on YouTube. The first episode featured George Russell and reached 1.5 million views within 1 week of release. This underscore our original content strategy, embedding F1 deeper into pop culture, reaching new audiences beyond race weekend and strengthening our always-on approach to connect with fans. Turning to race promotion agreement. F1 has an active quarter. We renewed Azerbaijan 2030, Monaco through 2035 and Austin through 2034. We are counting down to another unforgettable Las Vegas Grand Prix and are very pleased with the progress we have made this year. Congrats to the Vegas leadership team on the momentum. With a couple of weeks to go, we are pleased to say we are on track with our ticket sales targets. We have a full week of programming across Las Vegas kicking off on Wednesday and culminating on Saturday night with a very special 2 hours [ pre-greet ] show and post race entertainment. On F1 sponsorship, we are finalizing out an incredible strong year with sustained momentum and visibility into our 2026 pipeline and beyond. We continue to roll out new dimension of our partnership with LVMH, including French Bloom and Volcan Tequila. Closer integration between our F1 Global and Vegas Sponsorship team is also benefiting their commercial momentum with strength in Vegas sponsorship coming from both renewal as well as new logos partnering this year. The growth across our other revenue stream is equally impressive, especially in licensing as we continue scaling up our partnership announced early this year. We have also renewed Momentum Group until 2030 to run the F1 authentic website and supply F1 official licensing show cars. We recently announced partnership with Disney, Pottery Barn Teens, Pottery Barn Kids and Hello Kitty, all of which should be a long tail benefit into next year. The announcement of our Hello Kitty and F1 Academy product collaboration reached an outstanding 3.7 million fans over the 3-day announcement period and increased our F1 Academy social media followers by 5,000 across all platforms on the day of our announcement. [ Tracks ] retail sales have grown over 20% through the third quarter. Looking ahead, we aim to continue growing our retail footprint of the track in key races location. We opened a pop-up F1 hub store during race weekend in both Miami and Austin as well as our store activation, where we celebrated F1 75 through historic and new merchandise lines. Strong sales and traffic reinforces the untapped opportunity in fan merchandising in these key location. Formula One momentum continued to span every part of our business. We have built a powerful platform that has enjoyed tremendous growth, and we are increasingly confident in the continued upside ahead. We believe the groundwork we are laying today will continue to benefit our partners, shareholders and most importantly, our fans. I look forward to providing more details on our sports and growth momentum at Liberty's Investor Day and the F1 Business Summit in a few weeks. So for the moment, avanti tutta, full speed ahead. And now I will turn the call to Carmelo to discuss MotoGP. Carmelo Ezpeleta: Good morning, and thank you, Stefano. We are 4 months into our partnership with Liberty Media and are proud to be working together to drive MotoGP forward for the benefit of our fans and partners. We continue to see many ways that we can benefit from Liberty and Formula One's expertise. and have started collaboration on ways to work together. We look forward to sharing more of our strategy at Liberty's Investor Day later this month. The 2025 MotoGP season continues to deliver exciting moments on track. Congratulations to Marc Marquez who secured his seventh MotoGP World Championship at the Japanese Grand Prix, capping a remarkable multiyear comeback from injury and securing his place in MotoGP history. Despite Marquez dominance this year, we have had 13 different riders on the podium across 10 teams and all 5 manufacturers. And in Moto2 and Moto3, we are seeing some of the tightest racing in all motorsport from tomorrow's MotoGP stars. We continue to welcome record crowds across the calendar. This year, we set attendance record at 8 different [indiscernible]. Attendance is up to 4% through Malaysia, and we expect another sold-out crowd in Malaysia next week. We are building on the momentum from last year, brand refresh and our early investments are already yielding success. Social engagement is up to nearly 120% through the third quarter, excluding video pass across our digital platforms has increased over 30% year-over-year, and our social reach has grown nearly 30% year-over-year, driven by TikTok. We look forward to hosting our second season launch event next year in Kuala Lumpur, which is another opportunity to provide content for fans outside of race weekend. Average audience tuning into our broadcast grew 17% through the third quarter, and we are seeing great viewership numbers from the Saturday sprint races, which are closing the gap to Sunday race coverage and demonstrating the value for MotoGP partner across the full race weekend. Subscribers to Video Pass, our direct-to-consumer video services are up 6% from 2024. We have had positive renewals of a number of promoter relationship this year, including Japan through 2030 and Catalonia, Valencia, France, Germany and San Marino through 2031. Early this summer, we announced our 2026 calendar, which we will see MotoGP Race in Brazil for the first time since 1989 and a return to Buenos Aires in 2027. This will both be fantastic location for MotoGP in important growth markets in South America as we work towards optimizing both our circuits and race calendar. We are making investment to support our commercial activities with the goal of expanding our exposure to a wider global audience while maintaining the sport heritage. We have renewed our broadcast agreement with SuperSport. Additionally, we have seen a resulted to a multiyear partnership as the official lubricant supplier of Moto2 and Moto3 and successfully renewed our LIQUI MOLY partnership. Sponsorship remains a large growth opportunity for us, but we expect that it will take time to build our pipeline. We look forward to continuing to update the investor community on our progress. Now I will turn the call back over to Derek. Derek Chang: Thank you, Brian, Stefano and Carmelo. For those of you on the call, we look forward to seeing you in a few weeks at this year's Liberty Media Investor Day. We will be hosting our Investor Day alongside the F1 Business Summit in Las Vegas on Thursday, November 20, in advance of the Grand Prix. We hope to see you there. We will have limited in-person attendance for the Investor Day, but all presentations will be webcast. Tickets are available for purchase for the F1 Business Summit. Please check out their website and e-mail our IR team once purchased, so we can confirm their attendance. Before we open for Q&A, I want to take a moment to recognize Shane Kleinstein, our Head of Investor Relations, on her last earnings call with us. She has been instrumental in our Investor Relations and broader communications functions at Liberty and has left an indelible mark on our company. On behalf of the entire Liberty Media team, thank you, Shane, and we wish you the best in your future endeavors. We will have a new Head of Investor Relations joining us and look forward to sharing that update in the future. In the meantime, we encourage you to please continue to reach out to the rest of the IR team, our e-mail investor@libertymedia.com with questions. We appreciate your continued interest in Liberty Media. And with that, we'll open the call up for Q&A. Operator? Operator: [Operator Instructions] The first question today comes from the line of David Karnovsky with JPMorgan. David Karnovsky: Maybe for Derek and Stefano, on the U.S. rights agreement, I think the dollar figures are fairly straightforward, but I wanted to see if you could speak a bit to how you're looking at this agreement specifically from an engagement perspective and how investors should perceive any risk regarding a move away from linear or ESPN? And what gives you comfort that you can continue to grow the U.S. media audience? Derek Chang: Stefano, do you want to take that? Stefano Domenicali: Yes, of course. Thanks, David, for the question. I mean I think that, as you know, U.S. market is very, very important for our growth. And the fact that we have done an incredible deal with Apple, it's because we do believe that all the elements that will be important for this kind of growth are there. We know that we can count on an incredible brand that is not a brand, it's a social relevant brand. And because our -- the nature of our fans is young, it's dynamic, it's multitasking. I think that the decision was the right one. And in terms of engagement, we are totally committed to make sure that all the content, all the platforms that are through the Apple ecosystem can be provided. We're going to increase even more the ratio we have today. So therefore, as always, when you take a decision on the business side, you put balance risk versus opportunity. And I think on that, it was pretty clear that the risks were minor and the opportunities are huge. Therefore, we are really looking forward to embrace new chapter with them because we know them, we know they can be very progressive in proposing new things that will be very, very important to make sure that the things that I said before, David, on social relevancy of our sport will increase and will go. And of course, this is a multiyear deal because we know that we need to be resilient on this approach. And that's why we are totally convinced that this is an incredible partnership that will be stronger and stronger in the future. Derek Chang: Yes. Thanks, Stefano. I think I would add that the way we look at it now, and I think a lot of folks are looking at it this way is sort of the definition of reach, which historically has really revolved around sort of the broadcast window on television. And I think that's, in our minds, is an antiquated definition of reach at this point in the way a company like Apple and a partner like Apple can touch many different demographics in many different ways. And so I think that's an important thing to understand in terms of how we're thinking about it. I think Stefano's other point about this being a longer-term deal is important because when you're thinking about a company like Apple and the way that they invest behind the product. It's not like the product in the fifth year is going to look much different, I guarantee you, than what you see in the first year. And that's going to be through years of investment in what they do. And I think we are at a great sort of point in time in the U.S. with the races that we've had here with the support that we've received and the new fans that we brought in with the new sponsors we brought in to really take all of this and sort of move it forward in a whole different way with a partner like Apple. And I think we'll see the fruits of this over the next several years. David Karnovsky: Maybe just as a follow-on, it would seem to us that with Apple TV, you have an agreement now with a partner that has reach across most of your territories, and they have rights to the F1 movie. And logically, they could be a bidder in more regions. So I just wanted to get your view on that and whether that global factor was something you considered in your decision to partner here. Derek Chang: Yes, I think it's important -- Go ahead, Stefano, I'll let you start. Stefano Domenicali: Sorry for that. Well, I think that what I can say is that, as you know, we are a worldwide sport where the fragmentation of different deals is crucial to be in the right market with the right partner. And what I can say straightaway is that the fact that we signed with Apple immediately has been a sort of a wake-up call from the actual partners around the world to say, hey, we want to stay with you, we want to invest. So what's next? I think that vitally, it's great because it will attract the fact that Apple is a global partnership. And for sure, if we have countries where we can see different kind of potential where we can work together, we will discuss with Apple, too. But this doesn't mean that we will cover the entire world with only one Apple deal because we do believe that at this time, we are much stronger the way we have structured all our deal around the world on the broadcast side. But for sure, the effect of having said the deal with Apple has been already big around the world. Derek Chang: Yes. And I would add, just in all of these markets globally, you almost have to still take it market by market. The dynamics within these markets have been shifting. And in some places, you have new entrants in other places, there's consolidation and sort of depending on when your deals turn out, those competitive dynamics can come into play. And I think having someone like Apple, and we're in early discussions or early stages of this relationship. And so where their interest is in other locations globally, I think we will see over time. But I think we all understand on the call that any time you have a more competitive environment, you're better off. So we'll leave it there. Operator: The next question is from the line of Bryan Kraft with Deutsche Bank. Bryan Kraft: I had 2, if I could. I guess, first on Vegas, it sounds like you're on track for your budgeted ticket sales for Vegas. I was wondering about the cost side. Can you talk about how you're tracking your cost budget for the event? And then separately, just on U.S. media rights, -- should we expect to see a meaningful step-up in media rights revenue in the U.S. next year when taking into account both the Apple rights agreement and the loss of the F1 TV subscription revenue given that Apple will be taking that over in the U.S. Stefano Domenicali: If I may start, Derek, Yes. Thanks, Bryan, for the question. I mean, first of all, Vegas, Vegas is one of our priority. As I said, ticket sales are on target. But you correctly take one point that for sure, what we have experienced was a big attention on the cost side of the organization. And after the first years, I would say that we are on track in minimizing in the right way the cost because at the beginning, you try to cover a new investment in the right way. And now with all the new partners and the fact that we have renewed for big deals for the next couple of years, we are definitely on track also in controlling the cost of it. I have to say that we have seen a big shift on the community perceive on what Vegas race represent for them. Therefore, working together with them, I think, is beneficial and has already an impact this year with regard to the fact that the cost will be reduced definitely. And this will have, of course, a positive impact at the end on the P&L of the race. Of course, as you know, we are working very hard to make sure that the event will be great, as always has been. We have, as you know, shipped the starting time of the race at 8:00 p.m. on Saturday night. And this is, for sure, very, very important, the fact that the community is really embracing, as I said before, this event. So cost is definitely one lever that we want to make under the control of it, and we are on track also on that. Then with regard to the second question, you asked me, you're right, if we can expect more money. As you know, we cannot give any guidance on that. But I would say what is important to say it's the F1 subscription on F1 TV is a great asset also for Apple. We have a great community that will connect through the Apple platform with our popular F1 TV. So I don't expect that this will have a negative effect. Actually, it will be the opposite because I think that this community is quite solid and the fact that we'll be embraced on Apple platform will increase the value globally for the future of both of them together. Derek Chang: Yes. And I just want to say to our team in Vegas who've done a fantastic job, and these guys are in the last few weeks of bringing this thing home that we are all feeling good about Vegas this year. But I think more importantly, almost is what Stefano was saying about our relationship with folks in the market. and really that we're looking at this as a long-term sort of investment. And I think after coming out of the first 2 years and sort of coming -- as I've seen these guys and interacted with the folks in Vegas, the sort of vibe around the race and where this thing can be longer term continues to be something where we see a considerable amount of opportunity. And I think that's probably the biggest point, the biggest takeaway over the first 3 years of having this race. Operator: Our next question is from the line of Kutgun Maral with Evercore ISI. Kutgun Maral: Two, if I could, around sponsorship. So first, it seems like every other day, you're inking new and attractive deals. Looking at the year-to-date team payment trends, it seems like the full year budget is tracking exactly in line relative to the first 2 quarters of the year. So should we take this to mean that these new sponsorship and maybe licensing opportunities primarily fall in 2026? Or are there other offsets that we should be mindful of? And second, I was hoping to dig into licensing a little bit more specifically. Licensing is still a relatively small contributor to the business, but it seems like the team has really focused on expanding your efforts there. So maybe you could talk about the strategy and long-term opportunity you see ahead? And are you able to accelerate the momentum next year under the new Concorde? Stefano Domenicali: Well, thanks. I mean I -- sorry, go ahead, Brian. Brian Wendling: Yes, Stefano, I was just going to start on the sponsorship and then please add color. But yes, I mean, I think the team is feeling good about where we sit with sponsorship for '26, and a lot of these are long-term agreements, multiyear agreements that accrue to the future years. So as you sign them later in the year, they're going to have less of an impact, obviously, on the current guide. Stefano Domenicali: Yes. Thanks, -- if I may add, I would say, yes, I think that you know that our strategy is not to talk a lot, but do the things. And the fact that we have shown with facts that every couple of months, we are there to be resilient in continuing the growth, this is our nature. It's our business. It's the beauty of what we have built up now as a great foundation. And the fact that not only new partners, but also partners that are part of us since many, many years are staying with us long term means we do have a credible platform. We have a credible strategy that is not diluting at all the value of them being with us, with other people, with our partners. It is getting stronger because we do believe in a cross-contamination of big partners that can enhance the value of our business and our sports. So we are really looking for the fact that we have now deals that is looking into the future. And what I'm saying is not only the dollars that count, is the awareness that we bring connectivity with new fans. The deal what we have done with LEGO, with Disney, with Hello Kitty is showing the fact that we want to have a community that will engage in long term with our platform. That's really our focus. Our focus is for sure to deliver the result that we promised to our shareholders, to the teams, to our stakeholders for sure, but we have a bigger thing ahead of us. We have a headwind that we want to keep running with it because we feel that the fundamentals are totally strong and totally valid for the next years ahead of us. Operator: Our next question is from the line of Stephen Laszczyk with Goldman Sachs. Stephen Laszczyk: Maybe another one on the global media rights opportunity for F1. I'm just curious, as you look out across the globe, where you see the most opportunity up next in terms of increasing monetization? What contracts, what regions, what types of partners do you feel like you could bring in to increase the value either on a monetary basis or along the lines of the holistic partnership where that could be improved? And then maybe secondly, on hospitality, you called out some of the strength in hospitality in the quarter, Paddock Club at F1. Just curious if you could elaborate a little bit more on the drivers of that growth, whether it's strong pricing, whether you've seen more capacity come into the system this year on the back of some race promotion renewals or if most of that is still ahead of us given the renewal calendar when some of those contracts and an expansion of the Paddock Club kick in perhaps next year? Stefano Domenicali: Thanks. I mean if I may, Derek, I will start. So we have other deals on which we are working on. So I would say stay tuned because there will be some other information going around the media deal in the future. As you know, and I don't want to undervalue what is the value for us to be a global sport. We have a global sport with global deals and the nature of the business is growing everywhere. So I think that we need to have a sort of mix situation around the world. Some of them will be linear in the future, some other will move in a different platform because what we need to do is to make sure that we see the relevancy and the opportunity monetizing as much as we can every market, but also checking what is the trend that every market is offering to us. So I think that this deal, as I said before, has had an effect of accelerating the fact that the long-term deal wants to be even be longer with the part that we have. So it's up to us to make sure that we need to do the right choices for the future, but the dynamic in this stream of revenue will be very important in the future. And even if some of the people will say that the shift between linear or pay TV versus digital will have a sort of drop in dollars optimization, I do believe that the nature of the business that is global will cover that for us in the future because the competition is very high in the different platform. Then with regard to the hospitality, I think that the reason why we feel confident in the future, this is another asset that despite a long-term deal with a lot of partners, some can say where is the gain that you can have with them. Actually, it's the other way around. because we know that the hospitality hand side is a limitating factor in terms of capacity for us. And the only way that we can have with the promoters to make sure that also this asset will be even stronger is to give them the chance to invest long term. Therefore, that's the strategy we're going to do in a lot of markets because we don't have to forget that we want to increase the quantity of availability, but we cannot lose the quality approach of what we are offering to our customers. And this is not negotiable. We have some examples this year, look what Hungary did in terms of renovation of the infrastructure, what they're going to still doing in the future. And this has an effect that, for example, you have seen what will happen in Austin in terms of new facilities that will be beneficial to our hospitality plan. So everything has an effect in a constructive way with everyone that is part of our ecosystem. Derek Chang: Yes. I would also just point you to Stefano's previous comments on that we've done -- we just recently announced a deal with renewal Televisa in Mexico. We previously announced the deal with Globo in Brazil. And as he said, there's a couple more deals on the table that are coming on the media rights side. So I think it is shaping up to sort of be an environment going forward here. We've got the right partners in the markets that are important to us, and that will continue to drive, I think, engagement and awareness of the sport. Operator: Our next question is from the line of Joe Stauff with Susquehanna. Joseph Stauff: First question is on Vegas. I'm wondering I think in general, is it fair, number one, to assume most of the growth this year will be from the higher end? And if you can give us maybe a little bit more color on what you're seeing from the lower end? That's the first question. Second question is on MotoGP and race renewals. I guess since Liberty did for Moto, where our count is that there's been approximately 9 renewals. I think there -- I guess it's more of a clarification, another 6 to 7 to go that expire at the end of '26. Shane Kleinstein: Joe, I think we got your second one, but we missed your first. So why don't we have Carlos take the second? And then if you could just repeat your first question after, please. Carlos Ezpeleta: Yes, we have seen a lot of traction on a number of fronts since the announcement of Liberty Media. One of those has definitely been promoters where we see a lot of interest, of course, with a limited number of races. And we do see a lot of increases in the renewals. The total number was higher than that actually, but a number of those have already been renewed. We still have 8 events to be renewed for the 2027 season and 8 of which have already been renewed or announced in the past 12 months. And we continue to see a lot of interest from both new locations, but also interest in expanding the current events in Europe and outside with increases. Joseph Stauff: Understood. I'll repeat my first question. I apologize for the background noise. In Vegas, is it fair to assume most of the growth you'll see this year is coming largely from the higher end? And just wondering if you could comment on what demand looks like VA or the lower end of demand. Stefano Domenicali: Thanks, Joe. I mean I can say 2 things that are relevant to the fact that this year, we do believe that everything is on track and what we wanted to have another successful season. First of all, there has been a big change on the pricing and how we position our tickets during the year. What has happened is factual in the past has been the last couple of weeks a drop in pricing. But what we have done this year is exactly the opposite. We were announcing a great different packages offer with the fact that we were explaining to everyone that has been that our strategy was different. Therefore, do not expect to see prices going down because this will not happen. It actually is actually not happening. The other thing is it's -- of course, the demand is very strong, much stronger in all the areas. We have also created packages for GA to allow even the community to be closer to the event. And this is something that is hand-on-hand with the fact that we also have a ticket -- daily ticket that has been in the package. And of course, this is -- we said since the first day coming in Vegas. we had to learn the lesson of being in a community that is new -- was new for F1. Therefore, I think that the incredible job that Emily and her team is doing is taking the experience that has been done in the first years in order to progress in all the dimensions of this business. That will be -- I don't want to say something that people will not believe me, a great success because Vegas is understanding the value of our business there, too. And this is very, very important also for them. Operator: The next question is from the line of Peter Supino with Wolfe Research. Peter Supino: Shane thank you, and best of luck, you'll be missed. I wanted to ask about operating leverage generally and the Concorde agreement specifically. I think your last comment on the Concorde agreement in '26 is that it provides for modest operating leverage, assuming the business is on track. And I wonder if you could give a perspective on refresh that and then talk about the possibilities beyond 2026. Brian Wendling: Yes, Stefano, I can start with that and feel free to add any color. But yes, with the new agreement, we would expect some modest leverage. We can't really say much more than that into 2026 and similar to what you've seen over the last few years. And then beyond that time, the percentage we would expect to be fixed and then you'd hope to see leverage in the underlying base business. Stefano Domenicali: Yes. I mean, Brian, you are very clear. And I would say, for me, what we can add is really the fact that we can see a great stability in the sport in the future with regard to the governance to the fact that we are solid looking into the next 5 years in a condition where we really think that everything will be done, understanding that the team are part of the growth. And their financial strength is the strength of the business. And this is very, very important to recognize that. Therefore, on everything, I do believe that now we are finalizing the details. I want to thank not only the team, but also the President of FIA, Mohammed Ben Sulayem because we are sharing a great future together that is great because in this moment, we just need to make sure that all the conditions are stable to keep growing together. Operator: The next question is from the line of Steven Cahall with Wells Fargo. Steven Cahall: First, Stefano, I just wanted to ask you on competitive balance. We've seen some good racing this year between some of the top drivers and the top teams. I think we still have about 6 out of 10 teams that don't race for podiums most weekends. And I was wondering if there's anything that you might be implementing in the next couple of years that could improve that since it can tie to future growth in the value of the sport. And then, Derek, I think you said you expect some continued growth in the cost base this year as you invest into growth strategies. I was wondering if you could just expand on what those elements are and what the return on investment for some of those things look like? Stefano Domenicali: Steven, I mean, with regard to the competitive balance, I would say we've never seen such in the last couple of years, a competition with a lot of teams that before we were not even able to score any points. I can nominate one team on top of the other is has, just to give you an example. And the gap between the cars and the driver is minimal. And therefore, I would say what we are living today is really something unique and which we are very proud of. And all the teams now due to the budget cap, due to the fact that the races are very interesting due to the fact that the business is so solid, are willing to invest and be even more stronger into the future. And this is very, very important. And we don't have to forget this is very relevant to make sure that without this kind of situation living today, Audi Honda Ford Cadillac would have come next year in our sport or even more with more investment. So as we always said, the sport is at the heart of our platform and never -- and no one has to doubt about it. You know that next year, we're going to have change in order to be cope with the fact that the technology applied to F1 has been always very relevant. We will have sustainable fuel at the center of the use of new powertrain. And it is normal to think that when there is such a big change of regulation, there could be a big difference at the beginning. But the regulation is done in a way that if this would happen, we know that there are mechanisms to make sure that the gaps can be reduced in a smaller time than normal. And therefore, this is a very important element to keep the dynamic of our sport at the center. And therefore, I think that no one -- and if you didn't have these dynamics, no one would have been interested to come in, in our sport. That's why, as I said, Steven, this is, for sure, one of the main focus that we need to keep to keep the center of our business, the sport and the racing itself. Derek Chang: Thank you, Stefano. And an exciting off the track news, Charlotte I was engaged yesterday. On the question of incremental costs, I think that was related to MotoGP. And I think we've made this comment in the past, and it's not dissimilar to sort of coming into a new business, trying to ultimately drive growth and drive revenue growth long term, but making upfront investments that will lead us to that point. I think as we've talked about previously, some of the investment in sort of expertise, personnel with the right expertise to drive the commercial side of the business, but also even revenue-generating assets, including things like the track, signage, investments into the video pass product, enhancements, all that sort of stuff is sort of ongoing and had already been ongoing prior to us closing the deal. But I'll let Dan give some more detail on that. Dan Rossomondo: Thanks, Derek, and thanks, Stephen. I think Derek hit on a few of the really key areas of investment that we have started as early as last year, focused on, one, on the marketing side of the business in terms of new hires and also on the storytelling side, how do we reach new fans -- and not only new fans, but new fans based on the geographies that they are, we have to tailor that content to them. So that is taking significant time and investment in order to reach those people. Derek also mentioned what we've done to improve the look and feel of both the racetracks, the circuits and also The Paddock. So we've done some investment there. And the last thing I would say is we continue to innovate and iterate on our digital properties, specifically video pass to try to make sure that the digital offerings we have to consumers matches the innovation that we have on track. Operator: The next question is from the line of David Joyce with Seaport Research. David Joyce: Another MotoGP question. You mentioned that new races are coming in Brazil and Argentina, but you've also had a number of other renewals. So as you go through these renewals, do they allow for some rotating races given that you're already maxed out at 22 per year given your agreement with the teams? And does that somehow impact your media rights renewals cadence? If you could provide some color on that. Derek Chang: Sure. This is Derek. Look, I think right now, we are in a position where we have either some capacity in the sense that some races come up for renewal that we may -- if we choose to go to a different location, we have that capability to go do that. So the concept of rotating races right now is probably not in the near term. And I will then -- I guess, Carlos, if you want to comment on that further, go ahead. Carlos Ezpeleta: Yes. Thank you, Derek. I would completely agree. We don't see sort of the short-term need to have rotating races. We think it's important. One of our main goals that's been sort of confirmed also in these first months of Liberty Media is one of our key priorities and targets is to invest in our events and turn our races into more and more of entertainment events globally. And a part of that is, of course, improving the events itself and where possible, also the event locations. We have Brazil coming in already in 5 months from now after more than 25 years and Buenos Aires, which will be another city where we race that. So all these events are a key focus for us in entering new markets. We do see that we still have capacity to bring in new events probably outside Europe, and there's no need to sort of rotate on current events in the short term. We don't see this impacting our media rights at all. We continue to have 22 events. All 22 events have sprints, and that's been a part of the investment of making these events more of entertainment events, having more action, more notorious action on track around the whole weekend. And that's something that we've also leveraged together with other assets to be able to increase on our media audiences. So we don't see that the race mix will affect our media rights. Derek Chang: The whole concept here is to improve sort of the quality of the product across the board, including where we have races, who our local promoter partners are that help us drive promotion of the sport and all that, which will ultimately lead to deeper and broader engagement, which in theory will drive media coverage and media rights. Operator: Next question is from the line of Ryan Gravett with UBS. Ryan Gravett: Just in terms of the upcoming split-off, does anything change in terms of your capital allocation plans or priorities at Formula One Group? And along those lines, any expected changes to operations or the commercial relationship between Quint and Formula One after the split occurs? Derek Chang: I'll take that. So that would be probably no on both, and we'll leave it there. Ryan Gravett: Okay. Fair. Just maybe just a follow-up on MotoGP then in terms of the hospitality offering for that business. I was wondering if you could talk to the opportunity there and when some of the benefits of the integration could start to materialize? Derek Chang: Yes. I think we do see significant opportunity on the hospitality side of Moto. I don't know if any of you guys have been to a motor race, but it is a pretty thrilling event to attend, I think where we do see opportunity is sort of the experience at the track that goes beyond what you're watching and what you're feeling. And so just like the F1, having that opportunity to upgrade elements of that hospitality product is something our team is -- Dan and his team are very focused on and actually working with Quint on that particular dynamic. So Dan, if you want to give a little bit more color, feel free. Dan Rossomondo: Yes. Thanks, Derek. I think what he said is correct. I think we do have a lot of -- we've made some really good improvements at MotoGP in the hospitality offering from both a service and an experience standpoint. We now have to execute on a plan that is to reach both our existing consumers to get them more involved throughout the weekend and also, though, to find a new set of fan base, a new group of fans to purchase hospitality, particularly at the races where we do well but have room for capacity room. So what I would say is working with Quint, what we're trying to do is not only look at pricing, but look at the ladder, making sure that we get a good product ladder so that we can offer people things at different price points so we can upsell on experiences because what MotoGP does have is we are a hugely accessible sport. So we have the ability to package in really great experiences with our base hospitality program that I think is unique in the sports industry. So we see a good upside here. It's just going to take some execution, and we're looking forward to collaborating with Quint on that. Operator: Our last question will be coming from the line of Matthew Harrigan with Benchmark Company. Matthew Harrigan: Actually, first of all, thanks to Shane for all the classic Investor Day schedules, which I hope are going to be available on an archival basis because they were really, really great. Obviously, other people at Liberty were involved, too. I think Shane was a main architect. I think my questions are partially answered, but are you seeing all the teams be able to adequately cope with the new 26 engine regs? And do you see anything commercial and tangible coming out of the Saudi Aramco Synfuels venture? I know you touched on those questions to some extent, but if you could amplify a little more, that would be great. Stefano Domenicali: I definitely think so. I definitely think so. I think the fact that on The Paddock, everyone believes that it's faster than the other means that there are so many variables that everyone believe to have the secret recipe of being more competitive. I do believe that, of course, the level of technology that is needed in terms of knowledge is not only on the power unit. We forget that it's a new car. We forget that it's a total different dynamic on how you have to drive your car is a dynamic aerodynamics. It's a different way to manage the tires. It's a different way to manage the energy. It's a different way for the drivers to drive with the new regulation. So everyone is really focused on. And the beauty of that, that we have still teams that are fighting for points that are -- will be converted in dollars at the end of this season for the championship. So there are still some developing during these -- the last couple of races because no one wants to give up. So it's all fascinating. I think that really all the elements of adventure are there and which we should be very, very proud. Derek Chang: Great. Thank you, Stefano. I think with that, we're going to wrap it up. Again, thank you, Shane, for all of your great work over the years. We look forward to seeing where you go next. Stefano Domenicali: Thank you Shane, from the F1 side. altogether, one family. Derek Chang: Thanks, Stefano. With that, we'll wrap it up. And again, just finally, Investor Day on the 20th, followed by the F1 Business Summit in Vegas for those of you who can make it. See you there. Operator: This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
Operator: Good day, and welcome to the PPL Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Andy Ludwig, Vice President of Investor Relations. Please go ahead. Andy Ludwig: Good morning, everyone, and thank you for joining the PPL Corporation conference call on third quarter 2025 financial results. We provided slides for this presentation on the Investors section of our website. We'll begin today's call with updates from Vince Sorgi, PPL President and CEO; and Joe Bergstein, Chief Financial Officer. And we'll conclude with a Q&A session following our prepared remarks. Before we get started, I'll draw your attention to Slide 2 and a brief cautionary statement. Our presentation today contains forward-looking statements about future operating results or other future events. Actual results may differ materially from these forward-looking statements. Please refer to the appendix of this presentation and PPL's SEC filings for a discussion of some of the factors that could cause actual results to differ from the forward-looking statements. We will also refer to non-GAAP measures, including earnings from ongoing operations or ongoing earnings on this call. For reconciliations to the comparable GAAP measures, please refer to the appendix. I'll now turn the call over to Vince. Vincent Sorgi: Thanks, Andy, and good morning, everyone. Welcome to our third quarter investor update. Let's begin with highlights from our third quarter financial performance on Slide 4. Today, we reported third quarter GAAP earnings of $0.43 per share. Adjusting for special items, third quarter earnings from ongoing operations were $0.48 per share. Building on this strong performance, we've narrowed our 2025 ongoing earnings forecast range to $1.78 to $1.84 per share, maintaining our midpoint of $1.81 per share. We remain confident in our ability to achieve at least this midpoint, supported by our continued operational discipline and strategic execution. Throughout the quarter, we continued to advance our utility of the future strategy, delivering meaningful progress across our operations. We're on track to complete approximately $4.3 billion in infrastructure improvements this year, critical investments that support reliable, resilient, affordable and cleaner energy networks for our customers now and in the future. Our continued focus on innovation and technology has us on pace to achieve our annual O&M savings target of at least $150 million compared to our 2021 baseline. Looking ahead, we continue to project $20 billion in infrastructure investments from 2025 through 2028, driving average annual rate base growth of 9.8%. We also remain well positioned to deliver 6% to 8% annual EPS and dividend growth through at least 2028, with EPS growth expected to be in the top half of that range. Importantly, we expect to maintain our strong credit profile with an FFO to debt ratio of 16% to 18% and a holding company to total debt ratio below 25%. As is customary, we'll provide an updated business plan on our year-end call, including our formal 2026 earnings forecast and roll forward of our longer-term outlook. Turning to some regulatory updates beginning on Slide 5. In Kentucky, LG&E and KU have reached a proposed settlement agreement with the majority of the intervenors in their base rate case proceedings. The agreement filed with the commission on October 20 includes a revised aggregate increase of approximately $235 million in annual revenues and an authorized ROE of 9.9%. The agreement also features a base rate stay-out provision through August 1, 2028, providing stability for our customers and our business. In connection with this stay out, the settlement introduces 2 new rate mechanisms designed to balance customer affordability with the need for continued investment in Kentucky's energy infrastructure. The first, a generation cost recovery adjustment clause or a GCR will provide recovery of and a return on investments associated with new generation and energy storage assets already approved by the commission but not yet in service. This would include the Mill Creek Unit 5 NGCC, the Marion and Mercer County solar generating facilities and the E.W. Brown Energy Storage facility approved in our 2022 CPCN as well as the recently approved E.W. Brown Unit 12 NGCC from our 2025 CPCN proceeding. The GCR does not cover Mill Creek Unit 6 as that unit's recovery was considered separately in our CPCN stipulation with intervenors. I'll cover the commission's CPCN order in a few moments. The second rate mechanism agreed to in our rate case stipulation is a sharing mechanism adjustment clause. This mechanism would help to mitigate regulatory lag while protecting customers from potential overearning during the final 13 months of the stay-out period, ensuring an ROE of no less than 9.4% and no more than 10.15%. The stipulation also includes support of a new tariff designed for customers with large demands and very high load factors such as data centers. The tariff helps to attract these customers and continues to drive economic growth in our service territories while ensuring adequate safeguards are in place for all customers. While the stipulation agreement remains subject to commission approval, we believe it represents a balanced result and again, underscores the collaborative approach we take with key stakeholders in Kentucky to achieve fair and constructive outcomes. New rates are expected to take effect no earlier than January 1, 2026. Official hearings began earlier this week, and we anticipate a decision from the KPSC by the end of the year. Turning to Slide 6 for a few additional regulatory updates. I'm also pleased to report that LG&E and KU received approval in a KPSC order for much of the company's July 2025 CPCN stipulation agreement. This decision marks a significant milestone in our long-term generation investment strategy, and it again reflects our ability to work collaboratively with stakeholders to deliver reliable, cost-effective energy solutions. With this approval, LG&E and KU will construct 2 new 645-megawatt natural gas combined cycle units, around 12 and Mill Creek 6. These units will be similar to the Mill Creek 5 combined cycle unit currently under construction. In addition, LG&E, KU will install an SCR to mitigate NOx emissions at Unit 2 of the generating station. These investments will ensure we continue to meet Kentucky's growing energy needs, driven by record-breaking economic development and data center expansion, all while maintaining reliability and affordability for our customers. The approval also supports requests regarding regulatory asset treatment for AFUDC and recovery of the Ghent 2 SCR costs through the existing environmental cost recovery mechanism. The KPSC decided not to approve 2 proposed cost recovery mechanisms for the recovery of Mill Creek 6 and the recovery of costs associated with keeping Mill Creek 2 open beyond its original retirement date in 2027. However, the KPSC encouraged LG&E and KU to provide additional evidence on such matters in separate proceedings, including the open rate case proceedings. We have decided to address the recovery of the Mill Creek 2 stay open costs in the pending rate case proceedings, and we'll address the Mill Creek 6 recovery in a future proceeding since that unit is not expected to come online until 2031. We appreciate the commission's constructive feedback and remain confident in our ability to present compelling evidence in upcoming proceedings. Our team is committed to securing cost recovery that supports continued investment in reliable energy infrastructure to meet the growing needs in the Commonwealth. In other updates, on September 30, PPL Electric Utilities filed a request with the Pennsylvania Public Utility Commission to increase annual base distribution revenues, which would represent its first distribution base rate change in more than a decade. The requested increase supports our need to build and maintain a stronger, smarter and more resilient electric grid to better withstand increasingly severe weather, prevent outages and improve service to our customers. Over the past 10 years, we've been successful in avoiding base rate increases while creating one of the nation's most sophisticated and efficient grids. In fact, PPL Electric's operating and maintenance expenses have increased by only 7.4% nominally since 2015 compared to 32% inflation over that same period. We are requesting a net revenue increase of just over $300 million or 8.6% as more than $50 million of the base rate request includes revenue that is already reflected in customer bills through riders like the DSIC. Also as part of this base rate case, the amount of rate base included in the DSIC mechanism will reset to 0 and the cap on the DSIC revenue would also reset back to 5% of base distribution revenues. Our rate case application is supported by a fully forecasted test year that begins July 1, 2026, and a requested ROE of 11.3%. We anticipate a decision from the PUC on our case in the second quarter of next year with new rates effective on July 1, 2026. And finally, in our last regulatory update, we continue to expect Rhode Island Energy to file a distribution base rate request before the end of this year. Now let's turn to Slide 7 and our data center updates in Pennsylvania. There's a lot to unpack in this quarter's update, as shown on this slide. First, momentum continues to build in PPL Electric Utilities service territory in terms of interconnection requests to our transmission network. Since our last update, the number of data center projects in advanced stages of planning, those projects that have either a signed electric service agreement or an ESA or a signed letter of agreement, LOA, have jumped more than 40% from 14.4 gigawatts to 20.5 gigawatts. This marks yet another increase in our PA data center pipeline since we initially announced about 3 gigawatts in advanced stages in the first quarter of 2024. Both of these agreements require significant financial support from the counterparties. LOAs carry significant financial burden for counterparties as they agree to pay for all the engineering and long lead time materials, which could easily run into the tens of millions of dollars. The ESAs include all the commitments in the LOAs plus customer commitments around additional credit support and require the counterparty to pay a minimum load requirement based on 80% of their load forecast. Over 11 gigawatts of the 20.5 gigawatts under signed agreements have been publicly announced, including about 5 gigawatts that have already begun construction. So overall, we're very confident that at least 20.5 gigawatts of demand is real, especially given we have an additional 70 gigawatts of demand in the queue. I know there's a lot of discussion in the market about the quality of utility load forecasts related to these large loads. And I have a few thoughts on this issue as well. First, we know that load forecasting is a critical component of system planning, and it's also a fundamental part of the PJM capacity auction process. So we are very supportive of efforts to ensure that load forecasts are reasonable and generally prepared in a consistent manner. We are actively engaged with PJM and the other PJM utilities to review and potentially improve the load forecasting process given the amount and pace of interconnection requests. I will also point out that PJM discounts the load forecast it receives from the utilities by as much as 30%. So the load forecast that the utilities provide PJM are not the final forecast used in the capacity auctions. And while reviewing this process is an important step, I want to be clear that these load additions are real, they are coming fast and furious and focusing on load forecast alone does not obviate the need to start building new generation now. Forecasts will continue to be refined as they always are, but the near-term risk of overbuilding generation simply does not exist. The bottom line is that we need to start building new generation as soon as possible. And as you know, that is exactly why we continue to support state solutions like long-term contracting for generation and a utility ownership backstop, while we are also active in PJM's large load customer collaboration and market reforms. We support the continued focus by Governor Shapiro to mitigate supply price increases for our customers and encourage new generation development in the state. A recent proposal to incentivize large loads to bring their own generation and bifurcate the capacity auctions between existing generation and new build are things that we think could have merit. We'll be involved in helping to shape details to advance workable proposals that protect reliability, accelerate economic development and support affordable electricity for our customers. That also includes leveraging our joint venture with Blackstone Infrastructure, which is prepared to build new generation to directly support data center demand under long-term energy supply agreements. At the end of the day, our strategy and the solutions we've proposed are geared towards ensuring reliability, affordability and resilience as we navigate this unprecedented wave of demand growth. And finally, we've updated our CapEx estimates related to the 20.5 gigawatts to be at least $1 billion or an incremental $600 million to what is in our current capital plan. Given the number of projects we have in their locations, we are seeing that some of the upgrades required for these data center projects were already included in our transmission capital plan. So the prior sensitivity of 1 gigawatt representing $50 million to $150 million of capital additions no longer holds true. But we will continue to define the potential upside with each quarterly update. And of course, we'll provide full details on the business plan refresh during our year-end call. Turning to Kentucky Economic Development on Slide 8. The economic development pipeline continues to grow, fueled in large part by access to the reliable, affordable electricity that LG&E and KU provide and most recently with the CPCN approval to build new generation resources. The economic development pipeline now totals just under 10 gigawatts of electricity demand. This includes data center requests totaling about 8.7 gigawatts, an increase of 3 gigawatts from our second quarter update. About 4 gigawatts of these data center requests are considered highly active with another 500 megawatts that are under construction. While we saw a decrease in our non-data center demand due to a few large projects that were canceled or were reclassified into the data center category, the number of project requests continues to be robust and has increased quarter-over-quarter. With these updates, our refreshed probability weighted demand growth projections now total about 2.8 gigawatts, a 300-megawatt increase from our Q2 estimate. If this potential growth continues to materialize, additional generation resources will be required. As a result, we continue to monitor the progress of these projects very closely as our recent CPCN only included about 1.8 gigawatts of new demand growth. Our success in supporting this growth was once again recognized in September when LG&E and KU were named a Top Utility in Economic Development by Site Selection magazine, the 12th time they earned this distinction since 2012. Turning to Slide 9. Let's talk about affordability, one of our core commitments here at PPL. We know that affordability matters to our customers, and we're focused on keeping bills as low as possible while continuing to invest in reliability, resiliency and economic growth. Success begins with a culture of continuous improvement and innovation across our organization. Through disciplined cost management and smart investments, we have delivered on initiatives that keep us on track to reduce O&M costs by an average of 2.5% per year from 2021 through 2026. These savings come from deploying smart grid technologies on our transmission and distribution networks, optimizing planned generation outages and centralizing shared service functions to improve efficiency. We're also incorporating new technologies across PPL, including the use of artificial intelligence in all aspects of our business, from predictive maintenance to customer service to back-office functions to deliver better results for our customers at lower costs. We expect these technologies will enable us to achieve the next wave of future cost efficiencies. At the same time, we're supporting robust data center growth while protecting our other customers and ensuring rates remain fair. In Pennsylvania, connecting data centers to our grid lowers the transmission portion of the customer bill for the existing customer base as these large load customers will pay a larger portion of the fixed transmission costs. In addition, our electric service agreements in Pennsylvania require data center customers to pay a minimum amount, generally 80% of their requested load forecast even if they use less electricity until the costs incurred to extend service are fully recovered. And we've proposed a new tariff in our rate case to memorialize these terms within our tariff structure. In Kentucky, as I mentioned earlier, we've also proposed a new tariff for large load customers requiring them to make a 15-year commitment to pay for at least 80% of the forecasted demand for the entire term. These measures ensure that large load customers pay their fair share and that our existing customers in Pennsylvania and Kentucky do not end up subsidizing the large load customers. We're also finding other creative ways to save customers' money. In Rhode Island, we've agreed to credit customers a total of nearly $155 million in January, February and March of 2026 and 2027 when winter bills tend to be the highest. This arrangement is net present value neutral for PPL but provides our customers with some much needed near-term bill support with the average electricity customer receiving $20 to $25 a month and the average gas customer receiving $40 to $45 a month. These credits were approved by the Rhode Island Division of Public Utilities and Carriers or the division, to satisfy a deferred tax hold-harmless commitment tied to our acquisition of Rhode Island Energy. The division is a separate organization from the Rhode Island Public Utility Commission, and it was the division that approved our acquisition of Rhode Island Energy, and it was the division that we made the hold-harmless commitment to. The settlement is currently in front of the Rhode Island Public Utility Commission for final implementation approval. While we cannot predict the outcome of that proceeding, given our collaborative approach in the division's prior approval, we are optimistic about a positive outcome and look forward to delivering meaningful bill credits to our Rhode Island customers. And in Pennsylvania, we're supporting legislation that would incentivize new generation build in the state, helping to address resource adequacy needs and lower wholesale capacity prices. Our joint venture with Blackstone Infrastructure is another prime example as it intends to build new generation to serve data center load, mitigating rising prices for customers and delivering value for shareholders. Affordability isn't just a talking point. It's embedded in everything we do. By combining innovation, disciplined cost control and strategic partnerships, we're ensuring that customers benefit from a reliable, resilient and affordable energy future. As you have heard countless times from us, every dollar of O&M savings achieved can be reinvested as about $8 of capital without impacting customer bills. That's the power of disciplined cost management and operating efficiency, creating room for critical investments while keeping affordability front and center. That concludes my business update. I'll now turn the call over to Joe for the financial update. Joe Bergstein: Thank you, Vince, and good morning, everyone. Let's turn to Slide 11. PPL's third quarter GAAP earnings were $0.43 per share compared to $0.29 per share in Q3 2024. We recorded special items of $0.05 per share during the third quarter of 2025, primarily due to IT transformation costs and certain costs related to the integration of Rhode Island Energy. Adjusting for these special items, third quarter earnings from ongoing operations were $0.48 per share, a $0.06 per share increase compared to Q3 2024. The increase was primarily due to several favorable factors, including higher revenues from formula rates and rider recovery mechanisms as well as lower operating costs, which were partially offset by higher interest expense. As Vince mentioned in his remarks, with the strong quarterly results, we've narrowed our 2025 ongoing earnings forecast range and remain confident in achieving at least the midpoint of $1.81 per share. During the third quarter, we took the opportunity to derisk a sizable portion of our equity financing needs as we fund our substantial growth. In August, we entered into forward contracts to sell approximately $1 billion of equity. We completed these transactions under the ATM, which minimized fees and enabled efficient execution. This brings the total amount of equity executed under the forward agreements to approximately $1.4 billion of the $2.5 billion forecasted equity needs through 2028. Approximately $400 million will settle at the end of this year, with another $500 million to settle at the end of 2026 and the remaining $500 million settling in mid-2027. Turning to the ongoing segment drivers for the third quarter on Slide 12. Our Kentucky segment results increased by $0.02 per share compared to the third quarter of 2024. This increase was driven by higher sales volumes, largely due to favorable weather in Q3 2025, lower operating costs and higher earnings from additional capital investments, partially offset by higher interest expense. Our Pennsylvania regulated segment results also increased by $0.02 per share compared to the same period a year ago. The increase was primarily driven by higher transmission revenue from additional capital investments and higher distribution rider recovery, partially offset by higher interest expense. Our Rhode Island segment results increased by $0.01 per share compared to the same period a year ago. Primary driver of this increase was lower operating costs. Finally, results at Corporate and Other increased by $0.01 per share compared to the prior period due to several factors that were not individually significant. We are pleased with our performance through 3 quarters of the year and remain well positioned to deliver on our commitments to shareowners in 2025 and beyond. Our focus on providing real value to our customers underpins our robust business plan and our confidence in our long-term financial targets. And we continue to make excellent progress on derisking that plan through constructive regulatory outcomes and financial discipline while driving initiatives that can support future growth. This concludes my prepared remarks. I'll now turn the call back over to Vince. Vincent Sorgi: Thank you, Joe. In closing, PPL is delivering strong results today, and we're building a strong foundation for tomorrow. We've narrowed our earnings guidance. We remain confident in achieving at least the midpoint of that guidance, supported by disciplined execution and a clear vision. We're advancing our utility of the future strategy, investing in infrastructure, deploying technology and driving innovation, all while maintaining affordability for our customers. PPL's disciplined execution and strategic investments, coupled with our focus on innovation, data center expansion and operational efficiency sets us apart in the utility sector, and that focus creates value for both our customers and our shareholders alike. Thank you for your continued confidence in PPL and our team. And with that, operator, let's open it up for questions. Operator: [Operator Instructions] Vincent Sorgi: Operator, while you're compiling the roster, I just want to take a moment to acknowledge the UPS plane crash that occurred yesterday in Louisville. Our hearts go out to the families of those who lost their lives and those who have been injured. Fortunately, our employees are all accounted for and safe. Yesterday, we supported the emergency responders. We ended up de-energizing transmission lines that were going into a nearby substation, and we ended up cutting off some nearby gas lines to ensure the safety of those first responders. The impact to our customers was minimal, but we are working to get everyone back online, but to do so as safely as we can. We also had team members embedded in the Louisville operator center to assist as needed, and we remain committed to supporting the community and first responders any way that we can. It is certainly a sad day for our entire Louisville community. Operator, who has our first question? Operator: Our first question comes from Shar Pourreza with Wells Fargo. Shahriar Pourreza: Vince, just on the Kentucky CPCN case that obviously mentioned the tracking mechanism for Mill Creek 2 stay open cost and Mill Creek 6 were rejected. You highlighted denied without prejudice. I guess what information was missing for them to decide. Why the denial and any sort of near-term EPS impact there we should be thinking about? Vincent Sorgi: Sure, Shar. So not concerned from an earnings perspective per se. I'll kind of take Mill Creek 2 separate from Mill Creek. So for Mill Creek 6, the commission did approve AFUDC treatment. So that project will be in construction through 2031 when it goes into service. So really no earnings impact there. The new mechanism would not have gone into effect until the in-service date. So we have plenty of time to address Mill Creek 6. And as you said, they were -- those mechanisms were designed without prejudice. So not only do we have the ability to refile for those, but the commission actually encouraged us to refile those mechanisms in either a future proceeding or even the current open proceeding for the rate cases to which we are dealing with this week in hearings. For Mill Creek 2, we want to get that one addressed sooner, obviously, because we are actively spending money a little bit this year but going forward to enable us to continue to operate that plant beyond 2027. And we really need to get recovery of any of those costs before we would agree to continue to operate that plant beyond 2027. We would be incurring about $30 million of additional O&M, about $40 million of additional CapEx from now until 2030 in addition to what was filed in the base rate case request for Mill Creek 2. So we would want to see recovery of that. And so we updated the testimony last Friday to address Mill Creek 2, and that's part of the hearings this week. So as I said, Mill Creek 2, we're addressing that now. Mill Creek 6, we'll deal with that in a future proceeding. You asked what was missing. I'm not sure that a whole lot was missing necessarily, although I think it's safe to assume that the commission felt it was -- that the CPCN proceeding was not the proper arena to deal with rate mechanisms, and they would rather deal with that in a rate proceeding. Shahriar Pourreza: Got it. Okay. No, that's perfect. And then just on the resource adequacy topic in Pennsylvania specifically, there's obviously 2 bills sitting at the House and Senate. I think they'll reconvene in November. I guess thoughts there, Vince. And more importantly, can sort of the wires companies strike a middle ground with the IPPs maybe around a long-term resource adequacy agreement structure that's also being proposed in the legislation versus this kind of push-pull around rate basing generation. So I guess how are discussions going. And can you guys strike a deal there? Vincent Sorgi: Yes, sure. So maybe just broadly what's happening with the legislation, right? So I think we need to see a couple of things before you'll really see movement on this proposed legislation, but really any meaningful movement of legislation. And the first is just the state budget. Obviously, the budget impasse is negatively impacting broader discussions around legislation. I would throw REGI into the mix as well. That seems to be a gating issue for energy policy discussions. Both of those, I think, could be resolved by the end of the year, probably more imminent for the budget, REGI maybe before the end of the year. So that's kind of, I would say, the background on not a whole lot of movement with those 2 bills that you had referenced. But clearly, there's a lot of legislative support in the state to find ways to spur new generation particularly in light of the data center load that we're seeing and just the 2 cost increases that we saw in the last 2 capacity auctions. Of course, our governor has been extremely engaged with PJM on this. So it's great to see that there is focus on the issue. I would expect the next steps we would see really, Shar, I would say, more so in the beginning of the year would be the debating of the issues -- sorry, of the legislation in the respective committees. And of course, they are still debating, I would say, within the legislature whether or not to permit regulated generation to be part of the solution. In terms of discussions with the IPPs are coming up with some middle ground with the IPPs, look, we said all along that the goal here is to incentivize new generation and ultimately get steel in the ground to ensure that we have enough electricity to supply all this load that we're connecting, but also to stabilize capacity prices in the wholesale markets. If there's a way that we could do that where the utilities and the IPPs can agree to a solution certainly, we would be open to that. Operator: Our next question comes from Jeremy Tonet with JPMorgan. Jeremy Tonet: Just want to echo your sentiment there on condolences to those impacted and our prayers go out to them. Just want to start off maybe as far as the pipeline in Pennsylvania, the 20.5 gigawatts there. I was wondering if you might be able to peel back a little bit more, I guess, what that looks like sizing there? And really just wanted to get a better feeling for how you think the cadence could come together for formalizing parts of that pipeline here. Vincent Sorgi: Sure. So in the appendix of the deck, we actually have the ramp rates for that 20.5 gigawatts. I'll get you the slide number in a second here. Slide #25. So that's the old chart that we used to show. What I did want to show this time was just how much we've seen that the ramp of each quarterly addition to the pipeline in advanced stages since Q1 of last year, starting with the 3 gigawatts. So the amount of growth has been phenomenal. And again, I go back to just the quality of the backbone of our transmission grid and our ability to connect these large loads very quickly, which provides speed to market for the hyperscalers, but also to be able to do it very cost competitively. So given kind of where we are with our transmission grid, we feel very comfortable that we can connect this 20.5 gigawatts. And every one of these projects, Jeremy, does require some level of upgrade and some are more than others. And each time we make those upgrades, it kind of keeps us in front of the demand in terms of our starting point of having a strong grid. So even at the 20.5 gigawatts [indiscernible] to connect that or even to connect additional capacity beyond that, which is good because, as I mentioned, we have 70 gigawatts above what's in the 20, that's still in the queue. But the 20 are those projects that either have an ESA signed or an LOA signed, which brings with it significant financial commitments on the part of the counterparties to either fund long lead time purchase of materials or engineering and development work. Obviously, the ESAs go a step further. They provide us with commitments around credit support for 100% of the cost of construction for anything that would be socialized in the formula rate as well as generally an 80% minimum load against their forecasted load. So a lot in there, but we feel really good about at least the 20.5 gigawatts in our pipeline, and that would likely continue to grow based on what we've been seeing. Jeremy Tonet: Got it. And just want to pivot to the Blackstone JV, if we could. Just wondering any incremental thoughts with regards to when we could see news flow, more developments on that side? Vincent Sorgi: Sure. So obviously, we don't have an announcement that we're making. Otherwise, I would have done that, but I can assure you that there is a lot of activity going on between the PPL team and the Blackstone team. We're extremely focused with the hyperscalers, with other data center developers, with landowners, pipeline companies, et cetera. So while there's no announcement today, tons of activity, I would say, going on there. Hard to say timing-wise, Jeremy, when we would have an announcement there. As you can appreciate, these are very complex deals. They take a long time to negotiate to make sure that we're structuring an agreement that's got the proper risk profile for our customers and our shareholders and ultimately is meeting the needs that we're trying to do with this JV. I will say, though, with the amount of new connections or new requests in the advanced stages, so up to this 20.5 gigawatts, we are starting to see a lot more interest and the discussions are moving a lot more towards data center companies wanting to shore up generation, not just shore up their interconnection on the transmission grid, which we've been talking about, as you know, for a while. I think one of the pluses and minuses of our grid is we've been able to connect customers very quickly to the transmission grid, and that has been their primary focus, and they've been able to wait a little bit longer on worrying about the generation part of the equation. I think we're starting to see them shift to the gen part of the equation and the JV, I think, is situated nicely to take advantage of that. Jeremy Tonet: Got it. That's very helpful. And just one last quick one, just to clarify, if I could, with regards to Mill Creek 2, the O&M number you quoted before, if that was an annualized number? I just wanted to get the context there. Vincent Sorgi: No, those are the total increases between now and 2030. So $30 million of incremental O&M over that time period and $40 million of incremental CapEx. Operator: Our next question comes from Paul Zimbardo with Jefferies. Paul Zimbardo: The first one I wanted to ask about just after the Kentucky rate case stipulation, the Pennsylvania rate case filing. Could you comment a little bit on the linearity of the growth rate in the plan? It just seems like with Kentucky stepping up in '26, Pennsylvania stepping up in '27, the growth would be a little bit more front-end loaded in the plan. So I was curious what your perspectives are there. Joe Bergstein: Yes, Paul, it's Joe. No, I don't necessarily think it's front-end loaded. Obviously, you're right on the timing of those rate cases and when they're coming into the plan, but we have significant capital investment that runs through the plan. We have the riders in the jurisdictions that we'll get recovery of that spend. So no, I don't necessarily see it front-end loaded. Vincent Sorgi: Yes, PA is coming in midyear too. Paul Zimbardo: Okay. And follow-up on the Kentucky load side. Is there a good amount of megawatts to think about you would include in that new capital plan roll forward? Should we think about the full gigawatt? I know that's through 2032. But just any color you can provide there would be helpful. Joe Bergstein: You're referencing the gigawatt above the 1.8 gigawatts that was in the CPCN. Is that what you... Paul Zimbardo: Correct. Yes, the 2.8 gigawatts versus the 1.8 gigawatts, yes? Joe Bergstein: Yes. Yes -- I mean we continue to assess that additional load, Paul, and based on our conversations with developers and others in the state that are driving that. And so we'll continue to assess the probability of that, and we'll make the determination of how much we would put in the plan. Really, the -- what that would drive is additional generation investment beyond what we have, perhaps some smaller amounts on the T&D side, but really, the larger numbers would come from generation. So we'll continue to look at that and assess the need as we're going through this planning process and future plan updates and IRPs. Vincent Sorgi: Yes, Paul, I would just say the team is really keeping a very close eye on that pipeline. So that 2.8 gigawatts is a probability weighted forecast. So we're just keeping a very close eye on how and when those projects are materializing so that we can get in front of this additional generation need as soon as we would need to. I would say likely if we determine we need additional gen that likely the battery project that we delayed might be the first project to come back into play, but the team is really watching this, as I said, very closely so that we can stay in front of it. But the battery is one that we can build very quickly and provide that peaking support that we might need, again, depending on the types of load that come in. So no decision on it yet but watching it very closely. Operator: Our next question comes from Steve Fleishman with Wolfe Research. Steven Fleishman: The 11 gigawatts of publicly announced data centers, could you give us a little more color on the details of that? Just what those are? I mean we obviously, we know Talen, Susquehanna with AWS, and we know the Homer City and stuff. But just -- I mean, is there -- can you give us the pieces of that? Vincent Sorgi: Yes. So for confidentiality reasons, we don't provide who those hyperscalers or data centers are or where they're located. Obviously, that could have implications on other data center activity. So we're very careful not to do that, Steve. I would say, as we kind of think about the amount of investment needed to support those, it's about $800 million of capital for the 11.3 gigs and about $400 million of capital for the 5 gigs under construction. Steven Fleishman: So just when you're defining these as publicly announced, like is that -- what is the definition of that? Vincent Sorgi: So some of that is what was announced during the summit that we had in Pittsburgh and then there have been other public announcements following that, that some of the customers would have made, but those are -- I think those are for them to discuss, not us. Steven Fleishman: Yes. Okay. And just this profile of the data center growth, how does that compare to what is in the kind of in whatever latest load forecast you gave to PJM? I don't know if they've been updated since the beginning of the year, but is it -- has this -- has your -- at least your zone gone way up relative to what you had forecasted previously? Vincent Sorgi: Yes. So the latest we have with PJM is about 16 gigawatts, Steve. Steven Fleishman: Okay. And I guess, what is the customer savings that you used to give a ratio of how much T&D rates maybe would be saved, customer reductions. Could you give us some sense based on what -- I don't know which number you want to use, like what the customer savings are from sharing the transmission grid? Yes. Vincent Sorgi: Yes. In the early pieces, it's about 10% savings on the transmission component per gig. That was about $3. But the more you add, that gets diluted a little bit. Joe and Andy, maybe we can provide that. We'll provide that, Steve. Steven Fleishman: But there's still savings each time more gets added. Vincent Sorgi: Yes. Yes. Operator: Our next question comes from Angie Storozynski with Seaport. Agnieszka Storozynski: I have no complaints about earnings. So I just wanted to make it clear because I've been picking over the last couple of quarters, but nothing to pick on this time. So the -- my question -- 2 questions. One is you mentioned that as the data center pipeline grows, the rule of thumb about how much transmission spending is needed for every gigawatt of load added no longer holds. And I just wanted just to give me a little bit more on that. And then secondly, on the joint venture with Blackstone. So we're seeing a number of secondary gas plants in your zone changing hands. And again, we'll see if any of them go to your joint venture. I'm just wondering if that -- is that all part of the plan to acquire existing sites and to expand them? Or is this just a brand new build that you would consider only once you have secured long-term contracts? Vincent Sorgi: Sure. Maybe I'll take the second one first. So on the JV with the gas plants, we created the JV, Angie, to really help deal with the resource adequacy concerns that we were seeing in PJM. And obviously, with our territory and PPL sitting right on top of Marcellus Shale, we felt and continue to believe that we can provide a very competitive solution to a data center that is looking to contract and basically procure generation. Buying existing assets don't necessarily support additional resource adequacy unless we can expand them like you described. However, there could be some benefit in procuring -- in buying existing generation if for instance, it's an old asset that we need for 5 or 6 years until we can get the new asset up and running and the data -- and the hyperscaler wants to have an asset-backed deal, maybe there's a scenario where it would make sense for us to buy existing gen, but that's not the core part of the strategy, but I wouldn't preclude it. So kind of my thoughts there. And then on the $50 million to $150 million, so what I would say on that is, look, generally, that $50 million to $150 million per gigawatt is a good rule of thumb. The only caution that we are providing with this update is in our 5-year CapEx plan or 4- or 5-year CapEx plan for transmission, some of the upgrades that we may have had in that plan are starting to overlap with the upgrades that would be required for a particular data center project. So the $50 million to $150 million to serve the data center may still hold, but that may not be incremental to what's in the plan. Does that make sense? Operator: Our next question comes from Anthony Crowdell with Mizuho. Anthony Crowdell: I just have one quick follow-up, I guess. I appreciate the update. You mentioned the growth in Kentucky and Pennsylvania is quite impressive. Just the company has done a great job in the regulatory arena as we see more and more data centers connecting. Is there a concern of maybe an unhealthy revenue concentration that potentially could offset the solid regulatory balance you guys have achieved over the past several years. Just it looks like more and more load is coming from one sector. Wondering if that could create an unhealthy regulatory balance going forward. Vincent Sorgi: Yes. Look, I think that's a really good question. I don't necessarily think that we're feeling concerned about an overconcentration of risk to the data centers because of the protections that we're building into the tariff structures and the ESAs that folks are signing for these large loads. So really, I think the issue becomes, Anthony, you build all this stuff, it's in rate base and then for whatever reason, the customers aren't using as much power, and those costs are being defrayed to our existing customer base. So we built the protections in for that. I would say in Pennsylvania, they -- the PUC is proposing their large load tariff this week. And I think what we have in our proposed tariff in the rate case, those protections will be in that tariff and that tariff may go even further than what we have proposed. So overall, I think as long as we have these proper protections in place, not overly concerned about concentration risk. The other broader, I would say, aspect to this is certainly in the early stages, which we are. I don't see these hyperscalers not needing the amount of power that they're signing up for. In fact, they're probably going to need even more. So as you think about the advancements in the chips themselves, those advancements basically enable more compute power in the same physical space that the prior generation was, well, compute power equals electricity. So if anything, I think we're going to need to continue to support these data centers with additional power needs, not less. Anthony Crowdell: Great. And then just one follow-up. I'm not sure if you were leading this way, and that's my question. I don't know if it was Angie's question or to the person before. But you talked about maybe the haircuts of the load forecast when the utilities submit to PJM, PJM haircuts even more. You're seeing greater load growth in your areas. Are you trying to highlight that the potential that the regions PPL serves is a candidate for breaking out in the next auction? Or that's not what you were trying to say, just overall, the resource adequacy has an issue? Vincent Sorgi: Yes. I was not suggesting that the PPL zone would necessarily break out. And so the load forecast that we provide PJM or the projects that we're including in that are consistent with the projects that we're including in the 20.5 gigawatts. There are just timing differences between when we update the intervals on when we're updating the PJM and when we're having our investor updates on our quarterly calls. So the last time we updated was about, like I said, 16 gigawatts, but that would represent those projects at that time that we had ESAs and LOAs signed by customers. So the next update for PJM would be this 20.5 gigawatts and then PJM would go through their process to haircut that 20%, 30%, whatever they deem appropriate. But no... Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Vince Sorgi, President and CEO, for any closing remarks. Vincent Sorgi: Yes. Thanks for joining us this quarter. Again, continue to execute third quarter strong results sets us up really nicely for finishing strong in 2025. Look forward to providing our full update on the year-end call. And of course, we will see many, if not all of you next week at the EEI Financial Conference. Thanks, everybody. Operator: The conference has now concluded. You may now disconnect.
Operator: Good morning, and welcome to the Limbach Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the conference over to your host, Lisa Fortuna of Financial Profiles. You may proceed. Lisa Fortuna: Good morning, and thank you for joining us today to discuss Limbach Holdings' financial results for the third quarter of 2025. Yesterday, Limbach issued its earnings release and filed its Form 10-Q for the period ended September 30, 2025. Both documents as well as an updated investor presentation are available on the Investor Relations section of the company's website at limbachinc.com. Management may refer to select slides during today's call and encourages investors to review the presentation in its entirety. On today's call are Michael McCann, President and Chief Executive Officer; and Jayme Brooks, Executive Vice President and Chief Financial Officer. We will begin with prepared remarks and then open the call to questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts such as those about expected financial performance are also forward-looking statements. Actual results may differ materially from those contemplated by such forward-looking statements. A discussion of the factors that could cause a material difference in the company's results compared to these forward-looking statements is contained in Limbach's SEC filings, including reports on Form 10-K and 10-Q. Please note that on today's call, we will be referring to non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in our third quarter 2025 earnings release and in our investor presentation, both of which can be found on Limbach's Investor Relations website and have been furnished in the Form 8-K filed with the SEC. With that, I'll now turn the call over to President and CEO, Mike McCann. Michael McCann: Good morning, and welcome, everyone. Thank you for joining us today. At Limbach, we play a critical role as an enterprise provider of building system solutions, ensuring the reliability and continuity of mission-critical infrastructure across our customers' facilities. We're focused on industries with long-term durable demand where facility assets simply cannot fail. We believe our distinct capabilities position us to deliver sustained growth and attractive risk-adjusted returns. As a reminder, our growth strategy is underpinned by three core pillars. The first pillar is scaling our owner-direct relationships or ODR business. Here, we're focused on working in partnership with owners of mission-critical facilities in existing building environments. This work consists mostly of routine maintenance, emergency repairs, small capital projects, and larger retrofit and renovation projects. Some of this work is contractual and some is predictable given the age and complexity of mechanical systems. The second pillar is enhancing profitability and increasing wallet share through the introduction of expanded product and service offerings. We have strong and growing relationships with our owner-direct customers built on daily performance, trust and our vast knowledge of their critical building systems. As a result, there is a win-win opportunity for us to expand our service offerings to these customers by introducing new capabilities to solve a greater breadth of issues for owners. As our capability expand over time, we can deliver more value to both the owner and Limbach. Unlike traditional E&C firms that rely on reactive bidding in response to a project, we're seeing these facilities every day providing solutions. By working directly with owners, we have a better grasp of risk and value. In order to further leverage these relationships, we're formalizing a scalable structure by building a proactive sales team that positions Limbach as a building system solutions provider. The third pillar is strategic M&A aimed at extending the reach of the Limbach brand, strengthening our market presence and expanding our capabilities. Through targeted acquisitions, we seek to diversify our vertical market exposure and broaden our geographic footprint while adding new products and offerings that align well with our ODR value proposition. Over the past couple of months, we received a number of questions from investors who want to better understand our various revenue streams, particularly in the ODR segment. So let me walk through the ODR business and break down the sources of our revenue. There are three quick burning revenue streams, maintenance contracts, work orders, and time and material or T&M work. Maintenance contracts generate predictable recurring revenues that are usually smaller in nature, but which have strong margins. Our maintenance contracts run 1 to 3 years in length prior to renewal and are built around routine service for specific equipment at customer sites. Work orders and T&M work often results from problems identified during scheduled maintenance or for emergency repairs or opportunistic upgrades of system components. In some parts of the market, this is referred to as break-fix work. Any one individual work order may not be predictable, but in a large complex facility, there's generally an estimable amount of this kind of work in any given year. It's usually quick burning and completed an on-demand basis or as directed basis. It can be priced based on labor rates and material markups that are prenegotiated with customers and anticipating -- anticipation of needing to act fast when the work happens or a small fixed price jobs less than $10,000. For example, large industrial customers usually schedule seasonable shutdowns when their facility reduces production and output of repairs and maintenance. This provides us the opportunity to execute a high volume of this type of small work in a short period of time. Because T&M work is performed on what's essentially a cost-plus basis, the risk profile is different than, say, a large fixed price project. Taken together, all these work streams account for approximately 1/3 of the ODR revenue for year-to-date 2025. Irrespective of the specific structure of the revenue, when executing this kind of work, Limbach most often becomes an extension of the facility staff regardless of the contractual relationship. Fixed-price projects greater than $10,000 in our ODR segment can range from quick burning work that is booked and executed in the same month or quarter to projects that typically last less than a year. They're usually performed within existing facilities are typically tied in some way to an existing customer relationship and often a maintenance and service relationship. This means we're operating in an environment where we know the systems, the sites and the customers. This preexisting knowledge reduces uncertainty and enhances our ability to manage outcomes. As a result, the risk profile of these ODR projects is very different than GCR projects. Additionally, the average ODR project size is approximately $245,000 as compared to the average GCR project size of approximately $2.9 million. Both of those are year-to-date 2025 data points. This ODR project work accounts for approximately 2/3 of our ODR revenue. So at a high level, our intentional pivot towards owner-direct relationship has reshaped our revenue mix to become a more diversified and lower risk with more margin consistency. We believe this mix should provide a greater resilience through economic cycles and reflects our focus on stability, predictability, and long-term value creation. On a consolidated basis, ODR revenue as a percentage of total revenue has steadily increased since 2019. We began to shift our strategy. ODR represents [ 76.6% ] of total revenue in the third quarter of 2025 and 74.1% on a year-to-date basis, in line with our targeted goal between 70% to 80% for the year. Going forward, the strategy continues to be focused on ODR growth and a reduction in GCR revenue. Keeping in mind, businesses we acquired at the time of acquisition typically do not have an evolved ODR strategy as Limbach. However, whether we're speaking about an acquired business or a legacy business, this strategy is driving margin expansion and earnings growth over time, while we -- while also, we believe reducing our overall risk profile. Turning to backlog. The strategic shift from GCR to ODR means that a larger percentage of our revenue is now generated from quick burning shorter-term projects that can be booked and completed within the same quarter, and therefore, it's not captured in backlog at quarter end. As a result, backlog alone is no longer as predictable, a leading indicator of future revenue as it was in 2018 or even 2022 with a heavy GCR focus, which is typical for E&C companies. Occasionally, we will book projects with building owners that span multiple quarters. This work is captured in the backlog. However, it's a smaller portion of the overall revenue mix and it can experience quarter-to-quarter fluctuations. So today, looking only at backlog, we'll miss a large percentage of our current revenue streams. Earlier I described our work order and T&M revenue streams and highlighted the industrial shutdown work we engage in. Most of these revenue streams never get captured and included in the quarterly backlog number, and they represent a far larger number than they did several years ago. Instead of the large high-risk multiyear projects that were a core element of our legacy business model, we're now focused on building a diversified business with multiple revenue streams and what we think is durable demand. Selective M&A remains a cornerstone of our growth strategy, enabling us to expand both our geographic footprint and deepen market share within existing regions and to expand our product and service offerings. Over the last couple of years, our focus has been broadening on our footprint in ways that enhance diversity and position us to serve national customers. Our approach has always been conservative, and we've remained disciplined and selective in what we pursue even when the M&A market has gotten overheated. To date, we've acquired six high-quality cash flow generating businesses at fair values and have used risk-mitigating structures where possible. We believe the Limbach brand and our unique business model positions us to engage with great companies that over time, we can reposition to align with our owner-focused vision. After closing, our goal is to improve margins further by implementing our value creation processes. Our main focus in every deal is to expand the quality of gross profit through benchmarking, building a proactive sales team and leveraging operational standards, using the same tools that transformed our business units over the last 6 years and led to much higher margins at lower risk. We believe we can expect better results at acquired companies than what we underwrote at the time of the closing of these transactions. At Pioneer Power, our most recent acquisition, we're actively executing the first phase of our value creation strategy. During diligence, we identified improving Pioneer Power's lower EBITDA and gross margins as a great opportunity for the intermediate term. We are now transitioning Pioneer Power to Limbach's accounting system and operating systems. Once complete, we can start to focus on improving the quality of gross profit and providing access to other parts of the Limbach operating platform. We've got a talented team in the Twin Cities. We want to make sure that we deploy all the tools at our disposal to support them and to allow the business unit to flourish. We evaluate a large volume of acquisition opportunities each year and intentionally walk away from the majority of them. Under my leadership, we will never buy a business just to do a deal. Our track record reflects disciplined underwriting, strategic fit and a focus on asymmetrical returns. There is a meaningful upside to our company if we're right and limited downside if we're wrong. There are times we lose competitors willing to pay higher multiples, and we're perfectly comfortable with that. Next, I'll provide an overview of the environment in our core vertical markets. Healthcare has long been one of our strongest, most strategic end markets across all operating regions. Given the mission-critical nature of the healthcare facilities, customers can defer repairs briefly, but delays in capital spending rarely extend beyond a single quarter. While some customers experienced temporary delays during the summer months in funding both operating and capital expenditures, we're now seeing spending patterns normalize as the year progresses. Our sales teams have engaged with core customers and emphasize the importance of long-term planning. Increasingly, we're hearing that cost certainty is more important to our customers than simply achieving the lowest cost. This can be achieved by implementing proactive programs, which help avoid reactionary spending and minimize risk to business operations caused by building system downtime. On our latest earnings call, we shared that a national healthcare owner engaged us to conduct facility assessments across 20 locations. In Q3, this initiative has already translated into $12 million in capital projects at four sites. We'll serve as a design builder for these MEP infrastructure projects, three of which are outside our current geographic footprint. For those out-of-market projects, we'll lead budgeting, design and procurement and utilize a network of subcontractor partners where necessary. In industrial manufacturing markets, our customers continue to execute seasonal shutdowns and facility upgrades in order to optimize the production of their plants and facilities. During the quarter, both Pioneer Power and Consolidated Mechanical benefit from this type of activity, which is a core element of their local business models. In the data center market, Limbach remains focused on supporting hyperscale operators through existing building projects and specialized services, primarily in the Columbus, Ohio market. In Q3, we provided specialty fabrication services to one of our customers, enabling on-site contractors to concentrate on their core workloads while we offered supplemental support. That arrangement provided Limbach with what we think is the optimal balance of risk return and resource allocation. While our current footprint and risk profile limits the scale of data center work, we see meaningful growth potential through our national sales efforts and future geographic expansion through strategic acquisitions. In the life science and higher education market, some of our higher education clients have adopted a cautious approach to spending during ongoing policy uncertainty in Washington, D.C. While the need for our services remains essential to maintaining mission-critical facilities, many temporary pause capital projects. Encouragingly, these clients have begun communicating anticipated spending needs for the coming year, and we are proactively aligning the resources in preparation for ramp-up. One major client has already requested full-time technician support beginning in January. In the culture and entertainment vertical, we continue to see consistent spending from our key customers. Our recent involvement in capital planning discussions provided valuable insight into some clients' 2026 budgets. Notably, our largest customer in this segment has shared plans for significantly expanding capital and operating budgets next year. They've invited us to review their respective project list and provide input on the work we'd like to pursue, allowing us to proactive plan and allocate resources for 2026. Next, I'll provide an update on sales and marketing initiatives. For the past 3 years, we've made deliberate investments in building our sales team, which has resulted in a higher SG&A relative to many of our E&C peers. Our training efforts are focused on equipping the team to anticipate owner challenges and craft solutions that are difficult to commoditize. We believe this investment will soon begin to yield measured results, both by leveraging SG&A more effectively and by enhancing the quality and consistency of gross profit. As we head into Q4, our priority is to deepen sales training to ensure a strong start to 2026. In many cases, we're not competing against local contractors. Instead, we're working directly for owners in a proactive capacity, helping them anticipate issues and plan their budgets accordingly. A recent example from Florida illustrates this approach well. Over the past 2 years, we've supported a $25 billion annual revenue healthcare customer with emergency repairs and small capital upgrades. During a routine inspection of the main cooling feed, our on-site account manager identified signs of deterioration. We conducted non-destructive testing and the piping was on the verge of failure. In response, we developed a proposal that clearly outlined the ROI and presented it to the facility manager who was then escalated to the CFO and the Chief Medical Officer. In Q3, the project was funded and we were awarded Phase 1 of the repair. This is a prime example of a capital project where we weren't competing for the work. Instead, we earned it by identifying the issue early and presenting a compelling data back justification for the investment. One of our key differentiators is our ability to offer professional services, including MEP engineering, facility assessments, program management and commissioning. These services are particularly attractive to national customers who can leverage our domain experience even in markets where we might not have field execution capabilities. These services, along with program management are a key driver of margin expansion. During the quarter, we had one of our national healthcare customers engage us to analyze a hospital in New Mexico, both from a cost and engineering perspective as they're considering making a substantial investment in the facility. This initial research has the potential to become a design build infrastructure project. We find that customers appreciate our ability to provide an engineered solution that we can also build. While currently, our professional service resources are dedicated to national healthcare owners, in the future, we're looking to expand these capabilities into our data center and industrial manufacturing vertical markets. As we broaden our services portfolio, which includes the expansion of our professional services and solutions-based selling, we see a path to achieving long-term gross margins in the 35% to 40% range, driven by two key dynamics: First, our ability to deepen customer relationships by shifting from reactive transactional sales to proactive consultative solution sales. This approach enables us to build long-term operating and capital programs that are tailored to solving our customers' needs rather than competing solely on price. Second, our ability to bundle offerings creates margin layering opportunities. For example, an infrastructure project may include a rental component, allowing us to mark up both individual elements and the overall project cost. These strategies position us well to deliver sustainable growth at attractive margins. Moving to guidance. We are reaffirming our 2025 guidance of total revenue in the range of $650 million to $680 million and adjusted EBITDA of $80 million to $86 million. Of note, we have made some updates to our underlying assumptions used to model 2025 guidance to better reflect current market conditions, project timing, and operational performance trends. These updates influence our outlook and are incorporated into the public issued guidance ranges for total revenue and adjusted EBITDA. As I mentioned earlier, we are on track for total ODR revenue to be 70% to 80% of total revenue. Total ODR revenue growth is expected to be 40% to 50% with ODR organic revenue growth of 20% to 25% Total organic revenue growth is expected in the range of 7% to 10% from 10% to 15% previously discussed, as we originally anticipated a more positive mix shift towards ODR and GCR. Pioneer Power's revenue performance this quarter exceeded our initial expectations. While Pioneer Power's current margin profile differs from Limbach's consolidated performance, we're actively integrating Pioneer into Limbach's platform, and we have a path to implement operational and commercial enhancements that we expect to expand margins over time. Because of the higher revenue contribution of Pioneer, total gross margin is expected to be 25.5% to 26.5% from 28% to 29%. Additionally, SG&A as a percentage of total revenue is expected to be between 15% to 17% from 18% to 19%, primarily due to the higher revenue contribution. Now I'll turn it over to Jayme to walk through the financials. Jayme Brooks: Our Form 10-Q and earnings press release filed yesterday provide comprehensive details of our financial results, so I will focus on the highlights for the third quarter. All comparisons are third quarter 2025 versus third quarter 2024, unless otherwise noted. We generated total revenue of $184.6 million compared to $133.9 million in 2024. Total revenue growth was 37.8%, while ODR revenue grew 52% to $141.4 million. Of the total ODR revenue growth of 52%, 39.8% was from acquisitions and 12.2% was organic. GCR revenue increased 5.6% to $43.2 million, of which 25.1% was growth from acquisitions, offset by an organic revenue decrease of 19.5%, which is as designed as we continue our mix shift towards ODR. ODR revenue accounted for 76.6% of total revenue for the third quarter, up from 69.4% in Q3 2024. Total gross profit for the quarter increased 23.7% from $36.1 million to $44.7 million, reflecting the ongoing growth of our ODR segment. Total gross margin on a consolidated basis for the quarter was 24.2%, down from 27% in 2024, driven by the lower gross margin profile of Pioneer Power revenue. Our strategy with acquisitions is focused on improving the acquired company's gross margin to align with our broader operating model over time. ODR gross profit comprised approximately 80% of the total gross profit dollars or $35.7 million. ODR gross profit increased $6 million or 20.3%, driven by higher sales volume, partially offset by lower ODR segment margins of 25.2% compared to 31.9% in the year ago period. The decrease in segment margin was primarily attributable to Pioneer Power's lower gross margin profile. GCR gross profit increased $2.5 million or 39.3% due to higher margins of 20.8% compared to 15.8%, driven by our ongoing focus on higher quality projects. SG&A expense for the third quarter was $28.3 million, an increase of approximately 19.3% from $23.7 million. This increase includes SG&A associated with Pioneer Power, Kent Island and Consolidated Mechanical, where Kent Island was part of the company for only 1 month in the third quarter last year and Pioneer and Consolidated Mechanical were not part of the company during the entire of the third quarter last year. As a percentage of revenue, SG&A expense decreased 15.3% as compared to 17.7%, primarily due to the increased revenue in the third quarter of 2025 provided by Pioneer Power. Adjusted EBITDA for the quarter was $21.8 million, up 25.6% from $17.3 million in Q3 '24. Adjusted EBITDA margin was 11.8% compared to 12.9% in Q3 last year. Net income for the quarter increased 17.4% from $7.5 million to $8.8 million, and earnings per diluted share grew 17.7% from $0.62 to $0.73. Adjusted net income grew 16.4% from $10.9 million to $12.7 million and adjusted earnings per diluted share grew 15.4% from $0.91 to $1.05. Turning to cash flow. Our operating cash inflow during the third quarter was $13.3 million compared to $4.9 million during the third quarter last year, primarily due to the timing of accrued expenses, offset by the timing of billings that impacted changes in working capital. Free cash flow, defined as cash flow from operating activities, excluding changes in working capital, minus capital expenditures, excluding our investment in additional rental equipment, was $17.9 million in the third quarter compared to $13 million in Q3 last year, representing a $4.8 million increase. The free cash flow conversion of adjusted EBITDA for the quarter was 82% versus 75.3% last year. For full year 2025, we currently continue to target a free cash flow conversion rate of at least 75% and expect CapEx to have a run rate of approximately $3 million. This amount excludes an additional investment of $3.5 million in rental equipment for 2025, of which $2.1 million occurred in the first 9 months of the year. Turning to our balance sheet. As of September 30, we had $9.8 million in cash and cash equivalents and total debt of $61.9 million, which includes $34.5 million borrowed on our revolving credit facility, of which $10 million is at a hedge rate of an applicable margin plus 3.12%. As a reminder, at the end of June, we expanded our revolving credit facility from $50 million to $100 million. On July 1, we used a combination of cash and an additional drawdown of approximately $40 million to fund the Pioneer Power acquisition. During the quarter, we paid down the revolving credit facility $17.3 million. And as of September 30, our total liquidity, defined as cash and availability on our revolving credit facility is $70.3 million. Additionally, we intend to deploy free cash flow to continue to reduce our borrowings under the revolving credit facility. With this expanded facility and our expected cash generation from the business, we believe our balance sheet remains strong, and we believe we are well-positioned to support our continued growth initiatives and strategic M&A transactions. That concludes our prepared remarks. I'll now ask the operator to begin Q&A. Operator: [Operator Instructions] Our first question comes from the line of Chris Moore with CJS Securities. Christopher Moore: So it looks like $47.3 million of Q3 revenue was acquisition-related, $37 million of that ODR, $10.3 million GCR. Can you give us a sense in terms of how much revenue Pioneer contributed to that $47 million and the split between ODR and GCR within Pioneer? Michael McCann: Yes. The Pioneer Power, they continue to produce, I think, even better than we thought they would produce. So we're thinking by year-end, the contribution for the second half of 2025 is closer to actually $60 million, heavily weighted from an owner direct side as well, too. And I think a lot of that strong contribution is from the Industrial segment as well, too, some shutdown work, strong customers and brand, which is always nice to validate after we've had the acquisition as well, too. I think the other thing, too, even from a margin perspective that we're really looking forward to from a Pioneer perspective is the opportunity. We see a lot of good solid foundation from a Pioneer Power perspective. But at the same time, I think as we've -- right now, we're in the process of transitioning their finance and operating systems, but we already see signs of our ability to not only benchmark their gross profit, but to look for opportunities as well, too. Christopher Moore: Got it. So the $60 million you're talking about for the second half, it looks like the bulk of that is in ODR. Am I looking at that correctly? Michael McCann: Yes. Yes, you are. Christopher Moore: Okay. And so just -- I got it that the gross margins are -- should be coming up there. Why are they -- within their ODR segment, why are they lower at this point in time? Do they do different work for clients? Are they focused on a different vertical? Just any thoughts there? Michael McCann: Yes, it's very interesting. We've seen -- one of the main opportunities we look at with all their acquisitions is increase of margin. So this is the common playbook that we see. And a lot of times, it comes down to they run a really good business. They have relationships. And it's a matter of understanding benchmarking as much as anything now that we've got -- even from an industrial base or even from other contracts that we purchased, we always take a look at it from a margin perspective. A lot of times, that's eye-opening as well, too. I think the other piece of it, too, is how they go to market. They're going to market from a branding reputation perspective. But one of the key elements that we add to is a proactive sales team. And a lot of times, that makes a difference. So at the end of the day, it's a matter of taking great customer relationships and a brand, understanding there's 4 or 5 triggers that allow us to expand margins over time. So even -- and we've looked at it not just from Pioneer Power. Pioneer Power obviously is a bigger contributor. But even from the other acquisitions, it's always the same elements over time. It takes time, but I would say it's still the same playbook, and we see lots of opportunity. Christopher Moore: Got it. Very helpful. Maybe just the last one. Just SG&A as a percentage of revenue, 15.3% versus 18.7% in Q2. The target range is coming down. Is it reasonable to think that SG&A as a percentage of revenue would tick up a bit in '26 versus the 15% to 17% that we're talking about in '25? Michael McCann: Yes. The big piece of that SG&A reduction was due to the different profile from Pioneer of lower gross profit, but also lower of SG&A as well, too. There's some investments that we're going to need to make going into 2026. And that's not only from a Pioneer and other acquisitions, but also from an overall business as well, too. Jayme, anything you want to comment on that? Jayme Brooks: Yes, because part of it to get -- I mean, we have a lower rate this period for the fiscal year. But going into next year, too, as Mike said, looking at specifically around Pioneer that proactive sales force piece of it. So we've not given the guidance yet for the next year. Operator: Our next question comes from the line of Brian Brophy with Stifel. Brian Brophy: I appreciate all the additional disclosure here. When I try to, I guess, back out PPI from ODR, it looks like gross margins kind of on the core business were down a little bit from a year ago. Is that correct? And can you give us, I guess, a sense of the magnitude and what the driver was? Michael McCann: From a margin perspective, I'll let Jayme answer from the financial exact number perspective. But our margins do end up fluctuating from a quarter-to-quarter basis. And I think it just depends on the mix of work that may be within the quarter. And one thing that you pointed out even as we mentioned in the script, is that combination of 1/3, 2/3 essentially goes through the business as well, too, where 1/3 is that quick burning work and 2/3 of the owner direct revenue is fixed price projects that are of average size year-to-date of $245,000. So at the end of the day, nothing different from -- it's more of that dynamic of the quarter-to-quarter mix of whether it's that quick burning or it's fixed-price projects. Jayme Brooks: Yes, I was just going to reiterate that. Yes, definitely in line -- it will fluctuate quarter-to-quarter based on the mix, and it's really the impact of the PPI margin for this quarter. Brian Brophy: Okay. And then can you give us a sense on ODR organic growth in the first half of the year? I guess the 20% to 25% guidance for 2025 seems to imply an acceleration in the fourth quarter. I just want to understand if that is accurate and what's driving that acceleration? Michael McCann: Yes. Year-to-date, we're 14.4% organic ODR, and we've talked about a range of 20% to 25% for a full year. So that does imply some acceleration. A couple of things that we're really looking at even from a Q4 perspective, continuing quick burning work from a revenue perspective, budgets that need to be spent by year-end. A lot of people have delayed that OpEx spend and they're in a position right now where they have to spend those dollars, small projects that are churning. And I think that's also a result of that sales team. The last 3 years, we've invested in the sales team. The recent sales team investment that we hired in Q4 and early Q1, it's been about 9 or 12 months. We've been in position with customers, and that allows us to give visibility kind of looking into Q4 from that perspective. Brian Brophy: Okay. That's very helpful. And then in your opening comments, you mentioned the $12 million of capital projects that were awarded from this facility assessment award that you talked about last quarter. Do you anticipate that potentially driving further awards? Or do you think that's kind of the extent of the opportunity and additional follow-on awards from these facility assessments? Michael McCann: Yes. This is really exciting. So a couple of things that we've learned through our evolution. A lot of times on local relationships, the relationships will start with a maintenance project or really quick turning work. On the national side of things, we really started with healthcare. We're thinking about data centers and industrial as we kind of expand going forward. A lot of times, that work starts with professional services. Facility assessment, engineering, it's a repositioning of that ultimate entry point. And those customers are very much from a cost certainty, quality, consistency type perspective. So we've got a lot of these national relationships that we've started to. And they typically do start with that facility assessment ultimately, and then we come up with a pro forma. So that particular opportunity, those 20 assessments turned into $12 million of projects over four different sites, three of which were outside of a geography, that's in. So I think I look going forward, we're excited about the opportunity for multiple customers from multiple assessments of that being kind of a runway for us to have another avenue of work that comes in. I think another interesting thing as well, too, is it's kind of we're going to be a cross-section of having those local maintenance and service type agreements as quick project agreements as well as kind of -- as well as the national relationships. And the two of those meeting together are also a big opportunity for us as well, too. Brian Brophy: Appreciate the color there. Last one for me. Past 3 years, you've talked about hiring about 40 salespeople a year. Curious how you're thinking about investing in the sales staff this year relative to kind of the prior pace. Michael McCann: Yes. So it's interesting. I think we're definitely looking at -- as we go into every year like we've done in the last 3 years from a sales staff perspective. I think we've made a lot of hires over about 120 hires over that period of time. I think we're continuing to make sure that we're supporting our sales staff. I think that's going to be a big piece of next year from a sales enablement perspective as well, too. What resources can we give them to make them successful? How can we connect dots for them? I think that will be a big focus going into next year as well, too. So it's almost as much sales enablement next year as much as traditional sales staff. We also are looking forward to production as well, too. It takes a long time to get sales staff up and running. But whether it's professional services, whether it's data analysis, whether it's financial analysis that we do for customers, those are the sort of things going into next year that we're really excited to make sure that we're making our sales staff as successful as possible. Operator: Our next question comes from the line of Rob Brown with Lake Street Capital. Robert Brown: Congrats on the progress. Kind of back to the organic growth, how do you think about the longer-term organic growth? It was the guidance tweaked it down a little bit this quarter. But what do you sort of think of as the long-term organic growth and what needs to happen to kind of get there? Michael McCann: Yes. So from an organic growth perspective, and of course, that -- it's what we're doing from a GCR perspective, but also from an owner-direct perspective. So let me touch on GCR real quick. Our goal is to be as selective as possible. So sometimes there will be periods where GCR declines like in this period. And that's a result of being super diligent to quality of work. And we're going to continue to push towards owner direct and be very opportunistic from that perspective. From an owner-direct side of things, we're building a long-term sales team, and we're building a long-term model to have success over multiple quarters and multiple years as well, too. So we haven't given a target out beyond this year. We hope that the insight of the 20% to 25% owner-direct organic will provide some insight to investors. But we're investing for the future. I will say that as well, too. Robert Brown: Okay. And then on kind of the opportunity for margin improvement overall, and I guess at Pioneer, how -- what's sort of the time line of that? And maybe what's -- can you get gross margins back to sort of where they've been? Is that the goal? Michael McCann: Yes. For Pioneer specifically, a lot of the work that we've done is transitioning to the accounting and operating system, which is important to us. It's not always the most exciting, but it's really important because it allows us to have visibility and to get on a common platform. So that first phase -- we talked about that first phase, including structure and gross profit benchmarking can almost take almost up to a year. But that doesn't mean we're not doing things along the way. And I think the first thing that we look at is the gross profit benchmarking. Is there opportunity? Is there a low-hanging fruit? There has been on the other deals. We can't see why this wouldn't be any different. But I think as we look into next year, definitely from an opportunity from that perspective as well, too. I think from an overall business, it's a matter of our ability to sell in a proactive nature. We've been -- we've had great success over the last couple of years of working with OpEx type work, understanding what customers' needs are. And I'm going to point to a specific example that we talked about in the prepared remarks was we had a customer in Florida. And we've been -- for the last 2 or 3 years, we've been really working from an OpEx perspective, taking care of all their problems. That's been high-margin work as well, too. They get to the point, though, where they're thinking, that's a lot of money that we're spending. And they end up in this quick period of pause. And it's our job at that point to say, listen, I know you're spending a lot from an OpEx perspective. You're going to have to spend a lot from an OpEx perspective. But there's a reason that you're having that spend. And that developed ultimately into a capital project where we saw deterioration in the cooling system, and built something to get an important capital project with multiple phases to fix their long-term problem. So that's the type of relationship where we have that OpEx recurring spend. A lot of times that OpEx spend will turn into capital projects. And those capital projects are not projects that we're competing against multiple people. We're working on creating a pro forma, giving them cost certainty. And there's also an opportunity on -- a particular opportunity like that to earn really high margin as well, too. So it's a combination of continued improvement from Pioneer Power, running our playbook as well as this dynamic between OpEx, taking care of reactive relationships as well as developing proactive programs and projects as well, too. That's where we see kind of our key components going into next year. Operator: Our next question comes from the line of Gerry Sweeney with ROTH Capital Partners. Gerard Sweeney: I want to talk about -- it wouldn't be at the conference call if everybody didn't ask about gross margins -- or I'm sorry, about the organic growth. So obviously, there were some questions about hitting your range on organic growth. And you mentioned fourth quarter being relatively strong. For lack of a better term, are you anticipating a budget flush? And I've gone back and looked at a couple of fourth quarters versus 3Q and not every year, but there's been several years when you see a significant uptick in revenue. So I want to get your thoughts on how that's going to occur. Michael McCann: I don't know if I would characterize it as budget flush, but I would characterize it as -- it's a cross-section of two things that go on from our customer relationships, ensuring that they're properly spending their budgets as they exit the year. So there are opportunities where there's a lot of times [Technical Difficulty]. We're also thinking about what they're going to re-up next year as well, too. So it's a dynamic of completing budgets for '25 and even some of the budgets that have been delayed as well as what do I need to do in 2026. So it depends on the vertical. I think from a healthcare perspective, we have lots of conversations with customers from that perspective as well, too. It could be from a higher ed. Industrial manufacturing, those customers have been pretty consistent from a spend perspective as well, too. So it's really the dynamic between the two versus '25 versus '26. But the key nature of our work is being in a mission-critical facility. Then maybe they'll pause it for, but inevitably, they're going to have to spend, and it's our job to make sure that they spend it as well too. And so we're trying to manage that dynamic with them. Gerard Sweeney: Got it. How much visibility do you have in ODR? Like as of today, can you see out to the end of the year? Obviously, there could be some emergency work, et cetera. But what does visibility in ODR really look like? Michael McCann: Yes. We gave some additional information and color of this dynamic between 1/3 of the work being quick burning work and then 2/3 being smaller projects as well, too. And we hope that, that provides some additional color as well, too. The 1/3 work you traditionally know when it comes, there are some avenues of things that needs to happen, but there's relative consistency from that perspective as well, too. The 2/3 is fixed price project work, but it is relatively small in nature as well, too. So if we really look at where the customers are at, we focus on a core group of customers, understanding what their spend profiles as well, too. I think the other thing, too, that's part of the dynamic of the owner direct revenue is our ability that we have sales staff. The sales staff with certain pipelines dynamic with customers as well, too. So it really comes down to the 1/3, 2/3 as well as the dynamic of where the customers are from a budget perspective. As we -- I feel like we move into future years, we're going to continue to increase visibility from that perspective as well, too. Gerard Sweeney: Got it. Switching gears, you talked a little bit about local growth or developing relationships on the local level, which certainly has its benefits, but also looking to develop national relationships. How far along are you on the ladder on the sort of national relationship in terms of sales, building that out? There are different animals, local and national. Michael McCann: It's interesting. We've probably been -- when we first started out, we thought that this would go super quick. And we probably started with 4 or 5 years ago. And you realize like it takes time and you're cracking in different levels from a customer perspective. Big customers, it may not be C-suite or may be a couple of levels down. We've been at it for probably 4 or 5 years now. But this year, I think more than others, we've finally been in a position where they trust us, they've given us that pilot work project. And by the way, this work consists of running a facility program over multiple facilities. It could be project work, engineering work, staff augmentation we've done. So we've put all that hard work in there. And that's allowed us to say, okay, I'm going to give you a bigger piece of the budget. As an example, that $12 million of projects that came out of those facility assessments, we couldn't have got that 2 years ago. They wouldn't have trusted us at that point. A lot of times they're in a position where they've got to spend the dollars, they've gone through the work, and it's not really a matter of competition at that point. So we're starting to see a blueprint with healthcare. And we feel like we can apply that same blueprint to some of our other verticals as well, too, whether it's industrial manufacturing or data center and tech, we feel like there's a blueprint. So we're looking at those as well, too. And hopefully, we're looking at it as not taking as long because we're going to apply the same blueprint. But the key is that's acting as a trusted advisor through a professional service type offering and allowing us to make long-term decisions with them and being in a position when they have that spend that needs to happen. Operator: There are no further questions at this time. I'd like to pass the floor back over to Mike McCann for closing remarks. Michael McCann: In closing, our priorities as we close out 2025 are as following: continuing to drive top line growth, further expanding our customer relationships to turn technical sales into financial sales, ongoing successful integration of Pioneer in building our M&A pipeline. At Limbach, we're building a long-term business model designed to deliver durable demand over time. We're making strategic investments where others may not, and we bring a unique combination of an account focused, engineering expertise and the ability to execute those solutions directly with building owners. These relationships are rooted in a long-term partnership, where through consultative engagement, we're helping our clients develop multiyear capital plans that go beyond traditional backlog. We believe this differentiated business model positions us for sustained growth and risk-adjusted returns. We look forward to meeting and speaking with many of you before the end of the year. On December 2, we're attending the UBS Global Industrials and Transportation Conference in Florida. We hope to see some of you there. Thank you again for your interest in Limbach, and have a great rest of your day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Targa Resources Corporation Third Quarter 2025 Earnings Webcast and Presentation. [Operator Instructions] It is now my pleasure to turn the call over to Tristan Richardson, Investor Relations and Fundamentals. Please go ahead. Tristan Richardson: Thanks, Tina. Good morning, and welcome to the Third Quarter 2025 earnings call for Targa Resources Corp. The third quarter earnings release and a supplement presentation that accompany our call are available on our website at targaresources.com. Additionally, an updated investor presentation has also been posted to our website. Statements made during this call that might include Targa's expectations or predictions should be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from the those projected in forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our latest SEC filings. Our speakers for the call today will be Matt Meloy, Chief Executive Officer; Jen Kneale, President; and Will Byers, Chief Financial Officer. Additionally, members of Targa senior management will be available for Q&A, including Pat McDonie, President, Gathering and Processing; Scott Pryor, President, Logistics and Transportation; Bobby Muraro, Chief Commercial Officer; and Ben Branstetter, Senior Vice President, Downstream. I'll now turn the call over to Matt. Matt Meloy: Thanks, Tristan, and good morning. We had another outstanding quarter with record adjusted EBITDA, driven by record volumes across our footprint. With 3 quarters completed, we now expect our full year 2025 adjusted EBITDA will be around the top end of our previously provided guidance range. . Our Permian volumes grew more than 340 million cubic feet per day and nearly 700 million cubic feet per day compared to this time last year. Our Permian growth is driving additional NGL volumes through our integrated system as NGL volumes increased about 180,000 barrels per day compared to this time last year. Incrementally, the customer success we achieved in 2024 has started to show up in our volumes, some this year, but really adding to our longer-term confidence of continued Permian volume growth. Our customers' success has continued as our commercial team has added to our leading Permian G&P position with acreage dedications from new and existing customers in and around our footprint, further bolstering our long-term growth outlook. To accommodate this continued volume growth from our customers, in September, we announced several new growth projects, including our Speedway NGL transportation expansion, the Yeti gas processing plant in Texas in the Permian Delaware and Buffalo Run, an expansion of our Permian natural gas pipeline system. And today, we announced our next gas processing plant Copperhead in New Mexico in the Permian Delaware. Also, our previously announced Forza natural gas pipeline in the Delaware had a successful open season, and we are moving ahead with that project. We continue to expect meaningful long-term growth in Permian gas and NGL volumes across our footprint. Our conviction is supported by multiple factors, including the bottom-up forecast from our existing producer customers, our continued commercial success and the continued industry trend of rising gas to oil ratios. We have a lot of projects in progress, which means growth capital is elevated in 2025 and 2026, and these attractive investments will drive significant increases in adjusted EBITDA. Our chunkier downstream projects are set to come online in 2027. Both the Speedway NGL line and our larger LPG export expansion have sufficient capacity to handle our growing volumes for many years. Once these projects are online, we expect our downstream capital spending will be significantly lower for years to come, driving a substantial increase in free cash flow. And this expected increase in free cash flow will be durable, meaning even if we are in a stronger growth environment driving elevated spending on the G&P side, our downstream spending should still be modest. So in late 2027, our downstream NGL capital is expected to be significantly lower than today's and our adjusted EBITDA is expected to be much higher than today's. This results in a strong and growing free cash flow profile for years. This is what our team is working towards every day, execute our large capital projects in the near term while continuing to invest in high-return projects, leading to Targa's next transformation. A large investment-grade integrated NGL infrastructure company that provides industry-leading growth and generate significant free cash flow year after year. This is a value proposition we are excited to be a part of. This is our focus. And as we look out over the medium and long term, we expect to be in a unique position to grow adjusted EBITDA, grow common dividends per share, reduce share count generate significant and growing free cash flow and do this all with a strong investment-grade balance sheet. Before I turn the call over to Jen to go over our operations in more detail, I would like to thank the Targa team for their continued commitment to safety and execution and for consistently delivering reliable, high-quality service to our customers. Jennifer Kneale: Thanks, Matt. Let's talk about our operational results in more detail. Starting in the Permian, our natural gas inlet volumes averaged a record 6.6 billion cubic feet per day in the third quarter, representing an increase of 11% versus a year ago and strong sequential growth. In October, our Permian volumes were impacted by some producer shut-ins from low commodity prices and storms, but these volumes are now largely back online which we have taken into account and the updated color that we expect to be around the top end of our guidance range for adjusted EBITDA. The second half ramp that we are forecasting at the beginning of the year has materialized and we see at least 10% growth in our Permian volumes for 2025. And based on the visibility that we have today, we see 2026 as another year of strong low double-digit growth. In the Permian Midland, our Pembrook II plant came online during the third quarter and is running at high utilization. And in Permian Delaware, our Bull Moose II plant commenced operations recently in October. We expect our processing infrastructure currently under construction will be much needed at startup and our projects are on track with previously provided time lines. Largely driven by requests from our customers, we are continuing to build out our intra-basin residue capabilities in the Permian, which will help us manage tightness in natural gas egress from the basin until the next wave of takeaway comes online in 2026. The Bull Run Extension in the Delaware is expected to begin operations in the first quarter of 2027 and Buffalo Run, our Midland residue expansion is expected to be completed in stages and fully complete in early 2028. Our newly announced Forza pipeline, a 36-mile interstate natural gas pipeline to serve growing natural gas production in the Delaware Basin in New Mexico is expected to be in service in mid-2028 subject to receipt of necessary regulatory approvals. As demonstrated over the last number of years, we've taken a deliberate approach to enhance flow assurance and do an excellent job of managing takeaway for our customers, ensuring we have access to a wide portfolio of markets. The Blackcomb and Traverse pipeline where we have a 17.5% equity interest are currently under construction, and Blackcomb remains on track for the third quarter of 2026 and traversed for 2027. Shifting to our Logistics and Transportation segment, Targa's NGL pipeline transportation volumes averaged a record 1.02 million barrels per day. Our fractionation volumes ramped sharply in the third quarter, averaging a record 1.13 million barrels per day following the completion of planned maintenance at a portion of our fractionation facilities during part of the first and second quarters of the year. Our LPG export loadings averaged 12.5 million barrels per month during the third quarter. Given the anticipated growth in our Permian G&P business and corresponding announced [ plant additions ], the outlook for NGL supply growth in our system remains strong, and we have a number of key projects currently underway. In the Permian, our Delaware Express NGL Pipeline expansion remains on track to be complete in the second quarter of 2026. Our next fractionator in Mont Belvieu, Train 11 is expected to be complete in the second quarter of 2026 and Train 12 remains on track for the first quarter of 2027. Our LPG export expansion, which will increase our loading capacity to approximately 19 million barrels per month remains on track for the third quarter of 2027. Speedway, which will transport NGLs from the Permian to Mont Belvieu with an initial capacity of 500,000 barrels per day is expected to begin operations in the third quarter of 2027. Our existing NGL transportation system is running full. And with 5 Permian plants under construction, we will be leveraging third-party transportation ahead of Speedway coming online. This positions us to aggregate significant baseload volumes that we can transition to our NGL transportation system when Speedway begins operations, meaningfully derisking the project. Our existing contracts with our best-in-class customer base that allowed us to fill Grand Prix in 6 years will continue to drive the volume growth that will fill Speedway. We are well positioned operationally for the near, medium and long term and believe that our leading customer service-driven wellhead to water strategy puts us in excellent position to continue to execute for our customers and for our shareholders. Our strategy is unchanged as we execute the same core projects with strong returns along our integrated value chain in the same core areas where we have been building Targa for years. I will now turn the call over to Will to discuss our third quarter results, outlook and capital allocation. Will? William Byers: Thanks, Jen. Targa's reported adjusted EBITDA for the third quarter was $1.275 billion, a 19% increase from a year ago and a 10% increase sequentially. The sequential increase in adjusted EBITDA was attributable primarily to record Permian NGL transportation and fractionation volumes generating higher margin across our G&P and L&T segments. Given the strength of our 2025 performance, we now estimate full year 2025 adjusted EBITDA to be around the top end of our $4.65 billion to $4.85 billion range. At the end of the third quarter, we had $2.3 billion of available liquidity and our pro forma consolidated leverage ratio was approximately 3.6x, comfortably within our long-term leverage ratio target range of 3 to 4x. As we provided in September, we estimate net growth capital spending for 2025 to be approximately $3.3 billion and we continue to estimate 2025 net maintenance capital spending of $250 million. We announced today, we intend to recommend to Targa's directors to increase our annual common dividend to $5 per common share. This incremental $1 per share equates to a 25% increase to the 2025 level. If approved, it would be effective for the first quarter of 2026 and payable in May 2026. We remain active in our opportunistic share repurchase program as part of our all-of-the-above capital allocation strategy. During the third quarter, we repurchased $156 million in common shares, bringing year-to-date repurchases to $642 million, including purchases made subsequent to the end of the third quarter. We are in excellent financial shape with a strong and flexible balance sheet, and we are well positioned to continue to create value for our shareholders. And with that, I will turn the call back to Tristan. Tristan Richardson: Thanks, Will. For Q&A, we ask that you limit to one question and one follow-up and reenter the queue if you have additional questions. Tina? Operator: And our first question comes from the line of Jeremy Tonet with JPMorgan. . Jeremy Tonet: Was just curious with you guys trending towards the top end of the guide here. Just wondering how things have unfolded versus original expectations. Is this more wells coming on to the system? Or is this better productivity per well? Or what factors would you say are driving this upside versus original expectations? Jennifer Kneale: Jeremy, this is Jen. For 2025, when we gave our guidance back in February, our biggest caution was that it was predicated on a big back half volume ramp based on the best available information that we had from our producers at the time. I think those volumes have largely materialized consistent to better than our expectations than we initially forecasted, and that's what's driving record Permian NGL transportation and fractionation volumes and providing us with meaningful tailwinds. And we've also seen a fair bit of volatility across the year, which has provided us with some incremental natural gas and NGL marketing opportunities. We don't typically forecast those when we give guidance. So the fact that we're outperforming a little bit relative to the fact that we really didn't have anything material in our guidance is also a little bit of a tailwind this year. But I'd say the producer is largely performing on track to a little bit better than expectations. We have not seen a material change or shift in activity levels on our systems. And I think that's really supporting the strength of performance that we've seen really across this year. But in particular, you saw a big ramp Q3 relative to Q2. You saw a big ramp Q2 relative to Q1. And then as we look forward to 2026, it just really puts us in a good position ending this year as well. . Jeremy Tonet: Got it. That's helpful. And I appreciate the commentary with regards to 2026 with a low double-digit growth there. Not to get too far ahead of ourselves here, but some of your key producers have put out kind of long-dated looks into what the growth would look like in the Permian. And so just wondering what sense that provides for you as far as kind of more a medium-term look as far as how you think things could unfold for growth. Matt Meloy: Jeremy, this is Matt. I think we have the best-in-class footprint in the Permian across both the Midland and the Delaware with really active, high-quality producers. And so when we look out, not only in 2026, but in 2027 and beyond, we get bottoms-up forecast from our producers. And I think that really underpins the confidence we have about continuing to grow even with kind of a flat to even modestly declining rig count, our producers are giving us -- they're well scheduled, and it gives us a lot of confidence as we get into '26 and looking at our locations and longer-term growth plans, it really kind of underpins our multiyear outlook. . Operator: Our next question comes from the line of Spiro Dounis with Citi. Spiro Dounis: First question, I want to start with operational leverage, and maybe Matt go back to your comments just around that free cash flow inflection that's coming. I guess on my math, I think I've got another 1 to 2 more processing plant announcements before you need another frac. Speedway, of course, has plenty of headroom here, we think. But in terms of the rest of the system, any other expansions to kind of have on our radar, as you keep adding these processing plants? Or does it feel like we're finally heading to that period where you could benefit from some of the white space on the system? . Matt Meloy: Yes. Good question. And that is, as we kind of look out over the next couple of years, we do see that we're calling really a transformation as we get into the back half of '27. Once Speedway comes on once our larger scale LPG export comes on, the downstream spending should be relatively modest. And really, at that point, only include ratable fracs and that led to be dependent upon how our G&P is growing between now and '27 and as we're looking out into '28, '29. So as you're thinking about multiyear model, we've announced Trains 11 and 12. Those are progressing well. We're evaluating Train 13 and when we'll need to announce that and when that one is going to come on. But for the downstream spending, I think on Speedway and our export comes on, it's really going to be ratable fracs through our system. And so when you look out in the back half of '27 with significantly higher EBITDA, even if we're in a strong growth environment rent on the G&P side, just the fact that we have significantly higher EBITDA and lower downstream spending is going to put us in a really good position to have a free cash flow profile for years to come. Spiro Dounis: Great. That's helpful. Second question, maybe just going to intra-basin residue gas, seeing you lean into that part of the market a little bit more. So just wondering, can you walk us through maybe what that opportunity set looks like and how big that could be? And if we should expect the same kind of 5x to 6x return profile that we see across the rest of the business? . Robert Muraro: Spiro, this is Bobby. The way we work on these things is in coordination with our producers on everything. And when you look at what drives that asset -- that infrastructure investment for us, it's coordinated with our producers on where we can add reliability where we can add redundancy to our plants and then where we can make a really good fee and pushing gas through those pipes. At the end of the day, is that basin has grown and you've seen gas takeaway be more problematic from an individual pipe that is under -- that it's getting worked on at some point in time, and it affects a plant, we end up being able to move gas around the basin and put it into other available capacity, which both our producers and the producers we market for, the producers that market their own gas and the ones we market gas for, look for that optionality in the portfolio. And so ultimately, we've been building these little steps for a little while, we just announced the kind of complete picture recently, and it's all been underwritten by volumes that are flowing on our system that both we market and our big customers that market their own gas market. So -- and when I think about what the investment multiple is, it's really a high-quality return relative to everything we do. So it smells a lot like all of our other reports that we put out on ROIC. So I think it fits in really well with just to point capital in spots where we have on volumes and customers that want it and at similar returns to the rest of our business. Operator: Our next question is from the line of Theresa Chen with Barclays. . Theresa Chen: We have experienced a challenging environment for some time at this point, marked by bearish sentiment on liquids prices and broader macro uncertainty, you've delivered strong results and even guided towards the upper end of your annual guidance range, which underscores the solid momentum that you're seeing. But at the same time, your recent project announcements have drawn scrutiny with some questioning why you didn't leverage or even choose to lever third-party NGL infrastructure for longer versus investing now to increase capacity across your own system. Could you explain the rationale behind this decision and provide additional context supporting your strategy? . Jennifer Kneale: Theresa, this is Jen. I think that we really do try to be very much capital efficient across the portfolio. And what we've tried to do is essentially drop breadcrumbs as we've gone through the last couple of years. And as we've added processing additions continue to have commercial success that's been in addition to the foundational millions of acres already dedicated to us that was going to drive a lot of incremental growth on our system, drop breadcrumbs that Grand Prix was selling quickly, and we are trying very much to be capital efficient around it. We've talked about the fact that we've done third-party offload deals. And that's part of what you'll see in 2026, we'll have some more offload fees than we've had before. But part of what we're doing there is not that dissimilar to what we did with Grand Prix, which was we derisked the investment by -- at the time that the project will come online with Speedway, we will have already flowing volumes that we can move on to our pipeline. At the end of the day, we are in the business of providing the best-in-class operational support for our producer customers. And we think we do that really well from the wellhead all the way to the water. And an important part of that is being able to operate our assets, being able to leverage our integrated footprint, being able to provide our producers with flexibility and fungibility and redundancy. And at the end of the day, be able to completely derisk our enterprise and best position Targa to create value for our shareholders. And that's part of what we believe we're doing here. We've got 5 plants that are in progress. That's going to be a lot of incremental NGLs that we will need to move on our system. And what we will do is we will utilize third-party transportation for a period of time that we're comfortable with. And then again, we will baseload our next investment with those already flowing volumes and then we'll have operating leverage to accommodate the growth from there. And we just believe that, that combination puts us in the best position again, to both deliver for our customers and also to deliver for our shareholders. . Theresa Chen: Excellent. And a follow-up question on the intra-basin residue strategy. This clearly has become a key area of investment. Where do you anticipate the next bottlenecks to be within the Permian? . Robert Muraro: This is Bobby. When I think about the bottlenecks in the Permian, it kind of goes to plant specific, which is what that header system is for at times of interruptions on long-haul pipes. But when I think about takeaway on residue in particular, and you may be asking about more than residue, but it's obviously extremely tight right now with where basis has gone every time there's bottle and a long-haul pipe. But we're excited about the end of '26 with 2 pipes coming online and material capacity. But we've been growing fast, and I think those pipes will be not only needed but well utilized when they come online. Operator: Next question comes from the line of Keith Stanley with Wolfe Research. Keith Stanley: So you're pointing to around the top end of the guidance range for the year, which at the exact top end would imply EBITDA is down in Q4 versus Q3? Or are there any headwinds to be aware of? You cite some of the October shut-ins, just how to think about Q4 growth relative to Q3? Jennifer Kneale: Keith, this is Jen. I'd say that I think we tend to be a conservative bunch. So I'll start with that. And I'd say that we feel really good about setting another year of record EBITDA in 2025. I think a little bit of the conservatism is borne out of the fact that we've got 2 months to go in the year. We did see some shut-ins from lower commodity prices in October, which we haven't really seen before, there's continued maintenance on a number of natural gas pipes out of the Permian expected for November. And so a little bit, it's going to be what are the implications of that. Now what's great is we've got a little bit of a natural offset where, to the extent we've got weakness in Waha pricing, we're able to leverage our extensive footprint to benefit on the marketing side. . But it's a little bit of just some conservatism as we go through the next couple of months, which may be choppy. But I think the key point is we are really well positioned. And it's probably likelier that we're above the top end of the range than below the top end of the range. But with that conservatism, just felt comfortable saying that we felt we'd be around the top end. . Keith Stanley: Got it. Other question just on the frac volumes. So Q3 was obviously up, I think it was 17% quarter-over-quarter. Should we think of that as a good run rate from here? Or did you have a lot of unfracked inventory from the maintenance work earlier in the year that boosted Q3. . Unknown Executive: Sure, yes. This is Ben. You're right, we did have a turnaround in the first and second quarters that really impacted us to essentially a frac down in terms of available frac capacity. And with the fracs fully back online in the third quarter and the turnaround going well, we were essentially full. And I'd just say, we're very much looking forward to Train 11 and Train 12 coming online, and those will come on highly utilized. . Operator: Our next question comes from the line of Michael Blum with Wells Fargo. . Michael Blum: Can you discuss the decision to increase the dividend 25% next year versus leaning more heavily into buybacks? I imagine you haven't been too thrilled with the recent stock price performance given the strong underlying performance of the business. So I just wanted to get your thoughts how you're weighing between dividends and buybacks. . Matt Meloy: Yes. Michael, we've kind of talked about doing all of the above approach. And when we just look out at our forecast over multiple years, we have a lot of room to meaningfully increase the dividend. So it is a little bit more heart than science. We talk to our Board and say, what is a good balanced approach to increasing the dividend and also being able to have a strong balance sheet to be opportunistic with share repurchases. You've seen us pretty active so far this year on share repurchases. I think that's going to continue to be the framework going forward as we plan to be opportunistic with our share repurchases. It will bounce around from quarter-to-quarter and year to year, but I think that will be part of our return of capital. So I really think we can do both. I think the dividend growth that we're providing is still something we can look out over multiple years and continue to grow it even from here. And I think that's just supported by our underlying fundamentals in our business of growing EBITDA and free cash flow generation going forward. . Michael Blum: Okay. Makes sense. And then I just wanted to ask on LPG exports. Would you say volumes for this quarter were basically seasonally in line with your expectations? And can you give us an update on end market demand and specifically where you might be seeing areas of strength or weakness across different regions? . D. Pryor: Michael, this is Scott. I would say that typically, throughout the year, at times, the second and third quarter volumes dip a little bit relative to what we see in the fourth quarter and the first quarter of each year. Fundamentally, nothing has changed on the export front. We continue to be highly contracted. The demand is growing really across the globe. There is also some seasonality as it relates to the kind of the product mix relative to propane and butane. But we continue to add contracts and we got some we will get some benefit in the fourth quarter with the small balancing project that is now online that gives us a lot of flexibility and provide some reliability to our export facility. But really, when you look our export project that we've got coming online in the third quarter of 2027, that's related to expected global demand that is going to continue to grow across various regions. We're going to see increased production from our upstream with the number of plants that we've got coming online. Obviously, Grand Prix and Speedway Pipeline, providing products to our fractionation footprint, which is growing. And then the product itself will just be priced to move across our export dock can provide a lot of operating leverage that we will have going forward. So again, the fundamentals have not changed. The demand is continuing to grow and we'll be a broad participant across various regions across the globe. Operator: Your next question comes from the line of Manav Gupta with UBS. Manav Gupta: I wanted to ask you about the Permian sour gas opportunity. You guys were the first mover. You are the biggest processor of Permian sour gas. But as your returns have been very good. Some others are trying to now chase. And I'm just trying to understand the competitive advantage over there. And the growth and opportunity that you see in the that region of Eddy and Lea in terms of Permian sour gas, what are you seeing out there? If you could talk a little bit about that. . Patrick McDonie: Yes. I think what we said on the last call is that we implemented our sour gas strategy many years ago. We saw the need, we saw the economic benefit of few of the benches in the Delaware specifically that had sour gas, mainly H2S and CO2, that again, were economic benches that weren't getting developed because of the lack of sour gas infrastructure. So Again, a long time ago, we started investing in the sour gas treating facilities. We began tying up acreage as sour gas began to get developed. So we were really a front runner in front of a lot of other people and were able to get a lot of acreage tied up. We continue to see the development now of those ventures. So our sour gas production continues to grow. Certainly, other people have stepped in to that realm because they've been, frankly, unable to participate in the growth in those benches without that capability. So I'd say we were a first mover. We're well positioned. We've tied up a lot of acreage, and we're seeing the benefit of that strategy unfold and continue to unfold over coming years. . Matt Meloy: Yes. And I'd just add on to that, too. I mean we have a system that has fungibility and redundancy really unlike any systems around. I mean our Red Hill system can handle sour gas. Our Bull Moose Wildcat complex can handle sour gas, and we have a 30-inch wet gas line between those that can move volumes in between, and we have multiple AGI wells at several different facilities across Targa. So we offer a service to our producer customers that's really unmatched. . Manav Gupta: Just my quick follow-up is on the Forza project. I think you mentioned you had a successful open season. Our understanding is it's a lower CapEx project, so the returns would be very attractive. Could you talk a little bit about this particular project? Jennifer Kneale: I mean Forza is a 36-mile pipeline interstate. So it will allow us to move volumes from New Mexico down into Texas to more liquid markets. I'd say that it's a project that we're excited about, really driven by producer interest. It's in addition to the other projects that we have underway that are really just focused on how can we continue to provide the best services to our customers that allows us to aggregate volumes in different places and then move them to the best markets on behalf of our producers. . So I think returns, as Bobby articulated earlier around our broad residue strategy are very much commensurate with how we invest across the rest of our portfolio. But what we like about this strategy is it's already taking existing volumes plus some of the growth we have from some of our new plants that are in progress and underway and really leverage all of that additional volume to, again, provide more flexibility to our producer customers. And at the end of the day, it's really that best-in-class service that we think is what differentiates us relative to others. Operator: Next question comes from the line of AJ O'Donnell with TPH. Andrew John O'Donnell: I wanted to go back to maybe a follow on to something that Spiro asked earlier in the call, just about lumpier downstream projects and just overall CapEx. Looking at the Speedway project, just curious on -- given your volumes have been trending above estimates and continue to perform pretty well, at what point in time do you think you would anticipate needing to expand the pipe to the full 1 million per day design capacity? And if it was sanctioned, is that something that you would pursue the capacity all at once? Or could it be a phased approach? Matt Meloy: Yes. No, good question. That would be a good CapEx project for us to undertake for sure, a great CapEx project because most of the capital goes into getting that initial capacity to move from 500,000 barrels up to 1 million is really just putting on pump stations. And so as we see volume growth it would be a fraction of the capital compared to the initial capacity. So we'd be able to highly economically just layer on some pump stations to go from 500,000 to 1 million. And I think we'll just do that ratably over time as opposed to announce, we're going to go from 500,000 to 1 million. It's likely we'll stage them in over time as volumes ramp. Jennifer Kneale: Very much like we did with Grand Prix. Matt Meloy: Yes, very much like Grand Prix. Right. Andrew John O'Donnell: Okay. I appreciate that. And then maybe if I could just shift to the Mid-Con. I think we've seen some commentary from producers and one of your peers specifically talk about activity moving to gassier areas of the basin. Just curious what you guys are seeing on your system and how, if at all, that's impacted your thoughts on your central region platform. Patrick McDonie: This is Pat. What I would say is that we have seen some levels of activity that we haven't seen over the last 2 to 3 years. I wouldn't say there's a huge surge in activity. Certainly, some of our key producers are starting to poke around and do a little bit more. Our Arkoma assets, our South Oak assets is what we call them. We're seeing increased activity and opportunity. Do we see it as a huge growth opportunity in the short term? No. Over time, if gas prices get a little stronger, certainly, I think that becomes an opportunity. Obviously, we have plant capacity. So our capital investment and our ability to get returns on that is very favorable. So I would say there is an increase in activity. It's not huge. Hopefully, it grows over the coming years, and we're well situated to take advantage of that. Operator: Your next question comes from the line of John Mackay with Goldman Sachs. . John Mackay: Just 1 quick one for me. Kind of sticking on Permian activity levels and the macro. Earlier this year, kind of had a couple of conversations about how you'd expect the Midland versus the Delaware to ramp. Just curious kind of where that sits now? What you're hearing from your customer sets on either side, and whether or not that view, I guess, before that kind of Midland plans would ramp quickly, Delaware could take some time, whether that's shifted at all? . Matt Meloy: Yes. I mean we've seen, as Jen said, we've seen really good growth across our footprint this year, more or less in line with our expectations. And I think even as we look out into 2016, it's kind of progressing as we had thought. I think what you're seeing now is a little bit and you saw it this quarter, a little bit stronger growth rate in the Delaware. So as we're kind of moving out, I think we're going to see good strong growth in really both sides of the basin, both Midland and the Delaware, but you're seeing a little bit more strength in the Delaware. So I think both of them are going to be needed at startup. We have had the benefit of just with our expansive system on the Midland side, when you bring up a plant at depressures and you end up getting some flush production that fills it up. I think we're starting to see, as we're building out our Delaware, it's starting to look more like that. So I think we're really optimistic on all the plants going in to be highly utilized. John Mackay: Is clear. And I'll actually ask a second one. Just a look across the basin, certain pockets are getting more mature than others. Are you starting to see kind of big swings in GORs kind of from one region to another? And maybe just a broader comment on kind of how you'd expect that to progress from here? . Jennifer Kneale: I wouldn't say that we're seeing broad swings or big swings in GORs across the footprint. I mean, a little bit is producer-by-producer and area-by-area dependent. But I'd say that what we continue to see is a broad theme of increasing GORs, which were certainly a beneficiary of. And we're not really seeing any changes to that, if anything, it's just continuing to strengthen. . Operator: Your next question comes from the line of Jean Ann Salisbury with Bank of America. Jean Ann Salisbury: Just 1 for me. You all mentioned on the last call that processing plant costs had risen. I think you gave a new range of $225 million to $275 million. I think you saw at the time, it was partly for more sour gas and the mix as well as tariffs. But I guess my question is if the cost escalation is causing any change to your margin expectations or if you can pass most of that through. Matt Meloy: Yes. So, no, I think that range that we gave is still pretty good range. I think the sour end, you're probably in the $250 million, maybe a little bit more first our plants and you're probably in the low end of that range if you're putting in a sweet plan, depending on how much treating you want to put in, but it's somewhere around that range. . Capital costs aren't a direct pass back to the producers. There are some fuel and operating costs that do get passed back. But the capital costs, those are borne by Targa, and it just goes into our overall rates that we're charging and how competitive we are for new volumes in the Permian. So still had a lot of commercial success. We're still earning good returns through our integrated systems. So I still see us being highly competitive at those capital costs. Operator: Our next question comes from the line of Jason Gabelman with TD Cowen. Jason Gabelman: I want to about the competitive dynamics in the Permian Basin. You mentioned you secured additional acreage dedications over the past quarter. And I'm wondering, given kind of less producers growing other basins, obviously, other oil basins not growing. How is the competitive landscape for going after that Permian acreage? Is it becoming more competitive there? And are you seeing some of, kind of, the fees that you're able to extract shrinking? Or are you able to leverage some of your competitive advantages to maintain kind of a premium on the fees? . Jennifer Kneale: Jason, this is Jen. I'd say that it's always competitive. It's always been competitive. It's likely to continue to always be competitive. I think that our business model is to execute the difficult elements of the gathering and processing business and do that really, really well and create a lot of fungibility, redundancy, reliability for our producer customers. And I think that, that's part of what separates us. We've talked a little bit about our sour gas strategy and how we've been sort of a big first mover in that over many, many years. So now we've got more than a 2.5 Bcf a day capacity on the sour side, 7 AGI wells, really well positioned to not only service our existing customers, but to the extent that there are any customers that aren't getting the service that they otherwise need, we can sometimes step in and help as well. So I think that from our perspective, it really starts with the assets and the systems that we've built out. And then that wellhead to water, value proposition that we're able to provide, I do think we just do it very well. We've been doing this for a long time. We take it very seriously. We invest on behalf of our producers across cycles. We try to make sure that we are exceptional partners to our producers really work well alongside of them. Again, I think that's part of the flexibility that we offer. And then we've just got some inherent advantages because of the size of our system and the vastness of our system that we're able to step out into areas to the extent it makes sense, more easily sometimes than others or we're able to utilize the fact that we've got more than 40 plants interconnected, many of them interconnected to, again, help our producers where they may need it. So I really think it's what we already have in place and then just a continued strong commercial effort by what I think is the best commercial team in the business to go and continue to identify ways to both work with our existing customers and do more business with them and then, of course, continue to chase new opportunities too. And that's part of what you're seeing. We're not resting on our laurels that we already have millions of acres dedicated to target in the Permian or in other areas. We're continuing to chase new business because we think we can do a really good job of helping our producer customers, and we believe we offer a differentiated service. And so we'll continue to chase that. And again, are having good commercial success that at the end of the day, ends up being additive to that really strong foundation of dedicated contracts that we already have in place. . Jason Gabelman: Great. That's really helpful color. And then my other question, just kind of following on to what Jean An just asked. Impact from tariffs and kind of more broadly, how you feel about that $1.6 billion cost for the Speedway pipe. Is that kind of fully baked? Or do you have perhaps some contingency baked in there? Or is there a potential for tariffs to further increase that cost? Jennifer Kneale: Jason, this is Jen again. I think we feel really good about it. Our engineering team, our supply team did an exceptional job of procuring pipe long before we made the announcement that we were moving forward fully with the project publicly. And so I think that, that means that we are in a really good position to deliver, hopefully, under budget to any of our folks that are listening. But at the end of the day, I feel good about the budget that we put out there. We always do have some contingency in all of the projects that we move forward with. And then I think our team does a really good job of trying to ultimately beat that and not use that contingency. So similar to all of our projects, we just have a really strong team that's working day in and day out to try to outperform relative to the expectations that they've provided us with. And we feel really good about the Speedway project. Operator: Next question comes from the line of Sunil Sibal with Seaport Global Securities. . Sunil Sibal: So I think last year, your team had given a kind of a longer-term steady-state CapEx number of $1.7 billion. I was curious, where does that number stand today with the growth in the portfolio that we're seeing. Jennifer Kneale: Sunil, this is Jen. I think the frameworks that we provided back in February 2024 are very much still helpful. And I think that if you tried to mark-to-market, which, of course, we haven't done publicly, but if you just look at some of the pieces, one, we've seen some costs a little bit higher. We've just been received a couple of questions around tariffs. And so you've got costs that are a little bit higher. We, of course, have a much bigger footprint today than we did when we published that back in February of 2024. But we're not talking about meaningfully higher, you call it modestly higher. And then the other additives are when we came out with that framework, we didn't have residue spending, and we didn't have CCS--CCUS spending included in that. And again, we've got some modest projects underway on both fronts there. So I'd say that it's very much still helpful. I think that particularly when you think about what Matt talked about, which is a much higher EBITDA base now, even if the capital is a little bit higher than what we put out back in February 2024, it just highlights that across environments, we have a very robust, very strong and strengthening free cash flow profile. . Matt Meloy: Yes. And just to add on to that, too, the framework we've put out was a multiyear average. So kind of baked into that $1.7 billion capital number was an average spending for downstream. We're going to be above average here kind of through Speedway coming on. And then once Speedway comes on, we'll be less than that average. So it will be a little bit higher in the short term and in the medium term will be below. And then it really just be dependent on the G&P side of things. . Sunil Sibal: Okay. And then it seems like there has been some growing interest among the data center community to tap on to the Permian gas. I was curious, is that something that has kind of crossed your interest? And if you have any thoughts on that? . Jennifer Kneale: This is Jen, Sunil. I'd just say that we're having a ton of conversations with a lot of people. From our perspective, given our position in the Permian and the amount of natural gas that we aggregate and transport every day, we're well positioned to help supply the increasing demand for natural gas and the tailwinds of incremental demand for power generation, for data centers, alongside the doubling of LNG capacity in the U.S., those are all really good for Targa. And we've got a lot of conversations underway about how we can help customers all the way along the value chain. Operator: Our final question comes from the line of Brandon Bingham with Scotiabank. . Brandon Bingham: Just wanted to maybe go to the NGLs outlook. You announced a plant for 2027 today, not long after announcing the prior one. So is it just possible that maybe some of those illustrative plans outlined in the slides starting in 2028 could be pulled forward into earlier years? Or is maybe they're a way to, instead of a 1 to 2 a year cadence that might shift to 2 to 3 for a little bit? Just trying to figure out some of the potential upside to that, call it, medium, longer-term outlook. . Jennifer Kneale: Brandon, this is Jen. Ultimately, the medium- and longer-term outlook will be supported by activity from our producers, both on all the contracts that we already have in place and then our commercial execution going forward. I think what you saw us talk about last fall was that we were needing to accelerate some plants because of that incremental commercial success that we've had. I think you've heard us talk today about continued commercial success, but ultimately, over the medium and long term, are we continuing to talk about low double-digit growth? Are we talking about high single-digit growth? Ultimately, that's what will drive the gathering and processing spending, both for gathering lines, compression as well as plants and dictate the cadence of plant adds that we need to think about going forward. . Brandon Bingham: 9 Okay. That makes sense. And then just maybe shifting over to the free cash flow inflection, call it, late '27 into '28. And just how we can maybe think about the payout target of 40% to 50% and how that might shape up through that point? And then if maybe we're understanding it's a multiyear outlook and it's an average, just if there might be some catch-up that could happen once that free cash flow inflection hits, if the payout ratio might be a little bit below over the next couple of years in light of the anticipated spending profile? Matt Meloy: Yes. As we outlined 40% to 50% return of capital through a combination of growing dividend and opportunistic share repurchases. You're right, it's over multiple years. So there could be some years we're on the low end or even lower than it. And some years, we're on the high end and above it. I think once we get into that back half of '27 when Speedway and our export projects are completed, we're going to be in a really good position to be deciding what to do with all the free cash flow. I think you'll see continued dividend increases. I think you'll see continued share -- opportunistic share repurchases. And we've kind of talked about it was years ago. We talked about being at the lower end of our leverage ratio range and then giving ourselves a little more flexibility and perhaps lowering our leverage ratio a bit is also something -- our primary focus will be continuing to invest in the business. So organic growth, returning capital to shareholders and reducing leverage. I think we'll be in a good position to do all of those things. Operator: With no further questions in queue. I will now hand the call back to Tristan Richardson for closing remarks. Tristan Richardson: Great. Thanks to everyone for joining the call this morning, and we appreciate your interest in Targa Resources. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Radian Group Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Dan Kobell, EVP Finance. Please go ahead. Dan Kobell: Thank you, and welcome to Radian's Third Quarter 2025 Conference Call. Our press release, which contains Radian's financial results for the quarter, was issued yesterday evening and is posted to the Investors section of our website at radian.com. This press release includes certain non-GAAP measures that may be discussed during today's call, including adjusted pretax operating income, adjusted diluted net operating income per share and adjusted net operating return on equity. A complete description of all of our non-GAAP measures may be found in press release Exhibit F and reconciliations of these measures to the most comparable GAAP measures may be found in press release Exhibit G. These exhibits are on the Investors section of our website. Today, you will hear from Rick Thornberry, Radian's Chief Executive Officer; and Sumita Pandit, President and Chief Financial Officer. Before we begin, I would like to remind you that comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our 2024 Form 10-K and subsequent reports filed with the SEC. These are also available on our website. Now I would like to turn the call over to Rick. Richard Thornberry: Good morning, and thank you all for joining us today. I am pleased to report another quarter of strong performance for Radian. Our mortgage insurance business continues to deliver excellent results, fueled by our large, high-quality in-force portfolio with strong persistency and credit performance. The performance of our portfolio reflects the excellent credit characteristics of the new business we are writing, leveraging our proprietary RADAR Rates platform. In addition to the strong performance of our Mortgage Insurance business, we continue to deploy capital with discipline and strategic focus. We have a long track record of consistently maintaining strong holding company liquidity, efficiently distributing capital from Radian Guaranty to Radian Group, and delivering value back to stockholders, including the highest yielding dividend in the industry. Since 2017, we have returned nearly $3 billion of capital to stockholders through dividends and share repurchases, while continuing to explore opportunities for long-term growth that meet our return objectives, including our planned acquisition of Inigo. Sumita will cover the highlights of our financial results, including the impact of our September announcement regarding the divestiture plan for our mortgage conduit, title and real estate services businesses. The process is well underway, and has attracted interest from numerous potential buyers for each of the 3 businesses. We have engaged Citizens JMP to lead the sale of the title and real estate services businesses and Piper Sandler to lead the sale of the mortgage conduit. As we noted in September, we expect to complete the divestiture process by the third quarter of next year. During this time, we have strengthened our capital and liquidity position, grown our high-quality mortgage insurance portfolio, invested in our proprietary data and analytics platforms and leveraged the deep experience of our exceptional team. As part of our ongoing commitment to long-term growth and value creation, we have spent considerable time evaluating different paths to strategically diversify our business. We concluded that the highest value path was to position our company for continued growth as a global multiline specialty insurer. This led to our decision to acquire Inigo. The purchase price of $1.7 billion will be cash funded from available liquidity sources and excess capital with no equity raised. Along with liquidity at holdco, the funding for the deal includes a unique and creative financing structure of $600 million that will be provided by Radian Guaranty to Radian Group through an intercompany note with a 10-year term. We believe the valuation for the deal is attractive at 1.5x projected 2025 tangible equity. This acquisition, along with the divestiture plan I mentioned earlier, provides us with a clear strategic path for the future as we transform from a leading U.S. mortgage insurer to a global multiline specialty insurer. There are several reasons we were attracted to Inigo. The company was founded by highly respected industry veterans with decades of experience in the Lloyd's market who turned their deep industry experience into a successful and scaled business. They have attracted an exceptional team who share the founder's entrepreneurial spirit and a shared commitment to radical simplicity and disciplined underwriting. As we've spent time with the team, we continue to be impressed by the people and the business they have built. We are excited to partner with this group of highly experienced leaders with a strong track record of building and managing successful specialty insurance and reinsurance businesses. This highly talented team will continue to lead Inigo post close. The Inigo team aligns well with our core strengths and the cultural match is strong. This makes them a natural fit that complements Radian's Mortgage Insurance business. And similar to Radian, Inigo is driven by data science. It shapes everything they do, how they make decisions and how they think about risk. We share this data-first mindset as well as an unwavering focus on disciplined underwriting. Our team is working closely with the Inigo team to complete this transaction, which is on track to close in the first quarter of 2026. As we look to the future, we are excited about what we can accomplish together. Radian's transformation from a leading U.S. mortgage insurer into a global multiline specialty insurer is expected to increase our addressable market for continuing operations by a factor of 12, providing flexibility to deploy capital across multiple insurance lines through various business cycles. We believe this combination also offers meaningful capital synergies as we go forward. By allocating our capital across strong and uncorrelated businesses, we can focus on putting our capital to work where we see the greatest opportunity for economic value and profitable growth. We look forward to updating you on the Inigo transaction, our divestiture progress and the execution of our go-forward strategy. Sumita will now cover the details of our financial and capital positions. Sumita Pandit: Thanks, Rick, and good morning to you all. As Rick mentioned in his opening remarks, Radian is committed to long-term growth and value creation, and we have spent considerable time evaluating different strategic paths. Our objective is to build on our foundation and core strengths. With this objective in mind, we determined that the right strategic path was to build Radian into the future as a global multiline specialty insurer by acquiring Inigo. As a result of the strategic change in the third quarter of 2025, we've also announced a divestiture plan for our mortgage conduit, title and real estate service businesses. We've reclassified these businesses as held for sale on our balance sheet and now reflect their results as discontinued operations in our income statement. All prior periods have been revised for these changes and the impact of the accounting changes are presented on Slide 38 of our earnings presentation. Now let's discuss results of our continuing operations, which demonstrate another strong quarter of performance. In the third quarter, we achieved net income from continuing operations of $153 million or $1.11 per diluted share, the same as the second quarter. Net income inclusive of discontinued operations was $141 million in the third quarter. We generated a return on equity of 12.4%, including discontinued operations. The ROE for our continuing operations is 100 basis points higher at 13.4%. We grew book value per share 9% year-over-year to $34.34. This book value per share growth is in addition to our regular stockholder dividends, which were $35 million during the quarter. Turning now to the key drivers of our results, which highlight the consistency, balance and resiliency of our Mortgage Insurance business model. Our total revenues continued to be strong in the third quarter at $303 million. Slides 15 through 17 in our presentation include details on our mortgage insurance in-force portfolio as well as other key factors impacting our net premiums earned. We generated $237 million in net premiums earned in the quarter, which is the highest level in over 3 years. Our large high-quality mortgage insurance in-force portfolio grew to another all-time high of $281 billion. We wrote $15.5 billion of new insurance written in the third quarter of 2025, a 15% increase compared to the same period last year. As shown on Slide 15, our persistency rate remained strong at 84% this quarter. We remain focused on writing NIW that we believe will generate future earnings and economic value while effectively maintaining the portfolio's health, balance and profitability. As of the end of the third quarter, approximately half of our insurance in-force portfolio had a mortgage rate of 5% or lower. Given current mortgage interest rates, these policies are less likely to cancel due to refinancing in the near term, and we, therefore, continue to expect our persistency rate to remain strong. As shown on Slide 17, the in-force premium yield for our mortgage insurance portfolio remained stable as expected at 38 basis points. With strong persistency rates and the current industry pricing environment, we expect the in-force premium yield generally remain stable for the remainder of the year as well. As shown on Slide 18, our investment portfolio of $6 billion consists of well-diversified, highly rated securities and other high-quality assets. For the quarter, we generated net investment income of $63 million. Our provision for losses and related credit trends continue to be positive with strong cure activity and very low claim levels. On Slide 21, we provide trends for our primary default inventory. The number of new defaults in the third quarter was approximately 13,400, a decline of 2% from the same period a year ago. As expected, the number of total defaults increased in the third quarter to approximately 24,000 loans at quarter end, resulting in a portfolio default rate of 2.42%. This increase in total defaults reflects normal seasonal trends and the expected continued seasoning of our large insurance in-force portfolio. As we noted in the past, our new defaults continue to contain significant embedded equity, which has been a key driver of recent favorable credit trends, including higher cure rates and reduced severity for policies that result in claim submission. As shown on Slide 22, our cure trends have been very consistent and positive in recent periods, meaningfully exceeding our initial default to claim expectations. Cure rates in the third quarter exhibited typical seasonal trends in line with similar periods from prior years. We continue to closely monitor the recent news and stress seen in different credit asset classes like credit cards and subprime auto. However, the loans in our portfolio and loans in the broader conventional mortgage segment continue to perform well. Our outlook on the Mortgage Insurance business remains positive, and we will continue to monitor and make any adjustments to pricing as needed. Let's turn to Slide 23. We maintained our initial default to claim rate of 7.5%, which resulted in $53 million of loss provision for new defaults in the third quarter. Positive reserve development on prior period defaults of $35 million partially offset this provision for new defaults. As a result, we recognized a net expense of $18 million in the third quarter compared to $12 million in the second quarter. Now turning to our other expenses where we continue to seek additional operating efficiencies. For the third quarter, our other operating expenses totaled $62 million, down from $69 million in the second quarter. Expenses in the third quarter included $9 million of nonoperating costs related to the Inigo acquisition. Excluding this acquisition-related expense, total operating expense was $54 million, a $16 million decline from the prior quarter as reflected on Exhibit E. We are revising our previous expense run rate guidance for Radian, which was $320 million and included expenses related to discontinued operations. We anticipate operating expenses for continuing operations to be approximately $250 million for the full year 2025. We expect this to represent our annual expense run rate as we move into 2026. Moving to our capital, available liquidity and related strategic actions. Radian Guaranty's financial position remains strong. It paid a $200 million dividend to Radian Group in the third quarter, while maintaining a PMIERs cushion of $1.9 billion. In addition, we expect that Radian Guaranty will pay a $195 million dividend in the fourth quarter, bringing total distributions to Radian Group during 2025 to $795 million. We expect to close the Inigo transaction in the first quarter of 2026, funding the $1.7 billion purchase price with our existing resources. Our available holding company liquidity grew to $995 million as of quarter end. We expect a $195 million dividend to be paid to our holding company in the fourth quarter, as I just noted, and expect $600 million to be paid from Radian Guaranty to Radian Group in the form of a 10-year intercompany note. With these payments, we expect our holding company liquidity to be approximately $1.8 billion at the beginning of 2026. In addition, we expect dividends of at least $600 million from Radian Guaranty to Group during 2026. With these resources, we expect to fund the Inigo acquisition in the first quarter of the year and maintain sufficient liquidity at our holding company after the transaction closes. We also just expanded our credit facility to $500 million. The facility is currently undrawn and is available for general corporate purposes. However, we expect that any draw of the facility will be repaid during 2026. Our leverage ratio declined to 18.7% this quarter, and we expect it to remain below 20% by year-end 2026. We expect Inigo will continue to operate as a stand-alone business, complementing Radian's mortgage insurance business, and we do not expect Inigo to have any funding needs from Radian Group or Radian Guaranty to achieve its 2026 business plan. As Rick mentioned, this is an exciting time for Radian. This acquisition is expected to double our earned premiums in a market that is expected to grow at 8%, and expand the total addressable market by 12x. This will enable Radian to strategically allocate capital across diverse insurance lines and focus on areas with the greatest potential for profitable growth. Lastly, as shown on Slide 7, by combining Radian and Inigo, we expect to deliver mid-teen operating earnings per share accretion and approximately 200 basis points of ROE accretion starting in year 1. I will now turn the call back over to Rick. Richard Thornberry: Thank you, Sumita. Our results in the quarter continue to reflect the balance and resiliency of our company as well as the strength and flexibility of our capital and liquidity positions. They also reflect the resilience of our Mortgage Insurance business model. Over the years, our industry has helped millions of families purchase their home or refinance their mortgage and is well positioned to continue promoting affordable, sustainable homeownership through various economic cycles. We are proud of the important role we play in the housing finance system and in building strong communities. We look forward to updating you on our progress as we transform from a leading U.S. mortgage insurer to a global multiline specialty insurer. And finally, I want to recognize and thank our team for the outstanding work they do every day. And now operator, we would be happy to take questions. Operator: [Operator Instructions] And our first question comes from Bose George with KBW. Bose George: Actually, first, I just wanted to ask, when you talk about the mid-teens accretion for 2026, should we add that 200 basis points to your current run rate ROE, which is a little over 13%. So I guess that would be a little over 15% in terms of the ROE and then your book value going into 2026, it looks like it will be about $35. So does that seem reasonable 15% on that $35? Sumita Pandit: Thanks for the question, Bose. So I think if you look at our ROE this quarter, on an operating basis, our ROE was 13.9%. That excludes the impact of some onetime items related to the Inigo transaction where we paid and will be paying advisory fees. I think from an accretion perspective, I think assuming a 200 basis points increase on top of that would be fair. I mean, I think the 13.9% is comparable to also what we had last year and is a good run rate for us to think about for our stand-alone MI business. Keep in mind also that because we are currently -- we paused our share repurchases. So our denominator is a little bit more bloated as we accrue capital to pay for Inigo. I think the 13.9% ROE is probably a little lower than where we may be once that excess capital gets paid out to purchase Inigo. And so the 200 basis points increase can be added to the 13.9% on operating ROE that we have presented in this quarter. Bose George: Okay. Great. That's very helpful. And then can you walk through the potential capital benefit from using the unearned premiums at Radian as capital at Inigo? Is that something that eventually could be a source of incremental accretion over the 200 basis points that you've discussed? Sumita Pandit: So I think in the future, we will be giving you more details, Bose, on exactly what are those opportunities that we see present to ourselves between the MI business as well as Inigo. I think as we mentioned in our presentation, at this stage, I think what we have discussed is that we do see potential synergies between the MI business and Inigo going forward, including some reinsurance that we could do between the 2 businesses. I think post close of Inigo, we plan to do an Investor Day early next year. And I think we'll be sharing more details about potential reinsurance opportunities that could potentially improve the accretion numbers further. I think the numbers that we have presented to you last month and now again in this earnings presentation assumes base case run rate assumptions and really is an addition of Inigo as it is operated today to Radian's numbers. We've not assumed these additional capital and operating efficiencies that we will discuss further with all of you as we close the transaction next year. Operator: And our next question comes from Doug Harter of UBS. Douglas Harter: As you look at divesting the noncore businesses, is there -- how should we think about capital that could be freed up from those businesses in addition to kind of the cost saves that you've already kind of highlighted in discontinued operations? Sumita Pandit: Yes. So I think as I mentioned, as of now, as of Q3, what we have done is we've reclassified discontinued operations as held for sale. If you look at our balance sheet and the carrying values for these 3 businesses, we carry these businesses at about $170 million or so as of the third quarter. We do not expect to have either like a huge gain or a huge loss versus those levels. I think the held for sale number is based on our best accounting estimate today of the true value of those businesses. I think we have given some indications to you in terms of what could be additional expenses that we incur in selling the businesses. I think Rick mentioned we've hired 2 banks. We've estimated a $7 million expense in selling the businesses today. There could be more or less going forward. But we think that the carrying value of $170 million is our best estimate as of today of the true value of those 3 businesses. Douglas Harter: Great. I appreciate that. And then how are you thinking about the key steps that need to happen in order to kind of return -- start returning buyback -- or return to the buyback program? What are the key steps that we should be looking for in that? Sumita Pandit: Yes. So I think that's a good question. I think maybe just like walking you through our liquidity position and how to think through that math. So if you think about our Q3 ending liquidity, we ended the quarter with $995 million this quarter. We are expecting to pay another $195 million in the fourth quarter as dividends from Guaranty to Group. And our best estimate as of today is an additional $100 million of dividends in Q1 of next year. When you add all of that, that gets you to $1.29 billion liquidity number for holdco. We also will be drawing down on the intercompany note of $600 million at close -- when we close Inigo. For next year, the estimate and guidance that we've given is that we expect at least a $600 million minimum dividend from RGI to Group. So I think the best way to maybe think about our share repurchase and our liquidity overall is that within a few quarters of the Inigo purchase, we will again be in an excess liquidity position in group. As and when that happens, I think we'll revisit our share repurchase strategy. But I think, assuming that it will happen pretty quickly, given that we will be paying at least $600 million of dividends next year, that is a good run rate for you to assume as you think about when next year would we be in that excess capital position in holdco for us to revisit our share repurchase strategy, which, as you know, we have paused right now because we are paying for the full $1.7 billion purchase price through internal resources and are not raising any new equity. Operator: And our next question comes from Mihir Bhatia of Bank of America. Mihir Bhatia: Maybe just one quick one. Just any update on the timing of the divestitures and where you are with that process? I think you had said Q3 2026 earlier? Richard Thornberry: Yes. Mihir, this is Rick. Yes, we're -- I think we're still sticking to the -- to be completed by third quarter of next year. But just to give you an update on the process, as we mentioned, we've hired the 2 banks to kind of facilitate the process. I actually had a tremendous amount of inbound interest expressed across all 3 businesses, and that process is initiating as we speak, both in kind of sharing information with a broad group of potential interested parties. So we expect the process to move quickly over the coming months and look forward to keeping you up to date as we go through this process. As we get into early next year, I think we'll have more of an update. But one of the things that I -- as we watch this process go, the one thing I'm proud of is our teams have stayed laser-focused on running the business and continuing to serve our customers. And I think that positions each of those businesses well for the outcome that we're working towards. So -- but yes, we'll keep you posted as we go quarter-to-quarter. But right now, it's a fully engaged process with the bankers and the teams, and I think working very well. Mihir Bhatia: Got it. And then maybe just staying -- maybe turning to the business itself. I guess one question I was curious on was what would it take for you to move that claim rate below the 7.5% you're at? And the reason I ask is, I mean, I think you have the slide with the claim triangles, the cure triangles, if you will. And as you note on the slide, 90% get cure within a year and like your cure rates are running in the high 90s. So just curious on like what you actually need to see happen to change that claim rate? Sumita Pandit: Yes. I think Mihir, as you're aware, we made a change to that assumption in maybe 2 or 3 quarters back when we were at 8% default to claim rate and now are at 7.5%. I think when we look at that assumption, we do want to make sure that we are making that assumption through the cycle. You're right that when you look at our cure trends and the cure triangles that we show you on Slide 22, we do have almost 97% to 98% of our defaults curing within 12 quarters. But when we think about our through-the-cycle assumption, we think that these are more favorable than where we would expect this to play out in the long run. And therefore, the 7.5% is our best estimate of that through-the-cycle performance. As of now, we feel really good about that assumption given the fact that we just updated this a few quarters back, and we don't expect to make changes to it in the near future. But again, it's a through-the-cycle assumption. And we think it's the right way for us to run the business is prudent and has a view that's through the cycle. Mihir Bhatia: Sure. Maybe just one question on that though. Has something changed post-COVID? I don't know if it's like the policies and people just being more willing to do forbearance than before? Or are these claim rate trends pretty similar to what you were seeing in, let's say, 2018, 2019? I guess what I'm trying to understand is, is -- has something changed in the housing -- the mortgage servicing backdrop, which has enabled these cure rates to be so strong? Richard Thornberry: Yes. Mihir, that's a great question. And Sumita and I can tag team that one because that's something we ask ourselves each quarter, too. Are we seeing something fundamentally different than what has occurred in the past? I think since COVID, obviously, we've had a tremendous amount of home equity growth, which provides borrowers with a variety of different avenues to solve some sort of financial hardship, right? And I think it also helps servicers counsel borrowers how to navigate that hardship. Combined with the fact that we -- through COVID, there's muscle memory in terms of assisting the borrower through that hardship through forbearance programs and other things. So I do think, to your point, pre-COVID, post-COVID, the combination of home value increases and also kind of the muscle memory from some of the forbearance programs has proven to be positive. I would say as we go further away from that home equity kind of accelerated growth rate we saw in '20 and '21, we get the more normalized kind of home appreciation maybe with different regional downturns. That part will normalize. But I do think as an industry, the GSEs, servicers fundamentally have altered processes that are working to kind of get borrowers back on their feet. And from a reserving point of view, we spend time each quarter kind of assessing how we think that will impact the go forward. And what Sumita said is how we think about it, which is we really -- on day 1, we have to take a multiyear view through the cycle. And I would just add to Sumita's comments that today, we also continue to evaluate some of the uncertainty in the marketplace that's playing out currently to kind of influence that through-the-cycle view. So I think definitely seeing positives over the last 4 or 5 years. Some of that is probably sustainable. Some of it will normalize over time, and that's what we're really trying to evaluate. Operator: Thank you. I'm showing no further questions at this time. I'd like to turn it back to Rick Thornberry for closing remarks. Richard Thornberry: Thank you. I appreciate everybody joining us today and for the questions. And as you can tell, we're excited about the path going forward with the acquisition of Inigo in the -- hopefully, in the new year. And we look forward to seeing as many of you and talking to as many of you as we can over the coming weeks. But we appreciate your time and your support. Take care. Enjoy the holidays, if we don't get a chance to see you before then, and we'll talk soon. Take care. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Greetings, and welcome to the Wolverine Worldwide Third Quarter Fiscal 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jared Filippone, Head of Investor Relations. Jared, you may begin. Jared Filippone: Good morning, and welcome to our third quarter fiscal 2025 conference call. On the call today are Chris Hufnagel, President and Chief Executive Officer; and Taryn Miller, Chief Financial Officer. Earlier this morning, we issued a press release announcing our financial results for the third quarter of 2025 and guidance for fiscal year 2025. The press release is available on many news sites and can be viewed on our corporate website at wolverineworldwide.com. This morning's press release and comments made during today's earnings call include non-GAAP financial measures. These non-GAAP financial measures, including references to the ongoing business, were reconciled to the most comparable GAAP financial measures and attached tables within the body of the release or on our Investor Relations page on our website, wolverineworldwide.com. I'd also like to remind you that statements describing the company's expectations, plans, predictions and projections, such as those regarding the company's outlook for fiscal year 2025, growth opportunities and trends expected to affect the company's future performance made during today's conference call are forward-looking statements under U.S. securities laws. As a result, we must caution you that there are a number of factors that could cause actual results to differ materially from those described in the forward-looking statements. These important risk factors are identified in the company's SEC filings and in our press releases. Additionally, during the quarter, we elected to change our accounting policy for certain inventory from LIFO to FIFO. The majority of our distribution warehouse inventory was already accounted for using FIFO, and this change aligns all warehouse inventory under a consistent policy. The financial statements in today's release and the numbers referenced on the call reflect the impact of this accounting change for both the current and prior year periods, which have been retrospectively adjusted. With that, I will now turn the call over to Chris Hufnagel. Christopher Hufnagel: Thanks, Jared. Good morning, everyone, and thanks for joining us on today's call. In the third quarter, we exceeded our expectations on both the top and bottom line. Revenue grew approximately 7%, in line with our long-term target of mid- to high single-digit growth and was again driven by our two largest brands, Merrell and Saucony. Healthy revenue growth, coupled with another quarter of record gross margin and strong execution, delivered adjusted earnings per share of $0.36. Adjusted EPS grew at more than triple the rate of top line growth as we continue to prudently manage the business, balancing needed an important investment into the business while expanding profitability. Our strategy and disciplined execution continues to deliver solid results, and our team remains focused on executing our brand-building model with distinction, centered squarely on building awesome products, telling amazing stories and driving the business. As I reflect on where our portfolio is today and where we need to go tomorrow, it's clear our brands are at three different stages of development. First, Merrell and Saucony are moving at pace, taking market share and generating consistent revenue growth around the world. Our aim here is to continue to thoughtfully manage these brands to sustainably scale them to their fullest potential. We've made real progress in elevating design and innovation within their product pipeline as well as in strengthening their brand positioning through impactful marketing activations. For 2025, these two brands are expected to represent nearly 2/3 of the company's total revenue and record mid-teens year-over-year growth combined. Second, we believe Sweaty Betty has begun to turn the corner, the result of a lot of hard work in developing a new strategy and beginning to execute it over the past 6 months. The brand has delivered on the milestones that we believe are critical at this point in its evolution, which started with margin expansion and has transitioned to sequential improvement of year-over-year revenue trends. And finally, the Wolverine brand and our Work Group have not made the progress we anticipated. While I'm disappointed in our performance here, I believe we have a firm handle on the work that's necessary to get this business back on track. And importantly, we have new leadership in place. As of Monday, following a thorough search process, I'm pleased to announce Justin Cupps as our new Work Group President. Justin is a veteran leader with deep experience across a host of great footwear, apparel and accessory brands. He's a strong addition to our leadership team. And for some context, Work Group revenue represents less than 1/4 of the company's consolidated revenue and is now expected to finish the year down high single digits compared to 2024. In aggregate, I'm encouraged by the progress we've made and continue to make as a company. This year, we've elevated our teams and talent by adding excellent leadership like Justin, as well as new product design, merchandising, marketing and sales talent across our brands. We've improved our processes, including our integrated business planning approach for more efficient demand and inventory management. We successfully completed the integration of Sweaty Betty's tools and processes into the company's ecosystem, advanced the adoption and use of AI across the business and develop plans to further elevate and modernize our e-commerce tools and platform next year. We've developed new muscles to drive impact in the global marketplace with our key city strategy, and we fostered a new culture centered around growth and winning together. In addition to the above, we expect to deliver solid financial results for the year. The midpoint of our guidance reflects revenue growth of approximately 6%, an increase in adjusted earnings per share of approximately 50% compared to 2024. Before I turn the call over to Taryn Miller to provide greater detail on our third quarter results and outlook for the year, I'd like to share some additional insights on our brands and their continued progress. I'll start with Saucony, which grew 27% in the third quarter. Saucony is uniquely positioned as a disruptive challenger brand at the intersection of two of the fastest-growing categories in the market, performance and lifestyle running, and the brand continues to win in these highly competitive arenas. In the third quarter, Saucony grew performance run revenue by strong double digits globally compared to last year and again took market share in the important U.S. run specialty channel, powered in part by the brand's core 4 franchises, the Ride, Guide, Hurricane and Triumph, which target its movemaker consumer. While the brand successfully tapped into this broader market opportunity, it continues to maintain a strong focus on pinnacle innovation for elite runners with its Endorphin franchise. The collection includes the Endorphin Speed for serious training, the Endorphin Pro for race day and the Endorphin Elite super shoe for ultimate performance. In 2026, the brand plan to introduce the all-new Endorphin Azura, a premium non-plated trainer, targeting a larger consumer segment and growing opportunity within the market. In addition to further elevating franchises within the core 4 with innovation incubated within the aforementioned Endorphin series. On the lifestyle side, Saucony drove strong revenue growth globally and took significant market share here in the U.S. as we continue to focus on prudently growing this segment of the business around the world. The brand's deep product archive enables it to authentically capitalize on a variety of different trends. So ProGrid Omni 9 and Ride Millennium, two of the brand's retro tech silhouettes, again drove significant growth in Q3. While classics like the Jazz Original and Shadow 5000 are encouragingly beginning to spark interest for 2026 with influential Tier 0 and Tier 1 retailers. Saucony continues to fuel brand heat with culturally relevant collabs, releasing new drops over the past few months, including 3sixteen, Keith Haring, Jae Tips and Engineered Garments. Saucony collaborated with METAGIRL on a release last quarter as well, which successfully lead in the brand's significant opportunity with women, the beginning of a deeper anticipated partnership with the influential designer going forward. In addition, the brand plans on dropping its first collaboration with prominent creator Westside Gunn in December with an expanded relationship and more drops expected next year. Saucony's brand is strong around the world, and we continue to invest in the brand in the last quarter, in part through our key city strategy. Saucony continued to leverage Tokyo in the Asia Pacific region with the flagship store opened in Harajuku earlier this year and is on track to open a host of new stores more broadly in China with our partner there. We expect that APAC will be the fastest-growing region in the world for the brand this year. In Europe, Saucony took over Central London as the title sponsor of the London 10K in July, as I detailed on our last call, and followed this up with the sponsorship of the Shoreditch 10K in September, bookends to a powerful quarter for the brand in London and more broadly in the EMEA region, which as a whole is on track to deliver strong double-digit revenue growth this year with momentum heading into 2026. Looking ahead, Saucony plans to expand its key city strategy to Paris, sponsoring the Eifel Tower 10K next month and opening our next pioneer store there in 2026. Brand interest continues to ramp up globally and affinity for the brand continues to increase with runners and more specifically, the younger consumer. While we continue to have success here in our home market, I'm equally excited about the global potential of the brand. Saucony's positioning within the fast-growing run lifestyle market is unique and a compelling combination of heritage and authenticity, coupled with best-in-class innovation and developing cultural relevance and the brand is setting the pace. 2025 is proving to be a great year for Saucony, which is on track to deliver all-time record revenue and profit as a brand. Moving to Merrell, which grew revenue 5% in the third quarter, driving increases in most regions and in both the performance and lifestyle sides of this business. Merrell, the category leader in hike, remains focused on modernizing the trail as an authentic outdoor lifestyle brand with more athletic and more versatile product design and innovation. In the third quarter, the brand accelerated its long-running market share gains in its core Hike category in the U.S., having taken share in 11 of the last 12 quarters, a category which encouragingly again improved sequentially to flat year-over-year. The Moab Speed 2, which is becoming a force on the trail and the world's #1 hiker, the Moab 3, both continue to drive growth at U.S. retail. The Agility Peak 5 drove strong growth on the trail running side. Looking ahead to the next spring, Merrell plans to introduce the new Agility Peak 6, combining plush FloatPro foam cushioning with aggressive Vibram Megagrip traction. Merrell's lifestyle business grew strong double digits in the third quarter, driven by a strong ramp-up of its disruptive Wrapt Collection, along with steady growth from the iconic easy on, easy off Jungle Moc at U.S. retail. In 2026, we anticipate the brand's lifestyle product pipeline will take a meaningful step forward. We're introducing trend-right low-profile silhouettes with the Relay, modern iterations on the Jungle Moc, lifestyle materializations of the SpeedARC collection and a consistent flow of energy-enhancing collaborations. While we're further distancing ourselves from the competition hike, we know a significant global opportunity exists in outdoor-inspired footwear, apparel and accessories. In the third quarter, Merrell drove increases in brand interest in affinity, particularly with women, and the brand's key city strategy continues to fuel momentum for the brand around the world as it has done for Saucony. Merrell's urban hike guide (sic) [ Urban Hiking Guide ] activation, which included media events, collabs and influencers drove brand heat in Paris and contributed to another quarter of solid growth in broader EMEA. Turning to Sweaty Betty, which outpaced our expectations in the third quarter with revenue down 4% versus the prior year. The team is aligned around a clear strategy and is executing with a high level of conviction and increased confidence as we reinvigorate Sweaty Betty as one of the original activewear brands focused on empowering women through fitness and beyond. Our efforts started with reestablishing Sweaty Betty's premium brand positioning, which underpins our entire strategy. Bold and distinctive storytelling behind the Wear the Damn Shorts campaign in the second quarter and the Weather Whatever campaign last quarter have continued to reinforce the brand's uniquely Sweaty Betty female-focused positioning. As a result, brand awareness and affinity continued to increase in the quarter with noteworthy gains among younger consumers and more premium buyers. At the same time, gross margins expanded once again as the brand continues strengthen both its product pipeline and positioning in the marketplace. Along with the improved business results, we're also making meaningful progress against the three pillars of our brand's new strategy. First, we are delivering growth within our DTC business in Sweaty Betty's home market with both e-commerce and stores growing in the third quarter. We started to elevate the brand's product line by introducing more newness, enabling a fresher offering with trend-right design and more thoughtful assortments, diversifying the brand's leadership in bottoms and expanding outerwear. This effort has produced some encouraging results with pants and outerwear both up very strong double digits across our DTC business in the quarter. Within our digital channels, we remain focused on enhancing the consumer experience. One example is the new Sweaty Betty app, which we launched last quarter, where consumers are converting at a higher rate and spending more per transaction. In brick-and-mortar, we've taken action over the past few months to further optimize our retail footprint, relocating 3 stores, opening 1 new store and closing a store. The new locations are performing well, and before the year is done, we plan to open 5 more new stores. Second, we're making early progress in expanding distribution in certain key markets. We launched the brand's new partnership in China and opened a pop-up store in Shanghai, opened a second store with our partner in New Zealand and develop plans to open additional stores in Australia and India next year. In the third quarter, the brand's international third-party business was up meaningfully, along with the EMEA wholesale business, albeit both still on a small basis. Third, we're resetting our U.S. operations focused on a full price, more premium online DTC business. We anticipate this transition will take some time and put some pressure on the brand's global growth numbers in the near term, but we believe it's necessary. This pivot is in motion with the business mix already shifting to more full price premium selling. We're making progress in resetting the overall Sweaty Betty business, and we believe the brand product marketing team are strong. We've seen improvement in the year-over-year top line trends and expect this to continue in the brand's critical final quarter of the year. And now finishing with Wolverine, which was down 8% in the quarter with the broader Work Group down 3%. Wolverine's performance remains inconsistent. Our return to running a better brand and business is taking longer than we initially anticipated. This said, we believe we have diagnosed the challenges. And effectively using our proven playbook and return the brand to steady growth in the future. The addition of Justin Cupps to the team is a win for the company, and I anticipate he'll accelerate the needed progress here. We're already well on the way to strengthen Wolverine's product pipeline, enabling more thoughtful segmentation in the marketplace and bolstering trend-right products and premium price point offerings with collections like the Rancher Pro, the USA-built Workshop Wedge and the all-new Infinity System, the brand's pinnacle expression of its performance comfort technology. Wolverine is in the process of amplifying its storytelling as well. The brand has partnered with Country Music star, Jordan Davis this year in a variety of activations, featuring both in-line and dedicated products. I'm excited to announce this morning that Wolverine will be an exclusive presenting partner for Season 2 of the Paramount+ series Landman, with the premiere in just a couple of weeks on November 16. Both of these partnerships align well with the Wolverine brand and extend its reach significantly with consumers. As the product and marketing improvements begin to take root, we plan to focus on recalibrating the marketplace, better balancing inventories and aligning distribution with the brand's category leadership role, more premium positioning and go-forward strategy. More to come on this as we enter the new year. I'd like to hand the call over to Taryn Miller to take you through our third quarter results and outlook for the remainder of 2025 in greater detail. Taryn? Taryn Miller: Thank you, Chris, and welcome, everyone. We delivered another quarter of strong results, exceeding expectations on both revenue and profitability. Our third quarter performance reflects disciplined execution of our strategy and the dedication of our teams. Our focus remains on implementing our brand-building growth model across the portfolio, starting with our two largest brands, Merrell and Saucony. Prioritizing investments in these brands has led to improved performance and market share gains in key categories. We are also seeing encouraging signs of progress in other areas, including another quarter of sequential improvement for Sweaty Betty. While there's still more work to do, particularly in the Work Group, we remain confident in our strategy and the path forward. I'll now take you through the key highlights from our third quarter. Revenue was $470 million, ahead of the $455 million midpoint of our guidance range. The over-delivery was driven by stronger-than-expected performance in the Active Group, along with an approximate $3 million benefit from favorable foreign currency. Revenue increased 7% compared to the prior year. And on a constant currency basis, revenue increased 6% as favorable foreign currency provided a $6 million benefit. Revenue growth in the third quarter was led by global wholesale, which increased 11% compared to the prior year, with international wholesale up mid-teens and U.S. wholesale up mid-single digits. DTC declined 5% compared to the prior year, primarily due to lower promotional activity in the U.S., partially offset by international growth, mainly in EMEA. Active Group revenue in the third quarter grew 11% compared to the prior year, ahead of our guidance of mid-single-digit growth. Saucony revenue increased 27% in the quarter, driven by broad-based growth across channels and markets. The brand saw solid growth in both the performance run and lifestyle categories from continued positive sell-through trends at retail and expanded distribution. Merrell revenue increased 5% in the quarter, driven by low double-digit growth in wholesale. This growth was supported by another quarter of market share gains in the hike category and strong sell-through at key accounts. This was partially offset by the DTC channel as the brand continues to lap elevated promotional activity from the prior year. Merrell has been implementing targeted initiatives to strengthen its DTC foundation, including refining its promotional strategy, elevating marketing to reinforce premium positioning, and enhancing digital capabilities to drive higher quality engagement and conversion. These efforts contributed to an improvement in the mix of full price sales and gross margin expansion in the quarter. Sweaty Betty revenue declined 4% in the quarter, which was better than expected. As Chris mentioned, the brand is now executing on a clear strategy to reset the Sweaty Betty business, which aided in delivering growth in its core EMEA market across both wholesale and DTC. Group revenue declined 3% compared to the prior year and was slightly below the midpoint of our guidance range. Performance in the quarter was largely driven by lower-than-expected sell-through that impacted replenishment orders. Consolidated gross margin for the third quarter was 47.5%, an increase of 240 basis points compared to the prior year and 50 basis points above our expectations. The year-over-year improvement reflects product cost savings, lower promotional activity and a timing benefit from our tariff mitigation efforts, net of incremental tariff costs. Adjusted operating margin was 9.1%, an increase of 150 basis points compared to the prior year and 80 basis points above our expectations. This performance reflects gross margin expansion, continued investment in our brands, talent and key capabilities, as well as the net timing benefit from our tariff mitigation efforts. Top line growth and operating margin expansion led to 29% increase in adjusted diluted earnings per share to $0.36 compared to $0.28 in the prior year and our outlook of $0.28 to $0.32. Net debt at the end of the third quarter was $543 million, down $20 million or 4% compared to the same time last year. Before moving to our outlook, I want to provide an update on the impact of tariffs. This has been a dynamic situation with rate changes and evolving clarity around the timing of when the new tariffs took effect. On our last call, we shared that we expected to offset the majority of the unmitigated impact in 2025, which we estimated to be approximately $20 million. We also noted that the majority of the impact was anticipated to occur in the fourth quarter. We now expect the unmitigated impact in 2025 to be approximately $10 million. The reduction in the estimated impact reflects a timing shift between 2025 and 2026. We took quick and decisive action when trade policy changed in the second quarter of this year. As a result of those actions and the timing shift, we now expect to more than offset the $10 million impact in 2025. On an annualized basis, we estimate the unmitigated impact from tariffs to be approximately $65 million, representing an incremental $55 million impact on 2026. We're encouraged by the progress we've made in navigating these cost headwinds and remain focused on delivering gross margin within our aspirational value creation framework of 45% to 47%. While we are not providing formal guidance for 2026 at this time, based on what we know today, we expect gross margin to be between the lower end and midpoint of our aspirational range next year as we work to offset the tariff-related headwinds over time. Turning to our outlook. Fiscal year 2025 revenue is expected to be in the range of $1.855 billion to $1.87 billion, an increase of approximately 6.4% at the midpoint, and 5.6% on a constant currency basis compared to 2024 ongoing business. The impact of the 53rd week in fiscal 2025 is expected to provide a 60 basis point benefit to revenue growth. At the midpoint of the range, we expect Active Group revenue to grow low double digits on a constant currency basis, fueled by the momentum we built in our two largest brands, Merrell and Saucony. New products are resonating with consumers. Our key city strategy is driving focused international growth, and we're seeing continued success in expanding our lifestyle offering. We expect the Work Group revenue to decline high single digits on a constant currency basis. As Chris shared, we haven't made the progress we expected in Work Group. While we're encouraged by recent steps in product innovation and marketing, the path to stronger, more consistent growth is taking longer than originally anticipated. We're excited to have Justin join the team, and we remain focused on improving execution across the 4 pillars of our strategy. Gross margin is expected to be approximately 47.1% at the midpoint of the range, up 280 basis points compared to the prior year. The majority of the improvement is driven by product cost savings, a healthier mix of full price sales and a timing benefit from our tariff mitigation efforts, net of incremental tariff costs, reflecting the pace of our actions relative to the phasing of the cost increases. Adjusted operating margin is expected to be approximately 8.9% at the midpoint of the guidance range, up 160 basis points from the prior year. The year-over-year improvement reflects strategic reinvestment of a portion of gross margin gains to support our brand-building model, including marketing, talent and key capabilities. Interest and other expenses are projected to be approximately $27 million, down from $39 million in 2024 due to the reduction in net debt. The effective tax rate is projected to be approximately 16%. As a result, adjusted diluted earnings per share is expected to be in the range of $1.29 to $1.34, including a $0.02 foreign currency benefit versus prior year. At the midpoint, this represents constant currency growth of 50% compared to last year. Operating free cash flow is expected in the range of $85 million to $95 million, with approximately $25 million of capital expenditures. Moving to our fourth quarter guidance. Revenue is expected to be in the range of $498 million to $513 million, a year-over-year increase of approximately 2.2% at the midpoint and 0.5% on a constant currency basis. At the midpoint of the range and on a constant currency basis, we anticipate the Active Group revenue to grow high single digits and Work Group revenue to decline by low double digits compared to the prior year. Gross margin in the fourth quarter is expected to be approximately 46.3%, an increase of 270 basis points compared to last year. A portion of the improvement reflects a timing benefit from our tariff mitigation efforts, net of incremental tariff costs. Adjusted operating margin is expected to be approximately 10.5%, an increase of 60 basis points compared to last year. As a result, adjusted diluted earnings per share for the fourth quarter is expected to be in the range of $0.39 to $0.44 compared to $0.40 in the prior year. To summarize, we're encouraged by our third quarter and year-to-date 2025 performance as well as the expected continued momentum in the Active Group, which reflects the strength of our strategy and the discipline of our execution. At the same time, we recognize there's more work to do. We remain focused on driving consistency across the portfolio, sharpening our operational rigor and continuing to invest in areas that will fuel long-term growth. We're staying responsive and resilient as we manage through a dynamic macro backdrop, including evolving consumer environment and tariff-related margin pressures. With that, let me hand the call back to Chris before we open it up for questions. Christopher Hufnagel: Thanks, Taryn. The company has made significant strides in becoming a builder of great global brands over the course of the past 2 years. We're squarely focused on our consumers. We're investing in our brands through enhanced product innovation and elevated marketing. And critically, we're prioritizing responsible brand management in the marketplace, focused on consistent brand experiences, thoughtful distribution decisions, reduced promotional activity, rigorous brand protection and driving sell-through. We believe Wolverine Worldwide is well positioned in the global marketplace and well positioned to navigate the dynamic and uncertain macro environment. We're executing our brand-building playbook with pace and urgency, all focused on making every day better for our consumers, our teams, our communities and our shareholders. With that, thank you to all of you for taking the time to be with us this morning, and we're happy to take your questions. Operator? Operator: [Operator Instructions] It looks like our first question today comes from the line of Peter McGoldrick with Stifel. Peter McGoldrick: I was curious on the Saucony opportunity. Within the 25% constant currency growth, can you help parse the contribution from new distribution and like-for-like growth? Christopher Hufnagel: Yes. Thanks, Peter. We're really pleased with Saucony's performance in the quarter and certainly the performance year-to-date. We describe it really as broad-based categories and channels and regions, which we're encouraged by. I think if we had to put a number on the new distribution contribution for the quarter, about 1/3. Peter McGoldrick: Okay. That's really helpful. And then as we think of the split between lifestyle and performance, I was curious if you can help us think about how that splits within your footwear categories. And then as you plan the business going forward, how should we think of the balance between lifestyle footwear, every day running and then the high-performance running footwear? Christopher Hufnagel: Yes. Great question. I think you're hitting on something that was really important to us as we began to build a new strategy for Saucony several years ago. And thinking about both the elite performance run segment, the more casual everyday lifestyle runner and then certainly the lifestyle piece. And I think that reset of strategy has really helped us gain traction and certainly helped propel Saucony forward. Lifestyle piece is growing faster than the performance piece, but performance is also growing. And we're gaining share in both lifestyle accounts as well as the critical run specialty channel. So I'd say that we are encouraged that growth is coming from both parts. Certainly, our new entry into lifestyle coming off of a smaller base is helping to accentuate those year-over-year gains. Operator: And our next question comes from the line of Mauricio Serna with UBS Financial. Mauricio Serna Vega: Maybe just on Saucony to elaborate. It seems that you've had pretty good success with the expansion in lifestyle. I think you had alluded to 1,300 doors for fall '25. Any thoughts on where do you see that door count going into spring '26? Christopher Hufnagel: Yes. Good question. And certainly, we've been encouraged by the receptivity to the moves we've made in Saucony and certainly by that door expansion. We have opened doors in Saucony lifestyle. We've talked about that. We still believe that we're less than 1/4 of the full door potential. And I would say that we're sort of maniacally looking at sell-throughs. One of the things that we're committed to is responsible brand management. And we want to make sure that where we open new distribution, where we go put ideas, we're really moving towards a pull model versus a push model. And so as we open new doors, we said early on that this would be a test and learn. And I would say that our doors, some doors are overperforming what we anticipated. A lot are performing at what we hoped and anticipated. And frankly, some doors are underperforming. And we need to react to that change where the consumer is, learn from where we have momentum and how do we capitalize on that responsibly. At the same time, where we aren't generating the sell-throughs that we want, we'll look to pivot away from that and diagnose what the issue is. I think the doors where we are underperforming on sell-through rates, we largely attribute to low brand awareness, which is something we're working on simultaneously with the brand as we invest more in marketing dollars. So something we're keenly watching. Every single week, we look at sell-throughs. We're staying very close to our customers and our consumers and making sure that as we drive this growth for the brand, we're doing it responsibly and managing for the long term. Operator: And our next question comes from the line of Laurent Vasilescu with BNP Paribas. Laurent Vasilescu: I just wanted to ask with regards to fourth quarter, the active, high single-digit growth. Can you maybe -- Chris, can you unpack that a little bit more in terms of expectations for Saucony? And then I have a follow-up with regards to -- for 2026. Christopher Hufnagel: Yes. I think for the fourth quarter for the Active Group, we remain and continue to be encouraged by the progress we've made, the momentum that they've generated. Saucony, we anticipate it will be a little better than Merrell in the fourth quarter. At the same time, Saucony's comparisons are a little easier, given that Merrell is comping growth from 2024. So -- but still encouraged. Again, I think if you think about how we've talked about the business, our long-term value creation model, our aspirations, this company does extraordinarily well at mid- to high single-digit revenue growth in the consolidated. And our goal is to get all brands working at that pace and hopefully, certainly some better than that pace. Laurent Vasilescu: Okay. Very helpful, Chris. And then I think in the beginning of the year, it was about 900 doors, then for the second half, it was about 400 doors. You mentioned right before that you're still under 25% penetration rate. What kind of numbers should we think about high level in terms of number of doors for spring 2026? And I'd love to hear more about unpacking what you're seeing in terms of the underperforming doors. I think you mentioned brand awareness, but can you just give us a little bit more color on what you're seeing, what measures you're going to put in place for those underperforming doors? Christopher Hufnagel: Yes. Good question, Laurent. I appreciate that. We do anticipate first half of '26, the door count to be higher than the first half of '25. That's how we're thinking about the business. And then obviously, we continue to manage really week-to-week with these accounts. And in the doors that we have not met our sell-through expectations or our partner sell-through expectations, we are working to diagnose, and what performed better, men's or women's? How are the assortments? How are we merchandise? What was the consumer feedback? And then trying to triangulate that with our own data, our own e-commerce metrics, where our files are, what sort of demographics and ZIP codes do we do better with. And I think these are things that brands are going through a growth curve like this we have to manage, and we have to manage. I mean that is just a reality situation. The good news is that stock, we believe, is going to achieve all-time record revenue and all-time record profit this year and carry that momentum into 2026. So there is work to do. And I would say, as with any business, if you're not swinging and missing a few times, you're probably not thinking about the business critically enough. And I would say where doors that we have underperformed that's a thing that we can learn and then move from. Operator: And our next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: Chris, if I could follow up, could you just maybe more directly talk to some of the sell-throughs you're seeing on more of a near-term basis? And as you think about heading into 2026, can you give a little more comfort or color on the indications you see for the Active Group into 2026 in terms of growth potential there? And then, Taryn, just to follow up, I appreciate the gross margin commentary for 2026. Should we think that you're at a near-term peak for margin here? Or given the timing of some of the tariff impacts, are there areas you can leverage to continue to drive operating margin expansion just at an initial level here as we look forward given the goal to get back to much higher multiyear operating margins? Christopher Hufnagel: I'll answer the first one. And I think the question really is premised on sort of expectations for Merrell and Saucony. And I would say, again, and I tried to outline this in prepared remarks, I would bucket our brands in different stages of evolution. And I would say that Merrell and Saucony, our two biggest brands are moving at pace. And I would say that was where we applied a tremendous amount of effort in the early days of the turnaround to get our biggest brands moving. And I'm encouraged by the rigorous deployment of that playbook, how we've built the product pipeline, how we're working to create demand and then frankly, how the Wolverine Worldwide team is driving the business each day, I'm encouraged by. We've talked about market share gains. Saucony gained share in the run specialty channel, has gained share in lifestyle. I think Merrell has 11 of 12 consecutive quarters of gaining share at a rate that's actually accelerating. Performance and lifestyle for Saucony grew in the quarter. Performance and lifestyle for Merrell grew in the quarter. And I'm encouraged by some of the work that we're doing with that new Merrell team to think about the broader outdoor lifestyle opportunity beyond the trail. So it is not certainly easy days out there. We're -- obviously, with everyone thinking about where the consumer is, how we had in the holiday, how we think about 2026. But I think for the things that we can control with our own team, I think we've got a lot of things going in the right direction. And where we do have some challenges and opportunities to do better, I think we've diagnosed those issues, and we're going to quickly get after them. Taryn Miller: And Jonathan, to your question on gross margins, we are pleased with the performance that we have made to date in terms of expanding our gross margin. And at the full year of our guide, we're at around 47.1% for gross margin on the year. That's up 280 basis points year-on-year. And the primary drivers of that are what we have been talking about for some time of the product cost savings that we've been driving with our supply chain organization as well as more full price sales as we're building that brand-building model across the brands and channels, we're able to get more full price sales. We're able to get the more premium price points. So that's the primary driver. The tariff timing piece that I spoke to in the prepared remarks, for the full year, that's providing 40 bps of -- basis points of improvement year-on-year. So you can see the vast majority of that 280 improvement is really the sustainable part of our business. I think in terms of the tariffs, why is it providing a net benefit this year? Let me explain that one a little bit. While the trade policy continues to evolve, we did start taking actions early in the year to mitigate those headwinds in the second quarter. So for 2025, the benefit of our actions started to materialize in the third quarter. However, we aren't seeing the full impact of the higher tariffs until the fourth quarter. And even then, I would note that a lot of the inventory sold in our U.S. channels reflects product that was imported when the incremental tariffs for most of our sourcing countries were at the 10% rate, not the current 20%. Therefore, as a result of that timing, then you can see that our mitigation actions are ahead of the incremental costs hitting the P&L. And -- but like I said, the majority of that 280 on this year is really the sustainable piece. The timing piece would be that 40 basis point impact from tariffs. Jonathan Komp: Okay. And sorry, just to be more clear, I guess, thinking about operating margin, the 8.9% guide for this year, significant progress, still well below your mid-teens aspiration. So should we think that 2026 might be a step back on operating margin? Or are there other areas you could drive leverage to help manage through the tariff headwinds? Taryn Miller: Yes. It's too early to talk details on 2026. We'll do that in February. We want to -- the reason we gave the gross margin is we were just trying to put some context around how we were looking at the broader tariff impact in '26 and our plans to mitigate. I mean we continue to find opportunity -- look for and find opportunities to expand growth and operating margin. We're obviously going to be doing that now in the face of a larger tariff impact, but our value creation model stays intact. It's just the timing of the tariffs is what we're looking at offsetting. We'll have more to share on '26 in a few months. Operator: All right. Our next question comes from the line of Sam Poser with Williams Trading. Samuel Poser: I'd just like to dig into Saucony a little bit more on the lifestyle side. Can you give us some idea of what's the breakdown between -- like between sell-in and sell-through on the lifestyle product? And then you mentioned, Chris, that you were seeing some changes between men's, women's and kids and so on. Can you give us some color on the sell-through rates on the rates you're seeing between them and how that may be balanced and you know where I'm going on this. Christopher Hufnagel: Yes. I mean I think -- thanks, Sam. I appreciate the question. Like I said in an answer to a previous question, I think I break down our performance in the early days in these lifestyles accounts. In some places, it's well outpacing what our expectations were. In a lot of cases, it's in the range of what we need it to be. And then in some places, it's at a slower rate. And so I think for us, as we try to create a really strong pull model, manage the inventory, manage the brand, manage the marketplace really well, we'll look to responsibly grow in doors where we've overperformed. And then frankly, we'll pull back in doors where we've underperformed. And I think that is incumbent upon companies that want to run good brands. I think historically, we may have tried to force product in and not be responsible and really focus on sell-in and not sell-through. And we're trying to pivot to really obsess about the sell-through. Encouragingly, though, we are pleased with the progress that we've made in fairly short order. We're pleased with the growth rates. And then I'm encouraged by what I see for the product pipeline for '26. And then even as trends emerge and evolve with the consumer, I'm thankful that I've got a century-old archive in Saucony that I can pull from. And some early indications are maybe a move back to some classifications where Saucony has historically been very good. So we remain encouraged by the progress in lifestyle. We're watching it very closely. We talk about it every single week. And it's something that is -- as I think about how we want to responsibly grow Saucony in the long term, responsibly growing that lifestyle business is paramount. Samuel Poser: I really wanted to talk about the genders, the men, women and kids, not the lifestyle. I really wanted to get the breakdown on, is men's performing better -- in overall, men's are better, women's better, kids better and so on? Because I mean, historically, a long time ago, Saucony has been more appealing to women more than almost any other brand out there. And it seems like a lot of -- it may have been sort of the sell-in on men's may have been higher than it may have should have been, and women's may have bigger opportunity and so on. That's what I'm really -- that's where I'm going. Christopher Hufnagel: That's a good question. I wasn't trying to be elusive. I totally forgot that you asked about the gender split down, so I apologize, Sam. Sell-in, like we talked about, men's and women's, I would say women's has performed really good, really well for us, along with kids, kids has done very well for us. So we're seeing a very strong reception to the women's piece and certainly the kids piece. Interestingly enough, the way we do sizing for the lifestyle piece is a lot of unisex. So unisex numbers actually growing very high, which we assume a lot of those are buying smaller sizes for the female consumer. So I'd say we've made really nice progress with her. We just did a collaboration with METAGIRL, which we think will deepen the connection her. She's a very influential creator who we're fortunate to partner with. And I think that product sold out before lunch -- the day of launch. So we are very focused on her, and we think there's a great opportunity with her. Samuel Poser: And on the men's side, I mean, is the men's side living up to the expectation or is the women's side exceeding? That's where I'm going here. Christopher Hufnagel: That's a good question. I think men's, again, in lifestyle in total, we're very pleased with the progress. Pleased with the sell-throughs, pleased with the receptivity, pleased about what we believe that it's doing for the brand. I think we're really happy with the pickup we've seen with her. Operator: And our next question comes from the line of Anna Andreeva with Piper Sandler. Noah Helfstein: This is Noah on for Anna. So I just wanted to touch on Merrell. You had mentioned that the brand was in the early stages of evolving its distribution. Should it follow the same playbook as Saucony with additional new door step-up in specialty into the next year? And then have you quantified what that new door opportunity could look like? And then just a quick follow-up on Saucony. Can you remind us what brand awareness is now versus a few years ago? Christopher Hufnagel: Sure. As it relates to Merrell, the new door expansion isn't as great for Merrell as it is for Saucony. Saucony is a very well-distributed brand. For me, it's more talk about the evolution of that distribution. And what other doors could we possibly target, especially with her. So while I do think there is door count opportunity expansion, it probably won't be at the pace in which we are able to do for Saucony. I think for us, the biggest opportunity in Merrell is moving beyond the trail, making both the trail lighter and faster, more modern at the same time, I think a much broader outdoor lifestyle opportunity for the brand, specifically for her, which is why we're encouraged by the receptivity of some of our new product launches and the ability for us to sell the Moab Speed 2, the SpeedARC and where those products are showing up are really encouraging. And then I think we're equally excited about what we can do next year, especially with the low profile with the Relay and what that can mean from a fashion trend standpoint. And then certainly, cold and wet weather boots, we think, is an opportunity. So I think the door count expansion for Merrell isn't as great as it was for Saucony. At the same time, I think chasing the bigger outdoor lifestyle opportunities is a giant opportunity for Merrell. And then as it relates to awareness, we see awareness slightly up sort of quarter-on-quarter. We measure it twice a year, we do brand health surveys. We see awareness slightly up. But importantly, we see bigger movements in affinity and heat for the brand, which we're really encouraged by. So I think that really is driven by a shift in how we've chosen to invest our marketing dollars. I think we've really consciously tried to make a bigger play in upper funnel advertising and launch meaningful campaigns behind these brands to certainly raise awareness. But then obviously, it's important for us to build strong brand affinity and importantly, brand heat. And I think specifically, the places -- the cohorts that we've seen pickups are with core runners and then encouraging that younger consumer. Operator: And our next question comes from the line of Mitch Kummetz with Seaport Research. Mitchel Kummetz: First one is, I'm just curious, was there any pull forward that occurred in the quarter that might explain some of the upside, the over-delivery in the quarter as well as why the fourth quarter growth rate maybe doesn't look as strong as 3Q? And then I also have a follow-up. Taryn Miller: Yes, Mitch, no, there was -- I wouldn't call out any pull forward or timing shifts in the third quarter relative to the fourth quarter. Mitchel Kummetz: Okay. And then on Saucony, Chris, I think your comment around door count was that first half of '26 will be higher than the first half of '25. You added doors in the back half of '25. So I'm curious if 1H '26 is going to be above 2H '25 in terms of door count? And then also with some of these new doors that you've opened, I would imagine that the assortment going into those new doors wasn't a full assortment. And I'm curious with the doors that you recently added, let's say, for 1H '26, if you think that the doors that you've added in the last 12 months will have more product than what they had the prior year when you added those stores. Hopefully, that question makes sense. Christopher Hufnagel: No, it makes perfect sense. And I think that part of it is part of our test and learn, and how do we optimize the new doors that we've opened. And that part of it is where we put assortments in, how do that assortment resonate, men's, women's, kids, how is it shown? How is it presented? Is there opportunities for adding SKUs to those assortments. And that part of the optimization work. At the same time, it's also making sure that doors where we did underperform, we're quickly moving past those doors and finding new places to grow. It's too early to call a door count second half of '26 versus the second half of '25. Obviously, those plans are still in development. And we're looking at both at a U.S. store count as well as a global door count. So just to reiterate, first half '26 stores will be an increase over first half of '25 doors, and we're still working on the back half of '26 into '27. Mitchel Kummetz: I guess maybe you misunderstood my question. I'm wondering if door count for first half of '26 will be above second half of '25? Christopher Hufnagel: No, sorry, that was the thing was embedded in our remarks. I think first half of '26 will be fewer doors than second half of '25 because we're working to rationalize that door count in places that we've underperformed, move past those doors and go look for new growth opportunities. Operator: And we have a follow-up question from Mauricio Serna. Mauricio Serna Vega: Maybe could you elaborate on the DTC growth that you've seen for the Saucony brand in the quarter? How does that look? And then on SG&A, like it sounds like you're continuing to invest in demand creation and other long-term enablers. How should we think about that growth rate going into '26? Because I think part of the algorithm is to get some leverage to get to that aspirational mid-teens EBIT margin. Christopher Hufnagel: I'll talk about the DTC performance first and then hand it over to Taryn. I think just let me talk about broader DTC in total. The quarter was generally in line with our expectations. And I think in '25, we're really trying to prioritize for our DTC operations a couple of things. First, running a brand-accretive DTC business. How do the stores and e-commerce sites that we run do more than just drive revenue? How do they also help build brand? How are they positive brand experiences for our consumers? How do they deepen emotional connections? At the same time, be a profitable channel for us. We worked hard this year to become less promotional on our e-commerce sites. In '24, we certainly were promotional as we're working through some obsolete inventory and working to turn the organization around. And we made the choice this year to really try to become less promotional across the entire portfolio. And I'm encouraged by the progress we've made. I think in the quarter, we're at 430 basis points in gross margin because we are becoming less promotional. And at the same time, also drive more full price, more premium selling and then importantly, have better and more consistent storytelling across all of our experiences. As it relates to Saucony, Saucony was a bright spot in the quarter, up mid-teens in their e-commerce business, which we are certainly encouraged by. And clearly, brands that have managed the marketplace well, have compelling product, new and fresh innovation, those brands are winning. I'll also say that Sweaty Betty U.K., the U.K. portion of that e-commerce business was positive in the quarter, too, which is really encouraging to see that brand begin to turn the corner for us. So that's how we approach the DTC business. Obviously, everyone is very focused on the few weeks remaining in the year, driving a successful holiday season and a successful conclusion to '25 and then carrying on to '26. Taryn Miller: And to your second question, Mauricio, in terms of our value creation model, the revenue growth combined with our disciplined SG&A management and cost management overall, frankly, are key to our growth algorithm, as you pointed out. And we are -- I'd say how I would describe it is we're working to balance the importance of making sure that we continue to expand margins in this inflationary environment as well as making those key strategic investments that we need to make. And this year, in 2025, as I identified earlier, we have grown gross margins with sustainable solutions. And we are reinvesting a portion of those gains in those key areas we're talking about, about driving that fuel for the growth so that we can get that leverage in the upcoming years. Those investments are in areas like marketing, like Chris has talked about the key cities. We've talked about the ground game, our talent and product development as well as key processes that Chris called out as well in terms of integrated business planning. So we've made a lot of progress as we've been trying to balance that growing margins as well as investing for the future. Too soon, as I said earlier, to talk about 2026, but that core discipline of driving revenue growth and being disciplined with our SG&A remains true. Operator: And that does conclude our Q&A session today as well as today's conference call. Thank you all for joining today, and you may now disconnect. Have a great day, everyone.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to Ovintiv's 2025 Third Quarter Results Conference Call. As a reminder, today's call is being recorded. [Operator Instructions] Please be advised that this conference call may not be recorded or rebroadcast without the expressed consent of Ovintiv. I would now like to turn the conference call over to Jason Verhaest from Investor Relations. Please go ahead, Mr. Verhaest. Jason Verhaest: Thank you, Pam, and welcome, everyone. This call is being webcast, and the slides are available on our website at ovintiv.com. Please take note of the advisory regarding forward-looking statements at the beginning of our slides and in our disclosure documents filed on EDGAR and SEDAR+. Following the prepared remarks, we will be available to take your questions. Please limit your time to one question and one follow-up. I will now turn the call over to our President and CEO, Brendan McCracken. Brendan McCracken: Thanks, Jason. Good morning, everybody, and thank you for joining us. We're excited to talk to you today about another great quarter and some significant strategic actions we are taking to crystallize our vision to becoming the leading North American independent E&P. First, we've entered into an agreement to acquire NuVista Energy, who have built an incredible asset base in the core of the Alberta Montney oil window. This transaction is priced right and we expect it to create exceptional value for our shareholders. It is immediately accretive on all financial metrics, highlighted by a 10% boost to our go-forward free cash flow per share. It's leverage-neutral at closing, it comes with valuable spare midstream capacity and valuable downstream gas price exposure and it adds significant inventory in the high-return oil window of the Montney. Second, we plan to commence the divestiture process for the sale of our Anadarko assets. Proceeds will be used for accelerated debt reduction, and we now expect to be below our $4 billion debt target by the end of 2026. That will enable us to allocate a higher percentage of our free cash flow to shareholder returns. Third, we have continued to meaningfully add to our Permian well inventory at highly attractive prices by prosecuting our ground game strategy in the Midland Basin. Finally, we continue to deliver exceptional performance across the organization, highlighted by our strong third quarter results and positive full year 2025 guidance revisions. Collectively, these actions streamline and high-grade our portfolio help us to meet or exceed our debt target and uniquely position us with significant inventory duration in the two most valuable oil plays in North America, the Permian and the Montney. Before we get into the transaction details, Corey will give you a quick overview of our third quarter results. Corey Code: Thanks, Brendan. We delivered another strong quarter, once again meeting or beating all of our guidance targets, setting us up for a strong finish to the year. We generated cash flow per share of $3.47 and free cash flow of $351 million, both beating consensus estimates. We also returned approximately $235 million to our owners through share buybacks and our base dividend and reduced net debt by $126 million. Production during the quarter was at the high end of our guidance ranges across all products. The beat was largely driven by the Montney as we continue to see strong efficiency gains from our recently acquired Karr and Wapiti assets. We came in below the midpoint on capital, and we also match or beat our guidance on all per unit cost items. Our third quarter results demonstrate the ongoing resiliency of our business and our constant pursuit of capital efficiency. Despite the more than $10 per barrel drop we've seen in WTI oil prices since the first quarter of 2024, our cash flow per share has remained relatively consistent. We've updated our full year guidance to incorporate our year-to-date results and improved Q4 outlook by increasing our production targets for all products while maintaining our capital guide. As a reminder, we lowered full year capital by $50 million last quarter to reflect our efficiency savings. For full year 2025, we now expect to deliver 10,000 BOE per day more production or $50 million less capital compared to our original plan. In the fourth quarter, we expect our total volumes to average approximately 620,000 BOEs per day including about 206,000 barrels per day of oil and condensate and capital is expected to come in at about $465 million. We've also adjusted our guidance to include an anticipated reduction in our 2025 cash tax bill of about $75 million or about 50% less than we originally expected. This reflects the impact of an internal restructuring and evolving U.S. tax guidelines. We expect these reductions to be durable for the next several years. In short, the team turned out another great quarter, and our 2025 outlook has improved once again. I'll now turn the call back to Brendan. Brendan McCracken: We've been operating in the Montney for more than 20 years and in the Permian for over a decade. Bolstering our position in these 2 basins where we have a competitive advantage means we can continue to deliver durable returns for many years to come. Today's transaction marks a culmination in our strategy in our strategic positioning of the company to create a focused, high-return deep inventory portfolio. In total, since 2023, we've increased our Permian and Montney drilling inventory by more than 3,200 locations at an average of $1.4 million per net 10,000 locations. This inventory like expansion has been unmatched by our peers and leaves us with one of the most valuable inventory positions in the industry. This portfolio, combined with our execution capability, uniquely positions our company to generate superior returns for a long time to come. The NuVista acquisition checks all the boxes. It's accretive across all key financial metrics. The combination enhances our returns, add scale and extends our future inventory runway in a core area. It boosts the quality of our oil inventory and enables us to maintain a strong balance sheet. We identified NuVista through an in-depth technical and commercial analysis of the Montney to identify the highest value undeveloped resource. That analysis highlighted the NuVista assets along with the Paramount assets we acquired earlier this year as being the most attractive and most complementary to our existing Montney position. NuVista sits in the core of the oil-rich Alberta Montney. It's directly adjacent to our existing operations in Karr, Wapiti and Pipestone. It is largely undeveloped and it comes with significant processing capacity for future oil and condensate growth optionality, along with the downstream market access portfolio, that provides valuable natural gas price diversification outside the AECO market. This is one of the highest quality undeveloped acreage positions in North America and the overlap with our existing land makes us the natural owner. While the assets are among the very best in the Montney on a stand-alone basis, the combination with our acreage is an ideal setup to unlock significant value. This transaction will add approximately 930 net 10,000-foot equivalent well locations across 140,000 net acres. Extending our Montney oil inventory to the higher end of our existing 15- to 20-year range. But this transaction does not just add inventory, it makes our overall Montney position better. Folding in NuVista will result in a 10% uplift to our average Montney oil type curve. Importantly, we are acquiring this high-quality inventory at a reasonable cost. For about $1.3 million per well location, which is very attractive compared to recent transaction metrics in the Lower 48. The acquisition provides strong financial accretion and will result in immediate and long-term expansion in our per share metrics like cash flow, free cash flow as well as increased ROCE. It will enhance our scale in the basin increasing our 2026 expected Montney oil and condensate volumes to about 85,000 barrels per day. The acquisition is expected to be leverage-neutral at close, and we will retain ample liquidity and a strong balance sheet. With this transaction, we are creating a stronger business that will be even better positioned for near- and long-term value creation. Let's dive in with some more details about the NuVista assets. The team at NuVista has done a great job building a contiguous position in the core of the Montney oil window, and we're excited to combine it with our existing assets. The acreage pairs incredibly well with their existing land base. As you can see on the map, it could not be a better fit. We acquired acreage is about 70% undeveloped with about 400 horizontal wells producing today. In 2026, we estimate the NuVista assets will deliver average volumes of about 100,000 BOEs per day, including about 25,000 barrels of oil and condensate and 400 million cubic feet a day of natural gas. The transaction also comes with significant AECO price mitigation and diversified market access, which Greg will describe in more detail later in the presentation. I should point out that as a Canadian company, NuVista reports its volumes on a net before royalties basis and uses Canadian dollars as its reporting currency. So the numbers we quote will look different than their reported numbers. I'll now turn over the call to Greg to walk through more of the details. Gregory Givens: Thanks, Brendan. This transaction adds depth and duration to our premium inventory and further expands our leading Montney scale. The 620 premium locations assume spacing of 10 to 14 wells per section, while the 310 upside locations assume up to 16 wells per section in the most prolific areas, plus additional infill opportunities. This is consistent with the development approach taken on our legacy assets, including the Paramount assets acquired earlier this year. Next year, we expect our pro forma 2026 total Montney production to average about 400,000 BOE per day, including 85,000 barrels per day of oil and condensate and 1.75 Bcf per day of natural gas. We anticipate running an average of six rigs and one to two frac crews. We'll have further details to share on our 2026 capital program when we issue our full year guidance in February. We are confident in our ability to unlock significant value from the NuVista assets using our proven development approach to generate superior asset level returns and unmatched capital efficiency. We expect to capture about $100 million in durable annualized free cash flow synergies. About half of the synergies are from lower capital costs. We expect to achieve a savings of $1 million per well consistent with our current Montney well costs from streamlined facility design and faster cycle times. The balance of the synergies come from other non-well capital savings, lower production costs driven by enhanced scale connecting the wells to our Grand Prairie operations control center, where we use automation and in-house AI tools to optimize production and reduce downtime as well as lower overhead. We are highly confident in our ability to realize these synergies given our strong track record of asset integration, which we demonstrated most recently by achieving our synergy target within the first 6 months of owning the Paramount assets. We also see the potential for significant future savings from things like the ability to optimize our development plans, giving more available processing capacity. The ability to extend the lateral length of our wells currently are constrained by lease lines and the opportunity to further optimize our base production, thanks to more integrated infrastructure. The enhanced value of our business is both structural and durable and will support increased direct returns to shareholders and higher return on capital employed. Our confidence in the quality of the new assets is evident in the strong well results from NuVista on this acreage. When we overlay NuVista's average well productivity from 2023 and 2024, the acquired assets have delivered impressive cumulative oil rates. Integrating these assets into our Montney development plan results in a 10% oil and condensate productivity improvement for our previous program type curve. This is illustrated on Slide 13, where the dashed orange line shows our previous repeatable program and the thick orange line represents our new repeatable program with the addition of the NuVista assets. This is a powerful demonstration of the underlying rock quality we're acquiring. The returns in the Montney oil window are competitive with the best plays in North America. This is a result of the high well productivity, the low drilling and completion costs, the favorable royalty structure and the fact that Canadian condensate generally receives very close to WTI pricing. The economics are not dependent on a higher NYMEX or AECO price. Even at very modest AECO prices, these wells would still compete for capital in our portfolio. Our analysis of the pro forma assets show that at the current strip pricing, we expect the NuVista assets to generate a 55% rate of return in 2026. The transaction comes with about 400 million cubic feet per day of natural gas. NuVista's downstream firm transportation agreements and hedging arrangements will lower our exposure to AECO on a pro forma basis. Ovintiv's 2026 AECO exposure will go from about 30% of our Montney gas production free transaction down to about 25% pro forma. NuVista's approach to AECO price mitigation is very similar to ours. They have done a great job of building out a diversified portfolio of firm transportation contracts to markets across North America, for about 250 million cubic feet per day of their natural gas volumes. They've received strong realized pricing as a result. Year-to-date, as of the end of the second quarter, the pre-hedge gas price realization was approximately 180% of AECO. In addition, they have JKM link contracts for 21 million cubic feet per day starting in 2027. They also have a strong financial hedging program with a current mark-to-market value of about $120 million. NuVista's significant processing capacity unlocks future growth optionality for us. They have secured 600 million cubic feet per day of long-term raw inlet processing capacity, which when combined with our existing Montney processing will provide optionality for Ovintiv to grow our oil and condensate volumes by more than 5% for the next 3 to 5 years with no major infrastructure spending requirements. We've had good success collaborating with midstream partners to improve uptime at the facilities we inherited through the Paramount transaction, and we are confident we can continue to add value with future processing optimization efforts across the play. I'll now turn the call back to Brendan. Brendan McCracken: Thanks, Greg. Our work to build inventory depth is not restricted to the Montney. Over the past several years, we've extended our Permian oil inventory runway to nearly 15 years. It's no secret that the price of inventory has gone up dramatically since 2023 when we acquired over 1,000 drilling locations in the Midland Basin for an average cost of about $2 million per well. We were ahead of the pack and as recent transactions in the play value the inventory as much as $7 million per well. While many people think there are no opportunities left to add inventory and make a reasonable rate of return, our team has continued to focus on bolt-on blocking and tackling across our acreage position. Our Permian ground game has yielded impressive results, acquiring low-cost, high-quality inventory in the core of the play. Year-to-date, we've added 170 drilling locations, 90% of which are premium for an average cost of $1.5 million per well. These transactions do not include any producing wells. They are inventory accretive, and they're offsetting our existing acreage and compete for capital immediately. We think there are more opportunities for reasonably priced bolt-ons in the play and we will continue to take a value-driven approach to evaluating future prospects. We are funding the NuVista acquisition with a balanced mix of cash and equity. The sources of cash include cash on hand, borrowings under our credit facilities and proceeds from a term loan. We've chosen to pause our share buyback program for 2 quarters until around the time the transaction closes. This decision, coupled with our balanced financing mix should result in a leverage-neutral transaction at the time of closing. During this time, we've also caused bolt-on spending, and our base dividend is unchanged. Debt reduction remains a key priority for us and we remain committed to reaching our net debt target of $4 billion or about 1x leverage at mid-cycle prices. As such, we have chosen to accelerate our pace of debt reduction and further streamline our portfolio through an asset disposition. We remain committed to preserving our investment-grade credit profile, and we do not expect a negative impact to our investment-grade ratings because of the NuVista transaction. We plan to commence a sales process for our Anadarko assets that we expect to complete by the end of next year. The Anadarko is a highly valuable asset with a low decline rate, strong realized pricing and low LOE. It punches above its weight in free cash flow generation. In the third quarter, it produced roughly 100,000 BOEs per day, including 29,000 barrels a day of oil and condensate. Following the divestiture, we expect to be well below our net debt target enabling us to allocate a greater portion of our free cash to shareholder returns. We continue to believe our equity is undervalued and share buybacks continue to screen as a superior return on investment compared to investing in growth. We will provide more details on what a refreshed shareholder return framework could look like as we get closer to the sale of the assets. In summary, yesterday's announcement reflects years of work to build the portfolio that delivers on our durable return strategy, and we're excited to reach this milestone on behalf of our shareholders. I'd like to recognize the efforts of our team to get us here. The NuVista assets in our ground game additions strengthen and expand our position in the top 2 oil basins in North America. The NuVista transaction is strongly accretive to our financial metrics as well as our premium inventory debt. It significantly boosts free cash flow per share, provides significant oil growth optionality, valuable gas price diversification and maintains our investment-grade rated balance sheet. Our track record of asset integration and operational excellence gives us confidence in our ability to deliver on the targets we've set out today. We have one of the most valuable premium inventory positions in our industry. We have worked diligently to focus and high-grade our asset base while strengthening our balance sheet. We now have the achievement of our debt target firmly in sight, and with that, the inflection to deliver increased returns to our shareholders. Operator, we're now ready to open the line for Q&A. Operator: [Operator Instructions] Your first question comes from Kalei Akamine with Bank of America. Kaleinoheaokealaula Akamine: Congratulations on the deal. I want to ask on the growth outlook for the NuVista asset. So NuVista was prosecuting a linear growth strategy through a decade in, and that was really enabled by their investments in gas processing capacity. And the timing of that, it's pretty imminent. So my question is, how are you thinking about balancing or optimizing those plants versus your capital discipline approach to capital spend? Brendan McCracken: Yes. Kalei, thank you very much. Appreciate the comments and the question. Yes. So we're going to fold this in and run our combined business in the same capital disciplined way that you've seen us do over the last several years. And really what that has us thinking about is a couple of items. One, what's the macro, what's the demand for growth from large E&P companies? And I think today, it's fair and reasonable to say there is not a market demanding more barrels or BTUs be produced. And so that signal calls for a maintenance level investment. And then the other signal we look closely at is can we get better cash flow per share growth from buying our shares back or from adding activity in the field. And again, that signal is telling us it's a better option for our shareholders to buy the shares back to generate that cash flow per share growth. So when we incorporate these NuVista assets, we're going to fold them into that same capital allocation strategy. And so we'll be slowing that rate of growth investment down and running the assets for free cash generation if the environment continues to be the same. Kaleinoheaokealaula Akamine: I appreciate that. For my follow-up question, I want to ask about the 900-plus locations that you're acquiring with NuVista. That includes 300 upside locations. I want to understand the plan to derisk those upside locations and whether that process is kind of already on the way, considering that you're doing some similar work on the Paramount assets that you acquired earlier this year. Brendan McCracken: Yes, Kalei, great question. I'll probably get Greg to comment here, too, because you're exactly right. This acreage sits side-by-side with both our legacy Montney acreage, but also the -- now, I guess, now legacy acreage from the Paramount acquisition. And so the ability to take the learnings on well density across into this new acreage has given us a lot of conviction. But Greg, you can kind of comment on some of the specifics on time line. Gregory Givens: Yes. Thanks, Brendan, and thanks for the question, Kalei. You're spot on. If you look at the map, this acreage just really nicely fits in that hole between our Pipestone acreage and our Paramount acreage we acquired earlier this year. We'll take the same approach. In some areas, that's going to be two zones, up to three zones, 10 to up to 16 wells per section. We're already well on our way at delineating the Pipestone acreage to see how much of that upside we can convert to base. We'll take the exact same approach here on the NuVista acreage. They've already done a pretty good job of that, but we feel like there's some room to go. So it will just really fold right into the work we're already doing. Operator: Your next question comes from Phillip Jungwirth with BMO Capital Markets. Phillip Jungwirth: On the year-end '26 time line for the Anadarko sale, is there anything you're looking to prove up ahead of the sales, such as maybe like 3-mile laterals or more optimized cube? Or do you think most of this work has been done? And then I just want to ask also if there's been any reverse inquiries received to date, recognizing you're starting to process early next year. Brendan McCracken: Yes. Thanks, Phil. Great questions. Lots of interest in the Anadarko asset. As you might imagine, there's been some precedent transactions in that basin. So our interpretation is there's a very strong buyer market in that basin for assets like ours and so I think on time line, nothing to prove up technically in the play. This is a really well understood, low decline basin with lots of certainty in it. And so I think the time line will just be about maximizing proceeds for our shareholders. So that's how we'll be thinking about the time line. Phillip Jungwirth: Okay. Great. And then just depending on the actual proceeds received from the sale, how much below $4 billion of net debt would you view as a floor? I think in the past, you've talked about some interest in going below that. Our model would put net debt at low 5s, call it, by year-end '26. So feel like you could be quite a bit below this $4 billion target. I'm just wondering how -- where would you view the floor as we think about go-forward capital returns? Brendan McCracken: Yes. Great question. Love the forward look there. I think the way we'll talk about that is we've got to get there and make those decisions with the facts of the moment and the macro at the time. But if you took today's lens and you looked at it, that would be a tremendous opportunity for boosting those shareholder returns as we've indicated. Operator: Next question comes from Scott Gruber with Citigroup. Scott Gruber: Curious about Montney maintenance CapEx over the long term. We can do the math on where that probably lands in '26. But curious kind of your ability to push that down over the next 2 to 3 years after you realize the cost savings underpinning the deal and optimizing activity without a common lease line, just some thoughts on being able to squeeze Montney maintenance CapEx down even further and where you think that could land? Brendan McCracken: Yes. Thanks, Scott. I love how you're thinking about it. We highlighted a number of longer-term synergies. We've obviously pointed to the shorter term capital and cash cost synergies, but there are some longer-term synergies here as well putting these two asset bases together, boosts our type curve, ability to drill longer laterals, things like that. But Greg might have a comment on how we'll think about continuing to add efficiencies in the play. Gregory Givens: Yes, thanks for the question. We'll -- in the very short term, we'll work on getting the cost structure on these new assets down to our cost structure, which will be around $525 a foot. But then over time, in all of our plays, we usually are able to continue to see a 2% or 3% reduction year-over-year just due to efficiencies in our program. So we'll continue to drive that down, just organically. And then some of the really, I think, attractive opportunities of -- if you look at the map, I mean, this is just ripe for opportunities to lengthen laterals across lease lines, to share infrastructure. We've already identified some spots where it looks like some of their infrastructure will replace capital spend that we were planning on in the next year or 2. So we feel like we're going to be able to drive down our capital structure here significantly over time. If you think about -- we're not ready to give guidance for next year, but we'll probably have about 1/3 of our activity on this new acreage, 1/3 on the acreage we acquired last year and 1/3 on our legacy. So we'll have opportunities to learn and get better in all three places. So we feel like over time, we're going to continue to just drive down what's already an industry-leading capital efficiency up there. Scott Gruber: I appreciate the color. A quick follow-up on the well productivity delta. It's a decent step above yours and looking for a nice 10% improvement on a blended basis. Is the delta there all rock quality? Are they undertaking a different style of completion? What do you attribute that Delta 2? And if it is rock quality, do you think about pivoting more activity in that direction over time? Brendan McCracken: Yes, Scott, great question. Yes, it's all oil mix. So this is really a fluid window. So where the NuVista acreage sits relative to the basket of Ovintiv acreage, it runs just a little more oily. So net-net, our oil type curve goes up on mix. So that's the driver there. Operator: Your next question comes from Betty Jiang with Barclays. Wei Jiang: Congrats on the acquisition. I want to ask about the processing capacity and on the midstream front, specifically for the Montney. With expanded scale, are there opportunity to optimize how you utilize the different plants, the flows, utilization of different plants and the opportunity to potentially negotiate better contract on the midstream front. Brendan McCracken: Yes, Betty, thank you for your comments and the question. Absolutely on the midstream side, it's one of the deal synergies that's sort of baked into some of the cash cost piece, but also the capital and then in the longer-term unquantified synergy bucket here, too. So there's lots to talk about here. If we focus on the midstream side, Greg just alluded to this earlier, there are several places where we can avoid some capital expenditure that we would have had for minor infrastructure projects that now could come out because these assets come with spare capacity. So that's kind of immediate. One of the big wins we've had on the Paramount integration is around run time. And so we expect an integrated asset here is going to also be able to boost run time through these midstream and processing facilities. And then the final piece is around the ability to grow into these assets over time when the macro calls for that in the future. So a lot of good wins to capture on the midstream infrastructure side here. Wei Jiang: That's great. And then a follow-up on the gas marketing side, just given the larger position, do you see adding scale enabling more opportunities to market gas, whether on the global LNG front or other ways to mitigate your exposure to AECO. Brendan McCracken: Yes. Absolutely, Betty. So our strategy has been to minimize our exposure to AECO and we've been steadily chipping away at that over the last number of years, and in particular, since we acquired the AECO exposed gas from Paramount. And we're going to continue to do that. One of the deal features we love here as it does reduce our AECO exposure in the next several years from about 25% -- sorry, from about 30% down to 25%. So there's a built-in step change from combining these assets together. And we will continue to look for other downstream markets to diversify our AECO away from. And I know our midstream marketing team is hard at work on that today. Operator: Your next question comes from Lloyd Byrne with Jefferies. Francis Lloyd Byrne: Congratulations on the transaction and the -- frankly, the entire portfolio transformation over the last couple of years has been really good. Can you just start with -- maybe the question that started off on potential growth going forward. We kind of think you can grow these assets on a liquids basis, if you want. And is there any infrastructure processing constraints that you have that would block that? Brendan McCracken: Yes. Thanks, Lloyd for the comment and great question. So if you think about what this transaction does, we had already built a real growth option in the Montney oil with the addition of the Paramount acreage because that came with some spare processing and midstream capacity as well. This one boosts that up. So we had previously been talking about kind of that low to mid-single-digit growth potential for oil and condensate compounded over several years. This now boosts us up to be able to do over 5% growth for up to 5 years. And so if you think about what that could mean, it could take our 85,000 barrels a day in the play up well north of 100,000 barrels a day over that period if we chose to make those investments. So again, I'll caution that is not our capital allocation plan today in this macro environment. But in the event of a stronger macro environment, this -- both the inventory depth and the processing facilities are there to be able to facilitate that growth without major infrastructure investment. And you didn't ask it, but I'll pile on a little bit here. Obviously, the addition of our ground game locations in the Permian also give us a lot of confidence in that growth option as well. And that is also a place where there is ample processing capacity available should we choose to exercise that. So really, we've got that growth option unlocked across the future portfolio here. Francis Lloyd Byrne: That's great. Brian, you beat me to my second question. I just wanted to ask you about the ground game in the Permian. And just what is it that allows you to keep adding those locations at an attractive price? And can you -- do you think you can continue that going forward? Brendan McCracken: Yes. Thanks, Lloyd. I appreciate you hearing me back there. This is a great example of how the ingenuity and approach that our team is taking is exposing our shareholders to a unique value-creation options. So really where our comparative advantage comes into play here is if you're a large mineral rights holder in the Permian, the operator of choice for you is Ovintiv. We're going to get you the best royalty stream off of these assets because of our cube development approach and because of our reoccupation strategy and how we conduct our operations in the basin. So that's allowing us to access really high-quality resource at a very attractive entry price for our shareholders, and we look forward to seeing what that can yield in future years as well. Operator: Your next question comes from Doug Leggate with Wolfe Research. Douglas George Blyth Leggate: So obviously, you've set the table for the Anadarko sale. I wonder we're coming into potentially what some would think is a softer oil outlook. Are there any conditions where if you don't get what you hope to achieve in terms of valuation that you would hang on to that asset longer? Or is it a sale regardless of the -- I mean how are you thinking about framing the conditions of sale? Brendan McCracken: Yes. It's the right question, Doug. I think, look, the one thing I'll point out, first of all, is the Anadarko, while it makes a fair amount of oil, it's about 1/3 oil, 1/3 NGLs and a third gas, so it does have good commodity exposure across the three products here. So it's not exposed to one exclusively, which is helpful in really any environment. And then this is a really high-quality asset. It's going to attract, I think, a lot of attention. And then we've given ourselves a reasonable running time here to execute. And so we'll be working through that time period to maximize the proceeds to our shareholders, but certainly cognizant of making sure we do that. . Douglas George Blyth Leggate: And then I wonder if I could be predictable and ask you about the capital return strategy. You're taking a pause on the buyback. We certainly can't understand why your free cash flow yield is as high as it is. But at the same time, we look at the capital structure and I think share buybacks are glacial. They're not working in terms of forcing market recognition of value, and you've got this opportunity to pause and basically test perhaps what happens if you lower your net debt and transfer that value to equity. So I guess my question is, you seem to be messaging the $4 billion floor and then a reset potentially in the share buybacks. Why not just take the debt down and reset your capital structure altogether? Brendan McCracken: Yes. I think, Doug, that's exactly what we'll be doing with the transaction. So I think we continue to be in agreement here about where we're trying to get the business to. And so we think the prudent approach we're taking here with the pause until close allows us to be leverage neutral with where we are pre-deal. And then the transaction on Anadarko would enable us to immediately step change below that debt target, so -- and give us the flexibility from there. So yes, I think we're agreeing with you. Operator: Your next question comes from Greta Drefke with Goldman Sachs. Margaret Drefke: I was just wondering if you could speak a bit on the drivers of the $100 million in annual capital and cost synergies outlined with the NuVista acquisition. Are these similar changes to the changes made while incorporating the Montney acreage from the Paramount acquisition at the start of the year? Or are there different opportunities you would highlight there? Brendan McCracken: Yes. Gret, I'll let Greg chime in on that. Gregory Givens: Yes. Thanks for the question. First off, I just want to complement NuVista. They've done a really nice job with the assets to this point, which is why we were so interested in acquiring them. But our team has developed a really well-defined and refined integration playbook that we'll start. Think of it kind of in two lenses. There's the short term, that first day up to the first 6, 9 months. And then longer term, how we approach things. But just immediately after close, we'll be connecting their rigs up to our drive center where we'll use in-house algorithms and AI to further refine our drilling efficiencies as well as our cost base in learnings on things we've learned here in the U.S. We think that's going to drive several days out of drill times. On the completion side, we're going to utilize our real-time frac optimization center, which will refine pumping schedules, shorten cycle times. Our use of local sand there in the basin which should also generate some really good cost savings shortly after close. And then on the facility side, we see some significant opportunities to reduce cost of both the new facilities we're going to build, but then longer term, as we showed on Slide 15 there, our acreage position in midstream are really well aligned where they're located close to each other. So we should be able to reduce facilities costs going forward and optimize that. So on the capital side, that will make up about half of the efficiencies we're going to see. And we think that's going to happen pretty quick. I mean we're going to measure that in months, not quarters or years. But then just importantly, on the production side, we're going to reduce costs there and get more efficient. We'll do just what we did on the last transaction. We're going to connect the wells to our operations control center in Grand Prairie very quickly and inexpensively. And from there, we'll be able to optimize production using our in-house AI tools and algorithms to optimize production on all the wells with set points on artificial lift, those types of things. But also what we found to be very effective is the automation that we put in place. So we can not only shut in wells remotely, but also bring them back online in minutes. And so while we've really improved the midstream reliability, and we think we'll be able to work with the new midstream providers here to help them as well. When inevitably you do have a downtime or a turnaround, we can bring our wells back online faster than anybody else in the industry up there. And what that does is just really increases our uptime. So you'll see a production benefit there as well as a cost reduction. And then when you look longer term, as I spoke about earlier, we're going to be looking to go to longer laterals. We've got some shared acreage that actually had a shared working interest between Paramount and NuVista historically. We'll be able to make those 100% working interest wells, extend lateral lengths, develop that very efficiently. We'll be able to share up and optimize infrastructure spend. And that will also help base production as well as new wells. So just lots of different ways we're going to be able to achieve this over the coming months and even longer. So really excited team is looking forward to get to work on optimizing this asset. Margaret Drefke: Great. And then just for my second question, I was wondering if you could speak a little bit more about the decision to fund the acquisition through a combination of both equity and cash. Can you speak a little bit about why 50-50 split is the optimal split in your view? Brendan McCracken: Yes. Thanks, Greta. I think the right place to start here is with getting the total consideration right. And so that obviously was the starting point for us. And then the next is to find the right balance on the financing mix. We were very disciplined with how much equity we used in the deal. It's our view that our equity continues to be undervalued. So we wanted to be disciplined with how we use those shares. And then we also wanted to make sure we held leverage neutral, like we've described at close here. And so really, those are kind of the governing features with how we thought about mix, and we think the outcome accretion and across the board, uplifts to the business makes sense with that mix. Operator: Your next question comes from Kevin MacCurdy with Pickering Energy Partners. Kevin MacCurdy: I always appreciate your view on AECO and Canadian gas prices. You made the point with this transaction that it lowers your AECO exposure and you're acquiring some really nice hedges over the next several years. But I wonder if you could update us on your long-term outlook for AECO and the Canadian gas markets and maybe what key projects would make you a little bit more constructive? Brendan McCracken: Yes, Kevin. Obviously, we've been cautious on AECO as the start-up of LNG Canada is helpful and an important milestone for Western Canadian gas producers, but also recognize the basin continues to be highly productive with a lot of growth capacity. And so we've been kind of near-term cautious. I think I would describe it as we look out into 2026, a little more constructive as that LNG Canada ramps up, but still cautious because it's not the end-all and be-all. But if you look forward to the LNG projects that are queuing up towards the end of the decade and into the early part of the 2030s, we think there's a real optimism around Western Canadian pricing. And what the additional egress could mean to the basin. And so built into our Montney business is the gas option, and we are long term excited about the value embedded in that gas option. Kevin MacCurdy: And just for clarification on the Permian inventory additions. Was the $250 million in spending in October, was that just from one transaction? Or was that several small deals that are -- that happen to be closing at the same time? Brendan McCracken: Yes. We bucketed together several deals into that to achieve that. So true ground game fashion there. Operator: Your next question comes from David Deckelbaum with TD Cowen. David Deckelbaum: I wanted to just follow up on some of the allocation conversations and some of the synergies with the NuVista transaction. You guys highlighted obviously the superior well productivity. And I think you talked about kind of splitting your activity evenly between Paramount and NuVista and Ovintiv acreage up in the Montney. I guess is there a future outlook that you would be moving more of the activity to more aggressively accelerate the development? It sounds like you're not constrained from an infrastructure side. On the NuVista acreage so that would sort of increase your free cash per share metrics? Brendan McCracken: Yes. Look, we are going to allocate capital across the Montney to maximize free cash flow, but also bear in mind our reoccupation strategy, which is really a reservoir management strategy to come back and drill cubes beside cubes within 18 to 24 months. And so those will be the two things that largely govern along with processing capacity, but those would be the things that govern our capital allocation across the assets. But like Greg said, it might shift around a little bit, but I think it's pretty stable in that 1/3, 1/3, 1/3 across the three buckets of Montney acreage. David Deckelbaum: Appreciate that. And I know it's a bit early, but I share your view on the valuation for the Anadarko Basin seems like it should be approximately what you paid for NuVista just on PDP alone. So I'm kind of curious, just from a tax perspective, how you think about any tax slippage from transacting there or if you have some offsetting mechanisms? Brendan McCracken: Yes. I'll let Corey cover that. Corey Code: So just on that front, we've got some existing bases on the asset and then obviously, depending on how high the price is, we should be able to cover it with other tax attributes. So we don't forecast much if any tax leakage on the sale. Operator: Next question comes from Chris Baker with Evercore ISI. Christopher Baker: Just a quick one. It sounds like this asset has been identified quite some time ago. I'm just curious in terms of the ultimate timing that we're seeing here. Was that at all influenced by the share sale, obviously, you mentioned in the release? Or just anything around the timing piece given the Anadarko assets there would be helpful. Brendan McCracken: Yes, Chris. Look, you're quite right. So we had identified this as 1 of the 3 assets that made a lot of sense for us as we went through this portfolio transition. And so pleased to be able to get to this point here today. I think the way to think about it is the disclosure from NuVista highlights, they began a competitive process for the asset back in August. And we acquired the shares right at the start of October. So that gives you some sense of the sequencing here. Corey Code: Maybe just clarify that... Brendan McCracken: Sorry, go ahead, Corey. Corey Code: I was just going to say just clarify, you've been one of the... Brendan McCracken: Yes. The Northern Midland Basin, the Paramount and then NuVista with the three, yes. Good point. Christopher Baker: Got it. That's great. And apologies if this was covered earlier, but any sense on what run rate EBITDA looks like for the Mid-Con asset this year? Brendan McCracken: I don't have that number to hand here, Chris, yes. Sorry, I've got -- there's a lot of numbers in front of me right now, but I don't have that one. Sorry, team can follow up with you. Operator: Your next question comes from Geoff Jay with Daniel Energy Partners. Geoff Jay: I just had a couple if I could. First is the soft guide for 2026 pro forma. Is that inclusive of the Anadarko production or exclusive? Brendan McCracken: Yes. Geoff, yes, it's inclusive of the Anadarko production. So we'll update that once we've got clarity on the divestiture timing. Geoff Jay: All right. Great. And then my second is on the -- going back and, I guess, maybe beating a dead horse on Slide 12. But in looking at the future synergies piece, I noticed your AI and production optimization are kind of in two buckets, near term and long term and I am wondering what the long-term, I guess, AI automation piece is and what makes it long term? Brendan McCracken: Yes. I mean we're just at the very front end of applying these technologies into our business. And as you saw, Geoff, when you joined us in the Montney this past summer, we're active in sort of three main areas. We're active in the production operations place. So it's helping us on the uptime and on the artificial lift optimization. It's helping us on the drilling times and costs, and then it's helping us on the completions, both the cost and the productivity of the wells. So -- but we're really early days in trying to figure out what this technology can do for us. And so hard to point to where it's going to go over time, but put us in the optimistic camp here of seeing the potential for this to really transform our business. Operator: At this time, we have completed the question-and-answer session. And I'd like to turn the call back over to Mr. Verhaest. Please go ahead. Jason Verhaest: Thanks, Pam, and thank you, everyone, for joining us today. Our call is now complete. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Operator: Good day, and welcome to the Aflac Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Young, Vice President, Capital Markets. Please go ahead. David Young: Good morning, and welcome. Thank you for joining us for Aflac Incorporated's Third Quarter 2025 Earnings Call. This morning, Dan Amos, Chairman and CEO of Aflac Incorporated, will provide an overview of our results and operations in Japan and the United States. Then Max Broden, Senior Executive Vice President and CFO of Aflac Incorporated, will provide more detail on our financial results for the quarter, current capital and liquidity. These topics are also addressed in the materials we posted with our earnings release, financial supplement and quarterly CFO update on our investors.aflac.com. For Q&A today, we are joined by Virgil Miller, President of Aflac Incorporated and Aflac U.S.; Charles Lake, Chairman and Representative Director, President of Aflac International; Masatoshi Koide, President and Representative Director, Aflac Life Insurance Japan; and Brad Dyslin, Global Chief Investment Officer, President of Aflac Global Investments. Before we begin, some statements in this teleconference are forward-looking within the meaning of federal securities laws. Although we believe these statements are reasonable, we can give no assurance that they will prove to be accurate because they are prospective in nature. Actual results could differ materially from those we discuss today. We encourage you to look at our annual report on Form 10-K for some of the various risk factors that could materially impact our results. As I mentioned earlier, the earnings release with reconciliations of certain non-U.S. GAAP measures and related earnings materials are available on investors.aflac.com. I'll now hand the call over to Dan. Dan? Daniel Amos: Thank you, David, and good morning, everyone. We're glad you joined us. Aflac Incorporated reported net earnings per diluted share of $3.08 and adjusted earnings per diluted share of $2.49 for the third quarter of 2025. We believe that these are strong results for the quarter, leading to a very good first 9 months of the year. Max will expand upon these results in a moment. But before he does, I'd like to make a comment on our operations. Beginning with Aflac Japan, I am very pleased with Aflac Japan's 11.8% year-over-year sales increase, especially the 42% increase in cancer insurance sales. These strong sales were driven largely as expected, by sales of Miraito, our cancer insurance product launched in March. As part of our ongoing strategy, we continue to emphasize and promote the importance of third sector protection to new and younger customers with our innovative first sector product, Tsumitasu. We believe the repricing of this product for new policies effective in September has the potential to benefit its sales. We saw positive sales growth across all distribution channels. Overall, I believe we have the right strategy to meet our customers' financial protection needs through their different life stages. Our ability to maintain strong premium persistency is a testament to Aflac's reputation, our strategy and our customer recognition of the value of our products. By maintaining this level of persistency and adding new premium through sales, we are partly offsetting the impact of reinsurance and policies reaching paid-up status and maintaining strong persistency continues to be vital to the future of Aflac Japan. Being where customers want to buy insurance has always been an important element of our growth strategy in Japan. Our broad network of distribution channels, including agencies, alliance partners and banks continually optimize opportunities to help provide financial protection to Japanese consumers. We will continue to work hard to support each channel as we evolve to meet the customers' changing needs. Turning to Aflac U.S. We generated $390 million in new sales during the third quarter, which was a 2.8% year-over-year increase. More importantly, we maintained strong premium persistency of 79% and increased net earned premiums 2.5%. We continue to focus on driving more profitable growth by exercising a strong underwriting discipline and maintaining strong premium persistency. We believe this will continue to drive net earned premium growth. At the same time, Aflac U.S. has continued its prudent approach to expense management and maintaining a strong pretax margin, as Max will expand upon in a moment. In both Japan and the United States, I believe that consumers need the products and solutions Aflac offers more than ever. When a policyholder transforms into a claimant, Aflac becomes more than an insurance company, we become a partner in health and a supporter of their family in their time of need. As a pioneer and leader in the industry, we are leveraging every opportunity to convey our products can help fill the gap during challenging times, providing not just financial assistance, but also compassion and care. At the same time, we generate strong capital and cash flows on an ongoing basis while maintaining our commitment to prudent liquidity and capital management. We continue to be very pleased with our investments, producing solid net investment income. As an insurance company, our primary responsibility is to fulfill the promises we make to our policyholders while being responsive to the needs of our shareholders. Our financial strength underpins our promise to our policyholders balanced with the financial flexibility and tactical capital deployment. I am very pleased with the company's capital deployment. In the third quarter, Aflac Incorporated deployed a record $1 billion in capital to repurchase 9.3 million shares of our stock and paid dividends of $309 million. This means we delivered $1.3 billion back to the shareholders in the third quarter of 2025. Especially as we celebrate Aflac's 70th anniversary on November 17, we treasure another milestone, 43 consecutive years of dividend increases. We remain committed to extending this record supported by our financial strength. At the same time, we have maintained our position among companies with the highest return on capital and the lowest cost of capital in the industry. 2025 also marked 2 other significant milestones for Aflac, the 30th anniversary of what is now known as the Aflac Cancer and Blood Disorders Center of Children's Healthcare of Atlanta and the 25th anniversary of the Aflac Duck. These are significant milestones that celebrate the privilege of benefiting the lives of millions of people. Today's complex health care environment has produced incredible medical advancements that come with incredible cost. We are reminded that one thing has not changed since our founding in 1955. Families and individuals still seek a partner and solutions to help protect themselves from financial hardship that not even the best health insurance covers. Thanks to our relevant products, financial strength, powerful brand and broad distribution, we believe Aflac's outstanding solutions make us the ideal partner. We also believe in the underlying strengths of our business and our potential for continued growth in Japan and the United States, 2 of the largest life insurance markets in the world. We continue to take action to reinforce our leading position and build on our momentum. I'll now turn the program over to Max to cover more details of the financial results. Max? Max Broden: Thank you, Dan. I will now provide a financial update on Aflac Incorporated's results. For the third quarter of 2025, adjusted earnings per diluted share increased 15.3% year-over-year to $2.49 with no impact from FX in the quarter. In this quarter, remeasurement gains on reserves totaled $580 million, reducing benefits and also increasing the deferred profit liability in the earned premium line by $55 million. The total net impact from the Q3 assumption update increased EPS by $0.76 variable investment income ran in line with our long-term return expectations. In our U.S. business, as part of our strategic technology plan as we optimize efficiencies and migrate to the cloud, we terminated a services contract early, which led us to book a onetime termination fee of $21 million in the quarter. Adjusted book value per share, excluding foreign currency remeasurement increased 6.3%. The adjusted ROE was 19.1% and 22.1%, excluding foreign currency remeasurement, a solid spread to our cost of capital. Overall, we view these results in the quarter as very good. Starting with our Japan segment. Net earned premiums for the quarter declined 4%. Aflac Japan's underlying earned premiums, which excludes the impact of deferred profit liability, paid-up policies and reinsurance declined 1.2%. We believe this metric better provides insight into our long-term premium trends. Japan's total benefit ratio came in at 39.3% for the quarter, down nearly 10 percentage points year-over-year. The third sector benefit ratio was 27.8% for the quarter, down approximately 14 percentage points year-over-year. We estimate the impact from reserve remeasurement gains to be 26.6 percentage points favorable to the benefit ratio in Q3 2025. Long-term experience trends as they relate to treatments of cancer and hospitalization continue to be in place, leading to continued favorable underwriting experience. Persistency remained solid year-over-year and in line with our expectations at 93.3%. With refreshed product introductions, we generally see an uptick in lapse and reissue activity, causing reported lapsation to increase. We did experience this uptick with our recently launched cancer product, but overall lapsation remains within our expectations. Our expense ratio in Japan was 19.8% for the quarter, down 20 basis points year-over-year, driven primarily by an increase in expense capitalization rates resulting from higher sales. For the quarter, adjusted net investment income in yen terms was relatively flat at JPY 98 billion. The pretax margin for Japan in the quarter was 52.2%, up 750 basis points year-over-year, notably driven by the unlock of actuarial assumptions. But even adjusting for that, a very good result. Turning to U.S. results. Net earned premium was up 2.5%. Persistency increased 10 basis points year-over-year to 79%. Our total benefit ratio came in at 45.6%, 200 basis points lower than Q3 2024, driven by the unlock. We estimate that the reserve remeasurement gains impacted the benefit ratio by 480 basis points in the quarter, largely driven by the assumption unlock and claims remaining below our previous long-term expectations. Our expense ratio in the U.S. was 38.9%, up 90 basis points year-over-year. Primarily driven by the onetime early contract termination fee of $21 million that I referred to earlier and the timing of advertising spend. Even though we incurred a onetime fee as part of our overall strategy, we anticipate reduced costs and improved efficiency, which will offset the termination fee over the next few years. Our growth initiatives, group life and disability, network dental and vision and direct-to-consumer had no impact to our total expense ratio in the quarter. This is in line with our expectations as these businesses continue to scale. Adjusted net investment income in the U.S. was up 1.9% for the quarter, primarily driven by higher variable investment income compared to a year ago. Profitability in the U.S. segment was very strong with a pretax margin of 21.7%, a 90 basis points increase compared with a strong quarter a year ago. In Corporate and Other, we recorded pretax adjusted earnings of $69 million. Adjusted net investment income was $66 million higher than last year due to a combination of lower volume of tax credit investments and higher asset balances, which included the impact of the internal reinsurance transaction in Q4 2024. Our tax credit investments impacted the net investment income line for U.S. GAAP purposes negatively by $6 million in the quarter with an associated credit to the tax line. The net impact to our bottom line was a positive $2 million in the quarter. Higher total adjusted revenues were offset by higher total benefits and adjusted expenses of $64 million, driven primarily by internal reinsurance activity, higher costs pertaining to business operations and higher interest expense. We continue to be pleased with the performance of our investment portfolio. During the quarter, we increased our CECL reserves associated with our commercial real estate portfolio by $28 million net of charge-offs, reflecting continued distressed property values. We did not foreclose on any properties in the period. Our portfolio of first lien senior secured middle market loans continues to perform well with increased CECL reserves of $7 million in the quarter, net of charge-offs. For U.S. statutory, we recorded a $7 million valuation allowance on mortgage loans as an unrealized loss during the quarter. On a Japan FSA basis, there were securities impairments of JPY 476 million in Q3, and we booked a net realized loss of JPY 189 million related to transitional real estate loans. This is well within our expectations and has limited impact on regulatory earnings and capital. During the quarter, we also enhanced our liquidity and capital flexibility by $2 billion with the creation of 2 off-balance sheet pre-capitalized trusts that issued securities commonly referred as PCAPs. Unencumbered holding company liquidity stood at $4.5 billion, which was $2.7 billion above our minimum balance. Our leverage was 22% for the quarter, which is within our target range of 20% to 25%. As we hold approximately 64% of our debt in yen, this leverage ratio is impacted by moves in the yen-dollar exchange rate. This is intentional and part of our enterprise hedging program, protecting the economic value of Aflac Japan in U.S. dollar terms. Our capital position remains strong. We ended the quarter with an SMR above 900% and an estimated regulatory ESR with the undertaking specific parameter or USP, above 250% . While not finalized, we estimate our combined RBC to be greater than 600%. These are strong capital ratios, which we actively monitor, stress and manage to withstand credit cycles as well as external shocks. Given the strength of our capital and liquidity, we repurchased $1 billion of our own stock and paid dividends of $309 million in Q3, offering good relative IRR on these capital deployments. We will continue to be flexible and tactical in how we manage the balance sheet and deploy capital in order to drive strong risk-adjusted ROE with a meaningful spread to our cost of capital. For 2025, we now expect that the benefit ratio in Japan will be in the 58% to 60% range. And we continue to expect the expense ratio to be at the lower end of the 20% to 23% range as we pursue various growth and strategic initiatives. As a result, we expect the Aflac Japan's pretax profit margin to be in the 35% to 38% range. In the U.S., we continue to expect the benefit ratio for 2025 to be at the lower end of the 48% to 52% range and the expense ratio to be in the mid- to upper end of the 36% to 39% range as we continue to scale new business lines. At the same time, we expect pretax profit margin for 2025 in the U.S. to be at the upper end of the 17% to 20% range. Thank you. I will now turn the call over to David. David Young: Thank you, Max. Before we begin our Q&A, we ask that you please limit yourself to one initial question and a related follow-up. You may then rejoin the queue to ask additional questions. We'll now take the first question. Operator: [Operator Instructions] Our first question will come from Joel Hurwitz of Dowling & Partners. Joel Hurwitz: I wanted to touch on sales and maybe start with the U.S. It looks like dental and group sales were very good, but your core voluntary product sales were down quite a bit year-over-year. Just can you talk about what you're seeing across your product offerings? Virgil Miller: Yes. Joel, this is Virgil. Let me give you some commentary on that. First, let me start with where you started your question with. Yes, what we're seeing is in the market as the brokers have become more involved with selling supplemental benefits, they are leaning toward group products. So therefore, we are seeing some pressure on our individual products. I will tell you, though, that our focus is to continue to grow our average weekly producers and looking for an increase in recruiting this year. Having said that, along with recruiting comes conversions, we had an 8% increase in converting those recruits into producers for us, and then we saw overall productivity of 16%. We are seeing very strong production though in the investments we made in our buy-to-bills. With our lab business, we achieved a 24% increase during the quarter. We also won the contract with the state of Maine to provide claims administration for their paid family medical leave program. It's really a testament to the type of service we're providing in that market. And also, we stabilized our dental operations, and we are seeing a 40% increase for the first 9 months, which is strong. So our agents have returned back to selling those products. We are entering the broker market with those products, but a continued focus though on growing our Aflac nation, getting our veterans active to really drive, as you pointed out, the individual products. Overall, I would say one more comment, though, I'm pleased for the year. We are at $1 billion for the first 9 months. We are focused on persistency, which means we are still providing some strong underwriting criteria to ensure though that we are making the right decisions for long-term performance. And that's why you see the overall strong performance that we have with profitability, which exceeded our expectations. Joel Hurwitz: Got it. That's helpful. And then maybe shifting just to Japan sales. They were good in the quarter. Can you just provide some more color on how the cancer sales trended in the quarter? And then how demand is for the new Tsumitasu repriced product? Daniel Amos: Yoshizumi, would you mind taking that question? Koichiro Yoshizumi: [Interpreted] My name is Yoshizumi, in-charge of sales and marketing. I am very pleased to say that we're very much satisfied with the results in the third quarter, we did much better than in the second quarter. And it was mainly driven by our cancer insurance, Miraito. And first of all, one of the features that is not available at others is the fact that we have flexible protection design on Miraito. And this whole product can be customized to entire people, including those who already have cancer insurance and who doesn't have any cancer insurance today. And it's appealing also to the younger and middle-aged generation and also to people of all ages. And it also carries plans for children, which is unique to Aflac. And also it carries a premium waiver function. And also, it has the premium-based plans. So this is a very unique cancer insurance to APAC and that -- this product can be provided to the customers because we have the 50 years of history. And at all the distribution channels, it is showing a great result. And shifting to Tsumitasu, we went through a rate revision. And we started to see a solid growth in sales from September. So the 2 main products, Tsumitasu and Miraito, these are driving our sales performance. And we expect this momentum to sustain in the fourth quarter as well. And related to channels, our main channel is associate channels. And Japan Post Group, which is our alliance partner. They are doing -- both of them are doing very well. And we would like to make sure that we continue this momentum and close the year by doing well in the fourth quarter. That's all from me. Daniel Amos: I'd like to also add something to that, this is Dan. I was over in Japan 2 weeks ago specifically to meet on Tsumitasu product and see how it was doing with the banks. I met with 29 regional banks through meetings and then I called on 4 shinkin banks and the Head of the Association of Shinkin Banks. And the tone for the product of Tsumitasu is very -- going very well for us. It's hard to tell exactly what the sales will be. But certainly, it is -- we can see in our numbers that we're writing a younger block of business through Tsumitasu, which allows us to tack on our supplemental or third sector products with it over a period of time. And we thought we might do as high as 40% of our -- of the people would be what I would call in the 30s and 40s in terms of age. It's actually run over 50%. So 40% is to 50%, 25% better. So it's doing very well with us and bringing on a younger block of business that I think will play well in the long term for us. So I do like that. The other thing is, I'm really impressed with our Miraito product and what's going on there. I mean the idea of the percentage increase we've had is spectacular this year, and I credit what's going on with our sales organization there to continue to grow it. So I agree totally with Yoshizumi. Also, I got Virgil to go over 2 times during the quarter and also pump up everyone and try to just talk about what we can do and pat them on the back because Yoshizumi joined us about the worst time you could join, which was during COVID. And so this has really been a good year for him and enjoying it. And so we're enjoying productivity and feel it will carry through the year. Operator: The next question comes from Tom Gallagher of Evercore ISI. Thomas Gallagher: My first question is just a follow-up on the repricing of the policies in September. Did you say that was Miraito? And how did -- what was the difference between -- because I think you launched that in June. And so what was actually repriced in September? Did you lower pricing? Can you just elaborate a bit more? Max Broden: Tom, the repricing related to Tsumitasu. And what we did was as yields have increased throughout the year, we increased the assumed interest rate on the product and moved that up. And that relates both to the underlying rate, but also the discounted advanced premium rate that we moved up from 25 basis points to 1%. And that's a pretty meaningful move that we did. Daniel Amos: But nothing with cancer. Thomas Gallagher: Got you. So cancer is just playing out as you expected? Max Broden: Yes. No repricing on cancer. Thomas Gallagher: Got you. And just for my follow-up, so I guess I'm thinking about your launch of medical in Japan next year. And I'm not asking for specific numbers per se, but I guess it's a broader question. If I think about you now have 2 products selling simultaneously doing pretty well. And wondering, as you add a third, how do we think about your ability to support 3 products at once? Because I think historically, Aflac was really a one product at a time company and now you have 2 going, doing pretty well. How do you think about the launch of a third product? And do you think that can translate into over JPY 80 billion in sales from a ballpark perspective to where we could get to overall premium growth flattening or even maybe beginning to grow? Masatoshi Koide: [Interpreted] This is Koide speaking from Aflac Japan. We have just gone through the marketing and sales transformation this January and the new structure is now applied to the cancer medical asset formation and nursing care. And organization was function-based when it comes to product development and marketing. But we changed the organization to be more cross-functional and the product development and marketing are conducted in parallel across all the 3 brands. The purpose of having this transformation is for us to launch the 3 brands or 3 products concurrently and support them directly. So with this new organization or transformation, we saw a positive result even by launching Miraito and Tsumitasu at the same time. And we're planning to launch a new medical insurance in the end of December, but I am confident that under this new transformation or organization, we will be able to run all the 3 brands in parallel and separately. And now that the sales teams have witnessed the success of the sales of Miraito and Tsumitasu and the team is now looking forward to make a similar success by launching the new medical insurance. That's all from me. Daniel Amos: Comment about what was just covered. And that is, the Miraito will be influenced to some degree when we go to medical. An agent has so much time in a day to sell. And when they're making the call on the count or whatever, they generally -- if they've been pushing cancer insurance for a year or so, then the opportunity to bring a new product like medical always works to the advantage, whereas in the case of Tsumitasu, it's totally different and a different way of approaching consumers that we normally have not been approaching. So I just want to make sure that was picked up that there always is some decline in sales of an older product that's been out there a few years than -- when we go to a brand-new product because that's the whole idea of sales is to have bells and whistles and excite people to go push and sell more. And so that does happen. So I want to be clear on that for you, Tom. I think it was Tom that asked question. Masatoshi Koide: [Interpreted] May I add one more thing? This is speaking. By the way, our alliance partner sells cancer reinsurance only. So this partner will not be impacted by the new launch of medical insurance. And just to mention one thing about the 3 brands new structure, the teams are not working in silos. They are working concurrently and to support other products as well. We expect that with the launch of an attractive new medical insurance, there will be a positive impact to Tsumitasu and other products within our company. Operator: The next question comes from John Barnidge of Piper Sandler. John Barnidge: My questions are focused on the U.S. business. With the success and the growth of the buy-to-build initiatives, have we crossed over the period of investment and are now starting to yield some earnings from those efforts? Virgil Miller: Thanks, John. It's Virgil. Let me say this that we're not at scale. However, though, we are seeing some -- with the growth that we're seeing, I'll be specific on the lab, there are quarters where we have realized being to the good. However, though, we've got to get more scale to make that consistent. So I'm not ready yet to claim that. I would say on the dental, no, we've got to get more growth. So we were able to get stabilized. I am very pleased with what we're seeing operationally. Those challenges have pretty much subsided. And as I mentioned before, the first 9 months, we've got 40% growth, but we're going to need more sales and to really drive earned premium to get to that scale. The trajectory is there, but we're not at a point of arrival. Max, anything you want to add to that? Daniel Amos: I want to add something. I'm very pleased with what's going on. When I look at it last year and look where we are this year, we're running way ahead, and it's nice to see that. And so Virgil is correct. We need more, but it's come a long way, and I am very pleased with what I've seen them accomplish. Max Broden: Well, I would say that you got one of the businesses is running -- have turned to profitability this year and 2 are not. That being said, it will still be some time until we reach target profitability. One thing is just to breakeven, but we want to get these businesses to adequate profitability overall, and that will still take a few years. John Barnidge: And my follow-up question on the U.S. Given the comments about more of the broker distribution going into group products, how do you get larger in that? Can you talk about maybe efforts organically and potentially inorganically? Virgil Miller: I would say 2 things to that, John. The first is that we had to make sure we got the right product set available to them and are making sure that we are giving what we call a unified experience. So the trajectory you're seeing and the positivity we're seeing in our lab products, the brokers are accepting that. We are giving a level of service that is top notch. As I mentioned before, our brand is very strong in that area now, and we're winning cases. What we are now focused on going into 2026 is to now take those products and bundle them with our other VB products. We've used the term halo in the past, but we need to have those products bundled together so that the brokers can make a unified solution out there. And it's not just about making it as an underwriting offer, it is being able to provide the technology and the process to support that. That is our extreme area of focus. And then you go and you add the dental products -- as I mentioned earlier, the dental is growing. It's mainly still driven by our agents. So we are open for business and asking the brokers now to move it in some of their larger cases. When you put that together, we believe that we will continue to grow consistently strong in the group space, and that has been our focus really with those buyer deals. And John, let me make sure -- there was a second part. What was the second part of your question? John Barnidge: Yes. I think you covered the first part from the organic. I was asking is the inorganic opportunity for good scale there. Virgil Miller: Thank you for that, John. I will tell you that as I've taken over now my role as President of the corporation, I've worked behind the scenes with all our leadership teams, primarily Max and I were making sure that we've got a strong corporate development arm. My point on that is that we're going to make sure we've got the right rigor and discipline to be looking out in the market for any opportunity. We're going to be very deliberate, though. So we are preparing to make sure that we have that discipline, that rigor to be looking. But at the same time, though, we have not seen anything become available that has attracted us that can really move our operations. So we're not going to just make a move to make a move, but the discipline that we have, we're making sure that we're ready if and when there is an opportunity. Operator: The next question comes from Ryan Krueger of KBW. Ryan Krueger: I guess I had a follow-up on that last question on inorganic. I think last year at your investor conference, I think your views were you wanted to build out the newer U.S. capabilities and give it a few years to see if it was working before you'd really consider anything larger from an M&A standpoint. It sounds like things are going better than you expected when it comes to the progress in the U.S. So I just wanted to follow up and maybe can kind of circle back to what you had said last year. When it comes to inorganic, are you mostly looking at smaller things that would add capabilities? Or would you actually consider something more meaningful? Virgil Miller: I think first, the point we were making last year is the focus. It's hard to go out and do something and then look at any type of opportunity when huge opportunity is sitting right in front of us with our life and [indiscernible] and disability platform is our first focus to get that to scale. And we are actually exceeding the trajectory that we have put forth. So very pleased with that. And to your point also, but when we had our dental operations not stable, that became our definite focus also. It's just a huge opportunity in both of those markets. Those products continue to be desired out there for consumers. And so therefore, that is our focus. Now having said that, when you mentioned the word small, if there are opportunities that could really enhance our technology, we are very, very aware of what's happening in the world of AI. We've set up a clear framework. We will be active in making sure that we're able to be efficient and effective in how we manage our business and technology is a great part of that. So we're always looking at how we can advance and move our technology. But when it comes to looking at blocks of business or other opportunities out there, our focus will stay here, but we will have the discipline to make sure though that we are always looking at what's going to happen in the market. What got Aflac to the dance that we're at right now, though, is a history of being innovative. We're the pioneers of the supplemental space. We're the pioneers of the cancer insurance. And we will make sure, though, that we're going to be innovators, and we will continue to be innovative going forward. Max Broden: I would just add that I don't think that our views have changed on M&A. We think that right now, we -- the things that we are building out are working for us, and we're making very good progress there. And we have a core business that is doing very, very well. So we are in a position where we don't have to do anything. We obviously have the flexibility and opportunity. But that being said, we also recognize that we operate generally in niche businesses where it's very difficult to either, a, find complementing businesses; and b, sometimes very difficult to integrate them as well, given the -- how sort of niche operated we are, both in terms of distribution administration, et cetera. So recognizing all of that, I would say that I don't think necessarily that our views or opinions have really changed. Ryan Krueger: And then you had a 64% to 66% Japan benefit ratio target over the next few years coming into this year. Following the assumption review in Japan, do you think that's still a good range? I know there's some ongoing benefits from that. Max Broden: So Ryan, if you look at our underlying benefit ratio for the quarter, it came in at 65.9%. So I think that's a reasonably good range going forward. Keep in mind that when we give guidance, we generally do not include any further unlock assumptions in those ranges. So the long-term range of 64% to 69%, we feel pretty good with. Obviously, we get a little bit of a tailwind from the 130 basis points lower net premium ratio. We also get a little bit of a tailwind from mix overall as we grow -- continue to grow contribution of our in-force from the third sector block, predominantly cancer. So when you take all of that together, we said a year ago, that in the range of 64% to 66%, we will start at the high end of that range and trend lower throughout the forecast period. And I think that as we sit here today post the current unlocking and given the experience that we have, that still holds. Operator: The next question comes from Wilma Burdis of Raymond James. Wilma Jackson Burdis: Could you talk a little bit about why the Japan cash earnings have been so high over the last few years and how long this could persist? Max Broden: Thank you, Wilma. The 2 main drivers of the high FSA earnings and therefore, ultimately dividends from Aflac Japan to Aflac Inc. over the last couple of years has really been driven by 2 factors. The first one is actually the weakening yen. And the way the FSA accounting works is that on U.S. dollar assets held on the Japanese balance sheet, you recognize the full impact from FX movements at the maturity of those bonds. And we obviously generally buy a lot of 5-year and 10-year tenors. And that means that you have to go back and look at what the yen was 5 years ago and 10 years ago. In particular, if you look at where the yen was 10 years ago, it was significantly stronger than what you have today. That means that as those bonds mature, you realize a very significant FX gain. As an example, 10 years ago, you roughly had a yen at JPY 1.05 relative to the dollar. If those bonds mature today at 1.50, that is close to a 45% appreciation of that asset that gets recognized at the time of maturity. So this boosts the FSA earnings in the near term. The other impact that you've seen since 2022 is that we have executed a series of reinsurance transactions between Aflac Japan and Aflac Bermuda. When we do that, there's also a release of reserves in the Japan segment, and that is boosting the FSA earnings as well. So I would say that those 2 components have been the main driver of the very high FSA earnings that you have seen. Wilma Jackson Burdis: And just a follow-up. It sounds like that could persist for at least a couple more years. And then along the same lines, can you just talk about the higher share repurchases in the quarter? And if that's something that you expect to see as more of a run rate? Max Broden: So as long as you have a yen that is weakening, you would continue to have a tailwind from maturing U.S. dollar assets. If you have a yen strengthening, you could have the opposite. So I do want to caution you that this goes both ways. The other factor, we do continue to evaluate further reinsurance transactions. And if we were to execute any in the future, that is also likely to create FSA earnings and therefore, higher cash coming through. But if you look at the underlying FSA earnings, that has generally been on a core basis, a little bit over JPY 200 billion per year. And then the way I would think about it is that, that's sort of a core underlying base. And then on top of that, you have the FX gains and any sort of gains coming through as it relates to reinsurance on top of that as well. In terms of buybacks, our philosophy have not changed. It is a function of our capital ratios that we have, the cash levels that we have at the holding company as well as the capital formation that we see going forward. And then obviously, we evaluate all the different kinds of deployment opportunities that we have throughout the company and the enterprise. And where we see good returns, that's where we have the capital allocated to. In the quarter, we obviously saw good levels and attractive IRRs on the capital that we deployed into share repurchase. And that's the reason why you saw that being a little bit higher than what you've seen in previous quarters. Operator: The next question comes from Suneet Kamath of Jefferies. Suneet Kamath: I wanted to come back to John Barnidge's line of questioning on Aflac U.S. And this comment that you made about the brokers pivoting back to, I guess, true group product and you sort of reinvigorating Aflac Nation. Is this a new development? I don't remember you talking about this in the past. And the reason I ask is, fourth quarter is traditionally your big group broker quarter in terms of U.S. sales. And I'm just wondering if it's a new development, should we start thinking about how that could impact fourth quarter of '25 sales? Virgil Miller: Suneet, Virgil here. I would tell you that our pipeline for fourth quarter looks strong. I am confident and optimistic that we were going to finish our sales here within our ranges that we set forth. The pipeline I'm looking at will give us consistent expectations for the quarter. So for fourth quarter, the pipeline was good. No, I wouldn't say anything has changed. What I would say is that with the -- our growth in the large case space and with our life in absence and disability products is actually a positive that we are growing faster than what we had anticipated. And we are also continuing to forge those broker relationships. We're also now looking to bundle, as I mentioned before, those life in absence and disability products alongside our core group VB products. What you're hearing me say though, is that what you're seeing in this in the fab documents, there is a weaker -- average weaker producer number that we have currently today. And with the weaker -- average weaker producer they're currently mostly driving our individual products. And that's why you're seeing an overperformance in our group and really underperformance in our individual. And we have to focus on making sure that we get the Aflac Nation built back up and looking forward to a stronger recruiting year. But again, it's not just about recruiting, we have to convert. I'm pleased with our 8% conversion. And then I'm also pleased with our productivity at 16%. Now I want you to know that, that is a focus of ours, though, is to grow producers because they are the ones that sell more of the individual business. Suneet Kamath: Okay. All right. That makes sense. And then maybe a follow-up on the U.S., Virgil, if I could. So if I look at annual sales, they've been sort of traveling around $1.5 billion and it looks like this year might be pretty close to that as well. And I know you're focused on earned premium growth of 3% to 5%, but obviously, sales is pretty important. And a few years ago, we talked about a $1.8 billion kind of target. Just wondering what needs to happen to get to some level of sales like that? Virgil Miller: Yes. So if you go back to -- I'll start with the buy-to-bills because it started with our lack of performance with the dental product. So if you look at what we had expected, we're really about 2 years behind from where we are today. So while I'm being positive, the fact that we recovered operations, I'm very pleased with the 40% growth we've seen in the first 9 months, but that is really a year or 2 behind. So when we projected those original numbers, we would expect it to have been higher on an annual sales production from dental right now. My goal is to recover that, pick that back up, finish strong this year and then going into 2026, getting closer to those numbers that we had originally predicted years ago. The second part I would tell you is it's the bundling. We mentioned that it's not trying to be best in dental. It is the ability to bundle dental with our VB products. As I look at my numbers in the third quarter, about $0.85 to $1. So every time we sell a $1 of dental, $0.85 worth of VB was sold. That is exactly what we're looking for. So the more dental we will get to sell as we recover that business, you're going to also see it pull up that individual block. And so that is part of the reason why we're lagging behind. And then the last thing I'll say though, it does get back to the number of producing agents. That is what we're addressing right now also. Daniel Amos: Yes. This is Dan. Let me add one other thing. I've always talked about evolution, not revolution. We're making some changes internally that are evolving that are good decisions. I'll give you an example. We write according to these classifications, 5s and 6s, which are high turnover areas, nursing homes, for example, the employment there. It's -- writing that business didn't make any sense because, number one, is there was too much turnover to the point where our claims were low. Another thing that made it, there was no profit because the expenses were too high. So if you go back a few years ago and say, well, what did you make in your forecast? We didn't forecast we were going to stop selling it. And yet now we've stopped selling it because it's not good for anybody. It's not good for the company. It's -- it's not good for the consumer after we see the loss ratio. And so we've moved on. So there are things that we're evolving and doing. And that's what I've seen about cleaning things up and making them more profitable, too, with the buy-to-bills. They've done a good job with that, and we're not where we want to be. Let me be clear on that. But we are moving in the right direction. And I'm talking about a major move. I'm talking about better than I thought they've done. And so I'm very positive about that and what Virgil saying is exactly right. Suneet Kamath: Just a quick follow-up. I'm not sure what you meant by 5s and 6s, but in any event, how big of a headwind is that issue? Daniel Amos: Well, what I mean by 5s and 6s is the classifications. Certain areas like if you're working in a lumber mill, that's the highest rating you can get because accidents occur more. So the higher the number, the higher the probability you're going to have claims or whatever it might be, if it's a high persistency. But the best would be a white collar worker in an air conditioned room working day-to-day and just counting numbers. That's the safest one we can give the best rate to. And a lot of people were not writing or what I'll just call less poor persistency business and less profitable business. Max Broden: Suneet, we have basically gone through a project to basically classify all our different accounts by profitability, and we're tiering them between 1 and 6. And then we have essentially adjusted to some extent, the commission schedules accordingly to make sure that we capture more of the more profitable business and less of the less profitable business. Daniel Amos: He said it better than me. Operator: The next question comes from Jimmy Bhullar of JPMorgan. Jamminder Bhullar: I had a couple of questions on the U.S. business as well. So first, just in terms of claims trends, it seems like your benefits ratio has been going up if we adjust for the actuarial reviews and remeasurement gains and stuff. And I'm not sure to what extent experience -- claims experience and supplemental products has gotten back to normal? Or has it gotten worse than normal because obviously, it was favorable? Or is it just the mix of business and growth in the group insurance products or per group that's driving the uptick? So the question is just on what you're seeing in terms of claims trends in supplemental policies? Max Broden: Jimmy, let me kick it off on the benefit ratio. So there are essentially 3 factors that's been pushing up our underlying benefit ratio to the higher levels now into the 50s. First of all, we went through actively a round of endorsements and benefit enhancements of our underlying policies. This applies to our cancer product. This applies to our accident product. This applies to our hospital product because simply, they were too low, especially coming out of the pandemic. So part of it is that we have pushed that through. Then you also have the cyclical component that because claims were very low, there's also an element of catching up impact that you are seeing now as well coming out of the pandemic, especially as it relates to cancer claims. During the pandemic, there was a significant amount of undetected cancers that post-pandemic as more people go for their regular annual checkups, these are now being detected. So we see, therefore, a little bit of a catching up impact on that line of business. And the last piece to the benefit ratio is mix. So a greater proportion of our in-force are now gradually sitting in higher benefit ratio product categories like life and disability and also dental and vision. And as sales grow of those product categories, they will become a greater proportion of our overall in-force. And therefore, when you look at the total U.S. benefit ratio, that will structurally move up over time. Jamminder Bhullar: Okay. But nothing alarming in terms of claims in supplemental going up beyond what you would have assumed? Max Broden: No, I wouldn't say so. Jamminder Bhullar: And then just on -- and there's been a number of questions on this already. But if you think about the growth potential -- or what do you think about the growth potential of the U.S. business over the long term? Because I realize dental was a weak spot, but it's been recovering. And if I think about your sales the past couple of years, you had, I think, 5% growth in '23. It was a slight decline in '24. This year, you're going to grow, but it seems like it will be low single-digit growth again. But I would have assumed that the business would grow a lot faster than that, just given the sort of underpenetration of supplemental policies, a fairly high medical care inflation. But do you think what you've seen recently is representative of what you'd expect longer term? Or is this a business that over time should be growing faster than what it's been growing at? Virgil Miller: Jimmy, I would say that this is exactly what we expected. It's actually a little bit faster than we expected this year because we had to regain confidence. And what I'm looking at is the number of agents and then, as I mentioned, now get into the broker market that are actually coming to sell it. And so we are getting higher numbers than we anticipated. It's going to be a gradual grind to get really to where we want to get to. I can tell you, though, consistency matters here. So as you mentioned before, that 5% -- and then we had the negative year. And so you're coming on a smaller base. So when I talk about a 40%, what you're really talking about, I don't have the exact numbers in front of me, but you're probably talking about -- I think it's about a $12 million increase for the quarter. So these numbers need to get larger and larger and larger, but I am seeing that happen quarter-over-quarter as more and more are seeing that the operations work. This is something we have to prove out in the market. We've also, though, now started to get cases with the broker, and I expect that to grow. So I expect this trend to continue in the fourth quarter and then see an additional trend increase going into next year. Operator: The next question comes from Jack Matten of BMO Capital Markets. Francis Matten: Just one on your margins in Japan. To what degree are you now like assuming future improvement in cancer and hospitalization trends, I guess, versus maybe your prior assumption and how you've seen recent experience trends? Max Broden: So in our unlocked assumptions, that incorporates our up-to-date experience. It also assumes a little bit of further improvement in that as we have seen a very, very long-term trend of favorable development. So we do incorporate a slight improvement going forward, but I would put it as fairly limited. So I want you to be aware of that it's not -- there's not no improvement whatsoever, but there is a very small improvement incorporated in our future actuarial assumptions for cancer. Francis Matten: Got it. And then a follow-up, just wondering about your perspective around private credit, given it's been in the headlines lately. I guess can you just talk about your outlook for that asset class and what kind of experience Aflac is being in its portfolio? Max Broden: Sure. Thank you for the question, Jack. Private credit is not something that's new to us or to the industry by any means. We're very comfortable with our current strategy as it relates to private credit. To state the obvious, there's 2 risks you need to understand and you need to underwrite. This is a credit asset. You need to have very strong credit management capabilities, and it needs to focus on bottoms-up security level underwriting with a disciplined top-down portfolio management approach. And then the second obvious risk factor is liquidity and making sure you're stressing to make sure that you've got the liquidity you need to meet obligations across the organization. And we obviously do both of those. As it relates to the credit cycle and things we're seeing there, nothing systemic that would suggest we're at the beginnings of a serious credit cycle. Corporate balance sheets remain strong. We've not seen a discernible trend in downgrades or credit deterioration across our portfolio. In our structured private credit space, all of our holdings are performing in line with expectations. I'm very confident that if we do get a turn, our portfolio is going to perform well. Defaults and downgrades generally are isolated in below investment-grade portfolios. We have been very cautious in how we've built that exposure. So we feel very good about our overall private credit and aren't too concerned. We didn't have any exposure to the names that have been in the news lately, and we think our disciplined underwriting is going to allow us to do very well if and when the cycle does turn. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to David Young for any closing remarks. David Young: Thank you, Andrea, and thank you all for joining us here today. If you have any follow-up questions, please reach out to Investor and Rating Agency Relations, and we look forward to speaking to you soon. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]